The mid-cap analyst here at BofA that covers online real estate, including Redfin. I'm very pleased to welcome Chris Nielsen, who's the CFO of Redfin. Chris has been there for about 10 years, and prior to that, he was the CFO at Zappos. We're gonna be doing a fireside. First, we'll be covering a little bit of kinda the industry dynamics. Obviously, not a lot going on now, competitive, you know, sort of, competitive dynamics, and then some questions specifically to Redfin. Yeah, Chris, I mean, the first thing I wanted to focus on, again, you guys see, you know, a lot of the market, right? Publish a lot of data, and have a lot of insights, it'd be great just to get kinda your view of what's going on. I think a good way to sort of sum up the year so far is a stronger than expected start, right? Despite still high rates and affordability being a bit of an issue. I think the question on a lot of people's minds are with a re-acceleration in rates, we're kinda back to 7%, right? You know, we could see another $1 trillion of treasuries issued over the next couple of months. You know, not hard to make an argument that rates stay higher, maybe for longer in the near term. I mean, have you seen any deterioration in terms of kind of realized demand? I guess, has there been any change to your forecast or the company's forecast, for volumes, you know, of about, what, $4.2 billion-$4.3 billion for the year? Sure. Going all the way back to last fall, we had said we expected for this year about 4.2 million or 4.3 million existing home sales for the year, and we talked more about that on our most recent earnings call. You know, the way I think about it is we just have seen an awful lot of interest from home buyers. Even as mortgage interest rates have been up, there are still people who want properties. Their interest increases as rates come down a little bit and wanes a little bit as rates go back up. Even at the current level of rates we see right now, there's just an awful lot of interest from home buyers. What's holding the market back more than anything else is just a lack of inventory. That combination of very low inventory and a lot of interest from buyers is really holding prices up well. Prices are down a couple percent, maybe nationwide, on a year-over-year basis. Mostly, given the amount of change we've seen in the industry, I think prices have held up relatively well. You know, I would describe the first part of the year as rates came down as being stronger than we expected, and then things mostly since then have been about what we would have expected, given that set of dynamics. You know, we're partway through the year. We're just watching everything really closely from this point forward. Again, mostly, those are the dynamics that we're seeing. Sure. maybe just focusing a sec on on the seller side again, I mean, inventory, right? I don't think it's quite at, you know, record lows, but it's not that far off, right? you know, basically, kind of a seller strike, buyer strike, you know, I mean, just sort of locked in. I mean, again, aside from the obvious point in terms of lower rates, perhaps helping things, what kinda unjams, you know, people who are sitting, you know, on 3% mortgages, perhaps want to move but can't- Mm-hmm. right? Is it just a matter of that, and you know, what's going on with the, you know, the interest rate market? Sure. Well, I do think that's the biggest factor, which is many sellers who are considering putting their property on the market have a 3% mortgage interest rate, and so they don't wanna trade that interest rate for a higher one if they were to go rebuy a property. That dynamic is probably the most prevalent one. In terms of things that can change that dynamic, there is a decent amount of new home construction going on right now, and that's positive, and that starts the flow of activity, that gets. Mm ...some of the cycle moving. I think we're encouraged by that. Just more generally, I think, I do have a point of view that life happens, and that that's part of what drives that change, that people have changes in family situations, they move maybe for lifestyle reasons or for a new job or something else. For a period of time, people can defer that sale, but eventually, those kinds of life decisions really do accumulate, and that- Yeah ... that's part of what will get things moving. Again, mostly I've been pleased at how the market has responded to an awfull lot of change in a short period of time, and it does have us encouraged with the level of buyer activity we're seeing. Sure. Still. Okay, fair enough. Just kind of thinking about... I mean, we've been predicting recession for, I can't even count how many quarters now, right? Doesn't feel like we're, you know, gonna head in long into something severe, but I guess under a modest or maybe a moderate recession, let's just say, in the next 6 months-12 months, what does that do to volume levels at, you know, sort of the 4.3 ish level? Do you think we're kind of at a relevant bottom for some of the things you've said, or, you know, do you think we could see? What's the likelihood of sort of downside from a, again, a volume perspective from here? Yeah, it probably connects a little bit to how significant the recession is. I think a modest recession is probably neutral on the housing market, that if anything, that might draw a little bit more inventory into the market, which would be healthy. You know, we're certainly not rooting for that in any kind of way, but I think that, you know, that dynamic is something we're paying attention to, but it does seem less likely at this point. Mostly it is interest rate dynamics. Yeah ... and the ones we were talking about earlier that are driving the housing market. Okay. Maybe just I'll move on to, you know, kind of non-macro