Q1 2020 Earnings Call

[music].

Good day and welcome to the Redfin Corporation first quarter Twentytwenty earnings call. Today's conference is being recorded at this time I would like to turn the conference over to lineup around head of Investor Relations. Please go ahead ma'am.

Thank you Brandon good afternoon, and welcome to Invensense Financial results Conference call for the first quarter ended March 31st 2020, joining me on the call today, our Glenn Coleman, our CEO and Chris Nielsen Our CFO you can find the press release on our website at investors.

Dr. Benson Dot com before we start note that some of that statements on today's call I forward looking we believe our assumptions and expectations related to these forward looking statements are reasonable, but our actual results may turn out to be materially different please read and consider their risk factors and <unk>.

He filings together with the content of today's call.

Any forward looking statements are based on our assumptions today and we don't undertake to update these statements in light of new information for future events.

During this call the financial metrics will be presented on a GAAP basis and include stock based compensation as well as depreciation and amortization expenses.

In the event that we discuss any non-GAAP measures today, we will post the most comparable GAAP measure and a reconciliation on our website all comparisons made in the course of this call our against the same period in the prior year unless otherwise stated for this call, we're taking a virtual approach and dialing in from south.

Fred locations. We appreciate your patience as we work through this new format and with that let me turn the call over to Glenn.

Thanks, Alumina hi, everyone.

Fred since first quarter revenues and net loss were better than we projected in our last earnings call.

Revenue was up 73% from the first quarter 29 Ci too.

Hundred $91 million.

Despite some unusual one time costs losses narrowed from $67 million in the first quarter last year to $60 million in the first quarter of 2020.

And our core business of brokering home sale through Redsun agents and through other firms agents working is our partners revenues increased 26% compared to the same quarter last year, our market share increased by 10 basis points over the first quarter of 2019.

Redfin now our business of buying and selling homes on our own account grew revenues from $21 million in the first quarter of 2000 $19 million to $79 million in the first quarter of 2020.

Over that same time, our other businesses primarily lending in title services grew 39%.

On April 1st durable capital about $70 million of our common stock in another 40 million and preferred stock that we can convert to common stock for stock price goes up.

Adding this $110 million to our March 31st balance gave us $426 million in cash and government securities, including 104 44 million in convertible notes that are due in 2023.

That should leave us enough money to weather the pandemic through 2021.

We didnt easily decide to sell more stock, Chris and I have come to distrust growth companies habit of raising and losing money, but with all heck breaking loose in the last two weeks to March our first obligation was to make sure Redsun has the resources not just to survive, but to shake real estates future.

Already.

Businesses improved since we raise money.

For the weekend take on April 5th Homebuying demand was that about 68% of our January and February levels adjusted for seasonality on April 7th we announced a lay off which would lead to 25% of our employees going on furlough through August 31st and 10% leaving permanently.

Many other people, who left where my friend.

All where my responsibility.

Some more rightfully angry.

Obama was surprising was how many responded to the furlough with an almost religious grades calling in writing to think rents and at the moment when those employees had nothing to thank us for.

Redsun has long celebrated having the best workforce in real estate.

But we never knew how true that was until recently.

The company has United behind the anthem to bring them back.

To that end, we've expanded the range of customers our own agent serve selling 150000 dollar homes, we would normally ask our partners to handle.

We won't sort of a customer and a loss that sometimes will serve customers who would have generated more profit through a referral our priority has been to honor our culture of service and to retain talent. So we can grow in future years.

This is come at the expense of immediate gross margins and to a lesser extent gross profits.

Already on me first we asked 14% of our furloughed employees to return by May Threerd seasonally adjusted home buying demand was at 96% of its January and February level, starting April six.

Demand has improved for four straight weeks.

Even with the return of some agents from a furlough each agent is working with an unusually large number of customers. The challenge is that even though homebuying demand has nearly completely returned to pre pandemic levels. This thing demand has not.

Comparing the week ending made first with the same week last year, new listings, including homes listed by ever U.S. broker were down 39%.

This is an improvement from the trough two weeks ago, when new listings are down market wide, 52%.

But for sales to increase more sellers will soon have to join the frac.

Spurred by low rates buyers are on the hub for deals and glad to have less competition with nearly a third of our April online tour request asking for video chat rather than in person tours, we had worried customers would be more casual about buying a home lowering customer success rates.

But is there a chat tours seem to appeal to serious buyers the percentage of our offers written following a video chat tore it was only 2% in March but that already jumped to 13% in April and the offers our competitive.

For March home buyers, who saw home by video chat offer acceptance rates were comparable to those from all other buyers.

Service improvements also seem to have lifted homebuyer success rates.

Because we wait six months for a new customer to completed sale, we can't measure the success rate of customers. So we met in September and October 2019 until February and March 2020.

But we now know that the success rate of these customers was higher than the rate for customers. We met 12 months before.

This is the first time in four years, we've had two successive months a success rate gains.

Even better we have reason to believe that these gains can after allowing for some pre pandemic buyers to drop out of their home search continue.

For the customers we met in March follow up rates on first tours increased 60% customer starting their home search now seem eager to hear from us.

Early measures of Homebuyer intent include the likelihood that within 15 days of asking for service new customers will browse more redsun dot com listings are reconnect with their redfin agent or even ask her to prepare an offer.

From April 19 to April 2020, all three numbers have increased.

Any gain and homebuyer success rate can significantly left red pens gross margins as our largest variable cost. Besides sales bonuses is serving customers who don't close.

But those customers will soon route of homes to buy from April 2019 to April 2020, the number of homes for sale declined 25% and.

In a terrible market the only people selling their homes are the ones who have no choice.

In a difficult or uncertain market folks, who just wants to move to the next stage their lives put their homes up for sale after birth, the new job or a divorce. The people in this latter category can differ listing their home for months, maybe even a year.

But they won't wait forever.

We're shifting from a terrible market in March and April to a difficult are uncertain market in may and June.

People unavoidable need to move is why from 2007 to 2019 U.S. home sales varied between four and a half million units and 6 million units a difference of only 25% between the depth of the great financial crisis in the recent bull housing market.

If conditions keep improving it will likely be because buyers are drawing sellers into the market.

Comparing April 2019 to April 2020, the median home sale price increased by 5%.

The exception to the overall strengthened demand for homes under a million dollars its entry level condos, which had been hard to sell.

The buyers of these properties are earlier in their career and the most likely to have lost their jobs.

The properties and greatest demand or mid price single family homes in L.A. Some of these lists things aren't even hosting scheduled showings redfin agent recorded hearing from a listing agent that were like trader Joe's now, they're tait markers 10 feet apart on the sidewalk in there may be waiting times to get in bring your own mask and gloves.

Overall homes are just is likely to sell quickly in the pandemic has done a bull market. If you look at let's thinks that debuted between March 15th in April 15th in 2020, and 20 night team.

The percentage accepting an offer within two weeks of their debut at the same at approximately 25%.

Our agents report that buyers you now expect a discount of 10% run into a brick wall with some sellers, preferring to deal with their home until shelter in place orders paths.

[laughter], if buying enlisting trends continue in most north American cities inventory will reach rock bottom very soon and possibly as early as this month.

Because homeowners can get up to 12 months of mortgage for Barents distressed sales are more likely to happen in 2021 than 2020, if at all.

With us expect a significant increase in bidding wars summer, which could draw more home sellers under the market in the second half of the year.

We're also preparing for a seismic demographic shifts towards smaller cities. Prior to this pandemic. The housing affordability crisis was already driving people from large cities to small.

Now more permissive policies around remote work and a rising wariness about close quarters will likely accelerate that trend.

More people will leave San Francisco, New York, and even Seattle.

Some for nearby towns like Sacramento in Tacoma that are close enough to support a weekly offices that.

Others for a completely remote life in Charleston, Boise, Bozeman or Madison.

Since March 15th searches for homes in towns of population under $50000 under 50000 people excuse me increased 71% well over the same period searches for homes in cities with populations greater than 1 million increased by only 38%.

Beyond new sales channels, the best way to gain lifting share long term, it's by giving homeowners better choices than a traditional agent.

This starts at the low fee alternative Red said is the only major brokerage to offer a standard listing fee of 1% or one of the half percent.

The 1% fee is for listening customers, who also by their next home with Red Tag, 1.5% us for customers, who use redfin only to sell their home.

We instituted this pricing nationwide in December prior to that about half are listening customers pay less and about 20% paid more the remaining 30% tested the new pricing early.

Our results through March supported the prediction, we made last quarter. This pricing will have only a modest impact on listing transaction growth more than offset by increased revenue per transaction.

We made the decision to increase prices on our standing listing service out of financial Prudence.

But we're still acquisitive about listing share. This is why we give homeowners choice is beyond full service at a low fee. Our choices include an instant offer from redfin now or concierge service to prepare the home to sell for top dollar.

Both redfin now in Concierge service Redfin takes responsibility for rapidly renovating and stage you got home to sell with Redfin now we own the home when itself and reap the returns from our repairs concierge service. The original owner Theres more risk, but reached the returns and she's still doesn't have to let the finger.

As we said before both services will be options that people consider when selling their home.

But when an incident offer as low enough to account for the full cost of owning a home maintaining it while vacant but also having to selling in a downturn.

Our bed is that two or three times as many people will choose concierge service. This is why Reds and now only makes sense. That's one of several choices presented to each listing customer.

That's been announced challenge will be to buy homes at higher margin and lower risks than our competitors. We were the first major institutional buyer to stop buying homes honoring our pledged to act quickly in defense of our balance sheet based on brokerage data only we have about when the markets turning.

On the day, we stopped making offers March 17.

We owned or were under contracted by $119 million at homes.

April Thirtyth, we had reduced that number to $56 million.

37 at 56 million is in home under contract to sell mostly in the next 14 days.

Most of that 56 million came from our line of credit.

For the homes, we owned or ended up buying as of March 17, We now project to sales price about 2% less than we assumed when making the offer.

We project a total cost of these reduced sale prices to be $3 million or less after paying for the homes and paying third parties to buy finance whole renovate and sell these homes.

We still expect to make nearly a million dollars.

