I'm Curtis Nagle. I'm the SMID-cap internet analyst here at BofA. With us today, we have Chris Nielsen, who is the CFO of Redfin. Welcome, Chris. Thanks again for coming. Really appreciate the time and your thoughts and, yeah, looking forward to the discussion. Well, thanks for the invitation. Glad to have a chance to spend some time together. Terrific. So, let's get into it, I think, just from the top, in terms of your framework and your expectations for the U.S. market as a whole. You guys tend to be ahead of the curve, you know, at least relative to your competitors in terms of making calls, and you know, that's certainly been the case the past couple of years. Last earnings call, it sounded like that you were a little more cautious going into May in terms of perhaps touring and maybe just, you know, relative activity, maybe a function of lower demand. So from here, I guess, what do you think are the puts and takes? What are the risks in terms of volumes, particularly if rates stay elevated? Do you think we perhaps saw a bit of a pull forward in, you know, perhaps, you know, February and March, where, you know, the numbers are pretty good? Yeah, I think that, our expectations for mortgage interest rates this year have certainly tempered. We don't expect there to be rate cuts in the first part of the year. Maybe sometime late in the year, there will be. I don't think anything we're saying here is revolutionary in terms of investors' expectations that way. And really, it's because of that, that we're more cautious about the housing market the rest of the year. I don't believe that anything got pulled forward meaningfully in the first part of the year, but with rates up, and then if you just look at existing home sales last couple of months, it's been in the 4.1-4.2 million units sold annually, and that's mostly the way we expect the year to play out at this point. Mm-hmm. You know, maybe late in the year, if there are some interest rate cuts, things would start to pick up. But, we're certainly not planning on that. We're not expecting that. Yep. We don't have the business counting on that kind of change. Yep. And then maybe just a little bit more recent commentary that way is that I think, our econ team has published some information that we've started to see maybe a little bit more inventory on the market- Mm. The last couple of months, with maybe a few more price drops than we would sometimes see. Mm. This time of year. Mostly, we think that would be healthy for the- Yeah. Housing market. Yep. Because the market has really been held back by inventory so much, so maybe a few extra glimmers in that way. Mm. But the most fundamental thing is that there are still many potential buyers. Yep Who have been sitting on the sidelines, waiting. Yep. Trying to find the right time to purchase a home. And with inventory tight, they've been cautious to do that, and maybe there'll be some more opportunity. Yeah, maybe just as a side question, so kind of to your point, it feels like we're running basically at just complete non-discretion demand about $4 million. Yeah. Right? You look past the past two years, or the start of the year, you got temporary dips and just kind of floodgates came in, right? And then rents went back up and sort of receded. So clearly, there's rate sensitivity in terms of, I guess, maybe it's consumer perception issue. What about pricing, right? How and maybe it's a hard question to answer 'cause, you know, last time pricing went down, right? Right. It's been a while, but, you know, how important could that be in terms of, maybe clearing the decks a little bit? I think it would be. Volume. I think it would be good news if prices started to slow. But mostly at this point, the buyers who are in the market have gotten over this affordability hump- Mm-hmm. The combination of higher prices. Mm-hmm And higher mortgage interest rates. Mm. If they're entering the market today, they know things are more expensive than they were several years ago. Mm. And so I don't think, you know, a slight change in price would have as much- Right. of an impact. I do think mortgage interest rates have at least some temporary psychological impact. Sure. When rates go up to 7.5% or down below 7%. Yep. That clicks in people's minds a little bit. Yeah. That seems to be the hurdle, 7. 