Great. Welcome, everyone. Thank you so much for joining us. I'm Bernie McTernan, the internet and consumer tech analyst here at Needham & Company. My pleasure to introduce Chris Nielsen, CFO of Redfin. Thank you so much for joining us. Thanks for having us, Bernie, really appreciate it. Great, and so if anyone has any, well, I have a bunch of questions to run through, but if investors have questions, please type them into the portal or email me, bmcternan@needhamco.com. We'll be sure to get to them. But Chris, maybe just to start macro, housing market, you know, what are expectations for 4Q? Like, what's incorporated to guidance? And, you know, I know interest rate expectations seem to be changing on a weekly basis almost, but how do you think this is impacting the market as we head into 2024? Sure. So our commentary back to earnings a few weeks ago was that it looked to us like the market had been pretty slow here for a while. We've seen existing home sales below 3.9 million units, seasonally adjusted. That is pretty low, and that's mostly what we've expected as we think about the fourth quarter, but also even into the first quarter of next year, that we haven't seen a lot of reason for change, a lot of catalyst for change. Now, maybe some of the information about mortgage interest rates over the last 10 days or so will begin to flip the switch on that. It was certainly nice to see the impact that the announcements on inflation had on the 10-year, and then subsequently on mortgage interest rates, and so that'll kick up some amount more activity on the part of buyers. And then we mentioned this on the earnings call also, that, you know, it'd still be way too early to call these trends, but we've seen a good amount of interest on the part of potential sellers, even late into the buying and selling season, that new home listings coming onto the market has held up really well seasonally. And we've seen a lot of interest on Redfin.com from potential sellers, even late into the year. So it would be fantastic news, welcome news, if it turned out that we started to see more inventory as we went into 2024. Again, we're not counting on that until we can see it come all the way through, but maybe a couple of early signs that way. So I think the summary would be still pretty slow. Not expecting it to get a lot better, but a couple of hopeful signs. Do you think it matters if, you know, rates are 7.5 versus 6.5? I know that, like, we used to talk about a lot when they were rising, if it was kind of like you're just hoping for stability. Right. Like, is that the same way on the way down, too, or like, what's... Like, just thinking about the change in interest rates, how that matters? Yeah. The change in interest rate is difficult on buyers because they're wondering if things are going to be better or worse the next day. So, the lack of stability has been a difficult function, difficult part of this year. But lower rates is unquestionably better than higher rates, and so I think that, you know, we've seen consumers be pretty responsive to even half-point movements. And so if we start to see rates come down, I think it's likely to just further activity on that further continue activity on that front. And I think that the dynamic, maybe this is obvious to folks, but might be slightly different than people are expecting, and that's just that what's really held back the market has been inventory. So if a few more potential sellers feel like: "Oh, I'm not trading in a 3% mortgage interest rate for an 8% one. I'm trading in a 3% one, and I was really lucky to get that 3% one. For now, a 6.5% one," like, the delta is not as large, and so it's probably the case then that people are more likely to move forward with their listing. Do you think supply is getting to such where, like, you could- it could be helpful with affordability or that we could actually see prices crack a little bit or, or not, not that much? I don't think that much. It would really come down to if there were enough of a supply inflection to make that difference, and it's just been so long, we haven't seen the signs of that. Yeah. There just are more people who want to buy homes than there are homes, and even if there were a little bit, some more supply, it's not going to fundamentally change that dynamic. Yeah, it's not enough to structure shift. I got you. Okay, maybe moving over, you know, Redfin Max, that was certainly one of the key topics of the earnings call. But just to level set for everyone, can you just describe this, you know, I guess call it, like, a test program for now, but like, why it could be attractive, why it makes sense just to potentially pivot from more of a fixed cost compensation model for agents to more variable? Sure. So that is the change with Redfin Max, where we're changing the compensation structure, moving away from a fixed component for agents. Historically, about 25% of agent pay has been fixed. We're moving to an entirely variable structure. The reason for this is that we did think that it would be important and helpful for agent recruiting, particularly for recruiting agents who are a little bit more experienced in the industry. And so we felt like there's a bigger opportunity, particularly in some of the more expensive housing markets, like San Francisco, like Los Angeles, to attract a little bit more experienced agent who's used to working with a customer on multimillion-dollar purchases and sales. And so the additional variable compensation. is the piece that we had heard from some potential hires that they really, they really wanted, and in particular, wanting to have more variable compensation for their own customers, the customers they've already sourced through