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 help high-intent movers find and win their home through digital solutions, first class partners and easier buying, selling, financing and renting experiences. We help customers find and win their home with referrals to trusted Zillow Premier Agent and Premier Broker partners and our portfolio of Zillow-branded and affiliated transaction-oriented services. Zillow Offers, our iBuying business, has purchased and sold homes directly in markets across the country. In the fourth quarter of 2021, we began to wind down Zillow Offers operations with expected completion in the second half of 2022. 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.
Other consumer brands include Zillow Rentals, Trulia, StreetEasy, Zillow Closing Services, HotPads and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions for the real estate industry which include Mortech, dotloop, Bridge Interactive, New Home Feed and ShowingTime.com, Inc. (“ShowingTime”).
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: current and future health and stability of the economy, financial conditions and residential housing market and changes in general economic and financial conditions (including federal monetary policy, interest rate changes, inflation, home price appreciation and housing inventory); our investment in resources to pursue strategies and develop products and services that may not prove effective or that are not attractive for customers and real estate partners; the impact of public health crises, like the COVID-19 pandemic (including variants) on our ability to operate, demand for our products or services or general economic conditions; disruptions in operations and relationships with customers, suppliers, vendors, broker partners, contractors, employees, lenders and consumers given our decision to wind down iBuying operations; unanticipated developments that may prevent, delay or increase the costs associated with our wind down activities; addition or loss of significant customers; our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; our ability to manage advertising inventory or pricing; engagement and usage of our products; competition and innovation in our markets; actual or anticipated changes in technology, products, markets or services by us or our competitors; 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; changes in laws or government regulation affecting our business; outcomes of legal proceedings; natural disasters and catastrophic events; 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 fiscal year ended December 31, 2021, which was filed with the SEC on February 10, 2022. The condensed consolidated balance sheet as of December 31, 2021, 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, 2022 and our results of operations, comprehensive income, shareholders’ equity and cash flows for the three months ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any interim period, or for any other future year.
Reclassifications
Certain reclassifications have been made in the condensed consolidated statements of operations to conform data for prior periods to the current format. Beginning with the three and six month periods ended June 30, 2021, we presented 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. We believe the presentation of gross profit is preferable as it facilitates investors’ ability to model across our segments and enhances comparability with our public company peers. To effect the presentation of gross profit, we present the amortization expense for certain intangible assets and data acquisition costs within cost of revenue and have reclassified certain amounts in prior periods in the condensed consolidated statements of operations from technology and development expenses to cost of revenue. Additionally, we reclassified the amortization expense for trade names and trademarks and customer relationship intangible assets from technology and development expenses to sales and marketing expenses. This change has no impact on income from operations or net income.
Amounts previously reported in the condensed consolidated statements of operations for the periods presented were revised herein as shown below (in millions):
| | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, 2021 |
| | As Reported | | As Revised | | Effect of Change |
| Cost of revenue: | | | | | |
| Homes | $ | 641 | | | $ | 645 | | | $ | 4 | |
| IMT | 28 | | | 47 | | | 19 | |
| Mortgages | 18 | | | 19 | | | 1 | |
| Total cost of revenue | 687 | | | 711 | | | 24 | |
| Operating expenses: | | | | | |
| Sales and marketing | 193 | | | 197 | | | 4 | |
| Technology and development | 149 | | | 120 | | | (29) | |
| General and administrative | 100 | | | 101 | | | 1 | |
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, restructuring costs, 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 and our wind down of Zillow Offers operations have 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 August 2020, the Financial Accounting Standards Board (“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 adopted this guidance on January 1, 2022 using the modified retrospective approach whereby amounts previously reported have not been revised. Upon adoption we recognized a decrease to additional paid-in capital of $492 million, an increase to long-term debt of $336 million and a cumulative-effect adjustment to accumulated deficit of $156 million.
Recently Issued Accounting Standards Not Yet Adopted
In October 2021, the FASB issued guidance which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with guidance governing revenue from contracts with customers. We currently recognize contract assets and contract liabilities at the acquisition date based on fair value estimates, which historically has resulted in a reduction to unearned revenue on the balance sheet, and therefore, a reduction to revenue that would have otherwise been recorded as an independent entity. The guidance is effective for interim and annual periods beginning after December 15, 2022 on a prospective basis, with early adoption permitted. We expect to adopt this guidance on January 1, 2023. We are currently evaluating the potential impact of the guidance on our financial position, results of operations and cash flows.
Note 3. Fair Value Measurements
We apply 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).
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 are borrowed on our credit facilities, home sales proceeds are held in restricted accounts associated with our credit facilities and securitizations, 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).
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 is calculated by reference to quoted prices for similar assets (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. For IRLCs that are cancelled or expire, any recorded gain or loss is reversed at the end of the commitment period (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, 2022 | | December 31, 2021 |
| Range | 40% - 100% | | 42% - 100% |
| Weighted-average | 83% | | 85% |
Beneficial interests in securitizations — The fair value of beneficial interests in securitizations is calculated using a discounted cash flow methodology. We rely on significant unobservable valuation inputs as the investments do not trade in active markets with readily observable prices and there is limited observable market data for reference. The primary unobservable inputs include the assumptions related to the expected timing and amount of prepayments and the discount rate of approximately 8% applied to the projected cash flows (Level 3). An increase in the amount of prepayments, in isolation, would result in an increase in the fair value measurement. An increase in the discount rate, in isolation, would result in a decrease in the fair value measurement. The beneficial interests in securitizations are recorded within other assets in our condensed consolidated balance sheets. As of March 31, 2022, we have included the impact of the expected full prepayment of both beneficial interests during the second quarter of 2022 due to the wind down of Zillow Offers operations.
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 millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| Total | | Level 1 | | Level 2 | | Level 3 |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 2,315 | | | $ | 2,315 | | | $ | — | | | $ | — | |
| Treasury bills | 13 | | | — | | | 13 | | | — | |
| Short-term investments: | | | | | | | |
| U.S. government agency securities | 797 | | | — | | | 797 | | | — | |
| Treasury bills | 189 | | | — | | | 189 | | | — | |
| Corporate bonds | 36 | | | — | | | 36 | | | |
| Commercial paper | 10 | | | — | | | 10 | | | |
| Beneficial interests in securitizations | 78 | | | — | | | — | | | 78 | |
| Mortgage origination-related: | | | | | | | |
| Mortgage loans held for sale | 93 | | | — | | | 93 | | | — | |
| Forward contracts - other current assets | 3 | | | — | | | 3 | | | — | |
| Total | $ | 3,534 | | | $ | 2,315 | | | $ | 1,141 | | | $ | 78 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 2,132 | | | $ | 2,132 | | | $ | — | | | $ | — | |
| Short-term investments: | | | | | | | |
| U.S. government agency securities | 471 | | | — | | | 471 | | | — | |
| Corporate bonds | 33 | | | — | | | 33 | | | — | |
| Commercial paper | 10 | | | — | | | 10 | | | — | |
| Beneficial interests in securitizations | 75 | | | — | | | — | | | 75 | |
| Mortgage origination-related: | | | | | | | |
| Mortgage loans held for sale | 107 | | | — | | | 107 | | | — | |
| IRLCs | 5 | | | — | | | — | | | 5 | |
| Forward contracts - other current assets | — | | | — | | | — | | | — | |
| Forward contracts - other current liabilities | — | | | — | | | — | | | — | |
| Total | $ | 2,833 | | | $ | 2,132 | | | $ | 621 | | | $ | 80 | |
The changes in our beneficial interests in securitizations were not material for the three months ended March 31, 2022. The following table presents the changes in our IRLCs for the periods presented (in millions):
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
| Balance, beginning of the period | $ | 5 | | | $ | 12 | |
| Issuances | 6 | | | 18 | |
| Transfers | (9) | | | (24) | |
| Fair value changes recognized in earnings | (2) | | | (1) | |
| Balance, end of period | $ | — | | | $ | 5 | |
At March 31, 2022, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $143 million and $219 million for our IRLCs and forward contracts, respectively. At December 31, 2021, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $305 million and $388 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 and securitization term loans.