6 was the hurdle, now it's 7, right? Maybe 6.5 is now sort of the, the sweet spot, at least relatively speaking. Yeah. Yeah. Well, again, we see people responsive that way, but the underlying picture is a lot of buyers and not very much to buy. Got it. One of the most common questions I get is, and I'm sure this is super, super topical and, maybe the same thing for you, is just how we think through the settlements. At least my view would be kind of in its current form, it doesn't seem like it's going to be super impactful in terms of the structure and in terms of commission rates and probably not a lot of change. I think that's your view. On the other hand, there is, I think, a decent bit of concern around the DOJ, and them potentially intervening and, you know, they've been fairly vocal, I think, in the past couple of weeks in terms of just, you know, wanting lower rates and perhaps bigger change than what might be suggested in the commission structure. So, commission settlement. So I guess just how do you assess that, and, you know, what do you think—how do you view that as kind of a relative risk for Redfin? Yeah, sure. So, you know, in terms of the rules that are going to be coming out later on this year, those rules are still coming into focus. I think mostly at this point, we're getting a sense for what it'll look like, that there will be more transparency, more communication to buyers about the fees that they'll pay. We think that that's good. We want consumers to know what they're paying, and I do think that over time, that'll have more consumers asking the question about what those fees are and and whether there's another way they can get a real estate transaction done. But, you know, back to your earlier point, I think the kinds of rules we're seeing put in place today probably have somewhat less change involved with them than we might have-... expected or thought on the day we first heard about the settlement that the rule changes seem, you know, maybe a little bit more moderate than- Yeah. we initially would have expected. And so, you know, we're preparing for all those eventualities. We'll pay attention to what the rules look like. We'll be ready to go in lots of different ways. Mm-hmm. As that time comes. But we do think that most buyers will still end up saying: "Yeah, I'd like full representation in this transaction. I want the advice of a real estate agent, and will be willing to pay for that." And so, you know, we'll be ready for whatever happens. In terms of the DOJ involvement, I don't really have a perspective on that or what's likely to happen, so really can't comment further on that. Okay. All right, as a related question, just thinking about how commission changes, and obviously there are a variety of outcomes in terms of what happens to particularly buy-side rates. How that would affect Redfin, particularly if let's just say hypothetically, we got a point drop or, you know, give or take, but, you know, so something relatively material. Historically, Redfin is, you know, one of the competitive advantages that's been on price, so how would that impact that? And then in terms of your competitors, right, clearly relevant to them, so how does your cost structure compare to theirs in terms of how you would, you know, be able to work around lower rates? Yeah. Our agents do three times the number of deals per year as traditional agents. We've built what we think is a very efficient machine for helping customers buy and sell homes, led by the insight of our agents. And so we do think that we're fundamentally more efficient. Mm-hmm. Than our competitors are. So in that way, we feel like we're really ready for. Mm-hmm. A change if there were pressure down on those fees. Mm-hmm. We'll just continue to pay attention that way, see what consumers want, what they demand from real estate agents. Yeah And we'll follow suit. And you're prepared for. We are. You know, lower. That's how we feel about this, which is, you know, we've built the business to be more efficient. Yeah, yeah. That should advantage us in a world where there's. Mm-hmm. More price transparency. Okay. Yeah, totally fair. Next thing I want to touch on, so you've got a couple programs kind of in the works and, you know, rolling through. One of them is the Redfin Next program. I think you had intimated that it led to some market share gains. I guess, what is it about this program that, you know, perhaps a little more effective than current offering? Thinking kind of ahead, you know, if you're sharing at least some percent, some percentage of business, more commission to these agents, you know, when the market does rebound, do you rebalance to kind of the traditional business, where, again, your take is a little bit higher? But just kind of thinking through just that dynamic, and- Sure. What happens when you get to a more normalized environment. Sure. Redfin Next is a change in how we pay our agents, where starting in four markets here in California, we moved our agent compensation from partially salary and variable compensation to entirely variable compensation. We've been really pleased with how that program has worked. It allowed us to attract some agents, particularly here in San Francisco- Mm-hmm. ... who've driven a lot of volume for us. The agents have been really pleased with their earnings, frankly, on it. Mm-hmm. The combination of those things has led to market share gains in those first four markets. And so we've taken the experience there and then rolled this program out to a set of about seven additional markets. Mm-hmm. And have announced over 30 markets that will also get this rollout later on this year. So the intent of