It's only the cost of Reds and now its employees that will result in a gross profit loss.

Well, we learn from these results is that Redsun now performed better in a downturn than some had feared.

Everything else was stuff, we already knew when our bones that we had to do.

Now, it's just scratched the walls of our home offices.

First lower our instant offers to compensate us for occasionally having to sell our portfolio at a 3% to 5% discount in a downturn, but also to make more money on instant offers now.

Second.

Squint harder at projected economies of scale and other rationales for expanding a business that doesn't make enough money on each house.

Scale will pay for managers and a renovation team.

But it doesn't do much for the most important profit lever pricing discipline.

Third avoid long holding times. So we can decide whether an offer is profitable within three to four months of making it.

This also makes or money work harder and limits risk.

Fourth unify our salesforce to keep our costs lower than our competitors and to present, a complete set of options to every customer.

With these lessons in mind today, we reopened redfin now for purchases in Austin, Denver, and the inland Empire East about lag.

We'll limit Redsun now using $20 million of our own money, which leaves 9 million per may purchases.

Counting the pre pandemic purchases, we still haven't sold and the ones will buy starting today, we expect to own fewer than 100 homes through the second quarter, mostly financed using our line of credit.

If I may we'll know whether homeowners will pay a premium for liquidity in an uncertain market accepting lower redfin now offers than before.

In July we should have nearly all of our May purchase is back on the market for at least two weeks at which point, we can project, which offers are likely to be profitable.

We'll report on those projections on our second quarter earnings call.

By the time, we reopened redsun now for purchases more broadly will present instant offers to customers through our brokerage salesforce.

To support the Salesforce or redfin now employees will prepare offers and answer questions from a fortress of analytical solitude.

The issue with Redfin now hasn't been customer interest as we have never put anything on our website that homeowners responded to more eagerly than a cash offer.

The issue as Ben just how we respond to that interest.

Agents are the ones best qualified to present, an instant offer alongside other options that are better for most homeowners.

Unifying our Salesforce will take the rest to 2020, but should lead to sell more houses that competitors more narrowly focused on instant offers.

Our rationale is that having one salesforce for all our home selling services makes it easier for every one at our company to have one goal.

To sell as many houses as possible well owning as few as possible.

Any consumer who doesn't want to go through the hassle of preparing a home to be sold is likely be drawn to an instant offer but many selling mid priced are expensive homes also want to consider our concierge service. It's available today in San Francisco, Seattle, Southern California in Washington DC.

For a listing fee of 2% or 2.5% depending on the market. We advise a homeowner on how to make her listing shine and make sure. All the work gets done either through contractors or our own renovation superintendents. The homeowner pays the bills often using the money from the home sale.

Customers have loved the service both for its convenience, but also because the homes look so good.

The job dropping before and after photos of the homes, we fixed up illustrate a fundamental truth of how to sell homes for more money.

It's not just through an agent personal salesmanship or even through Redskins digital marketing, but my making the home show better to a potential buyer.

Our challenge has been operational building the software programs contractor relationships and field organizations to deliver a wide range of minor renovations on demand. So that we can get most homes ready for the market in one or two weeks.

Until this pandemic hit the home services team, we've been assembling since 2018 prioritize redfin now ahead of Concierge service. The Concierge services now our first priority and we expect to expand concierge service from 10 to 14 markets by the started 2020 watt.

The other business is expanding rapidly as redfin mortgage in the states we serve but also in the products. We offer today, 59% of our brokerage is homebuyers are in markets served by Red and mortgage but as we open in Arizona, California, Oregon, and Washington State will reach 94% by year end.

In a week, we're piloting refinancings.

Prior to the pandemic, we had planned to offer this service in 2021, so we expect some glitches but.

Well, we also expect demand.

Even without any website promotion our mortgage advisors get a few calls every week from Red 10 customers seeking to cash in on lower rates.

So the vast majority of our website visitors are still wary of ditching their longtime realtor for a low fee broker like red fan.

Many maybe more price sensitive and choosing a lender.

Even as we grow Reds and mortgage revenues, we want gross margins to improve to.

Mortgage margins improved significantly from 2018 to 2019 due to improvements in our own loan origination software.

The margins plummeted in March due to market volatility.

We worried that we'd be unable to sell some loans, but so far that hasn't been the case, we suspended jumbo loans and loans for second homes and investment properties, even for the loans the conformed to federal lending standards, we raised credit requirements for most of April to reduce the likelihood that a borrower would ask for for Barents on a payment before we could solve alone.

We've also significantly increased our reserves for loans, we have to repurchase from investors.

But even though we've been able to sell loans on schedule. The prices of these loans have been much lower than expected costing us nearly a million dollars in revenue.

After we lock low rates for our Homebuying customers in February and March the prices investors would pay far loans declined over fears that many people would stop paying their mortgages.

Typically we offset price declines by betting against mortgage backed securities. When we lose the dollar of revenue from lower prices the value of the bet is supposed to increase by a dollar.

But starting in late February investors, who paid less for our loans still got more for mortgage backed securities largely because the government was buying these securities and inflated prices.

This encouraged investors to keep buying loans, but left originators like redfin unpredep unprotected when loan prices fell.

When we noticed that our hedge wasn't sufficiently hedging our risk we assume like many lenders. During this pandemic that this was temporary.

It took us until April 3rd to shift interest rate risk onto the investors buying or loans.

We now stand to make less revenue per loan, but it's the same revenue regardless of whether rates go up or down.

At some point later in 2020, or maybe 2021 will take on interest rate risk again, but only when mortgage backed securities respond predictably to changes in loan values and only when our processes for reporting an escalating risk has improved.

Fortunately the call over to Chris we should talk about advertising.

To save money, but also because we worried our message would fall on deaf ears, we stopped running our TV ads on March nine and stopped our digital ads on March 16th.

We avoided $16 million in March and April spending.

Since then we've noticed that TV viewership is between is up between 30, and 60% where rates are down between 10 and 20%.

We suspect that many consumers are completely unaware that the housing market is largely open for business, where the video chat tours in three dimensional scans worked fine when people can't meet in person.

Videos promoting these technologies have performed well in digital tests. So in May and June will be running new ads at a second quarter cost of $8 million or less.

There are lots unknowns ahead of us changes in consumer behavior that would have taken a decade happened almost overnight.

Even though in this pandemic ends the process of buying and selling a home will be far more virtual than Reds and could have hoped for in February.

Investors rightly assume that the technology. We've spent a decade building gives us a massive competitive advantage in this new world.

But our biggest competitive advantage isn't what we did in the path.

It is how fast we're reacting now.

When the World is changing this fast what is most valuable as our own ability to change the company you want to stake in isn't a big fat incumbent it's the crazy little mammal crawling out of the creator of the asteroid strike.

Redfin, what's the first major Seattle company decided to close its offices on March Threerd. We were first to encourage our customers to tour homes by video chat also on March Threerd, we were first to call the market publicly citing a significant drop in demand on March four we were the first to cancel all open houses nationwide to protect public health on March.

16 on March 27, we were the first to provide a map of real time update.

Updates on the rules for real estate commerce across 50, plus markets changing field policy in Redmond Dot Coms consumer guidance from day to day and often our to our we were the first to upgrade our web sites promote matter port three dimensional scans of homes on April 2nd.

From February to April new listings with these scans had increased four fold.

And we were the first to offer self service tours to homes listed by our brokerage, but owned by our customers on April 20 Threerd.

Being able to open the door of a vacant listing on your own with just an iPhone is crucial for buyers who are wary of being in a home with an agent or anyone else outside their family.

There are many other first from the past few months that we don't have time to discuss here. What's most important is that this company came together when a culture could have fallen apart and ran faster when so many parts of the world came grinding to a halt with that let's hear from Chris.

Thanks, Glenn I mentioned priority onset of Colin 19 in the United States, We saw the year get off to a very strong start with January right, both delivering solid growth.

Even if you saw the virus impact early stage demand.

Its overall impact on the first quarter with somewhat limited as we close deals already in the pipeline and a good pace and finished corridor above our guidance range on revenue and profitability.

First quarter revenue was $191 million up 73% from a year ago.

Real estate services revenue, which includes our brokerage and partner businesses grew 26% year over year.

Brokerage revenue revenue from home sales closed by our own eight dense was up 26% on a 27% growth in brokerage transactions.

Revenue from our partners was up 37% on a 17% increase in partner transactions.

The property segment, which consists of homes sold through our let's say now program.

<unk>, you know that the right characterization.

Have you have your views kind of changed on on on what what I by means what with opportunity is there for redfin would you you know what what will should we expect that overtime that might be become a bigger piece of the business then.

What what you were expecting before.

The pandemic and you know thoughts on on how you think people might react to it.

You know low <unk> higher fees essentially in lower offers thanks.

<unk>.

Thanks to first of all with Redskin direct it's hard for us to separate.

Improved merchandising from market effects. So we have gotten more aggressive about promoting rents indirect.

As a result more people are starting off hearse.

But that May also be because the market has shifted and more people want to work without an h. they've just been so many changes to our website that we can't distinguish those two effects.

We're very excited about the possibility that more people are gonna see homes online and really only tore the final two or three which will differ how long they wait to hire a real estate agent.

And in that event, we think people are just going to be more transactional and they may look at offers the same way they've looked at tours is an on demand service and that would definitely favor red pen.

On the second point about being bullish on Reds and now.

I'm wondering what I said this sounded more bullish than in the past.

I've always felt that red pen now is one option that consumers can should should consider.

But try to emphasize that often won't be their best option and I think what I'm excited about now is that the market will be more rational you've had so much money in that space, where people have been trying to buy share.

But now I think all of us are going to be much more focused on making money on every house we buy.

And that is just a better competitive.

Market for US Yeah, I think it's better for all the players.

But I don't think that redfin now, it's going to take a higher proportion of sales now that we're lowering our offers we're going to give ourselves more margin for error and I feel good about that but I don't know that that means it'll take more share.

Thank you. The next question will come from Jason helping with Oppenheimer. Just go ahead.

Hey, guys is shown on the call for <unk> dates for take my question. So first one you guys had a 10 based pointed marketshare gain verse 13, and four Q. is there anything that you would call out driving a smaller share increase and then my other question is in regards to the virtual himself touring.

