Welcome back to the afternoon session. I'm Brad Erickson. I cover internet here at RBC. Very pleased, as always, to have the CFO of Redfin, Chris Nielsen, here, straight from Seattle, near my hometown of Portland. Nice to see you. That's, that's right. Yeah. All the way out east. I know. I love that we both fly to New York to chat. Exactly. That's great. Thanks for hosting us. Of course. So just had our lunch, maybe palate cleanse a little bit. You guys printed, I guess it was a week or two ago. Maybe just a quick minute on the quarter, and then, most importantly, what are the kind of two or three key questions you're getting from investors after printing earnings? Sure. So I think we've continued to be pleased with the business. We gained market share sequentially in our core business, real estate services. That was a good progress for us. We felt really good about that, and then we generated Adjusted EBITDA profits. That's what we expected to do coming into the quarter. But with mortgage interest rates having headed up during the quarter, we were really pleased to deliver on those financial results. And so, we do think that we've made a lot of cost reductions in the business. We've got things set up that as we gain share and as the housing market recovers, when that happens, we'll be in a really good spot. And then, the things we've been talking about with investors since then, had lots of questions about Redfin Max, which is a new way that we'll compensate some agents in San Francisco and Los Angeles. Lots of questions about where that's headed and what that looks like. And then, just a lot of general questions about things we've been doing in the business and what we're thinking about for 2024. So- Yeah ... good variety of things. Yeah, yeah. Really productive set of conversations. Yeah. So let's start with just kind of market, and everybody knows there's not enough. Prices are too high, rates are too high, and there's not enough inventory. It's a good summary. How do you...? Pretty simple. How do you think about just what, what are the unlocks from your guys' perspective? You, you obviously see a ton of data. What, what could happen, what can happen, what needs to happen for the market to, to stabilize or improve? Well, I think that what we've seen during the course of the year is existing home sales has been headed down. Mm. Mostly, that's been related, in our view, to the amount of inventory that's available, that there are still a lot of buyers interested in purchasing homes, even with mortgage interest rates up, even with affordability, a bigger challenge than it's ever been. It's that available inventory that's been the toughest spot. Yeah. That is also somewhat related to mortgage interest rates, that some potential sellers have been sitting on the sidelines because they've got a 3% mortgage interest rate today, and they're reluctant to trade that in if they were to buy a new home on a higher interest rate. You know, in terms of the unlocks, I think there are a few. One is just that time passes, and that's that people can defer a transaction for a while, but maybe they've taken a job in a new place. They've got a different number of people living in their home. They eventually decide, "Look, this is just a time to- Yeah ... to move on. Yeah. I think that that works in the favor of inventory. I think a second thing that's generally been a positive influence is the amount of new home construction. Mm-hmm. A lot of the homes we're selling today are new homes. That's good for volumes, but it also then starts to create a backdraft of additional inventory into the market. I think we're continuing to look for situations where there are baby boomers and other folks who look to leave their properties at some point. Yeah. So, I don't think that we're entirely locked in related to rates, but that's for sure the biggest potential catalyst- Yeah. Yeah ... as if there were a rate. Yeah. And one question, I don't know if you get asked this a lot, but just in terms of, you know, first-time home buyers, I think, tend to over-index towards digital channels. Is that the case for you? And I guess, how is that manifesting in the business right now? It is the case for us that I think we have a greater propensity to people who are new into the market in that kind of way. And I do think it's a little bit of a headwind right now on our business. Yeah. At some point, that'll turn around, but it's been really hard for new home buyers to break into markets at this point, and so, it's a little bit of a tougher spot. I think, you know, maybe one of the best green shoots that we talked about just barely on the call, and I'd call it a germination of a seed here, rather than maybe a green shoot, and that's just that we have seen some amount more potential seller activity on the website- Yeah ... late into the year. Mm-hmm. Actually, it looks to us like new listings for the market in total have held up pretty well during the course of the year. Mm-hmm. And so- Yeah ... it would be encouraging if that trend continues in the next year. That's, you know... It's still too early to turn that into any kind of prediction- Yeah, yeah ... but nice to see a couple signs that way. Got it. And then, you've spoken to sort