Note 4. Cash and Cash Equivalents, 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, investments, including beneficial interests in securitizations, and restricted cash as of the dates presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Estimated
Fair Market
Value |
| Cash | $ | 266 | | | $ | — | | | $ | — | | | $ | 266 | |
| Cash equivalents: | | | | | | | |
| Money market funds | 2,315 | | | — | | | — | | | 2,315 | |
| Treasury bills | 13 | | | — | | | — | | | 13 | |
| Short-term investments: | | | | | | | |
| U. S. government agency securities | 804 | | | — | | | (7) | | | 797 | |
| Treasury bills | 189 | | | — | | | — | | | 189 | |
| Corporate bonds | 36 | | | — | | | — | | | 36 | |
| Commercial paper | 10 | | | — | | | — | | | 10 | |
| Restricted cash | 92 | | | — | | | — | | | 92 | |
| Beneficial interests in securitizations | 71 | | | 9 | | | (2) | | | 78 | |
| Total | $ | 3,796 | | | $ | 9 | | | $ | (9) | | | $ | 3,796 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Estimated
Fair Market
Value |
| Cash | $ | 479 | | | $ | — | | | $ | — | | | $ | 479 | |
| Cash equivalents: | | | | | | | |
| Money market funds | 2,132 | | | — | | | — | | | 2,132 | |
| Short-term investments: | | | | | | | |
| U.S. government agency securities | 473 | | | — | | | (2) | | | 471 | |
| Corporate bonds | 33 | | | — | | | — | | | 33 | |
| Commercial paper | 10 | | | — | | | — | | | 10 | |
| Restricted cash | 227 | | | — | | | — | | | 227 | |
| Beneficial interests in securitizations | 66 | | | 9 | | | — | | | 75 | |
| Total | $ | 3,420 | | | $ | 9 | | | $ | (2) | | | $ | 3,427 | |
The following table presents available-for-sale investments by contractual maturity date as of March 31, 2022 (in millions):
| | | | | | | | | | | |
| Amortized Cost | | Estimated Fair
Market Value |
| Due in one year or less | $ | 920 | | | $ | 923 | |
| Due after one year | 191 | | | 187 | |
| Total | $ | 1,111 | | | $ | 1,110 | |
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 millions):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Finished goods | $ | 484 | | | $ | 2,728 | |
| Work-in-process | 10 | | | 1,185 | |
| Inventory | $ | 494 | | | $ | 3,913 | |
We have recorded a write-down for homes in inventory of $31 million and $211 million as of March 31, 2022 and December 31, 2021, respectively.
Note 6. Contract Balances
Contract assets were $101 million and $78 million as of March 31, 2022 and December 31, 2021, respectively. Contract assets represent amounts for which we have recognized revenue for contracts that have not yet been invoiced to our customers. Contract assets are primarily related to our Premier Agent Flex, rentals pay per lease and StreetEasy Experts offerings, whereby we estimate variable consideration based on the expected number of real estate transactions to be closed for Premier Agent Flex and StreetEasy Experts, and qualified leases to be secured for rentals pay per lease. We recognize revenue when we satisfy our performance obligations under the corresponding contracts. StreetEasy Experts is our pay for performance pricing model available in the New York City market for which agents and brokers are provided with leads at no initial cost and pay a performance advertising fee only when a real estate purchase transaction is closed with one of the leads. Under the StreetEasy Experts pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of leads that convert into real estate transactions and the value of those transactions. We record a corresponding contract asset for the estimate of variable consideration for StreetEasy Experts when the right to the consideration is conditional. When the right to consideration becomes unconditional, we reclassify amounts to accounts receivable. Contract assets are recorded within prepaid expenses and other current assets in our condensed consolidated balance sheets.
For the three months ended March 31, 2022 and 2021, we recognized revenue of $45 million and $47 million, respectively, that was included in the deferred revenue balance at the beginning of the respective period.
Note 7. Contract Cost Assets
As of March 31, 2022 and December 31, 2021, we had $31 million and $35 million, respectively, of contract cost assets. For the three months ended March 31, 2022 and 2021, we did not incur any material impairment losses to our contract cost assets.
We recorded amortization expense related to contract cost assets of $8 million and $10 million for the three months ended March 31, 2022 and 2021, respectively.
Note 8. Property and Equipment, net
The following table presents the detail of property and equipment as of the dates presented (in millions):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Website development costs | $ | 212 | | | $ | 175 | |
| Leasehold improvements | 95 | | | 107 | |
| Office equipment, furniture and fixtures | 29 | | | 26 | |
| Computer equipment | 19 | | | 19 | |
| Construction-in-progress | 2 | | | 7 | |
| Property and equipment | 357 | | | 334 | |
| Less: accumulated amortization and depreciation | (123) | | | (119) | |
| Property and equipment, net | $ | 234 | | | $ | 215 | |
We recorded depreciation expense related to property and equipment (other than website development costs) of $8 million for the three months ended March 31, 2022 and 2021.
We capitalized $34 million and $12 million in website development costs for the three months ended March 31, 2022 and 2021, respectively. Amortization expense for website development costs included in cost of revenue was $13 million and $8 million for the three months ended March 31, 2022 and 2021, respectively.
Note 9. Acquisition
Acquisition of ShowingTime.com, Inc.
On September 30, 2021, Zillow Group acquired ShowingTime in exchange for approximately $512 million in cash, subject to certain adjustments. Our acquisition of ShowingTime has been accounted for as a business combination, and assets acquired and liabilities assumed were recorded at their preliminary estimated fair values as of September 30, 2021. Goodwill, which represents the expected synergies from combining the acquired assets and the operations of the acquirer, as well as intangible assets that do not qualify for separate recognition, is measured as of the acquisition date as the excess of consideration transferred, which is also measured at fair value, and the net of the fair values of the assets acquired and the liabilities assumed as of the acquisition date.
The total preliminary purchase price has been allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the acquisition date. The total preliminary purchase price was allocated as follows (in millions):
| | | | | |
| Cash and cash equivalents | $ | 15 | |
| Identifiable intangible assets | 111 | |
| Goodwill | 389 | |
| Other acquired assets | 6 | |
| Deferred tax liability | (4) | |
| Other assumed liabilities | (5) | |
| Total preliminary estimated purchase price | $ | 512 | |
The estimated fair value of identifiable intangible assets acquired and associated useful lives consisted of the following (in millions):
| | | | | | | | | | | |
| Estimated Fair Value | | Estimated Weighted-Average Useful Life (in years) |
| Customer relationships | $ | 55 | | | 8 |
| Developed technology | 47 | | | 4 |
| Trade names and trademarks | 9 | | | 10 |
| Total | $ | 111 | | | |
We used an income approach to measure the fair value of the customer relationships based on the excess earnings method, whereby the fair value is estimated based upon the present value of cash flows that the applicable asset is expected to generate. We used an income approach to measure the fair value of the developed technology and the trade names and trademarks based on the relief-from-royalty method. These fair value measurements were based on Level 3 inputs under the fair value hierarchy.
Our estimates and assumptions related to the purchase price allocation are preliminary and subject to change during the measurement period (up to one year from the acquisition date) as we finalize the amount of goodwill and deferred taxes recorded in connection with the acquisition.
Acquisition-related costs incurred, which primarily included legal, accounting and other external costs directly related to the acquisition, are included within acquisition-related costs in our condensed consolidated statements of operations and were expensed as incurred.
Unaudited pro forma earnings information has not been presented as the effects were not material to our condensed consolidated financial statements.