multiple years in the industry. Right. That's what we had heard from these agents is, "Yeah, I'd love to join Redfin. I'm excited about the customers you can introduce me to every month, but I've got my own book of business here a little bit, and I don't wanna give up all the economics on that." And so we do think of this program as a best of both worlds one, where we can attract those agents and provide them higher compensation for their own book of business, and then deliver, we think, even better service through those customers who are sourced from Redfin.com. For the customers that are sourced through Redfin.com, like, so if I'm an agent and I have my own, you know, book of business, I mean, theoretically, they're gonna be much more incentivized to just, you know, work with their referrals more. But is that gonna, like, devalue, like, the Redfin.com funnel, or, like, how should investors think about that? 'Cause I think it is a strategic asset, and I think you guys do as well. Sure. So we think that that's a really important dynamic here, which is, we do want the more experienced agents, but we also wanna make sure that they're serving Redfin.com customers very well. It's part of the reason we're running the pilot program as we are, which is to be able to observe how does that push and pull play out regularly with agents. And we'll be monitoring just very closely, agent to agent, that close rate from the Redfin book of business. And if we're not delivering on it the way we want to, that's either a change we need to make in the compensation program, or maybe the agent's not acting the way that we want to in terms of their attention to those Redfin customers. You're right, it is a critical strategic asset, the ability we have to meet customers for free from the website. That's our most important funnel, and we don't wanna detract from that. In fact, the purpose of this program is to enhance our close rate with those Redfin customers. And so that is the single most important characteristic or parameter that we're measuring through this pilot. Yep. Makes sense. Maybe take it to an extreme, like, could you ever just lean on the partner program higher? Like, would that make sense? But then you're not kind of owning the experience. I'm not sure if that's optimal either. But yeah. Yeah, that's the right, that's the right consideration, the right trade-off, and during the course of this year, we have already migrated more towards transactions through our partner agents. That's been a good change. We've been happy with that. The reason to not push it farther is the one that you mentioned, and that's just that we can see that the close rate, the customer experience, is better working with our own brokerage agents than it is with partner agents. And the difference is enough for us to, you know, not want to meaningfully further migrate the business towards partner agents. Okay, got it. And then have you guys ever given, like, a rule of thumb or way to think about what percentage of leads come from Redfin versus agents sourcing themselves? We have not. To date, it has mostly been customers coming from Redfin.com, and it's also part of what we're hoping to understand through this pilot program, which is, you know, how much does the volume swing towards agent-sourced transactions under that kind of environment? My own take is that I don't think it will change a whole lot, just because the power of Redfin.com to deliver- customers to agents is so strong that I don't think it will meaningfully switch things, but it's part of what we need to understand. Okay. To evaluate, like, how these test markets go, you know, close rate's really important. I think Glenn was talking a lot about gross profit dollars on the call. Right. Anything else that, you know, you guys are thinking through in terms of evaluating whether this is a success or not? The one other thing to mention is the one we're already starting to see, and that's just, is this an attractive recruiting offer? Are we able to hire agents under the program? And the early results, I think, are pretty encouraging on that front. You know, shortly after introduction, we were able to start tracking down some agents we were already talking to and have them agree to join the company. But the first indicator will be, can we recruit against this program? And then from there, you're talking about the right things in terms of close rate and, ultimately, gross profit. Right. Okay. Yeah, I mean, it's hard to see, at least at minimum, how it's not beneficial to market share. We're pretty excited about it. I think that the team's been really smart about putting this together, thinking through how it'll work, and I have been really pleased to see agent interest in it. Okay. Well, so this is just kind of like a test program right now. You still have, you know, most of your business on the older model. How does agent count just feel, you know, heading into 2024, in terms of, you know, where you're at? And then, and also does... Like, you know, you could be on the precipice of a transition here, so how much of that is weighing on your thinking in terms of, like, what's the right number of agents to have on the platform right now? Sure. I think we're mostly pleased with the number of agents we have in the overall pool across the U.S. We are talking about this program, we were just going through hiring in San Francisco and Los Angeles, because we think that there's more demand there than we have supply of agents at this point. And we'll continue to pay attention market by market here as we go into the first part of next year. So mostly, I think we feel pretty good about the level of our staffing, and I think you'll see us be pretty careful