of medium-term targets, we'll call it, in terms of profitability. And I think, you know, you may have pushed those a little bit on the quarter. Right. Maybe just refresh us on sort of where we were, where we are, and then specifically, as you think about kind of the 2024 plan, what are some of the market inputs that you've embedded within your thinking, particularly around the profitability targets? Sure. So what we've said to investors is that we're driving to Adjusted EBITDA, profits are neutral, trailing twelve months as of June of next year. We'll have to work hard to get there, particularly with what I'm going to say next, which is: we think the first quarter housing market looks pretty bad. Yeah. Like, we're at this point, we're assuming that it looks a lot like things are today, which is pretty low in terms of existing home sales. That has us really buckled down on every discretionary expense we can make in the business. Yeah. We're just being really careful until we can see more clearly to what the market looks like, to add projects, to add expenses. We're maintaining our emphasis on having the right tech teams and the right growth platform in place- Mm-hmm ... but really, again, cutting everything we can think about discretionary-wise- Yeah so that we're set up to have a first quarter with losses that are lower than we would typically see. You know, our business operates seasonally, with revenues that are lower in the first quarter, and we start to incur expenses for the peak of the buying and selling season in the summer and the first quarter. And so one of the ways we can really manage this during the course of the year is by keeping those expenses down. Yeah. That's a real focus for us right now, which is just to be super careful until we can see more clearly- Yeah with what the housing market looks like next year. Yeah. And when you talk about that Q1 sort of... I know that's not guidance or anything- Yeah but just, you know, a general outlook on the market. Is that assuming sort of rates are stable from here? And talk about just seasonal versus just the unique dynamics of right now, that could be significantly, like, incrementally worse or stable- Right I guess maybe. I think our baseline view right now is that rates stay where they are at this point- Yeah or don't move a lot into the first quarter, and existing home sales also stay low. Yeah through the first quarter. And then, I think our visibility, you know, beyond that is pretty low- Yeah ... and we'll continue to adjust based on what we see. So this is mostly-- my commentary is mostly about things not getting worse or better in the housing market, but just what's typically a lower seasonal pattern. Yeah. So we'll want to follow that in terms of how we operate the business. Got it. Okay. And then you announced the refinance deal with Apollo, I think, just prior to the last quarter. Talk about the timing on that, why that's important, and why now? Yeah, sure. So we've had a discussion going on with Apollo for a while now. We're pleased to move forward with that transaction. It's a $250 million term loan facility due in 2028, and what that allowed us to do is have plenty of capital available to address our 2025 convertible notes. And part of the reason to pursue that transaction now was the uncertainty that we had around the housing market. I think if we'd been able to see more clearly to a recovering housing market, perhaps we would've made a slightly different decision. Yeah. But when you've got uncertainty on the housing market, you just want to make sure you've got plenty of capital to invest in the right ways in the business. And so we were really pleased to put together the transaction with Apollo that way- Yeah ... to be able to set up to operate the business carefully, but again, with the right capital structure- Yeah so that we can do the right things to continue to grow. Yeah. Yeah. Yeah, because I imagine lead agent capacity, right, is a super important consideration. Tough to historically, I think, tough to manage through, you know, the weak seasons or the moment that rates tick up or what have you. Talk about... You just kind of alluded to it, but a little bit more detail. How heavy or light would you say you're running on agent capacity? Mm-hmm. Again, stable rate scenario in the next year, we'll assume things are normal, seasonal. Are you going to have to ramp back up on agents, or are you kind of where you're- where you need to be? We're mostly where we would want to be in terms of agents. We'll maybe talk in a second about San Francisco and Los Angeles. They're just two places we'd like to have a few more agents. Yeah, yeah. But more generally, when we look across the U.S., we're in pretty good shape, matched up- Yeah with the supply of agents we have against the demand Yeah that we're seeing. You know, that, in some ways, is a little bit of a projection into what does March and April of next year look like? Yeah - when things really start to pick back up seasonally. But we do feel good about agent counts in that way, and we'll continue, you know, as we do every year, to assess that- Yeah regularly from now through the peak buying and selling season next year. Yeah. What does that and, you know, again, back