Note 10. Intangible Assets, net
The following tables present the detail of intangible assets as of the dates presented (in millions):
| | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Cost | | Accumulated Amortization | | Net |
| Customer relationships | $ | 55 | | | $ | (4) | | | $ | 51 | |
| Developed technology | 50 | | | (8) | | | 42 | |
| Software | 65 | | | (29) | | | 36 | |
| Trade names and trademarks | 46 | | | (11) | | | 35 | |
| Purchased content | 5 | | | (4) | | | 1 | |
| Total | $ | 221 | | | $ | (56) | | | $ | 165 | |
| | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Cost | | Accumulated Amortization | | Net |
| Customer relationships | $ | 139 | | | $ | (84) | | | $ | 55 | |
| Developed technology | 133 | | | (86) | | | 47 | |
| Software | 59 | | | (20) | | | 39 | |
| Trade names and trademarks | 45 | | | (9) | | | 36 | |
| Intangibles-in-progress | 2 | | | — | | | 2 | |
| Purchased content | 4 | | | (3) | | | 1 | |
| Total | $ | 382 | | | $ | (202) | | | $ | 180 | |
Amortization expense recorded for intangible assets for the three months ended March 31, 2022 and 2021 was $22 million and $13 million, respectively. Amortization expense for trade names and trademarks and customer relationships intangible assets is included in sales and marketing expenses. Amortization expense for all other intangible assets is included in cost of revenue.
We did not record any impairment costs related to our intangible assets for the three months ended March 31, 2022 and 2021.
Note 11. Debt
The following table presents the carrying values of Zillow Group’s debt as of the dates presented (in millions):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Homes segment | | | |
| Credit facilities: | | | |
| Goldman Sachs Bank USA | $ | — | | | $ | 548 | |
| Citibank, N.A. | — | | | 770 | |
| Credit Suisse AG, Cayman Islands | — | | | 835 | |
| Securitizations: | | | |
| 2021-1 variable funding line | — | | | 17 | |
| 2021-1 term loan | 320 | | | 472 | |
| 2021-2 variable funding line | — | | | 29 | |
| 2021-2 term loan | 470 | | | 737 | |
| Total Homes segment debt | 790 | | | 3,408 | |
| Mortgages segment | | | |
| Repurchase agreements: | | | |
| Credit Suisse AG, Cayman Islands | 64 | | | 77 | |
| Citibank, N.A. | 13 | | | 17 | |
| Warehouse line of credit: | | | |
| Comerica Bank | 11 | | | 19 | |
| Total Mortgages segment debt | 88 | | | 113 | |
| Convertible senior notes | | | |
1.375% convertible senior notes due 2026 | 495 | | | 369 | |
2.75% convertible senior notes due 2025 | 557 | | | 443 | |
0.75% convertible senior notes due 2024 | 604 | | | 507 | |
| Total convertible senior notes | 1,656 | | | 1,319 | |
| Total debt | $ | 2,534 | | | $ | 4,840 | |
Homes Segment
Variable Interest Entities
As of March 31, 2022 and December 31, 2021, the total assets of the special purpose entities (“SPEs”) and titling trust associated with our Zillow Offers business were $838 million and $4.2 billion, respectively, of which $494 million and $3.9 billion are inventory, respectively, $90 million and $225 million are restricted cash, respectively, $29 million and $78 million are accounts receivable, respectively, and $224 million are prepaids and other current assets as of March 31, 2022. As of March 31, 2022 and December 31, 2021, the total liabilities of the SPEs and titling trust were $810 million and $3.5 billion, respectively, of which $790 million and $3.4 billion are credit facility and securitization-related borrowings, respectively, and $18 million and $55 million are accrued expenses, respectively. For additional details related to our SPEs, see Note 13 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Credit Facilities
During the three months ended March 31, 2022, certain wholly owned subsidiaries of Zillow Group repaid all amounts drawn on the Zillow Offers credit facilities. No additional amounts may be drawn on these facilities. For additional details related to our credit facilities, see Note 13 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Securitization Transactions
During the three months ended March 31, 2022, we repaid all amounts drawn on the variable funding lines entered into in conjunction with the securitizations for our Zillow Offers business. For additional details related to our securitization variable funding lines, see Note 13 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
The term loans supporting our securitization transactions include customary representations and warranties, provisions regarding events of default and covenants. The term loans require Zillow Group and certain of its subsidiaries, as applicable, to comply with a number of customary financial and other covenants, such as maintaining certain levels of liquidity, tangible net worth and leverage ratios. As of March 31, 2022, Zillow Group was in compliance with all financial covenants and no event of default had occurred. Except for certain limited circumstances, the term loans are non-recourse to Zillow Group. For additional details related to our securitization transactions, see Note 13 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
In connection with the wind down of Zillow Offers operations, during the three months ended March 31, 2022, we repaid $159 million and $276 million of principal and $1 million and $2 million of prepayment fees associated with the 2021-1 and 2021-2 term loans, respectively, plus accrued interest. We recorded a total loss on debt extinguishment of $6 million representing the difference between the principal amount repaid, prepayment penalties incurred and the carrying amount extinguished for each of the term loans upon repayment. In addition, we remitted cash consideration of $87 million and $132 million of principal associated with the 2021-1 and 2021-2 term loans, respectively, and $1 million of prepayment fees associated with each of the term loans, plus accrued interest, which payments are classified within prepaid expenses and other current assets in our condensed consolidated balance sheet as of March 31, 2022. The fixed rate components of the 2021-1 term loan have stated interest rates of 2.3425% and 3.3524%, respectively, and principal amounts of $239 million and $51 million, respectively, as of March 31, 2022. The principal-only component of the 2021-1 term loan has a principal amount of $30 million as of March 31, 2022. The two fixed rate components of the 2021-2 term loan have stated interest rates of 2.4294% and 3.5860%, respectively, and principal amounts of $349 million and $75 million, respectively, as of March 31, 2022. The principal-only component of the 2021-2 term loan has a principal amount of $49 million as of March 31, 2022.
The following tables summarize certain additional details related to our term loans as of the dates presented or for the periods ended (in millions, except interest rates):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | March 31, 2022 | | December 31, 2021 |
| Securitization | | Maturity Date | | Aggregate Principal
Amount | | Weighted Average Effective Interest Rate (1) | | First Interest Payment
Date | | Reinvestment Period | | Unamortized Debt Discount and Debt Issuance Costs | | Fair Value (2) | | Unamortized Debt Discount and Debt Issuance Costs | | Fair Value (2) |
| 2021-1 term loan | | February 9, 2024 | | $ | 320 | | | 4.14 | % | | September 9, 2021 | | 24 months | | $ | — | | | $ | 320 | | | $ | 8 | | | $ | 480 | |
| 2021-2 term loan | | October 9, 2024 | | 473 | | | 11.29 | % | | November 9, 2021 | | 30 months | | 3 | | | 473 | | | 12 | | | 747 | |
| | Total | | $ | 793 | | | | | | | | | $ | 3 | | | $ | 793 | | | $ | 20 | | | $ | 1,227 | |
| | | | | | | | | | | | | | | | | | |
(1) The weighted average effective interest rate is calculated using the outstanding principal amounts and effective interest rates for the two fixed rate components and the single principal-only component of each of the term loans. Debt discount and debt issuance costs have been allocated to the components of each term loan and will be amortized using the effective interest method with the amortization classified as a component of interest expense. |
| | | | | | | | | | | | | | | | | | |
(2) The estimated fair value of each of the term loans was calculated using a discounted cash flow methodology. The fair value is classified as Level 3 due to reliance on significant unobservable valuation inputs. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, 2022 |
| Securitization | | Contractual Coupon Interest | | Amortization of Debt Discount | | Amortization of Debt Issuance Costs | | Interest Expense |
| 2021-1 term loan | | $ | 3 | | | $ | 3 | | | $ | 4 | | | $ | 10 | |
| 2021-2 term loan | | 4 | | | 5 | | | 2 | | | 11 | |
| Total | | $ | 7 | | | $ | 8 | | | $ | 6 | | | $ | 21 | |
Mortgages Segment
To provide capital for Zillow Home Loans, we utilize master repurchase agreements and a warehouse line of credit which are classified as current liabilities in our condensed consolidated balance sheets. The repurchase agreements and warehouse line of credit provide short-term financing between the issuance of a mortgage loan and when Zillow Home Loans sells the loan to an investor or directly to an agency. The following table summarizes certain details related to our repurchase agreements and warehouse line of credit (in millions, except interest rates):
| | | | | | | | | | | | | | | | | | | | |
| Lender | | Maturity Date | | Maximum Borrowing Capacity | | Weighted-Average Interest Rate |
| Credit Suisse AG, Cayman Islands | | March 17, 2023 | | $ | 100 | | | 2.00 | % |
| Citibank, N.A. | | June 10, 2022 | | 100 | | | 2.20 | % |
| Comerica Bank | | June 25, 2022 | | 60 | | | 2.51 | % |
| | Total | | $ | 260 | | | |
On March 18, 2022, Zillow Home Loans amended its Credit Suisse AG, Cayman Islands (“Credit Suisse”) master repurchase agreement to decrease the uncommitted total maximum borrowing capacity to $100 million with a maturity date of March 17, 2023 and to update the reference rate from one-month LIBOR to Adjusted Daily Simple Secured Overnight Financing Rate (“Adjusted Daily Simple SOFR”).
