EX-99.2 3 q32021992.htm EX-99.2
Exhibit 99.2
Reported Consolidated Results
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

| September 30, 2021 |  | December 31, 2020
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 2,195,366 |  |  | $ | 1,703,130 |
Short-term investments | 1,020,083 |  |  | 2,218,108 |
Accounts receivable, net | 161,080 |  |  | 69,940 |
Mortgage loans held for sale | 221,390 |  |  | 330,758 |
Inventory | 3,758,207 |  |  | 491,293 |
Prepaid expenses and other current assets | 143,756 |  |  | 75,846 |
Restricted cash | 331,019 |  |  | 75,805 |
Total current assets | 7,830,901 |  |  | 4,964,880 |
Contract cost assets | 41,225 |  |  | 50,719 |
Beneficial interest in securitization | 24,902 |  |  | — |
Property and equipment, net | 202,450 |  |  | 196,152 |
Right of use assets | 158,841 |  |  | 187,960 |
Goodwill | 2,374,801 |  |  | 1,984,907 |
Intangible assets, net | 195,038 |  |  | 94,767 |
Other assets | 9,481 |  |  | 7,175 |
Total assets | $ | 10,837,639 |  |  | $ | 7,486,560 |
Liabilities and shareholders’ equity |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 30,891 |  |  | $ | 18,974 |
Accrued expenses and other current liabilities | 261,547 |  |  | 94,487 |
Accrued compensation and benefits | 59,858 |  |  | 47,666 |
Borrowings under credit facilities | 2,674,335 |  |  | 670,209 |
Deferred revenue | 54,200 |  |  | 48,995 |
Lease liabilities, current portion | 29,437 |  |  | 28,310 |
Total current liabilities | 3,110,268 |  |  | 908,641 |
Lease liabilities, net of current portion | 174,433 |  |  | 207,723 |
Long-term debt | 1,766,238 |  |  | 1,613,523 |
Other long-term liabilities | 15,714 |  |  | 14,857 |
Total liabilities | 5,066,653 |  |  | 2,744,744 |
Shareholders’ equity: |  |  |
Class A common stock | 6 |  |  | 6 |
Class B common stock | 1 |  |  | 1 |
Class C capital stock | 19 |  |  | 17 |
Additional paid-in capital | 7,176,633 |  |  | 5,880,883 |
Accumulated other comprehensive income | 151 |  |  | 164 |
Accumulated deficit | (1,405,824) |  |  | (1,139,255) |
Total shareholders’ equity | 5,770,986 |  |  | 4,741,816 |
Total liabilities and shareholders’ equity | $ | 10,837,639 |  |  | $ | 7,486,560 |

ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Revenue: |  |  |  |  |  |  |
Homes | $ | 1,186,158 |  |  | $ | 187,105 |  |  | $ | 2,667,455 |  |  | $ | 1,411,230 |
IMT | 480,195 |  |  | 415,389 |  |  | 1,402,613 |  |  | 1,026,394 |
Mortgages | 70,290 |  |  | 54,198 |  |  | 194,995 |  |  | 113,241 |
Total revenue | 1,736,643 |  |  | 656,692 |  |  | 4,265,063 |  |  | 2,550,865 |
Cost of revenue (1): |  |  |  |  |  |  |
Homes | 1,422,899 |  |  | 183,056 |  |  | 2,775,024 |  |  | 1,353,715 |
IMT | 51,371 |  |  | 49,992 |  |  | 141,852 |  |  | 145,399 |
Mortgages | 21,790 |  |  | 10,725 |  |  | 62,089 |  |  | 24,540 |
Total cost of revenue | 1,496,060 |  |  | 243,773 |  |  | 2,978,965 |  |  | 1,523,654 |
Gross profit | 240,583 |  |  | 412,919 |  |  | 1,286,098 |  |  | 1,027,211 |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing (1) | 294,354 |  |  | 155,894 |  |  | 721,743 |  |  | 525,005 |
Technology and development (1) | 111,491 |  |  | 94,774 |  |  | 360,255 |  |  | 292,762 |
General and administrative (1) | 113,130 |  |  | 85,804 |  |  | 328,686 |  |  | 263,384 |
Impairment costs | — |  |  | — |  |  | — |  |  | 76,800 |
Acquisition-related costs | 3,235 |  |  | — |  |  | 7,723 |  |  | — |
Total operating expenses | 522,210 |  |  | 336,472 |  |  | 1,418,407 |  |  | 1,157,951 |
Income (loss) from operations | (281,627) |  |  | 76,447 |  |  | (132,309) |  |  | (130,740) |
Gain (loss) on extinguishment of debt | (14,785) |  |  | — |  |  | (17,119) |  |  | 6,391 |
Other income | 1,964 |  |  | 3,018 |  |  | 5,990 |  |  | 22,726 |
Interest expense | (44,737) |  |  | (39,470) |  |  | (123,722) |  |  | (114,652) |
Income (loss) before income taxes | (339,185) |  |  | 39,995 |  |  | (267,160) |  |  | (216,275) |
Income tax benefit (expense) | 11,011 |  |  | (425) |  |  | 591 |  |  | 8,124 |
Net income (loss) | $ | (328,174) |  |  | $ | 39,570 |  |  | $ | (266,569) |  |  | $ | (208,151) |
Net income (loss) per share: |  |  |  |  |  |  |
Basic | $ | (1.29) |  |  | $ | 0.17 |  |  | $ | (1.07) |  |  | $ | (0.95) |
Diluted | $ | (1.29) |  |  | $ | 0.16 |  |  | $ | (1.07) |  |  | $ | (0.95) |
Weighted-average shares outstanding: |  |  |  |  |  |  |
Basic | 254,074 |  |  | 229,719 |  |  | 248,564 |  |  | 219,989 |
Diluted | 254,074 |  |  | 242,632 |  |  | 248,564 |  |  | 219,989 |
(1) Includes share-based compensation expense as follows: |  |  |  |  |  |  |
Cost of revenue | $ | 2,573 |  |  | $ | 1,855 |  |  | $ | 8,233 |  |  | $ | 4,621 |
Sales and marketing | 12,733 |  |  | 8,631 |  |  | 35,970 |  |  | 24,740 |
Technology and development | 28,077 |  |  | 19,555 |  |  | 89,119 |  |  | 59,664 |
General and administrative | 36,022 |  |  | 18,918 |  |  | 98,151 |  |  | 56,080 |
Total | $ | 79,405 |  |  | $ | 48,959 |  |  | $ | 231,473 |  |  | $ | 145,105 |
Other Financial Data: |  |  |  |  |  |  |
Income (loss) before income taxes: |  |  |  |  |  |  |
Homes segment | $ | (421,604) |  |  | $ | (75,617) |  |  | $ | (539,424) |  |  | $ | (253,633) |
IMT segment | 130,151 |  |  | 139,956 |  |  | 407,299 |  |  | 117,615 |
Mortgages segment | (5,643) |  |  | 10,594 |  |  | (25,148) |  |  | (2,791) |
Corporate items (2) | (42,089) |  |  | (34,938) |  |  | (109,887) |  |  | (77,466) |
Total income (loss) before income taxes | $ | (339,185) |  |  | $ | 39,995 |  |  | $ | (267,160) |  |  | $ | (216,275) |
Adjusted EBITDA (3): |  |  |  |  |  |  |
Homes segment | $ | (380,783) |  |  | $ | (59,176) |  |  | $ | (443,823) |  |  | $ | (195,079) |
IMT segment | 206,870 |  |  | 195,465 |  |  | 633,216 |  |  | 353,044 |
Mortgages segment | 5,172 |  |  | 15,895 |  |  | 5,622 |  |  | 15,177 |
Total Adjusted EBITDA | $ | (168,741) |  |  | $ | 152,184 |  |  | $ | 195,015 |  |  | $ | 173,142 |
(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)