to whatever the rough agent capacity load you're carrying right now, what does that portend in terms of market share, right? Like, how do you think about that? Sure. So one of the things that's nice about our business is that we do have our own brokerage agents, but we also work with partner agents from other brokerages, like Coldwell Banker or Century 21. So when we see more demand in a market than our agents can handle, we allow for those customer introductions to go to partner agents, and that's one of the protections we have on market share gains. So you know, what's really, in our mind, driving market share and will drive market share going forward is that we feel like we're performing really well at the top of the funnel- Mm-hmm ... competing for website visits, competing for traffic. That's the fuel for share gains. Yep. At this point, we're okay being somewhat tight on agent count- Mm-hmm ... and okay with the continued shift to partner agents. Mm-hmm. Because there's, again, just been enough volatility here- Yeah that I'd rather be on the side of, you know, a half a step too late. Yeah getting to adding agents Mm-hmm rather than two steps too early. Right. And let's just say, for example, that the market does start to come back a little bit. We return to growth. Would you... You know, again, given that agent capacity, would you over-index on that, would you think? Would you under-index, or just kind of would you be in line with the market? I think we would, our goal here has been to allow a little bit more to go to partners here over time. Okay. I think we would just let things slide a little bit in that direction and be okay with that. Got it. Okay. Yeah, so let's talk about Redfin Max. You know, you've had the partners approach, I would say, has given you some nice excess capacity at times, right? Particularly in those moments where, you know, coming out of Covid, right? For example, you guys had to downsize very, very quickly- Right ... and then just hiring back took a while, longer than probably you might have thought. What's the strategic rationale here with Redfin Max as you fire that up in San Francisco and LA? Yeah, sure. So this is a change to agent compensation. It's a pilot program in those two markets. The difference is that we're eliminating base pay for our agents. Typically, an agent's total pay is about 25% fixed, 25% base, and then the rest is transaction bonuses, and this will move to entirely 100% variable pay for the agents. And the logic of this is that what we wanted to be able to do is provide a larger bonus, a larger split, particularly for more experienced agents who wanted to bring a book of business to Redfin. So there are some agents we'd like to have on the platform, particularly in these more expensive markets, who can serve customers well. They've said, "Oh, I'd love to be on Redfin, but I have some customers I've been working with, and I think I should get paid more if it's my customer, and I'm perfectly happy getting paid less if it's a customer that you as Redfin have sourced." And so we do think of this as a bit of the best of both worlds. It's a way to be able to attract some of these agents who we think will perform really well on the platform. Yeah. So the reason we're running this as a pilot is that, you know, we're getting a sense right now for how the recruiting is going under this program, and early next year, we'll get a sense for how the agents who join the company deliver against that. We, of course, wanna see that those agents are able to continue to improve close rate, you know, perform really well with the customers they meet from Redfin.com, and bring some extra deals. If we get that combination, we'll be pretty excited about this program. From a financial standpoint, it does reduce our fixed cost base in, in the business, and so that's another piece, a little bit to your point about some of the challenges of matching up agent staffing against demand. Mm-hmm. If this program were something that were to roll out, it would take a little bit of extra pressure off that topic. But we've gotten a good response to it so far. Yeah. The early weeks of recruiting have been pretty encouraging here. Some agents we had been talking to about joining Redfin were immediately excited about the program. They've since, you know, signed on the dotted line to join, and we've had some reach out from other people we've met over time, and so I think we're pretty encouraged, but still really early days. Yeah, yeah. And what would be kind of your initial expectations of handling Redfin leads, as well as producing on their own, given that's the whole reason they're there? Yeah. So we do want the larger portion to be producing against the Redfin customers. Sure. That's the important part for us. This is not just about trying to add more value, but it's trying to close better on the customers who are already coming through the mobile application- Yeah ... coming through the website, wanting to meet a great agent. And so that'll be probably the most important determining factor here, is do we continue to see a good close rate, even a better close rate- Yeah ... with this agent base? If we get that, again, we'll be really happy. But this is about delivering