about any kind of incremental hiring until we can have a clearer view on what the housing market looks like in 2024. Okay. We saw that the revenue per brokerage transaction really accelerated this past quarter, so it was up 6% year-over-year, in 2Q accelerated 14%. We had, I think, full impact of the price increase, some, you know, just housing market tailwinds just from pricing. Anything else that's really pushing that higher? And then does that, I don't know, does that give you, you know, maybe more confidence that there's more pricing levers to pull from here, over time? I think we were really pleased to see that continue to come up. You're right, we've benefited from the year-over-year pricing change that we made for home buyers. We've also been recording in revenue there some of the fix-up work that we do for people's homes. So we prepare some homes for the market a little bit ahead of introduction, so there's a little bit of benefit from that as well. And then we are certainly benefiting from home prices that are up year-over-year. You know, that may be a little bit surprising if you haven't followed the housing market closely, because you would think in a period of time where things are really flattened out in terms of transactional volume, prices might have come down, but they haven't, and so, we're benefiting on that front. So, I've been glad to see that come through. It is what we had mostly expected for the year, but it's still nice to see it materialize. Okay, got it. Maybe just, you know, another, like, high-level question, but just the value of your, you know, website or consumer portal, like, how is that changing in an AI world? And like, what are you doing to... or how are you thinking about maybe incrementally monetizing this asset? Yeah, I almost think about those two things as related, but slightly different. I think in this kind of world where there are more AI capabilities, we are trying to use those wherever we can, and it's still really early days, obviously, in terms of the use in real estate. But we just have a ton of data, number one, and then it's a complicated transaction for a buyer or seller, and so they have a lot of questions. And so we'll wanna use that data along with the AI technology to help answer those questions. And we have a small tech team who's already working on that, trying to use the technology in a few different places, and I think you'll see us be pretty thoughtful about pulling it together on behalf of consumers. And then in terms of monetization, this is a place I'm really excited. The team has just made a massive amount of progress in the last year. You can see this recorded in our other segment in the financials, but we're growing our advertising revenue faster than any portion of the business, and that's just about putting website ads in the inventory that we have for consumers. People have responded really well to that in the earliest days. And what I like also is that we're just getting sharper all the time about those offerings being relevant for consumers. The most recent one is that we've just launched new construction inventory on the website, and that's really helpful for someone thinking about buying a home today, because there's such a low level of existing homes. Yeah, there's no supply out there right now. Like, perfect, and oh, by the way, we get to monetize that. It's, it's just been, again, still really early days, but a pretty nice, a pretty nice combination. Is that through the partnership with Zillow that came out in August, or is? Yeah, it is correct. So that's the source. Zillow is the source for that inventory, and it's been a good, productive relationship so far. Okay. All right, that's helpful. And just, I know... So jeez, it was maybe this time last year or maybe I'm getting the timing a little bit wrong, but there was definitely some, like, traffic issues that were happening. You guys are making a lot of progress to fix it. Just where do we stand now in terms of just, like, traffic top of funnel to the website? Sure. This is a big win, we think, during really all of the year, but it's continued into the later part, and that's that we've been gaining website traffic faster than our competitors. We did have a period of time in the summer of 2022 where we weren't performing as well for our our recommendation engine wasn't executing as well as we'd wanted it to. But that's long ago been fixed, and the team, even beyond that, has been performing really well to improve our search rankings, to continue to drive customers back to the website. It's the reason that we have a lot of confidence in our ability to grow market share over time, is just that the team has performed really well, competing against others for website visits, and and we're thrilled by that. Got it. And so we, we've been talking around it a lot, but really, you know, the crux of all this is kind of like, what's the path, you know, back to share gains or more significant share gain- Yeah and, kind of, how you're thinking about that and, you know, over the next, you know, even 12-36 months? Well, it does start with what I was just mentioning, which is website traffic. That's the fuel for our share gains, and then you layer into that, that we have a variety of initiatives going on in the brokerage. We talked about Redfin Max. There are some smaller initiatives, but still important, that our teams have been working on to get customers out on tours with the lead agents as much as we can. So having the agent who will serve them through the whole transaction meet them on a first tour, that's a basic but an important initiative to forge that relationship. We've been doing some things, making inventory available to our own