Q4 2019 Earnings Call
Thursday Thursday
Dead dead dead dead dead.
Good, good afternoon, and welcome to the Zillow group fourth quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation than the opportunity to ask questions to ask a question. You may press * then 1 on a touch-tone phone to withdraw your question, please press * then two, please note this event is being recorded now like to turn the conference over to Brad burning vice president investor relations, please go ahead.
Thank you, sir. Good afternoon, and welcome to Zillow group fourth-quarter and full-year 2019 conference call for those in the call that I haven't met yet. I'd like to look forward to doing so soon. I ask you today to discuss our Q4 and full-year results, or is it a group co-founder and CEO Rich Barton and CFO Alan Parker during the call will make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information of future events except as required by law. This call is being broadcast on the internet and is accessible on our investor relations website recording the call will be available later today during the call. We will discuss gaap and non-gaap measures including adjusted ebitda, which we referred to as Eva. We encourage you to read our shareholder letter and earnings release.
Which could be found on our investor relations with?
Site is they contain important information information about our gaap and non-gaap results including reconciliations of a historical non-gaap Financial measures. In addition. Please note we referred to refer to our internet media and Technology segment is our IMT segment. We will open the call with brief remarks followed by live Q&A and with that I will turn the call over to Rich.
Thank you Brad. I'd like to start by officially welcome you to to our team many of you know, Brad from his work on the other side of this phone was recently as a sell-side analyst covering Zillow in other companies. Yes Decades of experience with deep expertise and housing and financial services. We are delighted to have them on our team and we expect the call to take half as long now that he's not asking his usual multi-part questions took seriously Brad's already making a significant contribution and we look forward to introducing them on the road in the weeks and months ahead.
Okay, it's been exactly 363 days since Alan and I joined you for our first quarterly conference call as we sit here A year later our 2019 results clearly demonstrates just making progress against our plan to re platform real estate and move down funnel to deliver our customers a seamless and integrated transaction experience.
and please
With our team strong execution which delivered to 4 and full-year results that beat our Outlook.
This multi-year Expedition has us on course to not only streamline the moving experience but also to dramatically expand our Market opportunity and profit potential. I'd like to start by calling out just a few of our 2019 accomplishments.
First we stabilized then accelerated growth in our core Premier agent business growth that we expect to carry on in 2020.
But you continue to be methodical innovating and optimizing monetization of our lead flow and are optimistic about the future of primary agent.
Second we grew our new Zillow offers business in the home segment to one point four billion dollars in Revenue in 2019 up from a mere fifty two million the year before wage and ending the year on a 2.4 billion dollar annual revenue run rate. We did this while opening 17 new markets and executing within the unit profit guardrails. We lay down for a launch Bays. This was extraordinary execution against a rich vein of consumer demand for a novel consumer service.
The addition of transaction oriented businesses has necessitated a leveling up in how we operate confusing cost discipline and operational rigor into every business and corporate function off early. We call this getting fit with a sharp focus on scaling efficiently much more disciplined and accountable planning and review processes have been critical here Fitness is essential for the Expedition the Expedition. It's foundational for-profit leverage and demanding of Perpetual focus and Improvement.
Next we strengthened our balance sheet and then ended 2019 with 2.4 billion dollars in cash and Investments are strong balance sheet with increasingly Diversified funding sources provides us with the ability to pursue our growth opportunities in a disciplined way.
Next we filled out our management bench with seasoned operators in mortgage title and escrow corporate relations marketing Finance operations and more.
Oh.
While we continue to attract outstanding tech industry talent and are consistently recognized as a great place to work and build a career.
Our team is strong and we continue to add an uplevel key positions as we grow.
And finally, we're in the process of galvanizing our employees around a new mission statement that animates our transition to Zillow 2.0.
Zillow our mission is to to give the people the power to unlock life's next chapter going to do it. Again Zillow. Our mission is to give them the power to unlock life's next chapter. It was meant to be more dramatic our homes represent distinct chapters of our lives and we are building our technology services and operations to make it easier to as Bob Seger says turn the page and our quarterly shareholder letter, you will find a link to a short video. You might enjoy watching you might enjoy watching about our new Mission it never fails to bring your to Maya.
Okay.
Wrap my year in review introduction. I'll reiterate that. I'm extremely proud of what our team has accomplished over the past year, especially in light of how much business and cultural cultural change I have asked for
Ellen will take you through the Q4 and pull your results and 2020 Outlook. But first I want to spend a couple of minutes on our Premier agent and homes businesses and share our areas of focus for 20 28.
Starting with Premier agent while we enter 2019 with significantly heightened partner versus the prior-year. We have started twenty twenty with some of the best retention rates we've seen in recent history with our Connection rates are on the rise and through our work to partner with the best agents. We saw customer satisfaction continue to increase during the quarter. This has been driven primarily by solid execution. As our team has bought all this focus on making connections between our customers and our best Partners, which contributed too strong primary agent Revenue growth.
I want to commend Susan Taylor who we use our primary agent business.
And her entire extended team for first stabilizing this Core Business and then leading a re acceleration of it.