all of it is to share more of the commission with our current agents, but also agents we're trying to attract to the Redfin platform. And that seems to have gone really well. In terms of, you know, longer term, how we think about it balancing in the business and whether it has any impact as the housing market tends to rebound, we do think that this allows us to attract an even more effective agent- Okay. With our customers. So that's probably the most meaningful thing. Yeah. But fundamentally, it doesn't have an impact on the economics of the business, because really. Yeah. We've just taken dollars that were previously in the form of salary. Right. And moved them to variable compensation. Mm-hmm. And so it's essentially gross margin neutral. Yeah. In terms of how it operates in the business. Okay. I guess this is the next natural question then, if you know this seems to be a net positive, right? An agent from you and agents. Yep. What's the potential, you know, from rolling it from 40 right at the end of the year to nationally at some point? Yeah, I think that our experience so far has been so positive that it's more likely this becomes our national compensation approach for 2025. Okay. That it's moved from a test in four markets to more likely, that it's our national program next year. We'll continue to learn through the rest of this year and make an assessment about whether that's the case or not. But. Mm-hmm. It's encouraging enough to start thinking about it that way. Okay. You've also-- I think this was announced, I think, on the last quarter. New seller service, right, allows agents, you know, out of the ecosystem, right, to route, you know, listings through Redfin directly, and then you get a fee for it. I guess could you just give a little more detail on the business over the next couple of years, what potential revenue contribution could be? And then, I guess, are there any potential negative impacts in terms of your own agents, you know, within the system? Sure. So this is part of a larger theme, which is increasingly we've looked at additional ways to monetize the Redfin website traffic. Okay. We've some general advertising, we have advertising from new home builders, and this is yet another version of that, where a listing agent with Coldwell Banker or another brokerage could provide extra advertising dollars to us. Mm-hmm. For placement on the Redfin website for that property. This product is not yet launched, and so. Okay. Yeah, it's still under development, but we did want investors to know about it. In terms of how we'll evaluate it, it really is just like every other pixel on the website, which is we'll compare running this program versus any impact it has on our brokerage or any other business, and make an assessment about where we can earn the most money, where we can generate the greatest profits. And so, we'll continue to monitor it that way. But we do think it's something that other agents may be interested in, particularly if a listing agent in what could be a changing real estate world, is trying to meet. Right. Home buyers for that property. Yep. This may be another way that they're willing to spend dollars to do that. Yep. And so we're pretty interested in it that way. So still, super early days. Mm-hmm. Something that we wanted to let people know about. And assuming the approach would maybe be something similar to Next in terms of test market by market, maybe partner by partner, before you got the confidence. That's very much the way we've tended to roll out programs like this. It's a real benefit of having over 100 markets across the US, which is, we can give ourselves a good test bed and try and evaluate something, and then when we see good results, we can respond quickly with a rollout. Okay. Next, I'd like to move on to marketing and just thinking about your top-of-funnel strategy. Looking past the past couple of years, you've pulled back fairly dramatically, in terms of your at least brand marketing, including, I think, at, you know, the beginning of this year, right, with what's going on with rates. However, your site traffic has been, you know, doing quite well. I think if you know, correct me if I'm wrong, most on Google search optimization. How much longer do you think that is a tailwind? And then just in terms of thinking ahead to, you know, whenever volumes start recovering, we normalize, you know, you start, I guess, getting the confidence or maybe not because you're, you know, operating efficiently to go back into reinvesting in brand marketing. Sure. So the way we compete for website traffic is mostly about search engine monetization, search engine optimization. Our tech teams have been really effective the last few years in outcompeting others for that website traffic, and so we expect that to continue to be the case. We've reduced expenses across many parts of the Redfin business, but a place where we've been careful is on that search engine optimization, because. Mm. It's such an important