agents, that we think has been really helpful. So it's been a combination of things that gives us a lot of confidence in our progress here. We were really pleased to see market share tick up from the second quarter of the year into the third quarter of the year. That probably happened a little bit quicker even than we had expected, but, but we're glad to see it. And so it's the most important initiative within the company, which is to get us back to market share gains, and I think particularly over the last few months, been pleased with the progress we've been seeing. Got it. And so just the touring issue, is that just the lead agent was sending their, like, junior out on the tour, and, like, that was the issue, or? Yeah. It wasn't even an issue. It's what we were asking agents to do. And so this is a subtle change, but one where in the past we've really emphasized satisfying the time the customer wanted to go on a tour. So if the customer said, "I wanna go at 10:30," we would say, "Great," even if it turned out that we weren't able to send a lead agent at that time. And increasingly, we've tried to find ways, either reschedule the agent or maybe ask for a different time from the customer. But particularly with that first tour, we wanna forge a strong relationship. We want the agents to be selling their capability to be able to deliver for the customer, and the best way to do that is a first meeting, in-person connection. And so that's really a place where we've said, "Look, let's turn the dial a little bit away from convenience and a little bit more towards that initial introduction. Yeah, like making sure that conversion happens. That's right. Yep. Yeah. Yep. Okay, maybe just moving over to mortgage, attach rate is really kind of average in the high teens, which is really strong, so it's working. So what is working well with Bay Equity, and kind of what are the kind of main points you guys are focused on as we're entering 2024? Right. Well, the thing that's working well is the relationship between the loan officers and the individual agents, that when we see attach rates much higher than high teens or 20%, it is that we've made a good connection between the loan officer and the agents. And that is then... You know, the flip side of that is that that's part of the opportunity as we go into 2024, where we just know that there are some markets where we haven't had enough loan officers, we haven't had the right connection, we haven't built the right trust yet with the agents for them to want to recommend Bay Equity as regularly or strongly as they have in some other situations. And so I think of the, you know, the nearest in opportunity as this basic blocking and tackling, of connecting up the loan officer with the local agent. We think that that introduction then from the agent to the customer is the most powerful thing that we can do. So that's kind of number one. And then number two, the teams are working on a variety of technology connections to make introductions electronically, even if a potential customer hasn't yet connected with an agent. So we feel like there's room to run beyond that. But the most important thing is what I mentioned earlier, and that's these connections between the loan officers and the agents. So we're really pleased with how the Bay Equity team has executed here, and how responsive they've been to helping to get things set up. And, puts us in a spot where we're pretty optimistically we can keep growing this. Does anything change, like, if we moved, like, you know, we fast-forward and Redfin Max is now a bigger part of the company? Like, does anything happen around attach rate, do you think, or it's kind of still play the same playbook from your perspective? We don't think anything should change that way. We think of it as the same core playbook, and it's part of the reason that we have our agents as employees, is that I think that we're, you know, enthusiastic about how we can help drive attach rate, because we all work together that way. Understood. Okay. And then I think it was the first quarter, Bay Equity came out hot with, like, the 20%, or mortgage came out really hot with the 20% gross margin. Yeah. What's the path to getting back up there? Or, like, is that possible? I just wanted to double-click on it. Yeah. We do think it gets back to 20% and more. What you're seeing right now is a fair amount. Well, it's two things. One is there's some just variability quarter to quarter in terms of gain on sale. But the more difficult pressure that's existed all through this year, and if anything has probably just gotten worse as the housing market has slowed down, is that there's excess industry capacity here. And so what that's doing is holding down gain-on-sale margins. And until there's more volume or until more people leave the industry, it's gonna be tough to climb much above the margins that we see right now in that business. You know, we think that the Bay Equity team has been more than responsible, in fact, pretty aggressive about reducing costs in this environment. So I'm really pleased that the team has found the way to get to the right size against a smaller market opportunity. But, we do think that gain on sale is probably the lever that drives back to more gross margin. Understood. Okay, moving over to rentals, grew about 20% in 3Q, guidance for another 20% growth in 4Q year-over-year. That's a nice acceleration. What's driving the momentum in the business? Sure. So our team is just executing better. They've been coming to the market, coming to apartment buildings with a better package, a better description of what we can deliver, and then they've been delivering on those results for the buildings, meaning we've been