In accordance with the master repurchase agreements, Credit Suisse and Citibank, N.A. (together the “Lenders”) have agreed to pay Zillow Home Loans a negotiated purchase price for eligible loans, and Zillow Home Loans has simultaneously agreed to repurchase such loans from the Lenders under a specified timeframe at an agreed upon price that includes interest. The master repurchase agreements contain margin call provisions that provide the Lenders with certain rights in the event of a decline in the market value of the assets purchased under the master repurchase agreements. As of March 31, 2022 and December 31, 2021, $82 million and $87 million, respectively, in mortgage loans held for sale were pledged as collateral under the master repurchase agreements.
The repurchase agreements and warehouse line of credit include customary representations and warranties, covenants and provisions regarding events of default. As of March 31, 2022, Zillow Home Loans was in compliance with all financial covenants and no event of default had occurred. The repurchase agreements and warehouse line of credit are recourse to Zillow Home Loans, and have no recourse to Zillow Group or any of its other subsidiaries.
For additional details related to our warehouse line of credit and repurchase agreements, see Note 13 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Convertible Senior Notes
Effective January 1, 2022, the Company adopted 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. This guidance was adopted using a modified retrospective approach. Refer to Note 2 for additional information regarding the adoption of this guidance.
The following tables summarize certain details related to our outstanding convertible senior notes as of the dates presented or for the periods ended (in millions, except interest rates):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | March 31, 2022 | | December 31, 2021 |
| Maturity Date | | Aggregate Principal Amount | | Stated Interest Rate | | Effective Interest Rate | | Semi-Annual Interest Payment Dates | | Unamortized Debt Issuance Costs | | Fair Value | | Unamortized Debt Discount and Debt Issuance Costs | | Fair Value |
| September 1, 2026 | | $ | 499 | | | 1.375 | % | | 1.57 | % | | March 1; September 1 | | $ | 4 | | | $ | 663 | | | $ | 130 | | | $ | 781 | |
| May 15, 2025 | | 565 | | | 2.75 | % | | 3.20 | % | | May 15; November 15 | | 8 | | | 642 | | | 122 | | | 725 | |
| September 1, 2024 | | 608 | | | 0.75 | % | | 1.02 | % | | March 1; September 1 | | 4 | | | 784 | | | 101 | | | 945 | |
| Total | | $ | 1,672 | | | | | | | | | $ | 16 | | | $ | 2,089 | | | $ | 353 | | | $ | 2,451 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, 2022 | | Three Months Ended
March 31, 2021 |
| Maturity Date | | Contractual Coupon Interest | | Amortization of Debt Issuance Costs | | Interest Expense | | Contractual Coupon Interest | | Amortization of Debt Discount | | Amortization of Debt Issuance Costs | | Interest Expense |
| September 1, 2026 | | $ | 2 | | | $ | — | | | $ | 2 | | | $ | 2 | | | $ | 5 | | | $ | — | | | $ | 7 | |
| May 15, 2025 | | 4 | | | — | | | 4 | | | 4 | | | 7 | | | — | | | 11 | |
| September 1, 2024 | | 1 | | | — | | | 1 | | | 1 | | | 8 | | | 1 | | | 10 | |
| July 1, 2023 | | — | | | — | | | — | | | 1 | | | 4 | | | 1 | | | 6 | |
| Total | | $ | 7 | | | $ | — | | | $ | 7 | | | $ | 8 | | | $ | 24 | | | $ | 2 | | | $ | 34 | |
The convertible notes are senior unsecured obligations. The convertible senior notes maturing in 2026 (“2026 Notes”), 2025 (“2025 Notes”) and 2024 (“2024 Notes”) (together, the “Notes”) are classified as long-term debt in our condensed consolidated balance sheets based on their contractual maturity dates. Interest on the convertible notes is paid semi-annually in
arrears. The estimated fair value of the convertible senior notes was determined through consideration of quoted market prices. The fair value is classified as Level 3 due to the limited trading activity for each of the convertible senior notes.
The Notes are convertible into cash, shares of Class C capital stock or a combination thereof, at our election, and may be settled as described below. They will mature on their respective maturity date, unless earlier repurchased, redeemed or converted in accordance with their terms.
The following table summarizes the conversion and redemption options with respect to the Notes:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturity Date | | Early Conversion Date | | Conversion Rate | | Conversion Price | | Optional Redemption Date |
| September 1, 2026 | | March 1, 2026 | | 22.9830 | | $ | 43.51 | | | September 5, 2023 |
| May 15, 2025 | | November 15, 2024 | | 14.8810 | | 67.20 | | | May 22, 2023 |
| September 1, 2024 | | March 1, 2024 | | 22.9830 | | 43.51 | | | September 5, 2022 |
The following table summarizes certain details related to the capped call confirmations with respect to certain of the convertible senior notes:
| | | | | | | | | | | | | | |
| Maturity Date | | Initial Cap Price | | Cap Price Premium |
| September 1, 2026 | | $ | 80.5750 | | | 150 | % |
| September 1, 2024 | | 72.5175 | | | 125 | % |
| July 1, 2023 | | 105.45 | | | 85 | % |
There were no conversions of convertible senior notes during the three months ended March 31, 2022. Each series of the Notes was convertible during the three months ended March 31, 2021, at the option of the holders. The following table summarizes the activity for our convertible senior notes for the period presented (in millions, except share data which are presented in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, 2021 |
| 2023 Notes | | 2024 Notes | | 2026 Notes | | Total |
| Aggregate principal amount settled | $ | 1 | | | $ | 51 | | | $ | 1 | | | $ | 53 | |
| Shares of Class C capital stock issued | 12 | | | 1,163 | | | 28 | | | 1,203 | |
| Total fair value of consideration transferred (1) | $ | 2 | | | $ | 154 | | | $ | 4 | | | $ | 160 | |
| Loss on extinguishment of debt: | | | | | | | |
| Consideration allocated to the liability component (2) | $ | 1 | | | $ | 41 | | | $ | 1 | | | $ | 43 | |
| Carrying value of the liability component, net of unamortized debt discount and debt issuance costs | 1 | | | 40 | | | 1 | | | 42 | |
| Loss on extinguishment of debt | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
| Consideration allocated to the equity component | $ | 1 | | | $ | 113 | | | $ | 3 | | | $ | 117 | |
| | | | | | | |
(1) The total fair value of consideration transferred includes the value of shares transferred to note holders using the daily volume weighted-average price of our Class C capital stock on the conversion date and an immaterial amount of cash paid in lieu of fractional shares. |
| | | | | | | |
| (2) Consideration allocated to the liability component is based on the fair value of the liability component immediately prior to settlement, which was calculated using a discounted cash flow analysis with a market interest rate of a similar liability that does not have an associated convertible feature. |
The last reported sale price of our Class C capital stock did not exceed 130% of the conversion price of each series of the Notes for more than 20 trading days during the 30 consecutive trading days ended March 31, 2022. Accordingly, each series of the Notes is not redeemable or convertible at the option of the holders from April 1 through June 30, 2022.