| Nine Months Ended September 30,
| 2021 |  | 2020
Operating activities |  |  |
Net loss | $ | (266,569) |  |  | $ | (208,151) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |  |
Depreciation and amortization | 88,128 |  |  | 81,977 |
Share-based compensation | 231,473 |  |  | 145,105 |
Amortization of right of use assets | 17,610 |  |  | 18,364 |
Amortization of contract cost assets | 31,874 |  |  | 26,554 |
Amortization of debt discount and debt issuance costs | 72,215 |  |  | 75,414 |
Loss (gain) on extinguishment of debt | 17,119 |  |  | (6,391) |
Impairment costs | — |  |  | 76,800 |
Inventory valuation adjustment | 304,359 |  |  | — |
Deferred income taxes | (3,200) |  |  | (8,124) |
Other adjustments to reconcile net loss to cash provided by (used in) operating activities | 12,813 |  |  | 948 |
Changes in operating assets and liabilities: |  |  |
Accounts receivable | (88,618) |  |  | (14,483) |
Mortgage loans held for sale | 109,368 |  |  | (88,817) |
Inventory | (3,570,079) |  |  | 643,265 |
Prepaid expenses and other assets | (70,254) |  |  | (16,385) |
Contract cost assets | (22,380) |  |  | (31,833) |
Lease liabilities | (20,675) |  |  | 4,773 |
Accounts payable | 17,891 |  |  | 12,239 |
Accrued expenses and other current liabilities | 162,984 |  |  | 14,499 |
Accrued compensation and benefits | 10,977 |  |  | (2,331) |
Deferred revenue | 3,505 |  |  | 9,406 |
Other long-term liabilities | 138 |  |  | 17,329 |
Net cash provided by (used in) operating activities | (2,961,321) |  |  | 750,158 |
Investing activities |  |  |
Proceeds from maturities of investments | 1,696,077 |  |  | 1,160,271 |
Proceeds from sales of investments | — |  |  | 116,394 |
Purchases of investments | (509,022) |  |  | (1,881,002) |
Purchases of property and equipment | (45,441) |  |  | (72,420) |
Purchases of intangible assets | (24,309) |  |  | (17,226) |
Proceeds from sale of equity investment | — |  |  | 10,000 |
Cash paid for acquisition, net | (496,741) |  |  | — |
Net cash provided by (used in) investing activities | 620,564 |  |  | (683,983) |
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 issuance of term loan, net of issuance costs | 443,399 |  |  | — |
Proceeds from borrowings on credit facilities | 2,639,468 |  |  | 97,437 |
Repayments of borrowings on credit facilities | (534,625) |  |  | (674,658) |
Net borrowings (repayments) on warehouse line of credit and repurchase agreements | (100,717) |  |  | 87,667 |
Settlement of convertible senior notes | (1,297) |  |  | (194,670) |
Proceeds from exercise of stock options | 97,550 |  |  | 371,226 |
Value of equity awards withheld for tax liability | (128) |  |  | (2) |
Net cash provided by financing activities | 3,088,207 |  |  | 651,804 |
Net increase in cash, cash equivalents and restricted cash during period | 747,450 |  |  | 717,979 |
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 | $ | 2,526,385 |  |  | $ | 1,948,888 |
Supplemental disclosures of cash flow information |  |  |
Cash paid for interest | $ | 58,190 |  |  | $ | 36,787 |
Noncash transactions: |  |  |
Write-off of fully amortized intangible assets | $ | 55,099 |  |  | $ | — |
Write-off of fully depreciated property and equipment | 37,606 |  |  | 13,100 |
Beneficial interest in securitization | 24,558 |  |  | — |
Capitalized share-based compensation | 19,006 |  |  | 13,020 |
Derecognition of operating right of use assets and lease liabilities | 11,919 |  |  | — |
Property and equipment purchased on account | 2,272 |  |  | 1,645 |

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 September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Net income (loss), as reported | $ | (328,174) |  |  | $ | 39,570 |  |  | $ | (266,569) |  |  | $ | (208,151) |
Share-based compensation | 79,405 |  |  | 48,959 |  |  | 231,473 |  |  | 145,105 |
Impairment costs | — |  |  | — |  |  | — |  |  | 76,800 |
Acquisition-related costs | 3,235 |  |  | — |  |  | 7,723 |  |  | — |
Loss (gain) on extinguishment of debt | 14,785 |  |  | — |  |  | 17,119 |  |  | (6,391) |
Income taxes | (11,011) |  |  | 425 |  |  | (591) |  |  | (8,124) |
Net income (loss), adjusted | $ | (241,760) |  |  | $ | 88,954 |  |  | $ | (10,845) |  |  | $ | (761) |
Non-GAAP net income (loss) per share: |  |  |  |  |  |  |
Basic | $ | (0.95) |  |  | $ | 0.39 |  |  | $ | (0.04) |  |  | $ | — |
Diluted | $ | (0.95) |  |  | $ | 0.37 |  |  | $ | (0.04) |  |  | $ | — |
Weighted-average shares outstanding: |  |  |  |  |  |  |
Basic | 254,074 |  |  | 229,719 |  |  | 248,564 |  |  | 219,989 |
Diluted | 254,074 |  |  | 242,946 |  |  | 248,564 |  |  | 219,989 |