Where do you think the rest of the industry is relative to where redfin is in this feature that <unk>. Thank you.

I'll talk about virtual insults, Oregon, then invite Chris to talk about share that's all right with you Chris.

So let's get other agents are rapidly adopting video chat tours, it's something that we've been working on a long time, and just being able to advertise it as something you can easily asked for has probably helped us attract more buyers.

Self service touring where we install a lock on the door of a red pen listing and let someone open it with an I phone.

That's a proprietary capability most real estate agents don't have an application that they can use to let buyers end of the property and they don't have the capability to install those locks at scale and it has been really popular one insight from redfin now that we applied to the brokerage was just how much in March homebuyers prefer.

Seeing properties that they could see on their own without anyone else being present and so the conversation that we wanted to have with our listing customers and 2021, just happened right away, which is listen people want to see your house. They don't want you to be there or anyone else to be there when that happens we want to put a different.

Lock on the door.

And that has been really successful and we're glad to be able to bring it forward. It depends on the renovations capabilities that we started building and 2018 any out that we built a decade ago Christian talking about share.

Sure. So share gain was 10 basis points in the Chris cargo. The year component is first corner last year are you on share gain hasn't fundamentally tunes that all we do you see some bounciness quarter to quarter in terms of share gain I bet. We we feel really good about our prospects going forward in our ability to gainshare through a variety of different mark.

Conditions, so I wouldn't draw too much of the conclusion from that.

Thank you.

Shouldn't be sees Oh.

Go ahead, I'm, sorry, I was going to say just off the cuff share gain should not be seasonal.

I have argued to the point of tears with analysts, saying that any year over year comparison should not be seasonal and yet for whatever reason our first quarter share game is always lower than later quarters are almost always.

I'm not sure what to attribute it to this time, but I just want to let you know that it's something we've noticed over the years.

Thank you. The next question will come from Brett till with Jeffrey. Please go ahead.

Thanks, <unk> peers, you could just give a little more color about for the last four weeks mentioned demand you know continue to build key just give us a little more color in terms of.

What were the most hurt and signs and then the shift the buying again can you just give us a sense of.

You know how you're using your till back in the water on non how aggressive you'll you'll get here and you see the the demand belts thing.

[noise] sure so I'm not sure what other color to give about home buying demand. It's been really strong what we worried about was that it wouldn't pull through that when you make it easy for someone to look at a home without leaving their own home because they can just using the I phone to get a video chat chore.

Those people would be lucky loose and then they wouldn't actually right offers that one.

But we've had enough time to feel somewhat confident that the demand is going to pull through.

And even to feel that home buyers are more serious now than they were earlier and it's probably because they face less competition. There was a sense of futility people had when writing an offer for six months ago, but it was going to compete against five or 10 other offers and so they weren't really prepared to win.

House and now the people who are in the market are feeling there oh.

As for Reds and now I think your question was just about.

You know, how we feel about dipping our toe in the water.

I think the real question is just.

Will people pay a premium for liquidity.

So there's so many sellers on the sidelines right now who are worried that they'll put their home on the market and may or June and then have sheltering place.

Resume again and so they're just holding out that's why inventory is falling so fast and it may be that if we give them.

And immediate off for an instant offer and take that risk ourselves that when we asked for them to compensate us without risk they'll pay it and we just don't know we want to find out what the market will bear, but I think every I buy or it's going to charge at least a small premium for the increase in risk.

That we're taking that the market might open and shut.

And so again I, just interrogating myself did I sound to bullish on Red Pen Pal.

I hope to sound reasoned on it but you know we're coming back we're going to spend.

You know 10 20 million Bucks on homes.

And we'll see if people can really.

Settle into the offer prices were willing to make.

Yeah.

Thank you. The next question will come from Edward <unk> with Keybank capital markets. Please go up with your question.

Hi, guys I think they call yeah, they say that.

<unk> <unk> chill click line <unk>, what is 10% of lead birthdays partner agent.

You are using today and one more about what kind of normal level also can you did anymore <unk> type thing.

<unk>.

Sure so.

We don't actually report on how many partner agents, we have versus how many lead agents we have.

What I can tell you is that at the beginning of March when we were staring down the barrel having to lay off or furlough. Some of our own employees. We kept every possible inquiry that we could for ourselves so agents, who normally wouldn't be willing to drive more than 20 or 30 minutes to me a customer driving an hour we were handling sales of $150000.

Homes when normally we try to focus on two or 300000 dollar homes that up.

And that was just to keep everybody busy.

Since then we've had a furlough.

And demand has really picked up at least homebuying demand has.

And we brought some people back to handle it but we've also started sending more business to our partners because it's such an uncertain time, we don't want to bring people back from for a low and then send them away again, if demand is gonna be up and down.

So that's bouncing around quite a bit by market, but also from week to week and we use that.

That lever to limit our risk.

To insulate ourselves from some of the volatility in the market.

And it's just not as low as it once was at one point Yeah. We were taking almost all the man ourselves and now we're sending some of it the partners as far as listing pricing goes yeah. We tried to emphasize that listings are down industry wide, we did not actually segment our own listing demand from our by side.

<unk>.

The reason then we talk about by side demand in terms of our own inquiries is because there's no other way to measure. It early stage demand comes in the forms of tours and you just can't see that across the industry, but on the cell side when somebody decides they're interested in selling their home. They listed and we can look not just at redfin, but across the.

Whole market in their.

Listings are down 25% your every year for the month of April so.

I.

Did not mean to comment on our own listing share the only Sharon numbers. We release are about overall share games on the by side and the cell side blistering business is growing.

Was growing nicely prior to this pandemic and now we still think we'll be able to take share, but it's going to be on a much smaller set of sales.

Oh and one other thing before we go to the next question sorry, I keep.

Thinking about one other thing.

The the price increase is going to hurt transaction growth a little.

But it's exactly what we expected it to be so far and we only have a couple of months of offering it nationwide before the pandemic struck.

But results were not better than we'd hoped and they weren't worse than we'd hope they were pretty much right in line.

Thank you then it's already been done now.

No. We're certain the next question will come from gently with RBC capital markets. Please go ahead.

Right. Thank you added in T.N. from our Khamenei, just a question alright.

Already in the earlier remarks, but if you can talk about just the Renault impact on that had maybe at the end of the corner that I, probably will be a much more pronounced in pack and to to how much of that if you can just rank what are the impact here to to guide I'm, just the Asian Fearnow and also.

Just the impact margin and also just like kind of longer time, you mentioned, the the taking people's willingness to do the French I'll show you have some innovations there as well just do you see how much of that isn't permanent change in behavior, and perhaps than a prominent higher skiing, a bad idea and productivity to U.S. now thank you.

[noise] share. So this is <unk> with regard to impact of her alone or there would be no impact of that in the first quarter, because they're all that activity happened in the second quarter of the air and the information that we've provided on out here or there will be about or <unk> 7 million dollar cost for.

During the course of the corridor, including the benefits that will continue to pay for the employees who are on furlough. So with regard to impact that that has on Mars and of course those are dollars. We continue to pay even other people are not actively working for the company in closing details, but we haven't.

Any other guidance with regard to expectations for gross margin in suck a quarter of the year.

And then Glen and video chat tours.

I think we see those primarily as a way to gain share rather than lower costs.

We still have to go out to the house and walk through it it may be that we record one video chat tour and use it for multiple buyers at some point, but we haven't developed that capability yet.

Most buyers are sensitive to sharing information that was given to them with one of their competitors.

I think the main thrust of video chat tours is just to be able to do something that not every agent can advertise and to do it better than other agents. So that we can take share.

Thank you. The next question will come from Ryan <unk> with filming and Associates. Please go ahead.

Hi, Thanks, so much guys and of course glad you're doing well and then you through this so I'll try to squeeze too in so Glenn your comments on the mortgage market disruption was was very helpful and.

Of course, the actions are taking in at the end of the day I think some of the the credit tightening that's been going on is probably probably more severe than some people are realized so my question is.

In the last few weeks or your sensing any using or or let's say stability or using in the actual underwriting bucks for consumers, but some of the actions.

Other regulators taken or you anticipating that this kind of consumer tightness for credit tightness, Oh remains for the consumer going forward and second question for you on home prices. So I think we're starting to get some indication on just a trajectory of homesales moving forward, but I think there's probably some more debate rising around what.

Going to actually happy home prices, you know, we've probably skewed a bit more positively others, obviously take different views but.

I I just wonder what you guys views on the pricing dynamics and even with with the data that you have access to your contracts are just other data pending contracts.

What are you seeing on a real time basis or in recent weeks on actual pricing trends you know I know, we've seen from you and others. Some of the discussion around listening crisis, but of course list prices and kind of actual impressed appreciation or are very different things. So.

Just kind of curious how your you know what you're seeing today and and ultimately what you think might go on from from the actual home price perspective in this in this period of disruption. Thanks, so much.

Sure so quickly.

It has gotten easier to sell loans and that means that credit overlays are going to become less prevalent there was the time when.

Mortgage forbearance created so much risk for lenders that even for an originator like Red thing, where we hold alone for 15 30 days were worried that someone's going to ask for Barents in that period, and we're not going to be able to sell it even to pay any your freddie or some other.

Investor.

So.

The fact that Fannie and Freddie have stepped up and said that they'll buy loans and forbearance I'll be at a discount has just made it easier for us.

To make loans servicing market has come back some.

We were really in a gym, three or four weeks ago, and I don't mean redfin I mean, the whole industry was then a jam trying to figure out how we're gonna alone people money when borrowers didn't have to pay their mortgage.

And the government was playing a game a whack a mole trying to prop up different parts of the market to make sure that.

Investors would still by loans and largely those efforts have succeeded.

But in the middle of April and especially early April.

The pipeline was just spring and leaks in one place after another so I think that's gotten better.

And you're right that.

We are probably more bullish than most on home prices that doesn't mean that.

Home prices are going to shoot through the roof. It doesn't mean that we don't have anxiety about.