As you can see in the Premier agent same-store sales chart in our shareholder letter when we back out the impact of our 2019 Flex tests. We ended December with 12% year-over-year same Source same-store sales growth in monthly recurring Revenue up from 5% at the end of September.
Looking down on our Premier agent business from fifty thousand feet. Our goal is to a increase our big see conversion rate from visitor to trans actor and be increase our revenue and profit yield police. We believe there's room for growth and both of these metrics. Our whole history with agent has been about continual business model Innovation and testing in service of long-term growth Matrix maximization and customer satisfaction since introducing the best of Zillow program and focusing primary agent on Connection rates service quality and most importantly transaction converge. We've seen significant improvements in our business fundamentals specifically, we've had to Dig Inn on the capabilities and the productivity of our Premier agent Partners who are best at converting leads into transactions month. And this is why we are explaining expanding our Flex test with high-performing Partners in select markets. We're learning that conversion is a key driver of performance regardless of whether the monitor
Station model is flat.
For our larger market-based pricing problem. So as we continue to test and grow Premier agent, I ultimately think of
Except primary agent business models, we will deploy as an optimization problem and opportunity. We continue to be methodical in our tests and we are making progress.
The improving performance of primary agent has provided a strong Foundation of cash flows for the rapid expansion and growth. We've seen in our home segment. We delivered more than $603 in Revenue in Q4 from Zillow offers up from just 41 million dollars in Q4 of 2018.
Our outperformance in homes was driven by strong consumer demand as well as applying learnings to inform a resale strategy. We also have experienced less impact from seasonality than we anticipated bulb in Q4. We sold over 1,900 homes and purchased nearly $1,790 and we ended the quarter with 2707 homes in inventory since the Inception of Zillow offers. We purchased approximately 7200 homes and sold 4,500 homes. It's still early days, but we are learning as we grow and consumer signals are strong.
You know, we launched a remarkable 17 new markets in 2019. Most of which came online in the back half of the year and all on or ahead of schedule bringing total zo markets at the end of January 8th to 23.
Additionally we remain on track to be in at least 26 markets by mid-year approximating a national footprint.
For 2020 we expect continued strong growth in the business will be driven primarily by servicing high demand in young existing markets unless so on opening new markets.
Zillow offers is the first time we've owned the transaction between know is a hub from which multiple other adjacent transaction Services hinge and we're gaining traction and building out those adjacent Services as well are progressing with Zillow home loans and have confidence that our new mortgage mortgage is management along with 2019 and 2020 investments will set the stage for future growth acceleration.
And is it?
Other important adjacency in 2019. We stood up a new title and escrow business. Is it low Closing Services to further support Zillow offers expansion and deliver and integrated transaction experience for our customers.
A recent Bill offers success story is Kathy and Robert Bowen of Atlanta who wanted a larger home could accommodate their growing family of seven and someday their parents as they age a promotion agent help them find a big yellow house with hardwood floors that they love but it was at the top of their budget range.
They couldn't make the down payment without selling their current home and a traditional sale wasn't feasible with two full-time jobs five kids and a dog. They turned to Zillow off and were able to time the two transactions on the same day allowing them to move with competence and convenience it fit together. Just like a jigsaw puzzle. Kathy said, they're successful track is a story that's now playing out for thousands of families around the country. This is fundamentally why we are here and these success stories proved to me in our team that people are ready for a better way.
say this
Here, but it doesn't sound see it here, but there's a link from the shareholder letter to that video as well. And if you don't only going to watch one video watch this one. It's a great short.
Okay for 2020 we expect to continue to grow and gain leverage on our core int segment operation and use those ebitda profits to fund are promising high-growth transaction oriented businesses. Mozilla Opera billing services. Our team is focused on four key growth strategies.
One group Premier agent while maximizing revenue and profit yield for lead.
to scale Zillow offers and increased transactions while gaining operating Leverage
three increase company-wide operational efficiency and improve profitability.
And for continued to invest in adjacent services to deliver a seamless integrated customer experience and expand our total addressable Market.
You know, I characterized 2019 as tumultuous leave remarkable personally. It was one of the most challenging years of my career and we've been working too as we've been working two jobs Cheney asleep evolved the hearts and minds of our employees our industry partners and our investor invests base, while reinvigorating our core businesses and dramatically expanding new ones.
but we have
Miles to go before we sleep in the way will surely be lumpy the great progress. We've made in a short period of time gives me confidence that Scylla group is in the pole position in the race to re platform just industry are talented team here is making it happen. But I also want to thank you are investors who have given me and the team the space and support to turn the page and to move to the next exciting chapter in the story of Zillow before I turn the call over to Alan to take you through our numbers and Outlook. I want to acknowledge his leadership and impact on defining the more rigorous plan for an accountable operating culture of Zillow 2.0. It's great to be sitting next to you Alan.