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 September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Denominator for basic calculation | 254,074 |  |  | 229,719 |  |  | 248,564 |  |  | 219,989 |
Effect of dilutive securities: |  |  |  |  |  |  |
Option awards | — |  |  | 8,933 |  |  | — |  |  | — |
Unvested restricted stock units | — |  |  | 3,980 |  |  | — |  |  | — |
Class A common stock issuable upon conversion of the convertible notes maturing in 2020 | — |  |  | 314 |  |  | — |  |  | — |
Denominator for dilutive calculation | 254,074 |  |  | 242,946 |  |  | 248,564 |  |  | 219,989 |

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

| Three Months Ended September 30, 2021 |  | Three Months Ended September 30, 2020
| Homes |  | IMT |  | Mortgages |  | Homes |  | IMT |  | Mortgages
Revenue | $ | 1,186,158 |  |  | $ | 480,195 |  |  | $ | 70,290 |  |  | $ | 187,105 |  |  | $ | 415,389 |  |  | $ | 54,198 |
Cost of revenue | 1,422,899 |  |  | 51,371 |  |  | 21,790 |  |  | 183,056 |  |  | 49,992 |  |  | 10,725 |
Gross profit | (236,741) |  |  | 428,824 |  |  | 48,500 |  |  | 4,049 |  |  | 365,397 |  |  | 43,473 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Sales and marketing | 106,877 |  |  | 158,665 |  |  | 28,812 |  |  | 32,714 |  |  | 107,900 |  |  | 15,280 |
Technology and development | 28,884 |  |  | 75,051 |  |  | 7,556 |  |  | 25,028 |  |  | 64,075 |  |  | 5,671 |
General and administrative | 33,647 |  |  | 61,722 |  |  | 17,761 |  |  | 20,327 |  |  | 53,466 |  |  | 12,011 |
Acquisition-related costs | — |  |  | 3,235 |  |  | — |  |  | — |  |  | — |  |  | — |
Total operating expenses | 169,408 |  |  | 298,673 |  |  | 54,129 |  |  | 78,069 |  |  | 225,441 |  |  | 32,962 |
Income (loss) from operations | (406,149) |  |  | 130,151 |  |  | (5,629) |  |  | (74,020) |  |  | 139,956 |  |  | 10,511 |
Segment other income | 274 |  |  | — |  |  | 1,096 |  |  | — |  |  | — |  |  | 636 |
Segment interest expense | (15,729) |  |  | — |  |  | (1,110) |  |  | (1,597) |  |  | — |  |  | (553) |
Income (loss) before income taxes (1) | $ | (421,604) |  |  | $ | 130,151 |  |  | $ | (5,643) |  |  | $ | (75,617) |  |  | $ | 139,956 |  |  | $ | 10,594 |

| Nine Months Ended September 30, 2021 |  | Nine Months Ended September 30, 2020
| Homes |  | IMT |  | Mortgages |  | Homes |  | IMT |  | Mortgages
Revenue | $ | 2,667,455 |  |  | $ | 1,402,613 |  |  | $ | 194,995 |  |  | $ | 1,411,230 |  |  | $ | 1,026,394 |  |  | $ | 113,241 |
Cost of revenue | 2,775,024 |  |  | 141,852 |  |  | 62,089 |  |  | 1,353,715 |  |  | 145,399 |  |  | 24,540 |
Gross profit | (107,569) |  |  | 1,260,761 |  |  | 132,906 |  |  | 57,515 |  |  | 880,995 |  |  | 88,701 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Sales and marketing | 227,687 |  |  | 412,892 |  |  | 81,164 |  |  | 152,171 |  |  | 332,919 |  |  | 39,915 |
Technology and development | 92,381 |  |  | 243,533 |  |  | 24,341 |  |  | 79,843 |  |  | 195,940 |  |  | 16,979 |
General and administrative | 86,994 |  |  | 189,314 |  |  | 52,378 |  |  | 65,628 |  |  | 165,921 |  |  | 31,835 |
Impairment costs | — |  |  | — |  |  | — |  |  | — |  |  | 73,900 |  |  | 2,900 |
Acquisition-related costs | — |  |  | 7,723 |  |  | — |  |  | — |  |  | — |  |  | — |
Total operating expenses | 407,062 |  |  | 853,462 |  |  | 157,883 |  |  | 297,642 |  |  | 768,680 |  |  | 91,629 |
Income (loss) from operations | (514,631) |  |  | 407,299 |  |  | (24,977) |  |  | (240,127) |  |  | 112,315 |  |  | (2,928) |
Segment other income | 274 |  |  | — |  |  | 3,834 |  |  | — |  |  | 5,300 |  |  | 1,223 |
Segment interest expense | (25,067) |  |  | — |  |  | (4,005) |  |  | (13,506) |  |  | — |  |  | (1,086) |
Income (loss) before income taxes (1) | $ | (539,424) |  |  | $ | 407,299 |  |  | $ | (25,148) |  |  | $ | (253,633) |  |  | $ | 117,615 |  |  | $ | (2,791) |
(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 September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Total segment income (loss) before income taxes | $ | (297,096) |  |  | $ | 74,933 |  |  | $ | (157,273) |  |  | $ | (138,809) |
Corporate interest expense | (27,898) |  |  | (37,320) |  |  | (94,650) |  |  | (100,060) |
Corporate other income | 594 |  |  | 2,382 |  |  | 1,882 |  |  | 16,203 |
Gain (loss) on extinguishment of debt | (14,785) |  |  | — |  |  | (17,119) |  |  | 6,391 |
Consolidated income (loss) before income taxes | $ | (339,185) |  |  | $ | 39,995 |  |  | $ | (267,160) |  |  | $ | (216,275) |
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 September 30, |  | 2020 to 2021 % Change
| 2021 |  | 2020 |
Visits (1) | 2,661.7 |  |  | 2,786.2 |  |  | (4) | %
Average monthly unique users (2) | 226.6 |  |  | 236.2 |  |  | (4) | %
(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 September 30, |  | 2020 to 2021 % Change
| 2021 |  | 2020 |
Number of homes sold | 3,032 |  | 583 |  | 420 | %