Unemployment and consumer confidence and all the rest, especially as we said for urban condos. There's certain types of properties that are likely to be bought by someone who's very early on their career a vacation homes are also under significant distress, just because people can't air being beat them anymore.

More and their liquidating them at whatever price they can't.

By and large single family homes are doing well and we see no basis for saying that their prices will decline and it may be just a sad comment on a trend that <unk> that started a long time ago, which is.

Working class home ownership has declined yeah, there was a time when.

You know any hit to consumer confidence would ripple through the housing market and it still does.

But mostly the people buying homes are.

The richer half of America and their stock portfolios are doing reasonably well they have the kind of jobs that are less likely to be eliminated on their buying houses and I think there's just this long term inventories shortage that even if you eliminated. Some buyers. We are so far from building enough homes to house, all the Americans and we've had.

Housing affordability crisis for so long.

That.

You're just going to see buyers and any short term.

Downturn looking for an opportunity to buy that's why it by side demand has come back so much faster.

Then people are willing to list there huh.

Thank you. The next question will come from Jack missing go with S.I.G. Please go ahead.

Oh, yeah, good afternoon everybody.

I'm wondering.

You know under some your partner agent model has been sort of them or at least so you know in times of the peak and then load up man.

Yes, yes, this sort of course acceptance by consumers of some of the second one which you have virtual tours.

Which is thinking about changing about.

Over time, and then maybe you can do more with your inhouse penalty didn't of course quarter more permanently.

So I want to make sure I understand your question has technology, let us increase the proportion of in queries that we can handle ourselves with our own agents.

Rather than through partner agent is that right.

Yes.

Really sort of giving them some of the lessons in the last three or four or I guess, two two months or so with this little forced adoption with the channel or something.

I think that's one possible outcome, it's a good question, but the other outcome.

Could be that we start offering some of our tools to partner agents. So that if you ask for Reds and service and end up working with a partner you still get a digitally enhanced experience.

That used to just be a bonus.

Maybe some weird thing that we did to make real estate more efficient, but now it's the only way to sell a house and so.

That is really shifted consumer behavior.

Consumer attitudes towards Red pens approach.

I think other agents will will want a piece of that.

Mhm.

It was modeled it was my fault.

Yeah, so it I suppose but.

Sounds like you're coming to.

The market Perspectively with a more.

<unk> you know sales pitch. So the ageing major comes in is located in now quote.

I think your regular quote looks like and here's the concierge options in mind, Sabrina correctly, and if I am what's changed versus how you'd maybe did things 345 months ago.

You interpreted correctly and what's changed is that.

When you have a product that is much less mature than your listing service your full service lifting offering.

You have specialized sales people, who are focused on selling that so redfin now.

It's own sales people, who were trained to deliver instant offers and we had tried earlier to deliver instant offers through.

Our 1000 or 2000 real estate agents, depending on when you count on them.

And they really struggled to prepare that offer.

In the same time frame that they had to prepare for a listing console. So.

[laughter] that off or or that that effort foundered somewhat.

But when the pandemic hit we just thought man, we've got to make that work.

Yeah, that's our competitive advantage as we already have a thousand agents and all these living rooms.

He offers that we're going to be making if.

They have a higher margin of error, if they're slightly lower than before we need to be able to tell people look we'll give you this instant offer.

But.

Probably the way you're going to make the most money is just by selling your house.

Yeah, you just heard me talk about how.

Inventories low prices are going to hold up if you really believe that.

And customers are listening to this call you wouldn't want them to just Lister Dang House and that's the advice, we want to give every customer along with and that's than off or here. It is take it if you need it but the way to make the most money is to list the house and if you just don't want to go through the hassle use our concierge service.

Thank you. The next question will come from Stephen children with William Blair. Please go ahead.

I think wanted to ask about the potential incremental shift that you mentioned away from urban homebuyer demand to to potentially smaller city demand with that trend potentially playing out over the next the few years that that changed the way you plan to add agents over the medium term and on the other side.

This may be focusing more on starting to build more agent capacity and smaller city.

It does I think it even applies to how we build our website.

It's just a subtle.

Effect, but when you're agents live in big coastal cities every time, we tested feature.

We see how it works in Seattle, or San Francisco or Boston.

But we need to make sure. It plays in Peoria too so we're going to be more aggressive about trying to.

<unk> customers get traffic drive sales in queries in smaller cities, because we see people migrating and the way that really benefits.

Is that when somebody moves across the country, they're less likely to know a real estate agent in Boise, Idaho or Bozeman, Montana.

And if they're coming from a place like Seattle there'll be familiar with our brand and so.

You get some benefit building a national brand, most brokerages or local most real estate agents are absolutely local that are thesis has been that red pen can stand for the same thing no matter, where you go. So we're gonna sell one home in San Francisco and help somebody by another in Charleston, South Carolina, I think that'll really.

Benefit us, but there were already seen more growth in our smaller markets. We launched them later, so they're of an earlier vantage and this could just pour some gas and the fire.

And just one more comment there is that we don't have to lead to by hiring the agents. We can see that the demand is starting to materialize in those places and that's the signal down across to undertake hiring elite agent and so that's that's how we think about the floats here is that we see the demand on the website and various other kinds of.

Inquiries from that you take action based on that.

Thank you as a quick reminder, if you have a question at this time, please dial star one to enter the cue. The next question will come from Chris <unk> with Compass point. We've go ahead.

Thanks for thanks for taking my call I went to follow up on the urban <unk> called the D. Urbanisation Pops up.

So you know historically I think there was a small has no I was ready to put out focus on on the coastal regions higher home prices.

Well the other thing that'd be so that's really struck me was the buyers that you're seeing now are higher intent, which seems to indicate.

Central for a significant increasing agent productivity and you know less of that kind of gross margin waste, though people. He's doing a lot of tours that ultimately you know by at home. So I'm wondering your thought of how do you reposition your business or how do you make changes to potentially deal with more home sales in in lower home Craig's areas.

We all set by hiring 10 buyers and how do you think about gross margins long-term onto that construct.

Well first of all.

I just want to make it clear that agent productivity increased I think for the fifth Street corridor.

Homebuyer success trade improved we're seeing higher intent buyers enter the pipeline now there's a massive shift toward virtualization, which is a capability as a broker that we can uniquely deliver.

I think those are massive tailwinds for us long term.

And then.

Shift towards smaller city has been.

One that was under way well before this.

It is going to be a challenge to make sure that we can make money on a 300000 dollar home and the way to solve that challenge is exactly how you Adam braided which is.

[noise] [noise] increased close rates.

Lower cost of goods sold.

This a product people can buy at every price point.

And that's that's the mission that we're on and.

You know that's the progress that we've made recently so.

I think redfin has gone from being a nice product for coastal markets to something that works in almost every city in America or every town.

And I happen to while ago and now it's just going to happen faster.

Okay.

And that and then thoughts on product chain. So you know you're.

Your ability to show you know put the locks on the doors and show homes that are on occupied my question is yeah.

Moving forward, we kind of in a real estate industry operate with cold onto mandatory you're trying to sell them by a home almost in containers to leave for from the bottom the consumer's standpoint in most cases.

How do you think changes and does the industry need different products. Some type of bridge product or something where more homes are cold and documentary than on demand that I don't have a solution is just something that seems to be the trends seem getting anything too yeah. How are you thinking about that.

Well I buying was a response to that and before now and we just had loose credit where you could get to mortgage is much more easily than you can today and I still think that [noise].

The fundamental obligation that the government, it's fine to outlaw predatory lending we should absolutely do that but then the government has to replace it with something else that works for working class people, who are stuck from one between one home and another.

And I buying it's just one way to make money.

Off the bat liquidity problem.

But we just have to acknowledge the fundamental inefficiency of three different parties owning a house when you're trying to transfer from one party to the next.

There's a middle man that is going to cost you money and the idea that it's cheaper to sell at home when it's vacant just ignores the fact that.

You know getting the grass cut pain homeowner's dues is easier for somebody when they're also getting shelter for the property.

For us, it's just burning a hole in our pockets. So I think we can solve that liquidity problem, but it's always going to be a premium service that the original owner of the home is going to have to pay for the idea that it's going to somehow be the same cost as a brokerage sale.

To me that seems unlikely.

And and that's why we're just presenting it as the most expensive option that we have it's certainly solves liquidity problem like that.

But you pay for it you're not going to get quite as much out of your house and for some people. That's a good tradeoff, but we just want them to know what their choices are when they make that choice and where the only company that can provide all those choices.

By the way I just got to say thanks, guys are sticking with us for the extra half hour I know there is billion companies reporting earnings today, and we know how hard you're going to be working Tonight.

So just bear that in mind, when you put the by rating on Redsun <unk>.

<unk> I don't mean that just call it like you see it but.

Thanks for your time.

Are you we don't have any more questions right.

There are no further questions or alternative back to Atlanta per room [laughter]. Furthermore.

Thank you brand on Thanksgiving wine for joining us today. We appreciate your interest in Manhattan and look forward to speaking with you again next quarter.

Hi.

Thanks, everyone. You may now disconnect her along with the rest of your day.

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This time I would like to turn the conference over to lighten up a room head of Investor Relations. Please go ahead ma'am.

Thank you Brandon Midafternoon unwelcome transcends financial results conference call for the first quarter ended March 31st 2020, joining me on the call today are Glen Kalman, Arsenio and Chris Neilson R.C.F. All you can find the press release on our website at investors.

Dot threadfin dot com before we start note that some of those statements on today's call I forward looking we believe our assumptions and expectations related to these forward looking statements are reasonable.

But our actual results may turn out to be materially different.

Please read and considered the risk factors in R.S.C.C. filings together with the content of today's call.

Any foreign looking statements are based on our assumptions today and we don't undertake to update these statements in light of new information or future events.

During this call the financial metrics will be presented on a gap basis and include stock based compensation as well as depreciation and amortization expenses.

And the event that we discuss any non gap measures today, we will post the most comparable gap Niger and a reconciliation on our website Oh comparisons made in the courts of this call our against the same period in the prior year unless otherwise stated.

For this call.

Taking a virtual approach and dialing in from separate locations. We appreciate your patience as we work through this new format and with that letting you turn the call over two Glenn.