Thank you Rich it's great to be here I'm going to quickly summarize a few key financial results starting with the fourth quarter and then moving to our full-year results overall. I'm pleased with our Q4 and pull your 2019 results as we exceeded the high end of our expectations for our revenue and even outlook on both the Consolidated basis and across all of our segments month we reported to for Consolidated revenue of 944 million $579 million or 158% year-over-year the outperformance in Revenue wage primarily to strong demand in our home segment as we applied learnings to inform our retail strategies and as we saw less seasonal impact than expected on home sales.
consolidate
Or even outperform their expectations at a loss of 3.2 million and was driven by not only the health of our IMT business, but also the operational rigor across the organization all three of our segments delivered better-than-expected either.
I am T segment Revenue grew 6% year-over-year into 4 to 320 million exceeding our Outlook Premier agent Revenue accelerated or than we expected in the court to $234 million up 6% year-over-year from 3% growth year-over-year in two or three and what was essentially flat growth in Q2 our decision to partner more closely with the same agent Partners is not surprisingly yielding strong results with connections customer satisfaction and age of attention all on a clear upward trajectory. These inputs are key drivers my MVP same-store sales monthly recurring Revenue growth accelerated at the end of December to 12% as we did last quarter. We provided same-store sales rep monthly recurring revenue for our non Flex markets, which we estimate representative approx 95% of our primary agent monthly recurring Revenue at the end of 2019.
I am T segment.
Give it a margins expanded over eight hundred basis points in Q4 year-over-year to 27.4% and exceeded the high end of our expectations our focus on cost discipline and operational across the company is yielding tangible results total int segment operating expenses declined nearly ten million year-over-year into for excluding the impact of certain one-time items. We require for 2018 as we continue to focus on delivering operating leverage moving to full year 2019 and the full year 2019 Consolidated Revenue grew to like seven billion, which more than doubled from one point three billion in 2018 primarily as a result of the rapid expansion of our home segment Consolidated, even if for the year was $39 off invested r i n t segment profits into our homes and mortgages business.
2019 int segment Revenue was one point three billion in int segment. Ebitda was $304 put that in context. We grew Revenue by 6% year-over-year while growing ibadah 27% expanding margin by 381 basis points Premier agent Revenue grew 3% during 2019 to 925 that we were pleased with the progress to stabilize the premier agent business in the first half of the year and the acceleration and the second half of the year.
home
Revenue was 1.4 billion for full-year 2019 up from just $52 million a year ago. As I stated on previous earnings calls during this transformational time until a group home. My focus is CFO continues to be on establishing and processes and mechanisms in support of three key priorities scaling our new businesses executing within our INTC in order to find investments into the new segments along with additional growth opportunities and implementing focused and disciplined and operational rigor across the company as we scale.
I am pleased with how we executed on these priorities in 2019 and believe these efforts have positioned us for even stronger int segment even a performance in 2022 funderburg into new businesses before moving to your questions. I'd like to provide some select. Surround our q1 and full-year 2020 Outlook in comparison to 2019.
Due to the recovery and strong Trends. We are seeing in our Premier agent business. We expect Premier agent Revenue growth to accelerate further in Kiawah. We expect q1 Premier agent Revenue to be between 238 million to 243 million an increase of 10% year-over-year at the midpoint of the Outlook range compared to 6% growth in Q4 and 2% growth in q1 2019. This accelerating Revenue growth is our first quarter Outlook in our first quarter Outlook includes the net impact of delayed revenue from Flex tests without the impact of flex cuffs. We estimate Q one year over year Premier agent Revenue growth would be approximately 14% at the midpoint of our Outlook range.
Turning to IMT margin.
Q1 we are forecasting i m t even the margins to expand ninety to a hundred twenty basis points to between 21.6% to 22.7% Despite a couple one-time items. It benefits benefited q1 prior-year margins by 290 basis points.
In the home segment, we expect another year of strong growth in 2020 as we apply learnings grow into the 23 Marcus. We've opened in the last twenty months and launch a handful of additional Marg even have new this business is and our continuous testing and learning we will continue to provide a quarterly outlook for home segment in 2020 in q1. We expect home segment Revenue to be between 675 million and 700 million dollars home segment ibadah in q1 is expected to be between a loss and $95 million to a loss of $85. We expect to maintain the current you can you need economic guardrails a plus or minus two hundred basis points on average return on home soil before interest expense as we continue to test and innovate with regard to our mortgage a segment. The new management team is in place and is making progress to develop our technology platform and expand operations of expand the operations of Zillow home loans as we work through this transaction.
we are moving to
Mortgages segment two quarterly guidance consistent with our approach to the home segment.