against that- Yeah ... that customer set- Yeah ... as much as it is, or more than it is anything else. Got it. And I guess along those lines too, how do you think about kind of the operational and service challenges, really, right? You're sending a lot of leads to an agent who happens to be super productive through their own acquisition channels. Is that? That seems hard to execute. Maybe talk about that. Yeah, no, it's, it's been an important part of our decision criteria here, which is we've been really thoughtful in talking with agents about making sure that they are used to working with customers who come through websites- Yeah ... that they're used to working at volume. This is not just about delivering against their existing customer base. Mm-hmm. And so, you know, from experience, from having hired agents for a long time, we've got a little bit of a sense for that, but it's definitely a part of- Yeah ... our interview process. Part of the evaluation is making sure that people are set up, are ready to operate- Yeah ... in that kind of environment. Got it. It's hard work. Is there any way to dimensionalize the compensation difference that they're walking away from as they come to you? In terms of the split that they would receive on their self-sourced deals, we think of this as a very competitive split. Sure. Top agents under the Redfin Max program will have a split of 75% on their self-sourced deals, and it's really even better than that because these agents continue to be employees of Redfin, so we're paying medical expenses, we're paying for licensing. You know, the effective split is really higher than that. Yeah. So we think it's a really competitive program that way, and, you know, the sales pitch to agents is, a really competitive split, plus more volume- Yeah ... from Redfin-sourced customers, plus this idea of business in a box, which is we've got you set up and ready to go from day one. Yeah. Yeah, and you mentioned, so the economics, is it, from a gross profit perspective, is it roughly equivalent with the partner business then? I would imagine. Yeah, I mean, the way to think about it is that it's roughly comparable to the existing agent compensation- Yeah ... in total. Yeah. We don't think that this will have a meaningful impact on gross margins up or down. Got it. Okay. If it works well, we'll have more gross profit dollars- Yeah, sure ... but this is all still, you know, a little bit in the wash because we'll have a chance- Right ... to see it better over time. Right. Right. And just to understand too, you've still got full Redfin agents in San Francisco and L.A. I mean, those are two of your largest markets. So this is all incremental, or is some of it maybe a mix shift? Yeah, this is a good clarification. So all of our agents in San Francisco and Los Angeles are moving over to this compensation scheme. Got it. Okay. So, the way to think about it is that agent's job is just the same as it is today. Sure. It's just that they're getting paid slightly differently. Yep. Yeah. That's the change. Got it. Okay. And so that brings you back to the capacity question, right? So there may be a requirement for some more lead agent capacity in those markets, right? Because suddenly you're occupying some amount of existing capacity, right? That, that's exactly right. Yeah, yeah. Okay. So we do think that there's some net hiring we wanna do in those two markets. Yeah. We're already one underway on that. Yep, yep. Okay, got it. And then I guess last question, just maybe back to the general, so off of Redfin, I expect the general agent capacity. You're carrying this heavier load. I imagine that does weigh on gross margins a little bit. So how should we think about that trajectory? Because you've, I mean, you've made some, for reference, like you've made some nice changes over the last year, which have contributed accretively to that line. Sure. How do you think about over kind of the medium term as you're getting ready, hopefully, for a better spring and summer selling season? Yeah. Yeah, so in the third quarter, gross margins for real estate services were up 440 basis points year-over-year. Really pleased with that progress. We do think there's more room to run that way. Yeah ... that we're pretty well staffed right now against the demand, but I think our productivity can also be somewhat higher against that demand. Yeah. So that does leave for some room to continue to expand margins here over time. But reasonably pleased, I think, with what we can see right now on our staffing levels. Got it. Let's move to the topic of legal and regulatory matters in the industry. Everyone's favorite topic. I guess at a high level, let's start with, you know, you guys well anticipated pulled out of the National Association of REALTORS®, what, two weeks before the some of the decisions came down. So, well played. What are the implications for the data around that? Because the MLS is an obviously a very important input. You guys have the majority of the country feeding- Right ... into your platform, and turns out the MLS and the NAR are very sticky about that in certain jurisdictions. Sure. So how does it have any impact or create any impediments from a data perspective, I guess? Yeah. So we did pull out