Thanks, Alina hi, everyone.

Red fence first quarter revenues and net loss were better than we projected in our last earnings call.

Revenue was up 73% from the first quarter of 20 $19 million to $191 million.

Despite some unusual one time costs losses narrowed from $67 million in the first quarter last year to $60 million from the first quarter of 2020.

In our core business of brokering home sales through Red pen agents and through other firms agents working as our partners revenues increased 26% compared to the same quarter last year, our market share increased by 10 basis points over the first quarter of 2019.

Red pen now our business of buying and selling homes on our own account grew revenues from $21 million in the first quarter of 2019 $79 million in the first quarter of 2020.

Over that same time, our other businesses, primarily lending entitled Services group, 39%.

On April 1st durable capital about $70 million of our common stock and another 40 million and preferred stock that we can convert to common stock for stock price goes up.

Adding this $110 million to our March 31st balance gave us $426 million and cash in government securities, including 104 44 million Inconvertible nodes that are doing 2023.

That should leave us enough money to whether the pandemic through 2021.

We didn't easily decide to sell more stock.

Chris and I have come to distrust growth companies habit of raising and losing money, but with all heck breaking loose in the last two weeks to March our first obligation was to make sure Reds and has the resources not just to survive, but to shake real estate future.

Already by businesses improved since we raise money for the weekend thing on April 5th Homebuying demand was that about 68% of our January and February levels adjusted for seasonality.

On April 7th we announce to lay off.

Which would lead to 25 per cent of our employees going on furlough through August 31st and 10% leaving permanently.

Many other people, who left where my friend.

Oh, where my responsibility.

Some more rightfully angry.

Oh, what was surprising was how many responded to the for low with an almost religious greats, calling and riding the thank red fan at a moment when those employees had nothing to think is for.

Redsun has long celebrated having the best workforce in real estate.

But we never knew how true that was until recently the company has united behind the anthem to bring them back to.

To that end, we've expanded the range of customers our own agent serve selling 150000 dollar home. So we would normally ask our partners to handle.

We want sort of a customer at a loss, but sometimes will serve customers who would have generated more profit through a referral.

Our priority has been to honor our culture of service and to retain talent. So we can grow in future years.

This is come at the expense of immediate gross margins than to a lesser extent gross profits.

Already on May 1st we asked 14% of our furloughed employees to return by May 3rd seasonally adjusted Homebuying demand was at 96% of it's January and February level, starting April 6th.

Man has improved for four straight weeks.

Even with the return of some agents from a furlough you change and is working with an unusually large number of customers.

Challenges that even though homebuying demand has nearly completely return to pre pandemic levels. This thing demand has not comparing the weekend being made first with the same week last year, new listings, including homes listed by every U.S. broker we're down 39%.

This is an improvement from the trough two weeks ago, when new listings are down market wide, 52%.

But for sales increase more sellers will soon have to joined the fray.

Spurred by low rates buyers are on the hung for deals and glad to have less competition.

<unk> nearly a third of our April online chore request asking for video chat rather than in person chores, we had worried customers would be more casual about buying a home lowering customer success rates.

Video chat tours seem to appeal to serious buyers percentage of her offers written following a video chat tour was only 2% in March but that already jump to 13% in April and the offers are competitive.

For March home buyers, who saw home by a video chat offer acceptance rates were comparable to those from all other buyers.

Service improvements also seem to have lifted homebuyer success rates.

We wait six months for a new customer to complete a sale we can't measure the success rate of customers. We met in September and October 2019 until February and March 2020.

So we now know that the success rate of these customers was higher than the rate for customers. We met 12 months before.

This is the first time in four years, we've had two successive months a success rate games.

Even better we have reason to believe that these gains can after allowing for for some pre pandemic buyers to drop out of their home search continue.

So the customers we met in March follow up rates on first tours increase 60% customer starting their home search now seem eager to hear from us.

Early measures of Homebuyer intent include the likelihood that within 15 days of asking for service new customers will browse more redfin dot com listings are reconnect with their red 10 agent or even ask her to prepare an offer.

From April 19th April 2020, all three numbers have increased.

Any gain in home buyer success rate can significantly left red pens gross margins as our largest variable costs. Besides sales bonuses, serving customers who don't close.

But those customers will soon route of homes to buy from April 2019 to April 2020, the number of homes for sale declined 25%.

And a terrible market the only people selling their home so the ones who have no choice.

And it difficult or on certain market folks, who just wants to move to the next stage of their lives put their homes up for sale after birth, a new job or a divorce. The people in this latter category tend to furthering their home for months, maybe even a year.

But they won't wait forever.

Where's shifting from a terrible market in March and April two a difficult or uncertain market in may and June.

People's Unavoidable need to move is why from 2007 to 2019 U.S. home sales varied between four and a half million units and 6 million year. That's a difference of only 25% between the depth of the great financial crisis and the recent bull housing market.

If conditions keep improving it will likely be because buyers were drawing sellers ended the market.

Comparing April 2019 to April 2020, the median home sale price increase by 5%.

<unk> in the exception to the overall strengthen demand for homes under a million dollars, it's entry level condos, which have been hard to sell.

The buyers of these properties or earlier in their career and the most likely to have lost their jobs.

The properties and greatest demand or mid priced single family homes in L.A. Some of these lists things aren't even hosting scheduled showings.

<unk> reported hearing from a listing agent that were like trader Joe's now they're tape markers 10 feet apart on the sidewalk and there may be waiting times to get in bring your own masking gloves.

Overall homes are just as likely to sell quickly in the pandemic as than a bull market. If you look at listings that debuted between March 15th in April 15th and 2020 and 2019.

The percentage accepting an offer within two weeks of their debut with the same at approximately 25%. Our agents report that buyers, who now expect a discount if 10% run into a brick wall with some sellers, preferring to deal is their home until shelter and placed orders paths.

If buying enlisting trends continue in most north American cities inventory will reach rock bottom very soon and possibly as early as this month.

Because home owners can get up to 12 months of mortgage for Barents distress sales are more likely to happen in 2021 than 2020, if at all.

We that's expect a significant increase in bidding wars, the summer, which could draw more home sellers under the market and the second half the year.

We're also preparing for a seismic demographic shift toward smaller cities. Prior to this pandemic. The housing affordability crisis was already driving people from large cities to small.

Now more permissive policies around remote work and a rising wariness about close quarters will likely accelerate that trend.

Where people will the San Francisco, New York, and even Seattle.

Some for nearby towns like Sacramento in Tacoma that are close enough to support a weekly office visit.

Others for a completely remote life in Charleston, Boise, Bozeman or Madison.

Since March 15th searches for homes in town, so population under $50000 150000 people excuse me increase 71%.

All over the same periods searches for homes in cities with populations greater than 1 million increased by only 38%.

Beyond new sales channels, the best way to gain lifting share long-term it's by giving homeowners better choices than a traditional agent.

This starts with a low Fi alternative red, Tennessee, only major brokerage to offer a standard listing fee of 1% or 1.5%.

The 1% fee is for listening customers, who also by their next tone with Red pen, 1.5% us for customers, who use redfin only to sell their home.

We instituted this pricing nationwide in December prior to that about half or listening customers pay less than about 20% paid more the remaining 30% tested the new pricing early.

Our results through March supported the prediction, we made last quarter. This pricing will have only a modest impact on lifting transaction grows more than offset by increased revenue per transaction.

We made the decision to increase prices on our standing listing service out of financial Prudence <unk>.

We're still acquisitive about listing share. This is why we give homeowners choices beyond full service that a lo Fi. Our choices include an instant offer from redfin now or concierge service to prepare the home to sell for top dollar.

We both redfin now and Concierge service Redfin takes responsibility for rapidly renovating and stage you go home to sell with Redfin now we on the home when itself and reap the returns from our repairs Concierge service the original owner bears more risk, but reached the returns.

She's still doesn't have to let the finger.

As we said before both services will be options that people consider when selling their home.

But when an instant offer as low enough to account for the full cost of owning a home maintaining it while vacant but also of having to sell it at a downturn.

Our bed is that two or three times as many people will choose concierge service.

This is why Reds and now only makes sense. That's one of several choices presented to each listing customer.

Rented house challenge will be to buy homes higher margin and lower risk than our competitors. We were the first major institutional buyer to stop buying homes honoring our pledged I quickly in defense of our balance sheet based on brokerage data only we have about when the markets turning.

On the day, we stopped making offers march 17th.

Owned or were under contract to buy $190 million in homes.

By April 30th we had reduced that number $56 million.

37, and at 56 million is in home under contract to sell mostly in the next 14 days.

Most of that 56 million came from our line of credit.

For the homes, we owned or ended up buying as of March 17, We now project to sales price about 2% less than we assumed would making the offer.

We project the total cost of these reduced sale prices to be $3 million or less after paying for the homes and paying third parties to buy finance whole renovated sell these sounds.

We still expect to make nearly a million dollars.

It's only the cost of Reds and now its employees that will result in a gross profit loss.

Well, we learn from these results is that Reds and now perform better in a downturn and some had feared.

Thing else with stuff, we already knew when our bones that we had to do.

Now, it's just scratched into the walls of our home office.

First lower our instant offers to compensate us for occasionally having to sell our portfolio and a 3% to 5% discounting the downturn, but also to make more money on insulin offers now.

Second.

<unk> harder at projected economies of scale and other rationales for expanding a business that doesn't make enough money on each house.

Scale will pay for managers and the renovation team.

But it doesn't do much for the most important profit lever pricing discipline.

Third.

Void long holding times, so we can decide whether an offer as profitable within three to four months of making it.

This also makes our money work harder and limits risk.

Worth Unifier sales force to keep our cost lower than our competitors and to present, a complete set of options to every customer.

With these lessons in mind today, we reopen Reds and now for purchases in Austin Denver in the inland Empire East of L.A.

Well limit Reds, and now using $20 million of our own money, which leaves 9 million per may purchases <unk>.

Counting the pre pandemic purchases, we still haven't sold in the ones will buy starting today, we expect to own fewer than 100 homes through the second quarter, mostly finance using our line of credit.

Sales force to support the sales force I read said now employees will prepare offers an answer questions from a fortress of analytical solitude.

