Q2 2020 Redfin Corp Earnings Call
[music].
Good day and welcome to the Redfin Corporation Q2, 2020 earnings call.
Today's conference is being recorded at this time I would like to turn the conference over to.
Oh I know per per Ron. Please go ahead ma'am.
Thank you Casey good afternoon, and welcome to read fans financial results Conference call for the second quarter ended June Thirtyth 2020, joining me on the call today are glad kelman, our CEO and Chris Nielsen Our CFO you can find a press release on our website.
At investors Dr. Redfin Dot com.
Before we start note that sounds our statements on today's call. Our 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 <unk>.
Please read them consider their risk factors and our FCC 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 or 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, 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 with that let me turn the call over to Glenn.
Thanks, Selena and hi, everyone.
Red since second quarter revenues and net loss were better than we projected in our last earnings call revenue was up 8% from the second quarter 20, $19 million to $214 million losses narrowed from $12.6 million in the second quarter last year to $6.6 million in the second quarter 2020.
Redfin now our business of buying and selling homes on her own account grew revenues from $40 million into second quarter of 29 chain to $72 million and the second quarter 2020 over that same time or other businesses, primarily lending and title services grew 37%.
And our core business of brokering home sales through Redsun agents and through other firms agents working as our partners revenues declined 12% compared to the same quarter last year, but those declines were confined to April when core revenues fell 28% compared to the same month last year and to me when core revenues fell seven.
10% in June revenues generated by our own agents and by our referrals to partners agents increased 4%.
Our market share decreased by one basis point from the second quarter of 29 chain.
The losses due largely to the high proportion of sales redfin gets from western parts of the U.S. then almost entirely shut down in March and April.
Well, we also need to hire more agents our commitment to employing agents lets us set pricing in service levels safeguards the welfare of many of our workers.
But that commitment also limits our brokerage capacity when demand spikes as it did after April reduction enforce the week before we borrowed 36% of our lead agents and laid off another 11%.
Customer inquiries were down 41% year over year.
By the end of June inquiries were up 40% year over year that's crazy.
Partners have stepped into the gap serving customers from Red Bend Dot com when our own agents are busy.
This buffers redsun financially from the housing markets typical ups and downs at least to a point.
Partners generate less Reds and profit per transaction and much less redfin revenue partners also generate fewer transactions overall, because customer success rates are higher with redfin agents.
But partners and prove brokerage margins by letting our agents focused on the most lucrative customers in June 2020, the proportion of customer inquiries handled by our own agents with 17% lower than in June 2019.
Were extending our software and potentially our call centers to give our partner age. It's more of the support now reserve for our own agents. These efforts should improve our partners agent service and increase the average gross profit redfin generates per website visitors were also rapidly hiring the number of lead agents.
We employed on June 30, including new hires and those invited back from furlough was 14% lower than prefer a low levels.
As of July 25th it was still 10% lower.
To meet current levels of demand our lead agent census would have to be 13% higher than pre for a low levels.
Despite reports that are furloughed agents were being aggressively courted by other brokerages, 83% return from furlough only 8% quick.
This is a testament to our wonderful employees loyalty.
At some point in the fourth quarter, we expect to be fully staffed against our current forecast of 2020 demand and to keep hiring from that point on pace with demand.
Since many of the customers will meet in the fourth quarter won't close on a sale until the first quarter of 2021, we may have to wait until the start of 2021 to gain share and our historical rate of around 10 basis points per year.
The good news is that by then we maybe able to perform even better than our historical rate mainly due to gains in our share of online real estate traffic and even before being fully staffed we expect our market share will almost certainly improve in the third and fourth quarters.
One reason, we're confident that the demand for more agents will continue at least through September is because redsun dot coms traffic is accelerating comparing the second quarters 2019, and 2020 average monthly unique visitors increased 16% with June visitors up 31% and july's visitors set to.
Grow at a similar pace june's rate is well above the 26% increase in average monthly unique visitors that occurred between 2018 and 2019.