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 September 30, |  | 2020 to 2021 % Change
| 2021 |  | 2020 |
Purchase loan origination volume | $ | 358,924 |  |  | $ | 163,728 |  |  | 119 | %
Refinance loan origination volume | 753,629 |  |  | 353,360 |  |  | 113 | %
Total loan origination volume | $ | 1,112,553 |  |  | $ | 517,088 |  |  | 115 | %

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 $(80,771) and $9,216 for three months ended September 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 September 30, 2021 |  | Three Months Ended September 30, 2020
| Total |  | Average Per Home |  | Total |  | Average Per Home
Homes sold | 3,032 |  |  |  |  | 583 |  |  |
Zillow Offers revenue | $ | 1,172,693,000 |  |  | $ | 386,772 |  |  | $ | 185,904,000 |  |  | $ | 318,875 |
Operating costs: |  |  |  |  |  |  |
Home acquisition costs (1) | 1,074,790,000 |  |  | 354,482 |  |  | 169,285,000 |  |  | 290,369 |
Renovation costs (1) | 22,344,000 |  |  | 7,369 |  |  | 8,029,000 |  |  | 13,772 |
Holding costs (1)(2) | 7,312,000 |  |  | 2,412 |  |  | 2,736,000 |  |  | 4,693 |
Selling costs | 40,405,000 |  |  | 13,326 |  |  | 7,526,000 |  |  | 12,909 |
Total operating costs | 1,144,851,000 |  |  | 377,589 |  |  | 187,576,000 |  |  | 321,743 |
Interest expense (1)(2) | 6,373,000 |  |  | 2,102 |  |  | 2,704,000 |  |  | 4,638 |
Return on homes sold after interest expense | $ | 21,469,000 |  |  | $ | 7,081 |  |  | $ | (4,376,000) |  |  | $ | (7,506) |
(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 $2.8 million and $2.0 million, respectively, of costs incurred in prior periods associated with homes sold in the third quarter of 2021 and $3.7 million and $2.0 million, respectively, of costs incurred in prior periods associated with homes sold in the third 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 September 30,
Calculation of Average Gross Profit per Home | 2021 |  | 2020
Zillow Offers revenue | $ | 1,172,693,000 |  |  | $ | 185,904,000 |
Zillow Offers cost of revenue | 1,417,590,000 |  |  | 180,531,000 |
Zillow Offers gross profit | $ | (244,897,000) |  |  | $ | 5,373,000 |
Homes sold | 3,032 |  |  | 583 |
Average Zillow Offers gross profit per home | $ | (80,771) |  |  | $ | 9,216 |
Reconciliation of Non-GAAP Measure to Nearest GAAP Measure |  |  |
Zillow Offers gross profit | $ | (244,897,000) |  |  | $ | 5,373,000 |
Holding costs included in sales and marketing (1) | (6,424,000) |  |  | (2,403,000) |
Selling costs included in sales and marketing (2) | (40,405,000) |  |  | (7,526,000) |
Interest expense (3) | (6,373,000) |  |  | (2,704,000) |
Direct and indirect expenses included in cost of revenue (4) | 316,119,000 |  |  | 783,000 |
Share-based compensation and depreciation and amortization included in cost of revenue | 3,449,000 |  |  | 2,101,000 |
Return on homes sold after interest expense | $ | 21,469,000 |  |  | $ | (4,376,000) |
Homes sold | 3,032 |  |  | 583 |
Average return on homes sold after interest expense | $ | 7,081 |  |  | $ | (7,506) |
(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 $17.8 million and $1.0 million of holding costs included in sales and marketing expense for the three months ended September 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 $(16,104) and $13,871 for nine months ended September 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):