The issue and Redfin now hasn't been customer interest is we've never put anything on our website that homeowners responded to more eagerly than a cash offer.

The issue has been just how we respond to that interest art agents are the ones best qualified to present, an instant offer alongside other options that are better for most homeowners.

Unifying or sales force will take the rest of 2020, but should let us sell more houses that competitors more narrowly focused on instant offers our rationale is that having one sales force for all our home selling services makes it easier for every one at our company to have one goal.

To sell as many houses as possible well owning as few as possible.

Any consumer who doesn't want to go through the hassle of preparing a home to be sold is likely be drawn to an instant offer but many selling mid priced are expensive homes.

I also want to consider our concierge service, it's available today in San Francisco, Seattle, Southern California in Washington D.C.

For listening fee of 2% or 2.5% depending on the market. We advise a homeowner on how to make her listing shine and make sure. All the work gets done either through contractors our own renovation superintendents. The homeowner pays the bills often using the money from the home sale.

Customers have loved this service both for its convenience, but also because the homes look so good.

The jaw dropping before and after photos of the homes, we fixed up illustrate a fundamental truth of how to sell homes for more money.

It's not just through and agents personal salesmanship or even through Redskins digital marketing, but my making the home show better to have potential buyers.

I challenge has been operational building the software programs contractor relationships and field organizations.

Deliver a wide range of minor renovations on demand. So that we can get most homes ready for the market in one or two weeks.

Until this pandemic hit the home services team, we'd been assembling since 2018 prioritize redfin now ahead of Concierge service. The Concierge service is now our first priority and we expect to expand concierge service from 10 to 14 markets by the started 2021.

The other business, it's expanding rapidly as redfin mortgage in the states we serve but also in the products. We offer today, 59% of our brokerages home buyers are in markets served by Red pen mortgage.

As we opened in Arizona, California, Oregon, and Washington State will reach 94% a year end.

In a week, we're piloting refinancing.

Prior to the pandemic, we had planned to offer this service and 2021, so we expect some glitches.

But we also expect demand.

Even without any website promotion our mortgage advisors get a few calls every week from red pen customers seeking to cash in on lower rates.

The the vast majority of our website visitors are still wary of ditching their longtime realtor for a low see broker like red fan.

Many maybe more cry sensitive and choosing a lender.

Even as we grow Reds and mortgage revenues, we want gross margins to improve two.

Mortgage margins improved significantly from 2018 to 2019 due to improvements in our own loan originations software.

Margins plummeted in March due to market volatility.

We worried that we'd be unable to sell some loans, but so far that hasn't been the case, we used to spend a jumbo loans and loans for a second homes that investment properties, even for the loans to conform to federal lending standards. We raised credit requirements for most of April to reduce the likelihood that a borrower would ask for for parents on a payment before we could solve alone.

We've also significantly increased our reserves for loans, we'd have to repurchase from investors.

But even though we've been able to sell loans on schedule. The prices of these loans have been much lower than expected costing us nearly a million dollars and revenue.

After we lock low rates for our home buying customers in February and March the prices investors would pay far loans declined over fears that many people would stop paying their mortgages.

Typically we offset price declines by betting against mortgage backed securities. When we lose the dollar of revenue from lower prices the value of that that is supposed to increase by a dollar.

But starting in late February investors, who paid less for our loans still got more for mortgage backed securities largely because the government was buying these securities and inflated prices.

This encouraged investors to keep buying loans, but left originators like redfin unpredep unprotected when mom prices fell.

When we noticed that are hedge wasn't sufficiently hedging our risk we assumed like many lenders. During this pandemic that this was temporary.

It took us until April 3rd to shift interest rate risk onto the investors buying our bombs.

We now stand to make less revenue per loan, but it's the same revenue regardless of whether rates go up or down.

At some point later and 2020 or maybe 2021 will take on interest rate risk again, but only when mortgage backed securities respond predictably to changes the moan values and only when our prophecies reporting an escalating risk have improved.

[noise] for turning the call over to Chris We should talk about advertising.

Just save money, but also because we worried our message would fall on deaf ears, we stopped running on T.V. ads on March 9th and stopped or digital ads on March 16th.

We avoided $16 million in March and April spending.

Since then we've noticed that T.V. viewership is between is up between 30 and 60% error rates are down between 10 and 20%.

We suspect that many consumers are completely unaware that the housing market is largely open for business, where the video chat tours in three dimensional scans worked fine when people can't meet in person.

Videos promoting these technologies have performed well in digital tests. So in May and June will be running new ads at a second quarter cost of $8 million or less.

There are lots of unknowns ahead of us changes in consumer behavior that would've taken a decade happened almost overnight.

Even when this pandemic in.

The process of buying and selling a home will be far more virtual than red pen could have hoped for in February.

Investors rightly assume that the technology. We've spent a decade building gives us a massive competitive advantage in this new world.

But our biggest competitive advantage isn't what we did in the past.

It's how fast were reacting now.

When the World is changing this fast what is most valuable as our own ability to change the company you want to stake in isn't a big fat incumbent it's the crazy little mammal crawling out of the crate or the asteroid strike.

Redfin was the first major Seattle company decided to close it's offices on March 3rd we were first to encourage our customers to tour homes by video chat also on March 3rd we were first to call the market publicly citing a significant dropping demand on March for we were the first to cancel all open houses nationwide to protect public health.

16 on March 27th we were the first to provide a map of real time update.

Updates on the rules for real estate commerce across 50, plus markets changing field policy and Red send dot coms consumer guidance from day to day in off an hour to hour.

We were the first to upgrade our website to promote matter port three dimensional scans of homes on April 2nd.

From February to April new listings with these scans and increase fourfold.

And we were the first to offer self service tourist homes listed by a brokerage but owned by our customers on April 23rd.

Being able to open the door of a vacant listing on your own with just an I phone is crucial for buyers who are wary of being in a home with an agent or anyone else outside their family.

There are many other first from the past few months that we don't have time to discuss here.

Most important is that this company came together when our culture could have fallen apart.

<unk> faster when so many parts of the world came grinding to a halt with that let's hear from Chris.

Thanks, Glenn been mentioned prior behind set up cause it 19 in the United States you saw the year get off to a very strong start with January right, both delivering stuff I'll, let it grow.

Even if it's gotten a virus impact early stage demand. It's overall impact on the first quarter was somewhat limited as we close deals already on the pipeline and a good pace and finish the corridor above our items range on revenue unprofitability.

First quarter revenue was $191 million up 73% from a year ago.

We will state services revenue, which includes in our <unk> and partner businesses grew 26% year over year.

<unk> rather than you are revenue from home sales close by our own agents was up 26% on a 27% growth in brokerage transactions.

Revenue from our partners was up 37% on a 17% increase in partner transactions.

Properties that met which consists of homes sold through our let's send now program.

Generated $79 million in backing it up from $21 million, one year and out.

Our other segment, which includes mortgage title and other services contributed revenue for a million dollars and increase the 39 per cent year over year.

Total gross profit was $13 million, 368% year over year.

Real estate services gross margin with 13.9% 800 basis points here every year, primarily driven by a 540 basis quaint decreasing personnel costs as well as a 200 <unk> each is the percentage of revenue.

This is the fifth consecutive quarter, increasing Asian productivity as compared with the same quarter and the prior year.

Properties gross margin was minus 0.3%.

730 basis points from one year ago.

Barely driven by a 370 basis plane decrease in personnel costs, and a 300 and hadn't basis pointing decrease in home purchase cost unrelated capitalized improvements each as a percentage of rather than.

Other segment had a gross margin of minus 46.9% decrease of 2280 basis points from one year ago, primarily driven by our mortgage business in Glen disgusting his comments.

Total operating expenses were flat you hear every year and representing 37% of revenue down from 64% of revenue one year ago.

Technology and at all and then expenses increased 30% for last year, driven by increasing personnel costs.

General and administrative expenses group are 10 per cent year over year, well, marking spent klein, 23% as we spend at a brand in digital marketing campaigns in March.

Our net loss and clean stock based <unk>. It should then depreciation was $60 million compared to a net loss and to $67 million first quarter of 2019.

Deluded loss per share with 64 cents compared to the thing that loss on 74 cents per share one year yeah.

Included he's first quarter results are several unusual items driven in part by the impact of code at 19.

He took a 1.4 million dollar charge related to an investment in another tech company, and we record and a point $7 million net right down for our home inventory.

We also reevaluated the likelihood of any targets on performance stocky and and record it the 0.5 million dollar credit Stockbased compensation.

Now turning into a financial expectations for the second quarter of 2020.

My name is expected to be between $179 million in $189 million.

<unk> decrease between 9% and 4%.

We expect our properties segment to account for $61 million to $65 million.

Net loss expected to be between $26 million from $21 million compared with a 13 million dollar not locked in the second quarter of 2019.

Guidance includes approximately $7.0 million to stock based compensation and $3.5 million appreciation amortization.

The Guy. He's also contains approximately $4.4 million of severance costs and $3.7 million, a furlough costs, both including benefits.

It assumes among other things that no additional business acquisitions in Boston ons restructurings are illegal settlements or concluded.

No further revisions stock based compensation asteroids.

And with that let's take your questions.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure your immune function of turned off to allow your signal to reach our equipment. Please limit yourself to one question or the time again pressed star one to ask the question what Paul for just a moment to allow everyone an opportunity.

Signal for question.

Our first questionable come from you go Rooney with with Bush Securities. Please go ahead with your question.

Hey, guys. Thanks, Thanks for taking the questions and you know girls thing well I mean, I do hope hopefully the relatively quick ones can you going to do you touch on <unk> the rat.

<unk> you, particularly in California, you launch their more recently you know anything to learn from you know what what what's been going on in the recent environment and and you too has direct indirect pick up you know was that something that customers were were more interested in and then yeah. I think this is the most bullish.

I've ever heard you on high buying you know is that the right characterization.

Have you have your views kind of changed on on on what would I buy means what with opportunity is there for redfin would you you know what would well should we expect that overtime that might be become a bigger piece of the business then.

What what you were expecting before the the the pandemic and you know thoughts on on how you think people might react to.