As Rich mentioned in our Flex markets, we are seeing positive signals that are most productive agents convert transactions better than the average because of this we will begin to expand our Flex tests methodically with high-performing Partners in select markets in the second quarter of 2020. Our full-year Outlook includes the potential for additional testing in the second half of the year if we do decide to expand Blacksburg
For full-year 2020 we expect Premier agent Revenue to be between 980 million to 1.005 billion up 7% over 2019 at midpoint of our Outlook range. Its Outlook range includes the net impact of delayed revenue from the flex test. I just discussed without this impact. We estimate the 2020 year-over-year predict agent Revenue growth would be approximately 10% at the midpoint of our guidance, which we expect int segment even a margins to expand an additional three hundred to four hundred basis points in 2022 between 26.7 to 27.9% for the full year and I am able to grow 24% for the full year at the midpoint of our Outlook range. We know took the pace of investment is in our control to execute our creaky growth strategies as which discussed previously while we are not providing outlook on Consolidated 2020. Revenue are ibadah. Yep.
topically we are managing towards a
Make even range as we use the contribution from our int segment to help fund the expansion and growth of our homes and segments homes and mortgages segments. Furthermore. Our balance sheet remains strong provides a significant flexibility to take advantage of Market opportunities to gain scale and operating leverage in our new businesses. We end of the year with 2.4 billion in cash and Investments along with nine hundred million drawing credit facilities and lines of credit the further support the growth of Zillow offers and Zillow homes. We remain mindful of our cost of capital and we invest in these up as we invest in these opportunities and will continue to prudently manage expenses at all. We are very pleased with our Q4 and full-year 2019 performance. The momentum were carrying in 2020 and the progress we're making towards streamlining real estate transactions to better help our customers to unlock the next chapter of their lives with that operator will open the line for questions.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at anytime your question has been addressed and you would like to withdraw your question, please press * then two, please limit yourself to one question and one follow-up off at this time. We will pause momentarily to assemble our roster. Our first question comes from Ron Josey with JMP Securities, please go ahead right. Thanks for taking the question a lot lots to talk about here for sure. But you know maybe rich now and I wanted to focus a little bit on the premier age and business at first with guidance calling for Revenue growth accelerating, you know to continue, continue and I think seven and a half percent growth of the midpoint. I hear you on agent retention rates improving csat scores, but with the unknowns around flex and just you know, rolling out to New Markets and two q and Thursday.
more markets in the back half of the
Can you just talk a little bit more about the confidence in in that accelerating growth and Premier agents, which you know clearly is is a bread-and-butter at least what underlines the Investments going forward and if I could sneak just a follow-up on Flex drawer. You mentioned a letter high-performing agents are just converting leads at a higher rate. Just any additional insights there would be helpful. Thank you guys. Okay Hey Ron, this is Rafael me Let Let me let Alan start out on that one and then I'll jump in. Yeah. Thanks for the question. So yeah, I'll reiterate I know you mentioned it. But our confidence does come from the Improvement seeing in some of the underlying inputs over the past six months both connections. He sat metrics are up substantially and our retentions been turning your the highest levels ever. So you know while I say is if we look to and what's in Incorporated in the guidance, it's still early on Flex. We thought it was appropriate to include a some flexibility to increase wage.
Are testing in Flex We control the flex testing and some of the early signs are leading us to feel confident that our higher-performing partners. I can provide returns and be accretive earlier than a full market flip. But again, you know given just the basic input of our Core Business which is strong majority of the revenue that we report from PA, you know, these Trends along with continuing product Innovations Investments were making and connections and operational improvements are driving strong forward to cater. So yeah, you know, we feel very comfortable the guidance range. We provide provided gives us the ability to continue to test a variety of monetization models including tax while still supporting is core MVP business.
And yeah, I mean inputs are.
Or you know all the inputs are improving them on the on the high-performing Partners question and and providing more clarity. You know, it's really what it is, It's unsurprisingly when we find Partners who use our software understand our system. We explained our system well and they can they give good customer service and convert those customers into buyers transactors of homes. Those are the partners were looking for and we're testing and learning different things in different markets. You know, I talked to earlier to make any broad generalizations to characterize what those Partners look like, but we're finding them or finding enough of them were seeing enough good results to to continue to methodically Thursday and expand our flight status. I would say we're looking for high-performing Partners across, you know across the university PA to flex is a very small part of the overall Premier wage.
agent business
And the whole the company's new focus on the transaction itself and what it takes to get a customer into a new home has actually brought goodness to the whole of the of the primary agent business and as well and taught us how to, you know, focus on what customers really want. So makes a lot of sense. Thanks guys. Yep. Yep.
Our next question comes from Mark. Mahaney with RBC Capital markets, please. Go ahead. Okay thanks to questions on the homes business but Rich. Thanks for quoting Bob Seger on the homes business. The one thing that looks a lot is that the the there was a sequential decline in homes inventory. So could you not find enough homes that you wanted to purchase as it harder for you or is there some reason is that a more competitive market? Just explain why this is the first time in which year that that kind of that those two numbers have have flipped homes sold in homes purchased and then secondly in the homes, thanks for the business economics that came down is really valuable. And I know it's a small part of the cost equation here. You've got this nice leverage and home acquisition cost but you got this deleveraging renovation costs, and I don't know why that would be but that's off setting everything and kind of driving you. I know it's within your guard rails, but it did turn your return on home sold negative, you know before interest expense it just explain what's happening with the renovation costs. Thanks a lot. Yeah. Okay, okay.