of the NAR in some markets. We wrote a blog post about this, but there were some things we were dissatisfied with. And in terms of what that means going forward, there are markets where our agents remain members of the NAR. I expect that will continue to be the case because there's a requirement to do that in order to participate in the Multiple Listing Service. So the net impact of this decision, what we think is the right one, doesn't really impact the business in any meaningful way. But we did wanna, you know, stand on the side of what we think is right in terms of how agents should be represented and how people should be treated generally. Yeah. And as you think about, you know, considering the business risks going forward, right, you've seen an initial few decisions which are only in a, you know, particular part of, parts of the country, relatively small parts of the country. Right. As a management team, and again, considering those risks further out in the future, are you under the assumption that this will get eventually extrapolated to the rest of the country, or how do you think about that? I think it's really difficult to tell what the outcomes of these court cases and how they move and a variety of things like that. The outcomes at this point are still so difficult to determine, and there are so many of those outcomes- Yeah, yeah ... that we haven't spent a lot of time trying to handicap or guess what- Mm ... is likely to happen there. I think we do feel good about our position as a company, that from the beginning, we were built to save customers money. We were built to stand on the side of customer choice. Yeah. And so we've, you know, to this point, we've saved customers over $1.5 billion in commission fees. And the technology that we've built gives us a platform, we think, to navigate the business- Yeah ... under a variety of outcomes. That's really where we're focused, to make sure that that's ready to go, regardless of how things proceed legally. Got it. And let's just say, as a scenario or an example, let's say we do completely unbundle buyer commissions from the listing. What is the direct effect? We can talk about Redfin in a sec, but what do you think the impact to commission levels will be from that perspective? I think it's really tough to tell what happens to commission levels under that kind of scenario. You know, our sense, our experience here is that many customers want the representation of a buyer's agent. That's been pretty clear. Sure ... in our experience over time, and so you've got to believe, we've got to believe that there's some portion of customers who will continue to choose that. But then, you can imagine there are lots of different ways that the rest of customers proceed, and that part's still pretty unclear at this point. Yeah. I guess thinking about maybe like a state of Washington situation, right? Seattle being kind of your, you know, I think that's where you have the highest market share- Right ... of any market. We saw some. We didn't see a full unbundling per se, but we saw an increase in the optionality, right, with the listing agent to be able to remove some of the to force the buyer's agent to figure it out on their own. Did we see any impact from that in terms of buyer commission rates? I think it's been difficult to tell the impact on buyer commission rates. Yeah. I think that, you know, that's a place where we certainly have advocated for commission transparency. That information is available on our website. Got it. I think it's been good for customers to be able to see that information, but I don't have a good read on what the impact is otherwise. Okay. Okay. Okay. And I guess last question on this. You've spoken to this a little bit, but remind us kind of the reasons you think Redfin—I mean, part of Glenn's messaging was saying: Look, whatever happens in the future, we're gonna kind of be ready. What are the, the, what's the moat, I guess, that, that gives you some level of immunity, right? He's not saying totally immune, but, but what are the, what are the points that investors should consider there? Yeah, I think, you know, maybe a few comments that way, which is we think we've built a more efficient structure, in part due to our technology, than our competitors. And so that gives you an advantage in a situation where there's price competitiveness. So our technology allows us to have customers schedule tours easily. We have a contractor network to execute those tours, and then we've also built technology to allow consumers, even if they're not represented by a buyer's agent, to place an offer directly on a home. Yeah. So those are among the pieces. And, you know, we do think that having 50 million monthly visitors to the website is a really nice thing to have in a time of change, which is when there's change going on, you wanna make sure that you have access to customers, and you already have that. Got it. I guess one last one, I guess, if I can sneak it in. More on the theoretical side. One of the last things I think Glenn mentioned in the blog post was, says, "Hey, if the MLS completely goes away, all bets are off. We're still a huge site, and we'll have, you know, the listings." Talk about and again, maybe not even for Redfin