You know low <unk> higher fees essentially in lower offers thanks.

Mm.

Thanks, So first of all with Red indirect it's hard for us to separate.

Improved merchandising for market effects. So we have gotten more aggressive about promoting reds indirect.

As a result more people are starting offers.

But that May also be because the market has shifted and more people want to work without an age they've just been so many changes to our website that we can't distinguish those two effects.

We're very excited about the possibility that more people are gonna see homes online and really only tore the final two or three which will differ how long they wait to hire a real estate agent.

And in that event, we think people are just going to be more transactional and they may look it offers the same way they've looked at tours is an on demand service and that would definitely save a red pen.

On the second point about being bullish on Reds and now.

I'm wondering what I said that sounded more bullish than in the past.

I've always felt that redfin now is one option that consumers can should should consider.

But try to emphasize that often won't be their best option and I think what I'm excited about now is that the market will be more rational you've had so much money in that space, where people have been trying to buy share.

But now I think all of us are going to be much more focused on making money on every house we buy.

And that is just a better competitive.

Market for US yeah, it gets better for all the players.

But I don't think that redfin now is going to take a higher proportion of sales now that were lowering our offers.

We're going to give ourselves more margin for error and I feel good about that but I don't know that that means it'll take more share.

Thank you. The next question will come from Jason Health thing with Oppenheimer. Just go ahead.

Hey, guys is shown on the call for <unk> dates for take my question. So first one you guys had a 10 based point of market share gain averse 13, and four Q. is there anything that you call out driving a smaller share increase and then my other question is in regards to the virtual himself touring.

Where do you think the rest of the industry is relative to where redfin is in in this feature that <unk>. Thank you.

I'll talk about virtual insults, Oregon, then invite Chris to talk about share that's all right with you Chris.

So let's get other agents are rapidly adopting video chat tours, it's something that we've been working on a longtime and just being able to advertise that it's something you can easily asks for has probably helped us attract more buyers.

But self service touring where we install a lock on the door of a red pen listing and let someone open it with an I phone.

That's a proprietary capability most real estate agents don't have an application that they can use to let buyers end of the property and they don't have the capability to install those locks at scale and it has been really popular one insight from redfin now that we applied to the brokerage was just how much in March homebuyers prefer.

Seeing properties that they could see on their own without anyone else being present.

And so the conversation that we wanted to have with our listing customers in 2021, just happened right away, which is listen people want to see your house. They don't want you to be there or anyone else to be there when that happens we want to put a different lock on the door.

And that has been really successful and we're glad to be able to bring it forward. It depends on the renovations capabilities that we started building and 2018 any out that we built a decade ago.

How about share.

Sure. So share gain was 10 basis points in the press Corps go the year component is first corner last year.

Are you on share game Hot fundamental rights phones that all we do you see some bounciness quarter to quarter in terms of share gain objects. We we feel really good about our prospects going forward in our ability to can share through a variety of different market conditions. So I wouldn't drive too much of the conclusion from that.

Thank you that I share James shouldn't be sees Oh.

Go ahead, I'm, sorry, I was going to say just off the cuff share games should not be seasonal.

Argued to the point of tears with analysts, saying that any year over year comparison should not be seasonal and yet for whatever reason our first quarter share gain is always lower than later quarters are almost always.

I'm not sure what to attribute it to this time, but I just wanted to let you know that it's something we've noticed over the years.

Thank you. The next question will come from Brentsville with summaries to please go ahead.

Thanks, <unk> peers, you could just getting a little more color about for the last four weeks mentioned demand you know continue to build can you just give us a little more color in terms of.

What were the most recursion signs and then the shift the buying again can you just give us a sense of.

You know how your your dipping your so back into water on on how aggressive you'll you'll get here as you see the the demand belts thing.

Sure So I'm not sure what other color to give about homebuying demand. It's been really strong what we worried about was that it wouldn't pull through that when you make it easy for someone to look at a home without leaving their own home because they can just using the I phone to get a video chat chore.

But those people would be lucky loose and then they wouldn't actually right offers that one.

But we've had enough time to feel somewhat confident that the demand it's going to pull through.

And even to feel that home buyers are more serious now than they were earlier and it's probably because they face less competition. There was a sense of futility people had when writing an offer for six months ago, but it was going to compete against five or 10 other offers and so they weren't really prepared to win.

House, and now that people, who are in the market or feeling there oh.

As for Reds and now I think your question was just about.

You know, how we feel about dipping our toe in the water.

The real question is just.

Will people pay a premium for liquidity.

So there's so many sellers on the sidelines right now who are worried that they'll put their home on the market and may or June and then have sheltering place.

Resume again and so they're just holding out that's why inventory as falling so fast and it may be that if we give them.

An immediate offer an instant offer and take that risk ourselves that when we asked for them to compensate us for that risk they'll pay it and we just don't know we want to find out what the market will bear, but I think every I buy or it's going to charge at least the small premium for the increase in risk.

That we're taking that the market might open and shut.

And so again I'm, just interrogating myself did I sound to bullish on Red Pen Pal I I hope to sound reasoned on it that you know we're coming back we're going to spend.

You know 10 20 million Bucks on homes, and we'll see if people can really.

Settle into the offer prices were willing to make.

Thank you. The next question will come from Edward <unk> with Keybank capital markets. Please go up with your question.

Hi, guys things for the costs, yeah, they say that <unk> <unk> <unk> click one <unk>, what is 10% of lead birthdays partner agent.

Yeah, you are using today and one more about what kind of normal level also can you get anymore <unk> on type thing.

<unk>.

Sure so.

We don't actually report on how many partner agents, we have versus how many lead agents we have.

What I can tell you is that at the beginning of March when we were staring down the barrel of having to lay off or furlough. Some of our own employees. We kept every possible inquiry that we could for ourselves so agents, who normally wouldn't be willing to drive more than 20 or 30 minutes to me a customer driving an hour we were handling sales of $150000.

Homes when normally we try to focus on two or 300000 dollar homes that up.

And that was just to keep everybody busy.

Since then we've had a furlough.

And demand has really picked up at least homebuying demand has.

And we've brought some people back to handle it but we've also started sending more business to our partners because it's such an uncertain time, we don't want to bring people back from for a low and then send them away again, if demand is gonna be up and down.

So that's bouncing around quite a bit by market, but also from week to week and we use that.

That lever to limit our risk.

To insulate ourselves from some of the volatility in the market and it's just not as low as it once was at one point Yeah. We were taking almost all the man ourselves and now we're sending some of it the partners as far as listing price and goes yeah. We tried to emphasize that listings are down industry wide, we did not actually.

Segment, our own listing demand from our by side demand. The reason that we talk about by side demand in terms of our own inquiries just because there's no other way to measure. It early stage demand comes in the forms of tours and you just can't see that across the industry, but on the cell side when somebody to <unk>.

They're interested in selling their home they listed and we can look not just at red fan, but across the whole market in there.

Listings are down 25% your every year for the month of April so.

I you know did not mean to comment on our own listing share the only Sharon numbers. We release are about overall share games on the by side and the cell side.

Ballistic business is growing was growing nicely prior to this pandemic and now we still think we'll be able to take share, but it's going to be on a much smaller set of sales.

Oh and one other thing before we go to the next question sorry, I keep.

Thinking about one other thing.

The the price increase is going to hurt transaction growth a little.

But it's exactly what we expected it to be so far and we only have a couple of months of offering it nationwide before the pandemic struck.

Results were not better than we'd hoped and they weren't worse than we'd hope they were pretty much right in line.

Thank you then it's already been done now.

No. We're certain the next question will come from gently with RBC capital markets. Please go ahead.

Right. Thank you added in T.N. from our Khamenei just a question alright. This is covered in earlier remarks, but if you can talk about just the porno impact on that <unk>, maybe at the end of the corner that I, probably will be a much more pronounced in pack and to to how much of that if you're going to just.

Think what are the impact your queue to guide on on just the Asian from now on and also just the impact margin and also just like kind of longer time, you mention the the taking people's willingness to do the French I'll show you have some on the innovations there as well just do you see how much of that isn't permanent change in behavior and perhaps.

Send a prominent higher <unk>. Thank you.

[noise] sure. So this is <unk> with regard to impact of her alone there would be no impact of that in the first quarter, because they're all that activity happened in the second quarter of the year and the information that we've provided on out here.

It will be about her <unk> 7 million dollar cost of the for a low during the course of the corridor, including the benefits that will continue to pay quite the employees who are on furlough. So with regard to impact that that has on Mars and of course those are dollars. We continue to pay even though the people are not.

<unk> M- working for the company in closing details, but we haven't providing any other guidance with regard to expectations for gross margin and suck a quarter of the year.

And then Glen video chat tours.

I think we see those primarily as a way to gain share rather than lower costs.

We still have to go out to the house and walk through it it may be that we record one video chat tour and use it for multiple buyers at some point that we haven't develop that capability yet.

Most buyers are sensitive to sharing information there was given to them with one of their competitors.

I think the main thrust of video chat tours is just to be able to do something that not every agent can advertise and to do it better than other agents. So that we can take share.

Thank you. The next question will come from Ryan <unk> with filming and associates with go ahead.

Hi, Thanks, so much guys and of course glad you're doing well and three this so I'll try to squeeze too in so Glenn your comments on the mortgage market disruption was was very helpful and.

Of course, the actions are taking in the end of the day I think some of the the credit tightening that's been going on is probably probably more severe than some people realize so my question is.

In the last few weeks or you sensing any using or or let's say stability or using in the actual underwriting box for consumers with some of the actions.

Other regulators taken or you anticipating that this kind of consumer tightness for credit tightness, Oh remains for the consumer going forward and second question for you on home prices.

I think we're starting to get some indication on just a trajectory of homesales moving forward, but I think there's probably some more debate rising around what's going to actually happy home prices, you know, we've probably skewed a bit more positively others, obviously take different views but.

I I just wonder what your guys views on the pricing dynamics and even with with the data that you have access to your your contracts are just other data pending contracts. You know what are you seeing on a real time basis or in recent weeks on actual pricing trends you know I know, we've seen from you and others. Some of the discussion around listening crisis, but of course list prices and.