In May and June Red Bend for the first time attracted more visitors than trulia with only zillow dot com and realtor Dot com still ahead of us.
Much of our traffic gain is due to increasing levels of homebuyer interests, which benefits the whole market, but some of that gain is because red sand is competing better for traffic.
Comparing our traffic growth to that of other major sites and the industry reports on home touring activity and on pending home sales. We've concluded that we're increasing our share of real estate traffic, even as the overall volume of traffic to all real estate website increases.
We have reason to believe our traffic share gains will continue for many Google real estate searches were now one of the top three result, a position that draws far more traffic and for most of 2020, we've been getting more of the visitors who discover red Bend dotcom for the first time to stay increasing the rate at which that's visitor subscribed to listings from Red Bend.
Dot com or download our mobile application.
And it isn't just more online activity.
Redfin dot com visitors are becoming customers at higher rates with growth in customer inquiries outstripping traffic gains at every stage of the home buying process consumers are now more serious about buying a home than before the pandemic.
For example, the customers who went on their first Tom talked in May June and July has been about 10% more likely than last year to return to Red Bend dotcom within a week of their tour.
In the past this pattern of touring and browsing has been a reliable early indicator of customers likelihood to by Oh.
We've never seen such a sharp increase in home buying intent.
With redfin getting more homebuying customers and more serious home buying customers. Our challenge now is serving them well.
This goes beyond the agent hiring we discussed at the outset or the call. It's harder to scheduled tours automatically and bidding wars have sprung up in places where they were once on comment because market conditions and customer loads of swung wildly from February to July our efforts to increase homebuyer success rate will be hard to judge in 2020.
The other efficiency gains are easier to see.
As part of our April lay off we increase the number of agents under each manager reducing the brokerage is per transaction costs by about 1%.
This change originally planned for later in 2020 is part of the long term plan. We've discussed with you on previous calls to develop a more entrepreneurial salesforce.
We have the opposite challenge with serving buyers instead of sellers listing agent productivity has been high but we need more demand since June 1st listing agent productivity increased year over year from an already high level, having already increased in 2019 over 2018, our agents are making the most of our opportunities but.
I just need more of them.
This problem with listing demand began before the pandemic year over year growth had already begun to slow from the first quarter 2019 through February 2020.
At that point demand plunged to do the pandemic before partially recovering in the last four weeks with year over year growth in the high single digits.
A time when sellers have been much slower to recover from the pandemic than buyers any growth in listing demand is meaningful market wide, new listings declined 43% year over year in April and still haven't completely recovered over the last four weeks market wide, new listings are down 3% year over year.
Since the home can take months to stage and sell homeowners more than buyers are skittish about economic volatility, but also about health risks.
Be a buyer you have to decide only to walk through each home you're interested in evaluating the risk home by home.
But selling a home can be an open end and commitment to welcome all commerce for as long as it takes to find a buyer.
Once the seller decides to meet an aging about listing or home. She wants to get is sold quickly.
The net increase in Red fans listing fees that we roll down in December 2019 hasn't helped redfin agents meet more customers, but it hasn't heard as much either reducing demand only modestly comparing the large markets where fees went up to the smaller markets were fees decreased slightly the large markets have gotten customer inquiries that about.
The same or an even better rate.
But in the markets with the fee increased those customers have then had a moment of pause were slightly less likely to schedule a listing consultation.
This modest net decrease in how many listing consultations our agents get from a given group of web site visitors has been in line with our expectations.
Since our fee increase didn't apply to listening customers, who buy their next homebuyer redfin, we anticipate that the impact on listing transactions will be offset by an almost commensurate increase in home buying transactions from our listing customers and of course, we expect the impact on listening transactions to be more than offset by 35% increase that right.
Revenues for listing wherever the price increase to cold.
The drive more lifting demand we've shifted our mass media adds to promote our listing service when earlier in the year, we had promoted our service to both buyers and sellers.
The AD that we shot with cell phones for 17000 Bucks in May is outperforming traditional as the costs more than a million dollars to produce.