questions, but just as a last one, just how are you guys thinking about 2024? I know kind of a long ways off, but. Right ... do you expect that could be a year of growth, not? Why or why not? Just particularly from a volume perspective, how are you. Right ... looking at next year? Yeah, we haven't published any forecasts on 2024 yet. There are a variety of publicly available ones, so that's probably a good reference point. I think generally, you should think about us considering the market similarly for next year. I think it's the same set of dynamics that we've been seeing this way, so far this year. Maybe just one more comment is that, you know, the kinds of volumes we're seeing this year are far below the long-run averages. So, you know, whether it's 2024, 2025, 2026, we do expect there to be more volume in the industry here. It's also important for investors to know that we're not expecting, or counting on a significant uptick in market volume to help drive our business next year. We've buckled down for what is a difficult housing market, and if we get some expansion on top of that, we'll be excited. We're not basing our business plans on it. Okay, fair enough. Just moving a little more into the industry itself. Love to hear just a little more on kind of the competitive landscape as it stands among your brokerage competitors. You have made, or Redfin's made a bunch of improvements in terms of changing workflow loads for all of the senior brokers, or agents, I should say. It's, I don't know about a model for the rest of the business, but, you know, hopefully bring more productivity through. I guess, how are your competitors responding to, you know, as you put it, a tough market? How are agent attrition trends, you know, relative to Redfin or vice versa? Right. Well, I think the competitive dynamic is similar to the one that it's always been, which is it's about providing great service to customers. You know, we think about it as providing, not only that service, but also savings to the customer. That's the way we've long competed. It's the way we compete today. I don't think we're seeing a significant change in how competitors are coming into market, and mostly, not only brokerages, but individual agents have buckled down, to provide even more focus on customers, just given the lower volume of activity. Sure. I haven't seen a meaningful change in those dynamics. In terms of attrition, we've seen attrition rise and then fall some. Mostly we're pleased with the level of attrition that we're seeing. Of course, we always want to keep our best agents and make sure we have plenty of agents to serve customers. We've seen attrition come down, particularly in the early part of the year. We do think that that sets us up well as we look forward. Okay, fair enough. I think in your last call, maybe the one before it, you pointed out, you know, some nice improvements in your site traffic, just on a, you know, a standalone basis and relative to, again, your competitors. You know, what's driving that? I think search optimization was one thing in particular, but anything else to note? I mean, just keep thinking about it in the context of advertising, which, you know, you pulled back given demand. It's, you know, it's impressive. Yeah, again, what's driving it? You know, sort of what's the plan to better convert more people, you know, raising their hand and. Right ... on your site to talk to, agents? We're very pleased with how we're competing for website traffic right now. With top competitors, there are only a few players who have significant website traffic, and from everything that we can see, we're outgrowing those competitors, so really encouraged from that standpoint. It is mostly about search optimization. One component of that goes back to an acquisition that we completed about two years ago, but just added the inventory to the website in March of last year, and that's having now added rentals inventory. We're giving customers not only for sale properties, but the choice to look at rental properties as well. We're so glad that we have that, given the relatively low inventory we were just talking about, that's holding back existing home sales. It's nice to give customers that alternative, and that is also the kind of thing that Google notices and helps drive search ranking improvement over time. You know, this is the kind of area we just have our tech teams and our data teams spending a lot of time on, and really pleased to see the results there. You know, a little bit to the second part of your question, not only have we seen strength in website traffic, but we've had a series of initiatives to optimize that traffic better then, to get people to reach out for service at Redfin, if they're interested in buying or selling a home. Those kinds of conversion optimizations are really forefront of our tech team's work right now. It is a lot of experimentation, but we found some good wins there. You know, we think of that as forming the basis for future growth in the business. We're accumulating activity, website traffic, potential customers, that will help drive the growth of the business going forward. I guess, how relevant would that be to, company's expectation to start regrowing share in three Q and four Q? I think at the moment, you're roughly flat, you know, as of, one Q. Anything else important in terms of, again, getting the conversion through and retaking share? Right. That is correct, which is we were down just a little bit year-over-year in the first quarter of this year in terms of our market share. What I just talked about is the most important thing to think about share gains going forward, and that's that we are putting more people into the top of the funnel. Mm-hmm. We're engaging with more consumers. That forms the basis for share