long-term driver. Mm. of the business. And so that's what you see reflected in those traffic statistics, that we're competing really well on that front. A place where we have pulled back, to your point, is on brand advertising. Yep. Probably most specifically, television advertising. So we began a campaign in April of this year on TV. We pulled back from that then, in part, due to what you mentioned earlier, which is we could see mortgage interest rates up, and probably unlikely to decline as we got into the first part of this year. And our conclusion from brand advertising in that way is that it can be a really effective medium for us, but- Yep. It is expensive, and particularly in a housing market that's slower- Yep. The ROI just isn't there in the same way. For sure. And so it's probably the piece that you see us changing the most during the course of this year, where we've pulled back on that, and we're glad for having made that decision. Yeah. And I'm guessing the answer would be no. I'm just, but I'm a little curious from your answer in terms of... So again, you're getting the right results, you're spending well, you're being efficient in terms of your, I guess, performance marketing, effectively. Right. No impact from Homes.com? I mean, spending a gajillion dollars and being very loud about, you know, trying to scale up. Yeah, I mean, we certainly see their website traffic. We have a lot of respect for CoStar as an operator. We haven't seen a lot of direct impact of that on our website traffic or other business operations, and so, you know, it's a large market. We'll go head-to-head against Homes and others in this space. But again, so far, we really haven't seen it have an impact on the way our business operates. Okay. I want to move on to Gen AI. You have your own feature now, Ask Redfin, which is, you know, I think, a pretty useful tool in terms of addressing, you know, customer questions about real estate. I guess, how generally is Gen AI impacting your business? What are the opportunities from revenue and perhaps from a cost side? And theoretically, if you know, we're going to be focused more on Gen AI, could that be, I guess, an area of investment, you know, at some point, or greater investment? Sure. So we have been excited about using this AI tool set in Redfin to answer consumer questions. Real estate can be a complicated transaction. There's lots of information about homes and properties, and decisions in that way. And so on the website, consumers can ask questions. The AI engine tries to provide an answer based on that, and we've seen really good response in that way. I think that's mostly the way you'll see us approach AI in the business, which is we're not trying to build our own AI engine, we're trying to use tools that exist to make the customer experience better. Mostly, we think it's about providing better information for consumers, rather than some dramatic change in cost structure in that way. Yep. It certainly saves our agents some time during the day. If a question, a simple question that can instead be answered through an AI tool set. Mm-hmm. Rather than coming to the agent, that's very much the way we've approached this so far. So. Mm-hmm. Again, I think we're excited about it. I think our tech teams have been smart about using the technology, but not trying to be too fancy or on the bleeding edge of exactly what's going on Mm-hmm. In what's a really complicated area. Okay, fair enough. Rentals consistently been a, you know, a really strong and consistent part of your, your business. I think it's growing somewhere in the low to, you know, maybe mid-teens. Yep. Profitable in terms of EBITDA. Just thinking through the kind of the next few years—what is the revenue potential? What's the profit contribution potential of the business? And just kind of thinking about, I guess, kind of the competitive set, or, you know, Zillow on the one hand, Apartments.com. Right. -another CoStar property. How does Redfin compare in terms of users and listings, inventory, conversion rates, you know, those basic KPIs? Sure. So we have been really pleased with this business. We acquired it a couple of years ago and had to get the revenue-generating machine going, and the team has done that, so a lot of credit to them. Growth has been in the teams that way. We expect it to continue to be that way moving forward, and that's what has allowed us to get to profits. More fundamentally, we don't think that there's a lot of additional investment required in the business, and so as we drive more revenue, that should continue to fall largely to the bottom line. From a competitive standpoint, you know, we do mostly think of ourselves as going head-to-head with Zillow and CoStar that way. I think that historically, our customer base has tended to be medium and larger apartment buildings. Yep. That's been really successful for us. I think the piece that we've been adding, and I expect to continue to be a contributor, is that we've made that