Okay, great. Maybe I'll maybe I'll
From the second one Mark over to to Al-Anon that but but on the on the first part of your question, you know, I guess I deflect first and say we had remarkable growth in selling our Zillow Townhomes, right? It's six hundred three million in Revenue that was up. I don't know almost fifteen times from the year before so it's turned into a month due to a really big number and that's that's pretty remarkable on the purchase diesel deceleration or decline that you're that you're you asked about. We actually plan for purchases to be down sequentially going into Q4 due to seasonality Q4 is a slow is historically a slow-selling season. And so we were appropriately cautious back into the quarter and we fulfilled against our plan to do that. So that was not a surprise what did surprise us a bit was how good our resale volume was. It was much higher than expected it off.
A bigger net seller than we actually than we actually expected and I would say this is a credit to applying all these learnings. We're gaining the end the unit unit numbers in this business are starting to build they're still small but they're starting to build and each new unit. That's that we transact pumps data and learning into the machine and the people and we're getting better at Price. We're getting better at price drop strategy. We're getting better at all the stuff that that that that is required to price themselves the home and so we were able to move a lot more homes than money than we anticipated. I guess. I say looking forward, you know, because we still are in the early days. Most of our markets are really young. We expect it to be it won't be a nice clean. It'll be a lumpy. It'll be a lumpy path. It won't be a nice clean a linear thing, which is one of the reasons. We're only only guiding 1/4 out now on the dog.
Renovation be leveraged. I'll turn it over to Alan. Yeah. Hey Mark, John Parker. Um, yeah, so you called out.
Renovations as a percentage of average revenue was 4.69% and 2 4 versus 4.02% a negative basically an increase of 67 basis points quarter-over-quarter, you know, I'll call after we believe there's opportunity across all four lines. We did get Twenty One basis points Improvement in home position cars. I wouldn't read too much of anything into a quarter-over-quarter Trends right now is we're testing and iterating across all of these markets. What I will say is we have a team that's very focused on what's the right amount to spend on renovation to make the hombre for our customer, but without overdoing it and spending money on things. We don't need to so, you know, we've got an opportunity we obviously in total we were 48 basis points negative as a percentage of Revenue and you know, well within our as you mentioned our place
Is 200 basis points? I wouldn't read too much into changes, but that's definitely an area. We are focused on and renovation. Although we're we're focused across all four expense lines as well.
Okay.
Thank you. And thank you Rich. Great. Thank you very much. Could you talk about your learnings in 2019? The markets are expanding to win 2020 and then the puts and takes around further expansion. And then finally I wanted to go back to flex partner extensibility. Is there anything you can do to help knowledge that in general agent population toward becoming higher performers influx, or do you think it's a little more binary? It's simply works for some but not everyone is so much. Okay. Hey Jason.
Yeah, I mean I think our big learning for you know for PA overall, but Flex included for 2019. This is how you know, regardless of business model. We are looking to like any other funnel transaction business increasing version and increased a credit increase the yield of guy and we have had an intuition that there's upside in those in those two big levers for quite some time and we're starting to actually Monday. We're sorry. We actually see that and we feel that both have room to grow the history of our primary agent business is a history of innovating on the business model trying to drive those two level and flex is simply the latest instance of that Innovation. Now, we had to start talking about it more specifically because of Revenue recognition stuff dead.
But it's really just in.
Instance of that business model Innovation and we're pretty early the first big black markets were really Phoenix and Atlanta which we launched in Q4. So we're still really in the early learning phase of life. But we've seen enough interesting stuff on these interesting results with these high-performing high-performance Partners to give us the confidence to to expand the test off. So we've seen that data we're expanding methodically, you know element is taking you through what the think the impact will be going forward and and twenty-twenty but we like what we're seeing and I am the customer oriented person in me also really likes that with flex we drive a better conversion percentage a better conversion rate month and that is the single greatest driver towards customer satisfaction. And so we have happier customers as well. And so all that is a long-winded way of being kind of saying we kind of look at this as a conversation problem.
And we're continuing to innovate on these on these, you know on these models. Yeah, I'll just add that in terms of
So, you know the launch plan our Market plan. It's still very fluid is which said it's early. We just felt that including a the flexibility to hack expand testing as needed and calling out the impact of that in our 2020 Outlook provided you guys with a little bit of stabilization on flexes impact and gives us some of the flexibility to look at testing. I think initially it's going to be a very small test that starts in Q2, but if we find that there are some benefits they're dead in that we become a creative, you know sooner when you've given ourselves some flexibility to expand those tests in Q3 and Q4 without having to come back with the guidance change that makes sense and just and I think your last your last Quest your last part of the question was if nudge and binary, you know, it's just stuff that we can do to nudge. We think we have a ton of birth.
Upside and mechanizing and professionalizing and applying software and modern technology to this nurture funnel cake to the sales funnel and there has been a woeful an embarrassing lack of tech investment in the real estate industry for pretty much its history. And so we're we're waiting in to narley problem. Yes, but but it's a really fertile. It's a really fertile field. There's all there's a long pent-up desire to kind of make up and professionalize through software this industry. So we have a lot we see opportunity everywhere. We look right and and it's fair to say that that opportunity can be spread across our MVP business with the learning no question, which is which is a great lever. It's not just in Flex. Yeah, and honestly, like a lot of the learnings were gaining are coming from our Zillow offers business. Yep.