gains down the road. That is the most important activity or initiative or early indicator to driving share. Got it. Maybe this might be a little bit more of a long-term question, but just, you know, has the company given any consideration in terms of. All right, so, you know, we've got the brokerage business, right? We've got the rental business, we've got mortgage business, you've described it through the core business, but kind of expanding beyond that, in terms of other home services. Like, as an example, you know, using the brokerage platform as a lead generation service for insurance or home improvement services or moving, you know, whatever, right? I don't think there'd be any, like, RESPA compliance issues or anything like that. Is that viewed as an opportunity? You know, I guess, how meaningful could that be if, you know, you were to go down that route? Not just advertising, but actual lead generation. Right. Yeah, so in terms of the services we provide today, we really do think of those as the main ones: brokerage service, mortgage, rentals, title. We think of that as a tightly woven set of activities that are important for consumers. Then there are a variety of things, you know, one layer around that, including insurance, a variety of home services. Mostly, as we think about those areas, we would want to partner with people, partner with advertisers, provide, lead generation, customer introductions. We, of course, always want to be thoughtful about those customer introductions and make sure the customer is getting great service, because we want to continue to build the reputation of Redfin rather than taking away from it in some ways. We're mostly focused on those as opportunities for advertising and additional monetization on the website, rather than building those businesses ourselves. Sure. It is because we think of the former set that I mentioned as the most important ones, just right around the transaction itself. For sure. Yeah, that makes sense. Turning the page, I guess, a little bit, rental segment, you know, has been a bright spot, you know, certainly for the past couple quarter. Organic growth, right? I think that's being helped by, you have a new partnership with Realtor.com. I just would love to kind of go through how to think about kind of the rest of the year. I think you've talked a little bit about vacancies coming on and that helping. Right. You know, what are the primary drivers to, I believe, a target for positive EBITDA by 4Q? Are you adding more inventory? You know, what are the most important things to kind of get there? Sure. That's the right description of the business. I think the team has just done a fantastic job turning that business around. We've gone from having revenue decline on a year-over-year basis to +13% in the first quarter of the year, and we expect even more year-over-year revenue growth increase as we go into the second quarter. Mostly, the progress there has been about engaging more customers, driving more revenue, working with those customers. Here, the customers primarily are apartment buildings who work with us on advertising and some other kinds of related services to help fill up their buildings. I do think we'll receive a little bit of a benefit, because there are a variety of buildings that are completing this year, that are coming online, and so there's probably a little bit of a tailwind from a revenue standpoint. Mostly, this is about executing the business well. Yep. The teams have just done, you know, a fantastic job of reorienting customers around the services we can provide, packaging those services in ways that are understandable. Ultimately, all of that comes down to delivering great value for the buildings. Yep ... but ultimately, people want to see that those advertisements turn into high-quality leads and leases. The team's been delivering well on that front also. We're really encouraged here. A lot of work completed, a lot more to do, but mostly this is about, continuing to drive revenue going forward. Sure. Then just sticking on that for a sec, just, you know, how would you, I guess, describe Redfin's competitive positioning, you know, relative to, say, Apartments.com, you know, which is a huge platform? Zillow is, you know, doing pretty well in terms of their business. Are you taking share sort of, you know, even queue with them? Yeah. Yeah. How is the competitive sort of landscape in rentals? Yeah, the way I think about it is we're in the fight, for sure. Mm-hmm ... at for clients all the time, we're competing well. I think the business has benefited. I mentioned it earlier, we've included all of this inventory on redfin.com. Redfin has 50 million monthly visitors. You mentioned it also, we also provide that inventory to Realtor.com in some cases. That's putting even more eyeballs on all those properties. The value proposition for an apartment building has just gotten better because- Yep ... you know, part of the pitch is, "Hey, we can make sure this property gets a lot of views, including from- Yep ... some people who are thinking about potentially buying a home, and, you know, that really benefits you as an owner to help get it filled up. For sure. Yeah, I know, plenty of eyeballs on the business. Mortgage segment, also another area which, you know, really has performed nicely. Really cleaned up that business with Bay Equity. You know, basically doubled your attach rates, right, over the past, call it a year or so. You know, another business where, you know, expecting a pretty nice kick up in profitability. So just kind of thinking about, I guess, sort of the scalability of Mm-hmm of mortgages. I mean, just sort of what would it take to kind of redouble, you know? Right ... is that even feasible, right? How much of that business is, you know, Redfin