For additional details related to our convertible senior notes, see Note 13 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Note 12. Income Taxes
We are subject to income taxes in the United States (federal and state), Canada and Serbia. As of March 31, 2022 and December 31, 2021, we have provided a valuation allowance against our net deferred tax assets that we believe, based on the weight of available evidence, are not more likely than not to be realized. We have accumulated federal tax losses of approximately $2.1 billion as of December 31, 2021, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $73 million (tax effected) as of December 31, 2021.
We recorded an income tax benefit of $9 million for the three months ended March 31, 2022 and an income tax benefit of $3 million for the three months ended March 31, 2021, primarily related to state income taxes.
Note 13. Shareholders’ Equity
Preferred Stock
Our board of directors has the authority to fix and determine and to amend the number of shares of any series of preferred stock that is wholly unissued or to be established and to fix and determine and to amend the designation, preferences, voting powers and limitations and the relative, participating, optional or other rights, of any series of shares of preferred stock that is wholly unissued or to be established, subject in each case to certain approval rights of holders of our outstanding Class B common stock. There was no preferred stock issued and outstanding as of March 31, 2022 or December 31, 2021.
Common and Capital Stock
Our Class A common stock has no preferences or privileges and is not redeemable. Holders of Class A common stock are entitled to one vote for each share.
Our Class B common stock has no preferences or privileges and is not redeemable. At any time after the date of issuance, each share of Class B common stock, at the option of the holder, may be converted into one share of Class A common stock, or automatically converted into Class A common stock upon the affirmative vote by or written consent of holders of a majority of the shares of the Class B common stock. Holders of Class B common stock are entitled to 10 votes for each share.
Our Class C capital stock has no preferences or privileges, is not redeemable and, except in limited circumstances, is non-voting.
Equity Distribution Agreement
On February 17, 2021, we entered into an equity distribution agreement with certain sales agents and/or principals (the “Managers”), pursuant to which we may offer and sell from time to time, through the Managers, shares of our Class C capital stock, having an aggregate gross sales price of up to $1.0 billion, in such share amounts as we may specify by notice to the Managers, in accordance with the terms and conditions set forth in the equity distribution agreement.
There were no shares issued under the equity distribution agreement during the three months ended March 31, 2022.
The following table summarizes the activity pursuant to the equity distribution agreement for the period presented (in millions, except share data which are presented in thousands, and per share amounts):
| | | | | |
| | Three Months Ended
March 31, 2021 |
| Shares of Class C capital stock issued | 3,164 | |
| Weighted-average issuance price per share | $ | 174.05 | |
| Gross proceeds (1) | $ | 551 | |
(1) Net proceeds were $545 million after deducting $6 million of commissions and other offering expenses incurred.
Stock Repurchase Program
On December 2, 2021, Zillow Group’s Board of Directors authorized the repurchase of up to $750 million of its Class A common stock, Class C capital stock or a combination thereof (the “Stock Repurchase Program”). Repurchases under the Stock Repurchase Program may be made in open-market transactions or privately negotiated transactions, or in such other manner as deemed appropriate by management, and may be made from time to time as determined by management depending on market conditions, share price, trading volume, cash needs and other business factors, in each case as permitted by securities laws and
other legal requirements. As of March 31, 2022, $100 million remained available for future repurchases pursuant to the Stock Repurchase Program.
The following table summarizes, on a settlement date basis, our Class A common stock and Class C capital stock repurchase activity under the Stock Repurchase Program for the period presented (in millions, except share data which are presented in thousands, and per share amounts):
| | | | | | | | | | | |
| | Three Months Ended
March 31, 2022 |
| Class A common stock | | Class C capital stock |
| Shares repurchased | 1,412 | | | 4,446 | |
| Weighted-average price per share | $ | 58.38 | | | $ | 59.66 | |
| Total purchase price | $ | 83 | | | $ | 265 | |
Note 14. Share-Based Awards
In addition to the option awards and restricted stock units typically granted under the Zillow Group, Inc. 2020 Incentive Plan (the “2020 Plan”) which vest quarterly over four years, during the three months ended March 31, 2022, the Compensation Committee of the Board of Directors approved option and restricted stock unit awards granted under the 2020 Plan in connection with the 2021 annual review cycle that vest quarterly over one year. The exercisability terms of these equity awards are otherwise consistent with the terms of the option awards and restricted stock units typically granted under the 2020 Plan. For additional information regarding our share-based awards, see Note 16 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Option Awards
The following table summarizes option award activity for the three months ended March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number
of Shares
Subject to
Existing
Options (in thousands) | | Weighted-
Average
Exercise
Price Per
Share | | Weighted-
Average
Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value
(in millions) |
| Outstanding at January 1, 2022 | 25,746 | | | $ | 72.86 | | | 7.48 | | $ | 354 | |
| Granted | 5,519 | | | 49.75 | | | | | |
| Exercised | (807) | | | 43.97 | | | | | |
| Forfeited or cancelled | (1,155) | | | 92.43 | | | | | |
| Outstanding at March 31, 2022 | 29,303 | | | 68.53 | | | 7.74 | | 122 | |
| Vested and exercisable at March 31, 2022 | 12,890 | | | 55.63 | | | 6.19 | | 102 | |
The fair value of option awards granted is estimated at the date of grant using the Black-Scholes-Merton option-pricing model, assuming no dividends and with the following assumptions for the periods presented:
| | | | | | | | | | | |
| | Three Months Ended
March 31, |
| | 2022 | | 2021 |
| Expected volatility | 55% - 60% | | 52% - 55% |
| Expected dividend yield | — | | — |
| Risk-free interest rate | 1.94% - 2.54% | | 0.57% - 0.90% |
| Weighted-average expected life | 4.50 - 6.00 years | | 4.50 - 5.75 years |
| Weighted-average fair value of options granted | $25.08 | | $59.74 |
As of March 31, 2022, there was a total of $553 million in unrecognized compensation cost related to unvested option awards.
Restricted Stock Units
The following table summarizes activity for restricted stock units for the three months ended March 31, 2022:
| | | | | | | | | | | |
| Restricted
Stock Units (in thousands) | | Weighted-
Average Grant-
Date Fair
Value |
| Unvested outstanding at January 1, 2022 | 6,074 | | | $ | 66.51 | |
| Granted | 4,839 | | | 49.71 | |
| Vested | (689) | | | 59.68 | |
| Forfeited | (909) | | | 63.29 | |
| Unvested outstanding at March 31, 2022 | 9,315 | | | 58.60 | |
As of March 31, 2022, there was a total of $509 million in unrecognized compensation cost related to unvested restricted stock units.
Share-Based Compensation Expense
The following table presents the effects of share-based compensation expense in our condensed consolidated statements of operations during the periods presented (in millions):
| | | | | | | | | | | |
| | Three Months Ended
March 31, |
| | 2022 | | 2021 |
| Cost of revenue | $ | 3 | | | $ | 3 | |
| Sales and marketing | 12 | | | 10 | |
| Technology and development | 29 | | | 26 | |
| General and administrative | 38 | | | 25 | |
| Restructuring costs | 9 | | | — | |
| Total | $ | 91 | | | $ | 64 | |
Note 15. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares (including Class A common stock, Class B common stock and Class C capital stock) outstanding during the period. In the calculation of basic net income per share, undistributed earnings are allocated assuming all earnings during the period were distributed.
Diluted net income per share is computed by dividing net income by the weighted-average number of shares (including Class A common stock, Class B common stock and Class C capital stock) outstanding during the period and potentially dilutive Class A common stock and Class C capital stock equivalents, except in cases where the effect of the Class A common stock or Class C capital stock equivalent would be antidilutive. Potential Class A common stock and Class C capital stock equivalents consist of Class A common stock and Class C capital stock issuable upon exercise of stock options and Class A common stock and Class C capital stock underlying unvested restricted stock units and Class C capital stock issuable upon conversion of outstanding convertible senior notes.
Class A common stock and Class C capital stock issuable upon exercise of stock options and Class A common stock and Class C capital stock underlying unvested restricted stock units are calculated using the treasury stock method.