Since we launched the new at at the beginning of June the year over year change and listing inquiries in the markets, where the AD ran was eight points higher than any other markets.
This performance coupled with the possibility that the real estate seasonable extend deeper into the fall because the pandemic.
Has encouraged us to spend another 6 million 10 $11 million on TV media in the third quarter.
This range is broader than usual, we'd only spent $11 million if advertising rates stay low despite the election and if this year's housing market keeps bucking. The typical pattern of an early summer peak in demand.
We also want to create new online channels for potential home sellers to contact our agents just as we built the agent network and software to support on demand tourists were now developing a capability to deliver on demand pricing analyses. So homeowners can talk to an agent at a moment's notice about the price at which redfin would lift their home.
And how we assess nearby home sales to develop that price.
Don't orders have responded enthusiastically to early trials with this capability, which could lead to a high single digits increase in Red Bend listings once fully rolled out.
The rollout will draw on one of the great competitive assets Redfin has developed over the years, we long ago hired locally licensed agents to work in call centers at first to answer telephone inquiries from our website.
We now expect to expand those call centers to support on demand pricing analyses in most major markets by early 2021.
Longer term, we want to take listening share not just with new demand channels, but with new products. This is why we aim to be the first company to give homeowners across the U.S. complete set of choices for selling their home first choice is standard full service at a low fee. The second option is a redfin now instead offer that lets the homeowner dispensed with any hasler financial risk.
In exchange for a lower sales price.
Third option is red tense concierge service to renovate the home for a top dollar sale.
Rather than selling each of these services through a separate online channel and a separate Salesforce will guide customers through the merits of each product with one channel on our website one sales advisor on our call Center and one agent in the customers living room.
We started piloting this approach yesterday in southern California, but even before that we change the bonuses we pay the redfin now employees to generate instead offers.
When we restarted redfin now on May seven our offer specialists are in the same bonus of a customer accepted a redfin now instant offer or listed or home with the redfin agent.
The results have been gratifying among the homeowners to rejected a red financed and offer we more than doubled the percentage you met with the redfin listing agent.
This ability to make money from a failed incent offer is crucial because so many redfin dot com visitors asked for an instant offer and so few accepted.
For every home owner, who accepted a redfin now offer and 2019, another seven who contacted us about a red can now offer sold their home in a brokerage sale.
But we also want redfin now to make money in its own right, even straddling the pandemic redfin now second quarter gross margins improved year over year by 90 basis points to negative 1.6%.
Not only did we sell our pre pandemic inventory at a slightly higher price and we promised on our last earnings call. We were also able to start buying homes again with lower offers we've been helped in this regard by homeowners reluctance to show their properties during a pandemic.
Well the homes, we bought and then put on the market many have gotten an offer for a higher price than we expected.
Our goal is to generate gross profits from the business in 2021 or 2022, rather than betting on economies of scale from owning billions of dollars in homes far in the future.
Regiment announced today is limited to 10 of our 97 markets are concierge service operates in another 10, sometimes more expensive markets red to now and concierge service overlap today in five markets.
We plan to resume expansion of both services to new markets and 2021 after weve unified the process for selling concierge redfin now and our brokerage service and after we felt the systems and staff to renovate many homes.
The business that's growing most quickly within redfin is redfin mortgage which now accounts for about half of our other revenue our title business title forward contributes much of the rest.
Breadth in mortgage turned its first monthly gross profit in May and had another month of gross profits in June 2nd quarter gross margins for our other businesses improved year over year by 1100 basis points to 13.2%.
Some but not all of the gross margin gains are sustainable we stopped hiring lenders when the when the pandemic first began causing economic carnage in April even though mortgage demand kept rising.
This in turn forced us to limit volume by raising rates a tactic common among lenders in 2020.
Revenue per alone increased as a result.
We're now investing aggressively in redfin mortgage confident not only that we can loan money to our brokerage customers, but that redfin mortgage can recruit customers directly from redfin dotcom for purchase loans in refinancings.
As with our brokerage service or homebuyers, our main challenge with threats and mortgages, just keeping pace with demand we've had to defer expansion to Seattle Portland in California that we still hope to reach these markets by year end, depending on how quickly we can hire lenders.