brokerage-derived versus, just the, you know, people coming in wanting a, you know, a mortgage, because, you know, who knows? Maybe because it came up on a Google search. Right. Yeah, would just love to think how you guys are thinking about the long-term growth potential and scalability of it, you know, after, you know, some pretty good results so far. The business that we acquired, Bay Equity, previously operated as a freestanding mortgage originator. Their loan officers have relationships with a variety of customers, but also real estate agents, and that remains an important part of the business. About half of the business today. Okay. It's still a very significant chunk, and that's even with volumes having pulled back. Yeah. You know, almost no refi activity at this point, other real estate brokers have seen a deterioration in their existing home sales volumes as well. That's kind of with the state of the business today. In terms of scalability, it is the kind of business that can scale quite quickly. The loan officers are used to and able to work even at much higher volumes than we're seeing today. Sure. It's one nice thing, which is we feel like, you know, the spring is loaded, that as there is more activity in the mortgage space, we're ready to capture that. Sure ... in a lot of ways. You know, on the back office side of things there, we would probably have to do a little bit of expansion to keep up with the volume. Mm-hmm. It's the kind of business, again, that's mostly set up to expand quite quickly, as we see volumes return there. You know, we've been super pleased here. You mentioned it earlier, but our attach rates to the Redfin brokerage business, have come up even quicker than we expected. About one in five Redfin home buyers now gets a mortgage through Bay Equity. We really hadn't been above about 5%. Yeah ... previously to that, so a really quick ramp on that front. We do think that there's room to even go higher than that. We have markets that are significantly higher than 20%, so we know that there are proof points, so we can keep driving that going forward. Okay. Fair enough. One of the, I guess, most common questions we get, at least at this point, on Redfin, is just how to think about EBITDA targets for this year. Mm-hmm. Right? Which, I think you laid out a couple of quarters ago, breakeven or better, you reiterated on 1Q. It implies a pretty material uptick, right? From kind of the first half to the second. Would just love to walk through how dependent that is on volume improvement, how dependent that is on the share gains, which you talked about a little bit. You know, do you see any challenges from, you know, marketing, at least in terms of what's implied for the back half, you know, good. Right ... and the buyer rebates being pulled, stuff like that. Just walk through kind of the framework, to get to breakeven or better for the year. Yeah. I'd think about three pieces to this. One is that second half volumes, just following normal seasonality, are significantly higher than first half volumes. We typically see third quarter revenue for the brokerage higher than second quarter revenue, much higher than first quarter revenue, fourth quarter revenue also higher than first quarter revenue. The, you know, the reason for that is just that many people start their home search in the first part of the year, and then they complete it in the summer, late into the summer. I think that, you know, that's even maybe more likely to be true this year, just because inventory has been so tight, and as I mentioned earlier, people are still out there searching for homes. One component of this is just the natural seasonality of the business. Mm-hmm ... where we should expect more volume as the year goes on. I think the second factor is that typically we see expenses, particularly on the marketing side of things, decline during the course of the year. It's for the same reason really, which is we're spending dollars to meet people in the first part of the year, who then close transactions later. We just see less benefit from marketing in the second. Yeah ... half of the year. You know, those first two things, revenue up, expenses down. Then maybe the third component is just continued business improvement, including through the rentals business I was talking about. Yeah. Title has been coming on with more volume, each of the last few quarters. Then on top of that, we haven't hit on a lot yet, although you asked a question a little bit about it earlier, and that's that we're continuing to add more advertising revenue from the platform itself. So, you know, that's part of the way that we get extra contributions. Yeah ... in the second half of the year that help us get to those targets. You know, there's a lot of work left to do. We're sitting here in the first week of June. We realize that there's a lot to do, but we do think that we're set up well. Okay. And just, I guess, you know, under scenario where, but, you know, hopefully not, we do see deterioration in volumes from here for, you know, whatever reason, whether it's rates or, just, you know, who knows, right? Right. I think, Chris, you had made some mention on the last call about there potentially being pockets where you could pull back a little bit more. I guess, kind of what's the magnitude there in terms of, whether it's, headcount or advertising or... Mm-hmm ... whatever, to be able to hit that breakeven target? Is that possible if, let's say, we don't, you know, do 4-3, and you don't gain share? Right. you know, we would take more action in the business. That's the way we've talked about continuing to approach the rest of the year, that we can and would take costs out. I think the easiest lever to pull, particularly if there were a housing downturn, is on the marketing side of