specifically, what would it look like to execute a website with listings where you are attempting to become the repository for information, you don't have the MLS construct? Like, what would that look like? I do think there are countries that look more like this. Australia is a place where buyer's agents basically don't exist. Yeah. And so if you're buying a home, you instead go to the selling agent, who represents the properties that they have available. You know, in some ways, that would be a step back for U.S. customers because there is a huge advantage right now to being able to see everything that's for sale, not just what's for sale from one listing agent. You'd still have to pay the MLS anyways. Well- Transaction costs- Depending on how everything comes together. Yeah. I think that's fair, but one of, again, one of the things that's nice from our standpoint is having so many people who already come to the website provides a, a platform, a basis- Yeah ... to construct that kind of business. Got it. A lot about the core business. Let's, we only have a little bit of time. Yeah, no problem. Let's talk rentals. Okay. A source of strength recently. You guys are, you know, you, you bought Rent, you turned it around, you reorged the sales force, and it really feels like you're starting to gain a little bit of momentum there. Is that, is that kind of returning to growth in terms of adding some of these multifamily facilities? Is it, is it organic growth? And, and maybe just a reminder on where are you in terms of the penetration, right? Sure. Apartments.com is obviously the number one player. Zillow has a lot of share there. Where, where are you guys? Yeah, we're in that top group of companies, for sure. Mm-hmm. Apartments is the leader in that space, and we're fighting hard against them. That's how we think about it. The progress there has been—mostly it's been about adding more properties over time and then delivering more services for those properties. Yeah. And so that's kind of the formula we continue to think about. We do think there's room to continue to grow that business, to hold down its costs moving forward. It has a really great margin profile, gross margins above 75%. So you can just... Because it's a subscription business, adding that revenue- Yeah ... you know, really contributes to the bottom line over time. So, you know, kudos to the team for having made a lot of progress there, and it's something we'll continue to drive going forward. What kind of... Any help on what kind of EBITDA margins you could target, maybe at scale? Yeah. You know, prior to our acquisition, the business had 15%-20%- Yeah ... EBITDA target or margin. Mm. So we know that it can run at those kinds of levels. We'll have to keep working hard to get there, but there's at least a historic basis to see that. Got it. And maybe moving to the rest of the business, same kind of question. Let's start with real estate services. We'll move to mortgage- Yeah ... in a sec. Given some of the partner mix you mentioned earlier, what, what do you see as, you know, I don't know if you've laid out targets recently on that, but where, where do you see that going? Yeah, we haven't provided much of an update there. We do continue to think about gross margins as headed up- Mm ... with a target mid-30s or more. Mm-hmm. Mm-hmm. That does set up for a similar kind of operating margin- Yeah ... outcome as what we just talked about. Got it. And then lastly, maybe just hit the kind of the gross profit potential with mortgage. Mm. In that case, obviously, you don't have the customer acquisition costs. Right. So how do you think about that contributing? Yeah, that's the right way to think about it. So we've had attach rates now a little less than 20% with our Bay Equity products and continue to think there's room to improve that. Yeah. The gross margin profile of the business has been lower just because industry volumes have been- Yeah ... down so much. But- Yeah ... but we do think generally about having gross margins in a similar kind of territory as real estate services. Got it. What's your, and I don't know if you've called out any, what's kind of your peak attach rate you've seen on Bay Equity in markets where you're doing better? Yeah, we've definitely been above 30% in markets. That's part of the reason that we believe there's more room to run on that front. Yeah, yeah. So it's about getting those markets that are below that and also getting some of the agents that are below that, up to those levels. But there's some really good proof points that way. Got it. Then last one, I know we're just out of time. Balance sheet-wise, post the financing, how are you guys feeling, obviously, into whatever storm we may be heading into? Hopefully, we're coming out of a storm eventually. Not that we're already-- not in, but, yeah. But just in terms of... I think we feel good about the steps we've made. We've paid down, repurchased almost $500 million of convertible notes. Yeah ... since last time at this event, and so, you know, pleased to having done that and pleased to be set up going forward. Got it. We will call it there. We're out of time. Chris, always a pleasure to see you. Yeah, thanks, Brad. Thanks for being here. Good seeing you too.