We have applied the if-converted method for calculating any potential dilutive effect of the conversion of the outstanding convertible notes on diluted net income per share, if applicable. The following table presents the maximum number of shares and conversion price per share of Class C capital stock for each of the Notes based on the aggregate principal amount outstanding as of March 31, 2022 (in thousands, except per share amounts):
| | | | | | | | | | | | | | |
| Maturity Date | | Shares | | Conversion Price per Share |
| September 1, 2026 | | 11,464 | | | $ | 43.51 | |
| May 15, 2025 | | 8,408 | | | 67.20 | |
| September 1, 2024 | | 13,983 | | | 43.51 | |
For the periods presented, the following table reconciles the denominators used in the basic and diluted net income per share calculations (in thousands):
| | | | | | | | | | | |
| | Three Months Ended
March 31, |
| | 2022 | | 2021 |
| Denominator for basic calculation | 248,542 | | | 243,234 | |
| Effect of dilutive securities: | | | |
| Option awards | 2,558 | | | 12,437 | |
| Unvested restricted stock units | 863 | | | 3,675 | |
| Denominator for dilutive calculation | 251,963 | | | 259,346 | |
For the periods presented, the following Class A common stock and Class C capital stock equivalents were excluded from the calculations of diluted net income per share because their effect would have been antidilutive (in thousands):
| | | | | | | | | | | |
| | Three Months Ended
March 31, |
| | 2022 | | 2021 |
| Weighted-average Class A common stock and Class C capital stock option awards outstanding | 5,120 | | | 2,546 | |
| Weighted-average Class A common stock and Class C capital stock restricted stock units outstanding | 3,188 | | | 303 | |
| Class C capital stock issuable upon conversion of the convertible notes maturing in 2023, 2024, 2025 and 2026 | 33,855 | | | 39,834 | |
| Total Class A common stock and Class C capital stock equivalents | 42,163 | | | 42,683 | |
Note 16. Commitments and Contingencies
Interest Rate Lock Commitments
We have entered into IRLCs with prospective borrowers under our mortgage origination business whereby we commit to lend a certain loan amount under specific terms and at a specific interest rate to the borrower. These commitments are treated as derivatives and are carried at fair value. For additional information regarding our IRLCs, see Note 3 to our condensed consolidated financial statements.
Lease Commitments
We have entered into various non-cancelable operating lease agreements for certain of our office space and equipment with original lease periods expiring between 2022 and 2032. For additional information regarding our lease agreements, see Note 12 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Purchase Commitments
Purchase commitments primarily include various non-cancelable agreements to purchase content related to our mobile applications and websites and certain cloud computing services. For additional information regarding our purchase obligations, see Note 18 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Escrow Balances
In conducting our title and escrow operations through Zillow Closing Services, we routinely hold customers’ assets in escrow, pending completion of real estate transactions, and are responsible for the proper disposition of these balances for our customers. Certain of these amounts are maintained in segregated bank accounts and have not been included in the accompanying condensed consolidated balance sheets. These balances amounted to $3 million and $55 million, respectively, as of March 31, 2022 and December 31, 2021.
Letters of Credit
As of March 31, 2022, we have outstanding letters of credit of approximately $16 million, which secure our lease obligations in connection with certain of our office space operating leases.
Surety Bonds
In the course of business, we are required to provide financial commitments in the form of surety bonds to third parties as a guarantee of our performance on and our compliance with certain obligations. If we were to fail to perform or comply with these obligations, any draws upon surety bonds issued on our behalf would then trigger our payment obligation to the surety bond issuer. We have outstanding surety bonds issued for our benefit of approximately $13 million and $12 million, respectively, as of March 31, 2022 and December 31, 2021.
Legal Proceedings
We are involved in a number of legal proceedings concerning matters arising in connection with the conduct of our business activities, some of which are at preliminary stages and some of which seek an indeterminate amount of damages. We regularly evaluate the status of legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred to determine if accruals are appropriate. We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made if accruals are not appropriate. For certain cases described below, management is unable to provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the proceedings are in preliminary stages; (ii) specific damages have not been sought; (iii) damages sought are, in our view, unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories presented. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material effect on our financial position, results of operations or cash flow. For the matters discussed below, we have not recorded any material accruals as of March 31, 2022 or December 31, 2021.
In August and September 2017, two purported class action lawsuits were filed against us and certain of our executive officers, alleging, among other things, violations of federal securities laws on behalf of a class of those who purchased our common stock between February 12, 2016 and August 8, 2017. One of those purported class actions, captioned Vargosko v. Zillow Group, Inc. et al, was brought in the U.S. District Court for the Central District of California. The other purported class action lawsuit, captioned Shotwell v. Zillow Group, Inc. et al, was brought in the U.S. District Court for the Western District of Washington. The complaints allege, among other things, that during the period between February 12, 2016 and August 8, 2017, we issued materially false and misleading statements regarding our business practices. The complaints seek to recover, among other things, alleged damages sustained by the purported class members as a result of the alleged misconduct. In November 2017, an amended complaint was filed against us and certain of our executive officers in the Shotwell v. Zillow Group purported class action lawsuit, extending the beginning of the class period to November 17, 2014. In January 2018, the Vargosko v. Zillow Group purported class action lawsuit was transferred to the U.S. District Court for the Western District of Washington and consolidated with the Shotwell v. Zillow Group purported class action lawsuit. In February 2018, the plaintiffs filed a consolidated amended complaint, and in April 2018, we filed our motion to dismiss the consolidated amended complaint. In October 2018, our motion to dismiss was granted without prejudice, and in November 2018, the plaintiffs filed a second consolidated amended complaint, which we moved to dismiss in December 2018. On April 19, 2019, our motion to dismiss the second consolidated amended complaint was denied. On October 11, 2019, plaintiffs filed a motion for class certification which was granted by the court on October 28, 2020. On February 17, 2021, the Ninth Circuit Court of Appeals denied our petition for review of that decision. We have denied the allegations of wrongdoing and intend to vigorously defend the claims in this lawsuit. We do not believe that there is a reasonable possibility that a material loss will be incurred related to this lawsuit.
In October and November 2017 and January and February 2018, four shareholder derivative lawsuits were filed in the U.S. District Court for the Western District of Washington and the Superior Court of the State of Washington, King County, against certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties in connection with oversight of the Company’s public statements and legal compliance, and as a result of the breach of such fiduciary duties, the Company was damaged, and defendants were unjustly enriched. Certain of the plaintiffs also allege, among other things, violations of Section 14(a) of the Securities Exchange Act of 1934 and waste of corporate assets. On February 5, 2018, the U.S. District Court for the Western District of Washington consolidated the two federal shareholder derivative lawsuits pending in that court. On February 16, 2018, the Superior Court of the State of Washington, King County, consolidated the two shareholder derivative lawsuits pending in that court. All four of the shareholder derivative lawsuits were stayed until our motion to dismiss the second consolidated amended complaint in the securities class action lawsuit discussed above was denied in April 2019. On July 8, 2019, the plaintiffs in the consolidated federal derivative lawsuit filed a consolidated shareholder derivative complaint, which we moved to dismiss on August 22, 2019. On February 28, 2020, our motion to dismiss the consolidated federal shareholder derivative complaint was denied. On February 16, 2021, the court in the consolidated state derivative matter stayed the action. On March 5, 2021, a new shareholder derivative lawsuit was filed in the U.S. District Court for the Western District of Washington against certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices, alleging, among other things, violations of federal securities laws. The U.S. District Court for the Western District of Washington formally consolidated the new lawsuit with the other consolidated federal shareholder derivative lawsuit pending in that court on June 15, 2021. The defendants intend to deny the allegations of wrongdoing and vigorously defend the claims in this consolidated lawsuit. We do not believe that there is a reasonable possibility that a material loss will be incurred related to these derivative matters.