Cuz we're actually the primary with our Zillow homes in do offer.
And you know that has a way of focusing the mind and the the development docket to when we're actually buying and selling homes and we need to do it more efficiently and we want to do it more efficiently. We're actually utilizing some of those processes. We're learning from zo for our PA business as well.
Thank you.
Our next question comes from Tom white with d a Davidson, please go ahead.
Great. Thanks for taking my question guys and very nice quarter a couple on the guidance. If I may, I guess what stood out. Most of me was the big ramp and implied ebitda margins for the IMT segment. I think the wage was like 27% and the in the high end with something like 28% Can you just talk a bit more about the specific drivers of that leverage and then on on the PA outlook for 2020? I think it sounds like back to double-digits kind of x-flex. Maybe, you know, it sounds like you're leaning into these these kind of top-performing Agents am trying to reconcile that with the comments about retention at Peak levels. Just kind of curious about how some of the other not keep performing agents are behaving or reacting to, you know, the fact that they're presumably getting, you know, fewer leads or fewer connections. Thanks.
Okay.
Maybe maybe I'll take the first part. Yeah. Yeah. Hey, thanks for the question. So before I get to 2020, I'm just going to step back to the performance. We saw on margin expected in 2019. So again in 2019, we were able to expand int margins by 381% 381 basically walk in basis points and and that expansion is coming from you know, and kind of reflects the fundamental health of our business. We have improved connections with our customers wage leading to better retention rates with our agents and it's driven accelerating revenues. And at the same time our cost management is driving operational leverage, so it's kind of a
Best of Both Worlds our teams have been focused on food and resource allocation and cost controls and it's led to efficiencies in our operations and overhead. We are investing we're investing we're investing in products, but we've been able to fund those Investments through prioritization and kind of a a lot of discipline around discretionary spending. So with that 381 basic wage expansion looking into accelerating growth and our outlook for 2020. We feel like we can continue those Trends continue to invest to grow the business but also yields $300 four hundred basis points of Leverage in margin and you are right at the midpoint. It's about three hundred fifty basis points of margin Improvement and about 27.3% margin rates. So, you know again, we we made a lot of traction this year and as we grow and we can grow with Investments, but funding those and yep.
And taking a hard look at 2.
Discretionary spend leverage efficiency. We feel really good about our opportunity to grow next year and to grow ibadah, you know, a wait of two and half to three times our town and that's really one of the big themes of the Year Tom is is this operating leverage mindset in this prioritization mindset and this mindset for teams. Don't don't go into budgeting thinking. Well, what is my birth to what I already have how many more am I going to add? It's actually, you know having Chris priorities. Okay ours against their priorities and having us all together make trade-offs all the way throughout the organization about what what the priorities are. It's really bearing fruit. And I I sense there's there's you know, there's there's you know, there's more leverage but I don't know I think Allen would agree with that anyway on your last bit of life. I mean, I think we should probably kind of let it was about retention and how agents are feeling about the move reflects in some markets and the oboe which is unsettling to a lot of agents and what that's doing.
Retention. I think the numbers kind of can speak for themselves. Although I guess we didn't share specifics but we have we have said that we're seeing some of the highest retention rates in a
So the core the core traditional business the the big business that that the one that you're worried about. We're seeing the highest some of the highest retention rates we've ever seen off and so despite the fact that we are doing all these making all of these, you know, some might characterize as aggressive moves, but really just, you know, Innovative moves in the space boss offers and with flax we are we are, you know doing well with our traditional Partners they sense they sense real opportunity here. They also know that we get $173 million unique users a month that come to our sites and that are brand Zillow towards the research more in Google than the term real estate. They know that and so goodness flows from that. You know that great relationship we have with with all these customers.
You so much.
Our next question comes from Lloyd Walmsley with Deutsche Bank, please go ahead.
Thanks. I have to if I can first can you give us any sense for how monetization of flex looks on a per lead basis versus the kind of traditional Premier agent business. You know, what are you seeing in terms of the ultimate repre lead accretion and what kind of read Rec lag should we be thinking about in in terms of timing and I guess second one would just be you. Can you can you walk us through the impact of adding the requested tour the impact of that on the conversion to leads and kind of the the timing of that rollout off the footprint and anything you can help us with their would be great. Okay. Hey Lloyd may be able to answer, you know, it's still really early in. Our testing is Rich mentioned. We just launched Phoenix and Atlanta in Q4, so we don't have a game.
enough data points
Chat to extrapolate a curve on what we think that multiplier impact will be. Uh, but it's Rich mentioned the goal of the program is to improve our Revenue per lead. So we need to be accretive for it to work. We control the the testing here as we get farther along. I think we will be able to have more information and we'll share that as we as we feel good about what that accept relation curve looks life. So what we have done right now is try to give you like I said just a guardrail of what we think the impact will be on our top-line growth way for for the flex programs. So you can kind of have a wage without as you think about your growth curves your same thing, you're talking about the 350 basis points for the year four hundred basis points for q1 and then with respect to the Rev recognition, you know, we continue to assess that we've made a lot of progress in improving and putting the structure in place to ensure that we understand when transactions occur and get paid for that month.