rentals inventory available on Redfin.com as well. Yep. It's getting even more eyeballs, including from some consumers who are deciding not to buy a home today. Yep. And instead are going to be renting moving forward. And so the place where we've probably got the biggest monetization opportunity is to take that website traffic, take those contacts from Redfin. Yeah. And continue to feed them through to the buildings and others who want to advertise in the space. So it's a really competitive space. Again, a lot of respect for the other competitors in here, but we think about it as going head-to-head against those. Okay. Then maybe just from a market perspective, and I think the messaging, you know, from whether it's you or CoStar or Zillow, has been, this is a good time to be in rental listings, given inventory is coming on, given pricing, right? You look at least the CPI numbers were down now. No change in that, right? Should we expect, you know, kind of tailwinds at least through the next, say, 12 months? Yeah, that's our view, that there is a little bit of tailwind in this industry right now, that buildings have been coming online. Those buildings are not filling up. Yep. That's an incentive for the building owners to invest in advertising those properties. And so, that's a nice characteristic, and we don't fundamentally see a reason for that to change. Okay. Mortgage is another bright spot. I think on your last call, attach rates are effectively one in three, which is an incredibly strong number. You know, well more than double where you were a year ago, and I think above industry standards. So I guess just the basic question is, one, just in terms of the attach rates, how much more headroom do you have? Sure. And then just how much, you know, would growth from here be a function of you know volumes and rates getting better? Well, we have both markets and individual agents who are above 40% attach rate. Mm-hmm. So we can see the proof point. Yep. That there's the opportunity to grow above this 30% level. Just in terms of our operations, we can see that there are some, you know, levers, some capabilities we have, to put our hands on that as well. You know, I wouldn't want to promise for investors that that's exactly what it looks like or that's the target. Mm-hmm. But that's the potential that we can see. We have been really pleased with the operational progress on this. Mostly, this has been about having our agents introduce a customer to a Bay Equity loan officer. Yep. And that introduction has been just really valuable, in large part because the Bay Equity team has then done a good job of working with the customer to find the right mortgage solution for them. We're increasingly inserting some simple technology in that introduction that we think will continue to drive more attach rate going forward, and so that's mostly how we've thought about this. There is a whole other, like, gear to the car in terms of mortgage here, and that's that mostly the business that we are running today is about mortgages for the purchase of homes. Right. As mortgage interest rates come down, there will be a period of time when people consider refinancing mortgages. Yep. And that'll create even additional volume. Mm In the business. So, you know, again, we don't expect rates to be down later in, this year. And so until, you know, we start to see that, we shouldn't expect it to be a meaningful part of the business. Yep. But it is an extra lever that we have. Yeah. Still down about, if you think about refi volumes, what, 85%? 80%? Uh, yeah. Maybe. Maybe even more than that. Yeah. Like, it's Yeah. For obvious reasons, but yeah. No, it's totally understandable. Yeah. But there will be an opportunity. It's one of the things, again, talking with the Bay Equity team, who have been in this business, owned the business for a long time. Yeah. I think they're excited about that, that potential. It, it'll happen. At some point. At some point. For sure. Okay, cost structure for Redfin, something you know you admitted you've been very, very thoughtful about, whether it's finding capital light, you know, solutions for, you know, revenue. The capital structure has been managed very well, the debt load, right, all in a you know, tough environment. I guess thinking about sort of ahead, and again, you know, when we get back to an environment of growth, how should we think about, you know, again, the reinvestment in marketing and headcount? Mm-hmm. Again, maybe less reliance on some of the less, I guess, the more capital light, you know, revenue streams. You know, or, you know, is it - maybe that's not the right way to look at it because you're just operating more efficiently, and the opportunity set in a better environment as this current structure stands is a good one. ... Mostly, we don't expect that there'll be increases in our operating expenses. Mm-hmm. As the housing market rebounds. That will happen at some point. Right. But we're building the technology that we want