On September 17, 2019, International Business Machines Corporation (“IBM”) filed a complaint against us in the U.S. District Court for the Central District of California, alleging, among other things, that the Company has infringed and continues to willfully infringe seven patents held by IBM and seeks unspecified damages, including a request that the amount of compensatory damages be trebled, injunctive relief and costs and reasonable attorneys’ fees. On November 8, 2019, we filed a motion to transfer venue and/or to dismiss the complaint. On December 2, 2019, IBM filed an amended complaint, and on December 16, 2019 we filed a renewed motion to transfer venue and/or to dismiss the complaint. The Company’s motion to transfer venue to the U.S. District Court for the Western District of Washington was granted on May 28, 2020. On August 12, 2020, IBM filed its answer to our counterclaims. On September 18, 2020, we filed four Inter Partes Review (“IPR”) petitions before the U.S. Patent and Trial Appeal Board (“PTAB”) seeking the Board’s review of the patentability with respect to three of the patents asserted by IBM in the lawsuit. On March 15, 2021, the PTAB instituted IPR proceedings with respect to two of the three patents for which we filed petitions. On March 22, 2021, the PTAB denied institution with respect to the last of the three patents. On January 22, 2021, the court partially stayed the action with respect to all patents for which we filed an IPR and set forth a motion schedule. On March 8, 2021, IBM filed its second amended complaint. On March 25, 2021, we filed an amended motion for judgment on the pleadings. On July 15, 2021, the court rendered an order in connection with the motion for judgment on the pleadings finding in our favor on two of the four patents on which we filed our motion. On August 31, 2021, the Court ruled that the parties will proceed with respect to the two patents for which it previously denied judgment, and vacated the stay with respect to one of the three patents for which Zillow filed an IPR, which was denied by the PTAB. On September 23, 2021, IBM filed a notice of appeal with the United States Court of Appeals for the Federal Circuit with respect to the August 31, 2021 judgment entered. Oral argument on the appeal is scheduled for June 7, 2022. On March 3, 2022, the PTAB ruled on Zillow’s two remaining IPRs finding that Zillow was able to prove certain claims unpatentable, and others it was not. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in the lawsuit. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable.
On July 21, 2020, IBM filed a second action against us in the U.S. District Court for the Western District of Washington, alleging, among other things, that the Company has infringed and continues to willfully infringe five patents held by IBM and seeks unspecified damages. On September 14, 2020, we filed a motion to dismiss the complaint filed in the action, to which IBM responded by the filing of an amended complaint on November 5, 2020. On December 18, 2020, we filed a motion to dismiss IBM’s first amended complaint. On December 23, 2020, the Court issued a written order staying this case in full. On July 23, 2021, we filed an IPR with the PTAB with respect to one patent included in the second lawsuit. On October 6, 2021, the stay of this action was lifted, except for proceeds relating to the one patent for which we filed an IPR. On December 1, 2021, the Court dismissed the fourth claim asserted by IBM in its amended complaint. On December 16, 2021 Zillow filed a motion to dismiss the remaining claims alleged in IBM’s amended complaint. On March 9, 2022, the Court granted Zillow’s motion to dismiss in full, dismissing IBM’s claims related to all the patents asserted by IBM in this action, except for the one patent for which an IPR was still pending. On March 10, 2022, the PTAB rendered its decision denying Zillow’s IPR on the one remaining patent, for which this case continues to remain stayed. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in the lawsuit. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable.
On November 16, 2021, November 19, 2021 and January 6, 2022, three purported class action lawsuits were filed against us and certain of our executive officers, alleging, among other things, violations of federal securities laws on behalf of a class of those who purchased our stock between August 7, 2020 and November 2, 2021. The three purported class action lawsuits, captioned Barua v. Zillow Group, Inc. et al., Silverberg v. Zillow Group, et al. and Hillier v. Zillow Group, Inc. et al. were brought in the U.S. District Court for the Western District of Washington and were consolidated on February 16, 2022. The complaints allege, among other things, that we issued materially false and misleading statements regarding our Zillow Offers business. The complaints seek to recover, among other things, alleged damages sustained by the purported class members as a result of the alleged misconduct. We intend to deny the allegations of wrongdoing and intend to vigorously defend the claims in these lawsuits. We do not believe that a loss related to these lawsuits is probable.
On March 10, 2022, a shareholder derivative suit was filed in the U.S. District Court for the Western District of Washington against us and certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices. The plaintiffs (including the Company as a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties by failing to maintain an effective system of internal controls, which purportedly caused the losses the Company incurred when it decided to wind down Zillow Offers operations. Plaintiffs also allege violations of Section 14(a) of the Securities Exchange Act of 1934 and waste of corporate assets. The defendants intend to deny the allegations of wrongdoing and vigorously defend the claims in this lawsuit. We do not believe that a loss related to this lawsuit is probable.
In addition to the matters discussed above, from time to time, we are involved in litigation and claims that arise in the ordinary course of business. Although we cannot be certain of the outcome of any such litigation or claims, nor the amount of damages and exposure that we could incur, we currently believe that the final disposition of such matters will not have a material effect on our business, financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Indemnifications
In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters. For additional information regarding our indemnifications, see Note 18 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Note 17. Segment Information and Revenue
We have three operating and reportable segments, which have been identified based on the way in which our chief operating decision-maker manages our business, makes operating decisions and evaluates operating performance. The chief executive officer acts as the chief operating decision-maker and reviews financial and operational information for the Homes, IMT and Mortgages segments.
The Homes segment includes the financial results from Zillow Group’s purchase and sale of homes directly through Zillow Offers and the financial results from title and escrow services performed by Zillow Closing Services primarily in connection with the purchase and sale of Zillow Offers homes. In November 2021, our Board of Directors made the determination to wind down Zillow Offers operations. The IMT segment includes the financial results for the Premier Agent, rentals and new construction marketplaces, dotloop and display, as well as revenue from the sale of various other marketing and business products and services to real estate professionals. In the fourth quarter of 2021, we began to include the financial results of ShowingTime in the IMT segment. The Mortgages segment primarily includes the financial results for mortgage originations and the sale of mortgages on the secondary market through Zillow Home Loans and advertising sold to mortgage lenders and other mortgage professionals.
Revenue and costs are directly attributed to our segments when possible. However, due to the integrated structure of our business, certain costs incurred by one segment may benefit the other segments. These costs primarily include headcount-related expenses, general and administrative expenses including executive, finance, accounting, legal, human resources, recruiting and facilities costs, product development and data acquisition costs, costs related to operating our mobile applications, and websites and marketing and advertising costs. These costs are allocated to each segment based on the estimated benefit each segment receives from such expenditures.