things. We've already taken some action there. Sure. The reason is just that spending a lot of marketing dollars into a declining market, you know, it's just not a great return on investment. I think you can see us take action there if we need to. Further, you know, we'll continue to reevaluate headcount all the way along. Sure. If it turns out that to get to some of our targets, we need to have fewer people, you know, we know that we have some flexibility that way also. You know, that's not the way we're planning. Mm ... for the business, but, we're watching things really carefully at this point. Yeah. I expect to the rest of the year, and we'll just keep navigating. Sure. Maybe kind of, I wouldn't call it a counterpoint to that, but let's just suppose, you know, we get to a situation where we're starting to regrow volumes. How quickly would you be able to, or would you know, bring on new brokers, right? I mean, you have to consider, obviously, you're getting ahead or not in the selling season, advertising. Right. You know, I guess, what's the stance in terms of, you know, chasing, I mean, chasing is maybe not the right word, but... Yeah Getting ahead of, you know, an uptick in sales? How convinced would you need to be? I think we'd need to be pretty convinced. Yeah. If anything, I think you'll see us be one beat more cautious-. Yeah About rehiring, adding to agent count significantly. In part, it's because, and we mentioned this on the last couple of earnings calls, we would like to shift the business just a little bit more towards Partner Agents. You know, that's one of the ways to allow us to navigate through times when the housing market slows down, is that about 20% of our transactions are completed through Partner Agents when we don't have enough capacity from Redfin agents in a local market. You know, that kind of quick uptick, I think you'd see us be a little bit cautious about hiring into that. Yeah. Allow a little bit more of the business to move to Partner Agents, and then navigate from that point going forward. You know, we're thinking about that scenario as well. Yeah ... for what it's worth, that we wanna be prepared. We will be prepared when the market returns, so that we're ready to act. Mostly, we're just focused on watching volume here just really carefully, given the amount of volatility we've seen over the last really couple of years. Sure. Maybe just before we move on to the next one, just a brief summary of the economic or the economics, between, you know, transactions you do through your own... Yeah -agents, and then, the Partner Agents, where, you know, you're basically getting a fee for giving them, I guess I'll call leads. Yeah. Yeah. The way to think about it is that we employ our own agents at Redfin, we have a set of costs associated with that. That business runs, you know, call it in the mid-thirties from a gross margin standpoint. The partner business is different from that, we receive a referral fee that is equivalent to about a third of the commission on a sale, there's very little cost to serve that. Yeah. It's a much higher gross margin business. We do think of the dollars, at a reasonable price point as being about the same... Right either way. We want to run the business to be a little bit agnostic. Yeah about whether we serve the customer, through the partner program or Redfin agent. certainly, on more expensive homes, we know that serving that customer through a Redfin agent is just much more profitable. Sure. The commission dollars are substantial, and we're also just much more likely to be able to complete the sale. Sure. Close rates are better with our own agents. You own the transaction and, you know, service might be better, all the rest of it. That's right. Okay. I guess just the last one, I'll ask before, you know, we turn it over quick to audience for any questions, is just capital allocation and how to think about the converts. I think the next big maturity is 2025. Just, you know, how would you look to address that? You know, how much would your decision perhaps be influenced by first hitting EBITDA? Mm-hmm ... positive this year, and then, you know, potentially positive, net income next year, right? Right. Would you look to do a refi, take out maturities, high yield, cash? You know, what's the thinking through, you know, the converts cycle? 2025 is the next large chunk of notes. We've already begun to address that. It's part of the reason we made the decision last year to shut down RedfinNow. We've taken dollars from that. Previously, this was our iBuying business, which was a user of capital. We've repurchased now over $350 million, or $315 million of convertible notes. That's against a maturity of about $660 million originally. We've already reduced that liability quite a bit. Yeah. We've thought of that as a very good use of capital. You'll continue to see us pay a lot of attention that way. In terms of capital structure going forward, we always wanna be just thoughtful consumers of the capital market, thoughtful partners with those capital providers. We don't have an explicit plan one way or another in terms of how we address those maturities, but the most important thing is the focus that we've had on driving the profits. That's the way that we can drive more equity into the business. Yeah is by generating those profits. That's where most of our attention has been. Sure. Hopefully put you in a better position when refi or whatever comes up. Yeah. I think we have a couple more minutes, if anyone would like to ask a question, by all means. Oh, guess we were thorough, Chris. Once, twice. Good. Okay. Well, Chris, thank you so much for, you know, for your time, thoughtful answers, and, yeah, appreciate you giving us the time. Yeah, thanks for the invitation, Kurt. Take care. Thank you.