even today. We've gotten more efficient on our back-office activities, including we've been integrating some of the back-office activities between our traditional Redfin businesses and the rental business. That's been going really well so far this year. So you shouldn't expect those costs to increase. I think that going back to our earlier discussion, I think a place where we'll be thoughtful is on the marketing front. Yep. which is if we see an improving housing market, that is more favorable to marketing spend. But the way we're thinking about the business from this point forward is that in a really bad housing market, we're going to get the business to Adjusted EBITDA profits. Yeah. That then sets up really well. Yeah When we don't have to add expenses and the business starts to grow from there. Okay. And then maybe just touching on that. So, okay, we know you're not, you know, counting on, you know, lower rates. We know you're not counting on an improvement in the operating environment, as you mentioned, you know, operating from a very efficient standpoint. But maybe, Chris, could you just remind us, I guess, what the levers are in terms of getting to that EBITDA profitability this year? Sure. So just kind of going through the pieces of the business. Our real estate services business is our most important one. It's typically the case from the second quarter to third quarter, that revenue is a little bit higher in the third quarter- Yeah Margins improve as well. Yeah. That's a place we'll continue to keep marching. We do think that there's room to continue to improve attach rates in mortgage and title. Mm-hmm. And then our rentals and advertising businesses are both on a little bit different trajectory, where we think that they can kind of outgrow the normal seasonality in the business. Yeah Because they're disconnected in that way. And then maybe the last lever is just on the cost front. More generally, costs have been heading down quarter-over-quarter. Right. And we expect to continue, that we'll be thoughtful about bringing costs down that way. So it's kind of a combination of those things that, gets us to our view for the rest of the year. Okay. And then just again, thinking sort of another related question, thinking through the framework for this year. In terms of just, you know, different verticals within your business, you know, where do you think you have the potential to do better than expected, see some upside, and then just. Yeah. The inverse of that? Yeah, I think that, I'm really excited about our advertising business. The team has done just a super job of identifying advertising inventory, beginning to put that in front of even more potential advertisers. So I think that's a place where, that we could outperform. It's always hard to do that. Yeah. But that's a place I'm excited about. And you have been. We have been. Yeah. Yeah, completely. And, you know, I think that the place where we're just always cautious, really back to the beginning of the conversation you and I just had, is that, we're paying a lot of attention to the housing market, the way that looks the rest of the year. Yeah. Making sure that we match our costs to our ability to deliver against that. So as we see that market a little bit better, it has us more optimistic, and if things are a little bit slower than we might have anticipated, we'll just have to be really thoughtful, even more thoughtful about costs. Okay. And then just the last one for me, in terms of thinking about capital allocation and managing, you know, the debt, the remainder of the convertible debt. I think over the past year, you've taken a, roughly about a third out. You've been, you know, pretty smart in terms of, you know, buying it, you know, discounted, a discounted rate using cash, and. Yeah. You've got a lending facility. But yeah, going forward, in terms of, like, just thinking about kind of the remaining tenor of the debt over the next few years, you know, what, what is the thinking in terms of, you know, mix of using cash or current facilities or, you know, maybe trying to extend some of the maturities? Sure. So just in terms of the capital structure, what you laid out is exactly how we thought about this, which is we put in place a term loan due in 2028 last fall. We actually just this week drew down on the remaining amount of that term loan, and we've been using that to repurchase our 2025 convertible notes. And so we've been addressing the nearest maturity most aggressively. We've brought that balance down quite significantly. Yeah. Even by the end of this quarter. We'll use a combination of that and cash to navigate our way through the rest of it. You know, at the same time, we'll be opportunistic, thoughtful about other capital opportunities over time, but. Right. Mostly, we think self-help is most important for us. Okay. Well, I think that brings us to time. Chris, as always, thank you so much. Yeah, thank you. Yeah. Thanks for the thoughts. All right. Thanks, everybody.