Kind of actual one person appreciation or are very different things. So.

Which is kinda curious how your you know what you're seeing today and and ultimately what you think Mike long from from an actual compress perspective in this in this period of disruption. Thanks, so much.

Sure so quickly.

Able to sell it even to Fannie or Freddie or some other.

Investor.

So.

The fact that Fannie and Freddie has stepped up and said that they'll buy loans and forbearance, albeit at a discount has just made it easier for us.

To make loans servicing market has come back some.

We were really in a jam three or four weeks ago, and I don't mean redfin I mean, the whole industry was in a jam trying to figure out how we're going alone people money when borrowers didn't have to pay their mortgage.

And the government was playing a game whack a mole trying to prop up different parts of the market to make sure that.

Investors would still buy loans and largely those efforts have succeeded but in the middle of April and especially early April.

The pipeline was just spring and leaks in one place after another so I think thats gotten better.

And you're right that.

We are probably more bullish than most on home prices it doesn't mean that.

Home prices are going to shoot through the roof. It doesn't mean that we don't having sidey about.

Unemployment and consumer confidence and all the rest.

Especially as we said for urban condos. There are certain types of properties that are likely to be bought by someone who's very early in their career vacation homes are also under significant distress, just because people can't air VNB them anymore, and they are liquidating them at whatever price they can't.

But.

By and large single family homes are doing well and we see no basis for saying that their prices will decline and it may be just a sad comment on a trend that happen that started a long time ago, which is.

Working class Homeownership has declined yeah, there was a time when.

You know any hit to consumer confidence would ripple through the housing market and it's still does.

But mostly the people buying homes are.

The richer half of America and their stock portfolios are doing reasonably well.

They have the kind of jobs that are less likely to be eliminated and they're buying houses and I think theres. Just this long term inventory shortage that even if you eliminated. Some buyers. We are so far from building enough homes to house all the Americans and we've had a housing affordability crisis for so long.

That.

You're just going to see buyers in any short term.

Downturn looking for an opportunity the pie that's why it by side demand has come back so much faster.

Than people are willing to list their home.

Thank you. The next question will come from Jack Micenko with Fiveg. Please go ahead.

Hi, good afternoon everybody.

I'm wondering.

No I understand your partner agent model has been sort of them at least style.

You know in times of both peaking and lower demand.

If the sort of course acceptance by consumers of some of the spelling that you have you virtual tours does that which is thinking about changing the out.

Over time in the maybe you can do more.

With greenhouse kinda like Didnt close quarter more permanently.

So I want to make sure I understand your question has technology, let us increase the proportion of inquiries that we can handle ourselves with our own agents rather than through partner agents is that right.

Yes.

Particularly sort of given some of the lessons in the last three or four or I guess two months or so with this sort of course adoption the consumer side.

I think that's one possible outcome. It's a good question, but the other outcome could be that we started offering some of our tools to partner agents. So that if you asked for rents in service and end up working with a partner you still get a digitally enhanced experience that used.

To just be a bonus.

Maybe some weird thing that we did to make real estate more efficient, but now it's the only way to sell a house and so.

That is really shifted consumer behavior.

And consumer attitudes towards rent pens approach and I think other agents will will want a piece of that.

Aluminum.

As miles my follow up.

You close to.

I don't want to I'm wondering about sounds like you're coming to.

The market prospectively with a more.

Broad sales pitch. So the aging resonating comes and says okay. Here's your reduction now quote.

We think irregular quote looks like going on here is that concierge option am I interpreting that correctly and if I am what's changed versus how you maybe did things 345 months ago.

You interpret it correctly and what's changed is that when you have a product that is much less mature and your listing service your full service lifting offering.

You have specialized salespeople, who are focused on selling that so redfin now had its own salespeople who were trained to deliver instant offers and we had tried earlier to deliver instant offers through.

Our 1000 or 2000 real estate agents, depending on when you counted them.

And they really struggled to prepare that offer.

And the same timeframe that they had to prepare for listing console. So.

That offer or that that effort foundered somewhat.

But when the pandemic hit we just thought man, we gotta make that work.

Yeah, that's our competitive advantage as we already have a thousand agents and all these living rooms.

And the offers that were gonna be making if.

They have a higher margin of error, if they're slightly lower than before we need to be able to tell people look we'll give you this instant offer.

But.

Probably the way you're going to make the most money is just by selling your house.

Yeah, you just heard me talk about how.

Inventories low prices are going to hold up if you really believed that and customers are listening to this call you would want them to just Lister Dang House and that's the advice, we want to give every customer along with an instant offer here. It is take it if you need it but the way to make the most money is to lift the house and if you just don't want to go through the house.

We will use our concierge service.

Thank you. The next question will come from Stephen Sheldon with William Blair. Please go ahead.

Hi, Thanks wanted to ask about the potential incremental shifts that you mentioned away from urban homebuyer demand to.

The potentially smaller city demand with that trend potentially playing out over the next few years does that change the way you plan to add agents over the medium term and on the other side, that's maybe focusing more on starting to build more agent capacity in smaller cities.

It does I think it even applies to how we build our website.

It's just a subtle.

Sac, but when you're agents live and big coastal cities every time, we test the feature.

We see how it works in Seattle, or San Francisco or Boston.

But we need to make sure. It plays in Peoria too so we're going to be more aggressive about trying to.

Serve customers get traffic drive sales in queries in smaller cities, because we see people migrating and the way that really benefits us.

Is that when somebody moves across the country, they're less likely to know a real estate agent in Boise, Idaho or Bozeman, Montana.

And if they're coming from a place like Seattle there'll be familiar with our brand and so.

You get some benefit building a national brand. Most brokerages are local most real estate agents are absolutely local that our thesis has been that redfin can stand for the same thing no matter, where you go so we're going to sell one home in San Francisco and help somebody by another in Charleston, South Carolina, and I think that will really.

Benefit us, but there were already seeing more growth in our smaller markets. We launched them. Later, so there have an earlier vintage and this could just parsing gas and the fire.

And just one more comment there is that we don't have to lead to by hiring the agents. We can see that the demand is starting to materialize in those places and that's the signal down for us to.

Undertake hiring a lead agent and so that's that's how we think about the flow chair is that we see the demand on the website and various other kinds of inquiries and that we took action based on that.

Thank you as a quick reminder, if you have a question at this time, please dial star one to enter the Q. The next question will come from Chris Gamaitoni with Compass point. Please go ahead.

Thanks for a thanks for taking my call I wanted to follow up on the urban or call. It the de urbanization concepts.

So you know historically I think your business model has as you read the codell focused on on the coastal regions higher home prices.

But the other thing that you said, it's really struck me was the buyers that you're seeing now are higher in cats, which seems to indicate.

Potential for a significant increase in agent productivity and you know less of that kind of gross margin waste, though people. He's doing a lot of tours that will ultimately by home.

So I'm wondering your thought of how do you reposition your business or how do you make changes potentially deal with more home sales and in lower home price areas.

Potentially offset by higher intent buyers and how you think about gross margin long term under that contract.

Well first of all.

I just want to make it clear that agent productivity increased I think for the fifth straight quarter.

Homebuyer success rate improved we're seeing higher intent buyers enter the pipeline now there's a massive shift toward virtualization, which is a capability as a broker that we can uniquely deliver.

I think those are massive tailwinds for us long term.

[noise] and then the shift towards smaller cities has been one that was underway well before this [noise].

It is going to be a challenge to make sure that we can make money on a 300000 dollar home and the way to solve that challenge is exactly how you Adam braided which is.

[noise] increased close rates.

Lower cost of goods sold make this a product people can buy at every price point.

And that's that's the mission that were on and [noise].

That's the progress that we've made recently so.

I think redfin has gone from being a niche product for coastal markets to something that works in almost every city in America for every town.

And that happened a while ago and now it's just going to happen faster.

Okay.

And then and then thoughts on product change So you know you're.

Your ability to put the locks on the doors in show homes that are on occupied my question is yeah.

Moving forward, we kind of in a real estate industry operate with called on demand inventory, you're trying to sell them by a home almost and containing Italy for kinda back from the consumer standpoint in most cases.

How do you think changes and does the industry need different products. Some took a bridge product or something where more homes are called stock inventory than on demand. It I don't have a solution. It's just something that seems to be the trends seem to moving to how you're thinking about that.

Well I buying was a response to that end before now we just had loose credit where you could get to mortgage is much more easily than you can today and I still think that [noise].

The fundamental obligation of the government, it's fine to outlaw predatory lending we should absolutely do that but then the government has to replace it with something else that works for working class people, who are stuck from one between one home and another.

And I buying it's just one way to make money.

Off that liquidity problem.

But we just have to acknowledge the fundamental inefficiency of three different parties owning a house when you're trying to transfer it from one party to the next.

Theres, a middle man that is going to cost you money and the idea that it's cheaper to sell a home when its vacant just ignores the fact that.

You know getting the grass cut paying homeowners dues is easier for somebody when they're also getting shelter for the property.

For us, it's just burning a hole in our pockets. So I think we can solve that liquidity problem, but it's always going to be a premium service that your original owner. The home is going to have to pay for the idea that it's going to somehow be the same cost as a brokerage sale.

To me that seems unlikely.

And and that's why we're just presenting it as the most expensive option that we have.

Certainly solves liquidity problem like that.

But you pay for it you're not going to get quite as much out of your house and for some people. That's a good trade off but we just want them to know what their choices are when they make that choice and where are the only company that can provide all those choices.

By the way I, just got to say, thanks, guys, you're sticking with us for the extra half hour I know there as billion companies reporting earnings today, and we know how hard you're gonna be work and Tonight. So.

So just bear that in mind, when you put the by rating on Redsun.

As I don't mean that just call it like you see it but.

Thanks for your time.

I do we don't have any more questions right.

There are no further questions, Sir I'll turn it back to Atlanta, Peru, Yeah. Furthermore, [laughter].

Thank you Brandon Thanks, everyone for joining us today, we appreciate your interest in medicine and look forward to speaking with you again next quarter.

Uh huh.

Thanks, everyone. You may now disconnect your lines through the rest of your day.