bringing leads and ultimately leases to the buildings. And so this has mostly been about execution. I do think we've gotten a little bit of a tailwind here also, because vacancy rates have been heading up in buildings, with a lot of new buildings having come online. And so that's yet another reason for the buildings to advertise. But the most important thing has been the team's execution and so, you know, we did get to positive Adjusted EBITDA on that business in the third quarter. That was ahead of when we'd expected to do that. Really pleased to see that financial progress in addition to the progress with the customers. What's, like, the right long-term margin assumption for this business? Gross margins have been 75%+, and we think operating margins, obviously we're running negative at this point, but should be up in the teens to the twenties. That's the way the business is operated historically, and we saw a lot of evidence to suggest we can drive back to that. But mostly the way we'll get there is not reducing expenses, it's about growing the top line here. Yeah. That we've got the fixed cost structure. This is true more broadly across Redfin, but we feel like we've right-sized our fixed cost structure, our operating expenses, to this lower housing market environment, and the way to drive to more profits is by continuing to grow revenue. And that's for sure the piece of the rentals business is true. Yeah. Okay, well, that's... Yeah, 'cause I wanted to touch on that with the consolidated base- Yeah and still getting back to EBITDA positive. And really, yeah, I mean, 'cause it kind of like the... I would say one of the main themes coming out of earnings season, more broadly in our coverage, is just what can you control versus what can't you? And so I think there's a, you know, you're you guys have been doing a lot, especially on the expense side, for what you can't control. But just maybe thinking about that equation in terms, in with the output of getting back to EBITDA profitability, like, what needs to happen from here? Yeah. Well, your description's the one that we have also, which is we've been, we think, really thoughtful and aggressive about reducing expenses. Our headcount is down 38% since April 2022, which is when mortgage interest rates started to head up. So we've reduced expenses across a variety of categories. The way we expect to manage the business going forward is to then hold those fixed costs fixed, even as we start to see some improvement in the housing market and keep gaining market share. And so what we think of... You know, the simple way to put it is what do we think of as being in our control? It's two things. One, is keeping our costs down, and then number two, delivering great service for customers. If we deliver great service with the kind of machine we have for growing website traffic, it should really set us up for share gains and revenue growth. But those are the two things we think of as being, you know, most in our hands. Understood. And then, I mean, geez, the employee count coming down 38% is substantial. I mean, thinking about, you know, one of the questions that we've been asking, just on, like, AI efficiencies, I mean, anything that you've been able to pull with that? Yeah, I think that it would be more about where we wouldn't have to add headcount going forward. Yeah. But I think that- Cost savings kind of stuff. That's exactly right, and I do think that there are questions that are answered today by our agents, that are really basic questions about real estate. You know, we want the interaction between the customer and the agent, but some of those things I do think can be handled ultimately by AI. And so we'll wanna test our way into that. You know, I do wanna be a little bit careful not to rely on the technology to the expense of that interaction with the agent. But there, again, there are some basic things that I think those technologies are well suited for. Understood. Okay, and then maybe just lastly, hitting on capital allocation. You guys did the convert deal a couple weeks ago, I think. It feels like a couple months ago, but it was pretty recent. The world, the world changes fast, right? Yeah. I mean, like, other opportunities to do deals like that, or maybe even so, like, top-down, like, what was the rationale for it? And then, you know, is that an attractive thing potentially you're going forward on? Sure. So since last year at this time, we've repurchased about $500 million of convertible notes, have used our cash and various other sources to do that, and then we announced the transaction, term loan due in 2028, to give us even more firepower to either repurchase or pay down those notes. So I think mostly at this point, we're pleased with the trajectory we've been on. We've made a decision to do that term loan because we were just uncertain enough about the housing market for 2024, that we wanted to make sure that we were being proactive rather than reactive, if it turns out that the market continues to be really slow into next year. But, mostly we've been pleased with the progress we've made on that front, and I do think that there are other capital alternatives that we could consider over time, or capital transactions. Mostly, though, we're focused on driving the business to profits, you know, the best form of capital is the profit you generate yourself. And so we'll continue to have that, as the top priority. Got it. Well, Chris, let's leave it there. Thank you so much for joining us again, always a pleasure to spend some time with you. Thanks for the audience for joining, also really appreciate your time, and have a great rest of the day. Take care, everyone. Thanks, Bernie. dfi.Yep. Thanks, Chris.