But the the N is still fairly small just given when we started in Q4, so we don't have a good curve for cash.
Um cash collection curve, you know had the full cohort of say a a month of lead. So we'll keep you posted on that on the impact of time conversion. You want to get that? Okay? Okay. So if you think about the conversion funnel, I'm waving my arms trying to picture in the air here, you know at the very top of the phone now we have visits and at the bottom we have somebody moving into their new home lots of steps and that conversion funnel lots of options lots of levers and decision points all along the way to improve conversion, for example, a visitor turning into a submit submit into a meeting, you know, a meeting into a house to organise a meeting into a house too or straight from submit to house tour from house to offer, etc. Etc. Every one of these levers we have the opportunity to to pull off.
believe twist and and improve and we can address a lot of these with
That our training but also the software which is great. The tour lever is just one of them and it's an interesting one as you might imagine. A lot of buyers are on Zillow and Trulia and streets Jeezy and what they really want to do is go see the place and so we have done some great feature work in the last quarter to improve the coverage of of two right now for our customers and that is just one of a, you know, a patchwork or a collection of features and products that were working on to improve that conversion.
Our next question comes from Brian Nowak with Morgan Stanley, please. Go ahead.
Things taking my questions. Hey guys, Bob Seger and Robert Frost the same remarks tough act to follow rich I have to so I yeah, I know it's early in Flex with only, you know to Marquez with Atlanta and and Phoenix, but just maybe can you talk to us a little bit about one or two of the the friction points or areas that you really improved on in those two markets whether it's measurement tying things through gain the right agents just talk us through some of the blocking and tackling that's improved that you think will make flecks go smoother going forward and then on Holmes. I talked to his higher thinking about serve the profitability of your your oldest markets throughout twenty-twenty. Once you sort of have less upfront costs and start to get more potential leverage Etc. Thanks.
Thanks for recognizing that Brian. I don't know if I
Any other embedded references in there, you know on the on the the kind of flex friction points and what's working. And what's not. I mean we are we are really busy, but we are discovering.
You know, as I said before kind of a local a woeful lack of kind of application of software to better nurture and transaction experience in this industry traditional brokerage is do not have and have not had big taken Dev budgets. They have really they just haven't invested in in technology and that hasn't shown necessarily been their primary concern anyway, cuz their business models have been a little different, you know, so we're seeing a tremendous amount of opportunity off all along the you know, the nurture funnel, uh of the customer and as we find things we're automating it. We're finding the right Partners who can who are better at converting these these things. I'm not even basic things like drip marketing an email communication. And when is the right time to call and when is the right time to send an email and you know, don't overwhelm consumers and bombard them with agent.
males because they'll get turned off and
No go away. These kinds of you know, some basic stuff that that that we have been in the in the tech business for a long time kind of take for granted, but we're bringing those those those fresh skills to this to this industry life. And you know, we see a lot of opportunities on the home the second part of Brian's question Alan. You want to try this some homes his own question. Yeah. Yeah. So I think I was how we looking at profits in our oldest home markets in 2020. So again, you know with respect to two homes in all markets. Actually, we're continuing to walk to measure and look at ways to ensure we're improving year over year. But at the same time even in our oldest markets, they're still you know, not that old and we are testing and iterating on resale and acquisition and and a variety of other measures that could impact profitability quarter-over-quarter. Just given birth
What that test is?
And what its outcome is so you know right now what we're looking at homes on is we expect to improve overall margin percentage on homes on an annual basis. It may not always be sequentially quarterly. We are holding homes, you know accountable for improving efficiencies and processes and all of automation things that are required for us to scale. So we have okay ours as Rich mentioned to ensure we're getting more productive and efficient, but at the same time we are still very much under 80,000 earning around the sale the acquire and resell process that could affect profits from time to time. So I guess what I'd say is that will continue to look for that homes project building to improve annually as a percentage of Revenue, but I don't think there's a bifurcation between what we'll call old home markets and new home markets today.
Great. Thanks guys.
Our next question comes from David Cohen with SunTrust, please go ahead. Yeah. Thanks a lot. Maybe maybe you can give us some sense around with the extension of flags traditional markets. Is it going to be zip codes or there's going to be entire markets you're thinking about maybe in second quarter of the back half can this 5% off that you have of Craig's going to go to 10% by your end, you know, so
You know, we're learning really rapidly on the on the expansion. Of course, we try to a bunch of different things in different markets and you know hang out our strategy on a particular geography or zip code is kind of not the way we're doing it. We're looking at high-performing Partners getting it working and then explaining and expanding from there. That'll take that'll take different that'll take a different shape for maybe how we talked about it in the past. We can see we can see Flex running simultaneously in markets right alongside MVP and optimizing uh between the two as we as we grow and learn from you know, on the 5% question. You know, what we're trying to do in our 2020 guidance. Maybe I'll Alan repeat it. You know, we're trying to Simply build that build some room to test flashing.