| Nine Months Ended September 30, 2021 |  | Nine Months Ended September 30, 2020
| Total |  | Average Per Home |  | Total |  | Average Per Home
Homes sold | 7,083 |  |  |  |  | 4,414 |  |  |
Zillow Offers revenue | $ | 2,645,697,000 |  |  | $ | 373,528 |  |  | $ | 1,408,832,000 |  |  | $ | 319,174 |
Operating costs: |  |  |  |  |  |  |
Home acquisition costs (1) | 2,357,576,000 |  |  | 332,850 |  |  | 1,268,448,000 |  |  | 287,370 |
Renovation costs (1) | 64,028,000 |  |  | 9,040 |  |  | 67,393,000 |  |  | 15,268 |
Holding costs (1)(2) | 16,391,000 |  |  | 2,314 |  |  | 18,341,000 |  |  | 4,155 |
Selling costs | 96,860,000 |  |  | 13,675 |  |  | 60,009,000 |  |  | 13,595 |
Total operating costs | 2,534,855,000 |  |  | 357,879 |  |  | 1,414,191,000 |  |  | 320,388 |
Interest expense (1)(2) | 13,763,000 |  |  | 1,943 |  |  | 19,708,000 |  |  | 4,465 |
Return on homes sold after interest expense | $ | 97,079,000 |  |  | $ | 13,706 |  |  | $ | (25,067,000) |  |  | $ | (5,679) |
(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 $2.0 million and $1.6 million, respectively, of costs incurred in prior periods associated with homes sold in the nine months ended September 30, 2021 and $7.4 million and $8.9 million, respectively, of costs incurred in prior periods associated with homes sold in the nine months ended September 30, 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):

| Nine Months Ended September 30,
Calculation of Average Gross Profit per Home | 2021 |  | 2020
Zillow Offers revenue | $ | 2,645,697,000 |  |  | $ | 1,408,832,000 |
Zillow Offers cost of revenue | 2,759,762,000 |  |  | 1,347,607,000 |
Zillow Offers gross profit | $ | (114,065,000) |  |  | $ | 61,225,000 |
Homes sold | 7,083 |  |  | 4,414 |
Average Zillow Offers gross profit per home | $ | (16,104) |  |  | $ | 13,871 |
Reconciliation of Non-GAAP Measure to Nearest GAAP Measure |  |  |
Zillow Offers gross profit | $ | (114,065,000) |  |  | $ | 61,225,000 |
Holding costs included in sales and marketing (1) | (14,142,000) |  |  | (18,008,000) |
Selling costs included in sales and marketing (2) | (96,860,000) |  |  | (60,009,000) |
Interest expense (3) | (13,763,000) |  |  | (19,708,000) |
Direct and indirect expenses included in cost of revenue (4) | 326,489,000 |  |  | 5,327,000 |
Share-based compensation and depreciation and amortization included in cost of revenue | 9,420,000 |  |  | 6,106,000 |
Return on homes sold after interest expense | $ | 97,079,000 |  |  | $ | (25,067,000) |
Homes sold | 7,083 |  |  | 4,414 |
Average return on homes sold after interest expense | $ | 13,706 |  |  | $ | (5,679) |
(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 $27.0 million and $8.9 million of holding costs included in sales and marketing expense for the nine months ended September 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 September 30, 2021 was 44 days. The weighted average days held for homes sold during the three and nine month periods ended September 30, 2021 was 74 days and 72 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):

September 30, 2021
Geography |  | Number of Homes |  | Inventory Balance |  | % of Total Inventory
California |  | 1,309 |  |  | $ | 781,045 |  |  | 21 | %
Florida |  | 1,956 |  |  | 630,367 |  |  | 17 |
Texas |  | 1,543 |  |  | 490,578 |  |  | 13 |
All other states |  | 4,982 |  |  | 1,856,217 |  |  | 49 |
Total |  | 9,790 |  |  | $ | 3,758,207 |  |  | 100 | %