The chief executive officer reviews information about our revenue categories as well as statement of operations data inclusive of income (loss) before income taxes by segment. This information is included in the following tables for the periods presented (in millions) and prior period amounts have been recast to conform to the current format (rentals revenue is now presented as a separate revenue category and Note 2 includes additional details regarding certain reclassifications):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, 2022 | | Three Months Ended
March 31, 2021 |
| Homes | | IMT | | Mortgages | | Homes | | IMT | | Mortgages |
| Revenue: | | | | | | | | | | | |
| Zillow Offers | $ | 3,718 | | | $ | — | | | $ | — | | | $ | 701 | | | $ | — | | | $ | — | |
| Premier Agent | — | | | 363 | | | — | | | — | | | 334 | | | — | |
| Rentals | — | | | 61 | | | — | | | — | | | 64 | | | — | |
| Other | 3 | | | 66 | | | — | | | 3 | | | 48 | | | — | |
| Mortgages | — | | | — | | | 46 | | | — | | | — | | | 68 | |
| Total revenue | 3,721 | | | 490 | | | 46 | | | 704 | | | 446 | | | 68 | |
| Cost of revenue (1) | 3,537 | | | 65 | | | 20 | | | 645 | | | 47 | | | 19 | |
| Gross profit | 184 | | | 425 | | | 26 | | | 59 | | | 399 | | | 49 | |
| Operating expenses (1): | | | | | | | | | | | |
| Sales and marketing | 142 | | | 142 | | | 23 | | | 55 | | | 117 | | | 25 | |
| Technology and development | 12 | | | 92 | | | 10 | | | 33 | | | 79 | | | 8 | |
| General and administrative | 24 | | | 77 | | | 18 | | | 25 | | | 59 | | | 17 | |
| Restructuring costs | 30 | | | 6 | | | 2 | | | — | | | — | | | — | |
| Acquisition-related costs | — | | | — | | | — | | | — | | | 1 | | | — | |
| Total operating expenses | 208 | | | 317 | | | 53 | | | 113 | | | 256 | | | 50 | |
Income (loss) from operations | (24) | | | 108 | | | (27) | | | (54) | | | 143 | | | (1) | |
| Segment other income | 6 | | | — | | | 1 | | | — | | | — | | | 1 | |
| Segment interest expense | (36) | | | — | | | (1) | | | (4) | | | — | | | (2) | |
| Loss on extinguishment of debt | (14) | | | — | | | — | | | — | | | — | | | — | |
Income (loss) before income taxes (2) | $ | (68) | | | $ | 108 | | | $ | (27) | | | $ | (58) | | | $ | 143 | | | $ | (2) | |
(1) The following table presents depreciation and amortization expense and share-based compensation expense for each of our segments for the periods presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, 2022 | | Three Months Ended
March 31, 2021 |
| Homes | | IMT | | Mortgages | | Homes | | IMT | | Mortgages |
| Depreciation and amortization expense | $ | 5 | | | $ | 35 | | | $ | 3 | | | $ | 5 | | | $ | 23 | | | $ | 1 | |
| Share-based compensation expense | $ | 12 | | | $ | 60 | | | $ | 10 | | | $ | 16 | | | $ | 42 | | | $ | 6 | |
(2) The following table presents the reconciliation of total segment income (loss) before income taxes to consolidated income before income taxes for the periods presented (in millions):
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
Total segment income before income taxes | $ | 13 | | | $ | 83 | |
| Corporate interest expense | (7) | | | (34) | |
| Corporate other income | 1 | | | 1 | |
| Loss on extinguishment of debt | — | | | (1) | |
Consolidated income before income taxes | $ | 7 | | | $ | 49 | |
Certain corporate items are not directly attributable to any of our segments, including the 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.
Note 18. Restructuring and Zillow Offers Wind Down
In November 2021, the Board of Directors of Zillow Group made the determination to wind down Zillow Offers operations. This decision was made in light of home pricing unpredictability, capacity constraints and other operational challenges faced by Zillow Offers that were exacerbated by an unprecedented housing market, a global pandemic and a difficult labor and supply chain environment, all of which led us to conclude that, despite its initial promise in earlier quarters, Zillow Offers was unlikely to be a sufficiently stable line of business to meet our goals and needs going forward. The wind down is expected to be completed in the second half of 2022 and result in approximately a 25% reduction of Zillow Group’s workforce of which approximately 21% has been completed. During the wind down period, we continue to renovate and sell properties in inventory.
Cumulative amounts recognized and charges incurred during the three months ended March 31, 2022 primarily related to the wind down of Zillow Offers operations, and we expect future charges to primarily relate to the wind down of Zillow Offers operations and to primarily be recorded within our Homes segment. We have and plan to continue to fund the cash costs through existing cash and investment balances.
The following table presents a summary of Zillow Offers wind down-related charges incurred for the periods presented and our estimate of the total costs we expect to incur over the wind down period (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, 2022 | | | | |
| Statement of Operations Classification | | Homes Segment | | IMT Segment | | Mortgages Segment | | Total Recognized | | Cumulative Amount Recognized | | Total Expected |
| Inventory write-down | Cost of revenue | | $ | 5 | | | $ | — | | | $ | — | | | $ | 5 | | | N/A | | N/A |
| Other charges: | | | | | | | | | | | | | |
| Employee termination costs | Restructuring costs | | $ | 25 | | | $ | 6 | | | $ | 2 | | | $ | 33 | | | $ | 94 | | | $95 - $106 |
| Financing-related charges | Interest expense and Loss on debt extinguishment | | 30 | | | — | | | — | | | 30 | | | 36 | | | $40 |
| Contract termination costs | Restructuring costs | | 4 | | | — | | | — | | | 4 | | | 14 | | | $16 - $19 |
| Accelerated depreciation and amortization | Cost of revenue | | 6 | | | — | | | — | | | 6 | | | 11 | | | $17 |
| Asset write-offs | Restructuring costs | | — | | | — | | | — | | | — | | | 1 | | | $1 |
| Other | Restructuring costs | | 1 | | | — | | | — | | | 1 | | | 1 | | | $1 - $2 |
| Total other charges | | | 66 | | | 6 | | | 2 | | | 74 | | | 157 | | | $170 - $185 |
| Total | | | $ | 71 | | | $ | 6 | | | $ | 2 | | | $ | 79 | | | $ | 157 | | | |
The following table presents the accrual activity for exit and disposal costs for three months ended March 31, 2022, primarily related to cash severance employee termination costs and contract termination costs (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, 2022 |
| Employee Termination Costs | | Contract Termination Costs (1) | | Other | | Total |
Balance, beginning of period | $ | 45 | | | $ | 4 | | | $ | — | | | $ | 49 | |
| Additions charged to expense | 25 | | | 14 | | | 1 | | | 40 | |
| Cash payments | (27) | | | (12) | | | — | | | (39) | |
| Adjustments | (1) | | | (2) | | | — | | | (3) | |
| Balance, end of period | $ | 42 | | | $ | 4 | | | $ | 1 | | | $ | 47 | |
| | | | | | | |
| (1) Contract termination costs for exit and disposal activities include the contractual prepayment penalties associated with our Zillow Offers financing facilities further described below under the subheading “Financing-Related Charges.” |
Inventory write-downs
In determining the value of our inventory, we consider indicators that net realizable value may be lower than cost at the portfolio level, market level, and in certain circumstances by structure type (single family residence, condo, etc.) by reviewing economic analyses, recent trends in home price appreciation and changes to resale strategy. Factors we analyze include gross margin on homes closed in recent months, projected gross margin on homes under contract to sell, historical list price to resale price variances, and trends in gross margin, selling prices and average selling concessions or other costs of selling homes. We recorded a write-down to inventory totaling $5 million with a corresponding increase to cost of revenue in our condensed consolidated statement of operations for the three months ended March 31, 2022. See Note 5 for additional information on inventory.
Employee Termination Costs
At March 31, 2022, accrued employee termination costs of $41 million related to one-time termination benefits and $2 million related to other severance and employee costs, primarily pertaining to ongoing employee benefit arrangements, were recorded within accrued compensation and benefits in our condensed consolidated balance sheet.
Accelerated Depreciation and Amortization
We have adjusted the useful life of certain assets impacted by the wind down of Zillow Offers operations to end on the expected cease use date. This adjustment resulted in the accelerated recognition of depreciation and amortization primarily related to internal use software and website development costs.
Contract Termination Costs
At March 31, 2022, $4 million of contract termination costs are included in accrued expenses and other current liabilities in our condensed consolidated balance sheet. These costs relate to contract termination penalties and costs that will continue to be incurred under contracts without further economic benefit.
Financing-Related Charges
Financing-related charges incurred for the three months ended March 31, 2022 include the accelerated recognition of certain deferred debt issuance costs and debt discounts recorded to interest expense in our condensed consolidated statement of operations. Financing-related charges for the period also include expenses recorded within loss on extinguishment of debt within our condensed consolidated statement of operations primarily related to prepayment penalties incurred on the repayment of Zillow Offers financing facilities. Refer to Note 11 for further discussion of the Zillow Offers debt activity for the three months ended March 31, 2022.
Note 19. Subsequent Events
On May 4, 2022, the Board of Directors authorized the repurchase of up to $1 billion of our Class A common stock, Class C capital stock or a combination thereof. This authorization is in addition to the $750 million repurchase authorization previously announced on December 2, 2021. The repurchases may be made in open-market transactions or privately negotiated transactions, or in such other manner as deemed appropriate by management, and may be made from time to time as determined by management depending on market conditions, share price, trading volume, cash needs and other business factors. The repurchase program does not have an expiration date.
In April 2022, in connection with the wind down of Zillow Offers operations, we repaid the remaining outstanding principal associated with the 2021-1 and 2021-2 term loans of $320 million and $473 million, respectively, plus accrued interest and prepayment penalties.