Can expand Flex methodically?
It right into our guidance. Yeah, and the way I would describe it. Is that a percentage of Em are are
And have a very in effect depending on what period of time throughout the year you do it. So we think the most appropriate metric to share with you guys to give you a feel for women without flexes what are expected impact of that impact of flex is for the year, which is a three hundred basis points of Revenue growth that we called out in my prepared statements, So it would have the midpoint of the guide on 20/20 is primary agent growing seven seven percent correct and plus three hundred basis points to 7.4% off. Now three hundred basis points of 10% Sorry 3 a.m. Is the 10% got it just adding it to the seven point. Exactly. Yeah, and and again it is really flew. I think the only thing we've kind of wage know we're going to do is is start some very small testing with high-performing Partners in various markets, but that will be a small test in Q2 and then we'll have a table.
better learning from our
Test we launched last year as well as early reads on those to determine whether we do anything in the second half. We just wanted to give ourselves the flexibility and provide you with those guard rails, So we worked surprising but as we learned stuff that you know around a lot of the questions that have been asked today will continue to communicate where appropriate.
Overall in PA, we really like the growth. We're seeing more impressed with the growth. We're seeing the growth there's even is the growth rate of ebitda is far exceeding the growth of Revenue as well, which is nice. So we're showing leverage off. This is a healthy business that we're optimistic about
Our next question comes from John Campbell with Stephens Inc. Please go ahead. Hey guys, good afternoon and great great job getting from your agent back on a on a firm footing. You know, I'm sure you guys saw this with with your you know, your Seattle Brethren Redfin, you know, they announce the pricing change. We were kind of viewing that as as may be serving as potential to you know, increase the stickiness or drive time desired Behavior around the home sellers. Also using them on the you know on the buy side on the next home. I thought that was pretty interesting. But you know, I don't know what you guys can do, but I'm curious, you know, is there something that you can do month to drive better adoption, you know across the ancillary businesses or maybe help steer more customers to flex conversions. I don't know if you can offer up, you know lower closing costs or if if there's some type of rebate that you can provide from the commissioner from Flex.
You know, we will test all kinds of things and in fact are testing all kinds of things. So you just actually noticed US Customs and things don't over.
Populate those things out of the out of the whole business. I guess what I'd say at least with respect to Zillow offers in that is and and it's Jason cheese is that we're really focused on getting the Hub of the wheel of transaction, you know of ham solid and rolling want to get the wheel rolling and getting the Zillow offers transaction to a place where where it's solid predictable in showing leverage first is our number one priority and then we have all these ancillary adjacent transactions that hang off of and are dependent upon are tied to that transaction, including title and escrow and mortgage and and others in the future perhaps we're working on, you know, we're working on those and we have planted some good steaks in the ground and they're showing good good promise, but the overall numbers of birth.
Offers home transactions are actually still pretty small. So we're not going to see a lot of we're not going to see a lot of action in that for for for a little while. We do feel like the the whole lot of transactions though provides us with a large amount of opportunity and we believe that once they're integrated we can offer a highly differentiated customer experience because they are all connected. And so that the customer can approach a more one click like transaction. We're not really seeing that yet in real estate, but we're seeing it in card transactions a Tesla. We're seeing it in a lot of other major transactions that people wouldn't necessarily have thought of as e-commerce transactions and we're going to see that in real estate to these transactions are going to get much more streamlined efficient and integrated right and I think our partner agents are going to play a role in those Innovative transactions as well. And and that is what we're testing. So yeah, no question. In fact it Boeing's the example.
Watch the video. I'm serious. It's really good that the bone transaction Atlanta couple of family. It started with a primary agent.
And it ended up incorporating Zillow offers into that and and enabling not a one-click but it's a one a one step like a a a same weekend type transaction and that's cool. And speaking of not extrapolating. I feel like I have to ask you this but you know with the broker's license you guys recently got New York. I'm guessing that's because of flex but can you talk to why you need that and whether we should expect you to maybe continue picking that up almost 8000 basis as you expand Flex. Yeah, you know, most people don't know this but we've been Brokers for a long time in most places, you know, we're going around cleaning stuff up and and and doing that now we've done that in abundance of caution a kind of dumb to spend your stuff because the um,
The amount of regulation in the in these industries we operate is quite high and so long ago. We got our we got our brokerage license has this happened to break into the month on the surface and get get into the open-air in New York and attract a little attention. But really there's there's no new news there. Okay.
This concludes our question-and-answer session. I would like to turn the conference back over to Rich Barton for any closing remarks.
Hey, thanks for your time today guys. We are really pleased with our progress to re platform the real estate industry, and we're as you can tell excited about what you have to come. Today's on-demand always on consumer eager for a better way to move and we're the best positions company with our audience size or technical expertise are great Partners our platform. Our team. We're in the best position to lead this revolution off. Our investments are enabling to begin to participate directly in market-making dramatically expanding. Our Cham that we will believe will drive top and bottom-line results for us and for shareholder return over time. We really appreciate your support your counsel, and your feedback is Partners in this journey. Thanks a lot. We'll talk to you soon.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.