This expansion would lift the percentage of brokerage customers, we can reach from 59% to 94%.
We now have the tools and processes to handle refinancings, but have served only a few customers because our lenders are busy we expect to start processing a significant number of refinancings in the first quarter 2020, setting up mortgage for a two pronged growth strategy.
The question hanging over our aggressive hiring plans for mortgage the brokerage and even our title business is about the divergent fortune to the housing market and the overall economy.
Against a backdrop of double digit unemployment, a second surge of Corona virus infections and widespread process the strength of the housing market almost fields Uri.
We're monitoring mortgages and forbearance, where the borrow has requested to delay mortgage payments for up to 12 months. There's the government moratorium on U.S. foreclosures, but 4.1 million loans are nearly 8% of U.S. loans. Our end forbearance, that's down from a peak of nearly 5 million loans in mid may but still high.
3.2% of mortgages for delinquent in January 2020.
Because wide for widespread forbearance will extend at least into the spring of 2021, we don't expect distressed sales to dampen home prices in 2020.
But a big question for next year as weather Americans will get back to work before forbearance expires.
This disparity between the white collar homebuyers and others worried about just keeping their home.
Coupled with the speed of the downturn and then of the recovery.
He has made it hard to call the 2021 housing market.
Every week this summer execs, who led the company through an April layoff of updated our demand forecasts and approved more hiring but never without also discussing the possibility that the bottom could fall into the economy again.
Just last week, we asked our economist to look at the markets, where infections are soaring to see if demand there had faltered compared to other markets.
But even the earliest demand indicators still show that buyers are mostly unfazed the toy demand slowed slightly in Arizona before rebounding.
The housing market may be volatile, but for now it would be hard to overstate how strong is.
For the homes lifted between June 22nd in July 19th.
Asking prices increased by a whopping, 14% and still buyers were undeterred, 46% of new listings had an offer within two weeks up from 34% for the same period in 2019.
In June only 13% of listings drop their price down from 16% in June 2019.
Pending sales have increased 8%.
The number of homes on the market over the last four weeks decreased 29% year over year with the drops only accelerating since April.
Price increases have begun to draw new listings into the market, but still at lower levels than last year and far below the rate of purchases.
As a result, the number of homes for sale in the U.S. is at its lowest level since the National Association of Realtors and the government began tracking this data 1999 in Maryland. This month, one redfin listening got more than 100 showing request in three days.
Low mortgage rates of flight to affordability more interest in the home generally and more interest in vacation homes are all driving demand.
We hear from our agents and outlying areas that more workers each month are getting permission from their employers to move far from the office.
As a result.
As a flooding into markets like Phoenix, Sacramento, Fresno, Bridgeport Vegas in Detroit.
In markets like Tucson, our agents meet buyers willing to pay $600000 for a home.
In a market where the average is closer to 250000.
In markets like Palm strengths, we meet buyers willing to pay $1 million for the average is less than $500000.
Some customers who were planning to buy vacation home decide halfway through the purchase to make it there are only home rather than leaving the city for the summer they never come back.
Perhaps the most important trend for redfin is an increase in homeownership rates in early June we predicted the first major increasing homeownership rates since 2004, noting that many of our buyers and affordable outlying areas, where people who only a few months. Prior we're planning on renting an apartment in an already in an expensive.
City for years to come.
On Tuesday, the U.S. census, released a report showing that homeownership rates increased from 64% a year ago to 68% last quarter potentially the largest such increase in its history.
Before turning the call over to Chris we want to update you on our efforts to build a diverse workforce.
This will be a brief but important feature of our earnings calls because our diversity efforts advanced a commercial goal of vital importance to every redken stock holder to hire talent and reach customers that other businesses overlook.
Over the past month, we've published a report showing an increase in the representation of people that color at Red Bend from 30% in 2018% to 31% in 2020.
Also this month, we set provisional 2021 diversity targets, we'll finalize those targets in December once we settled on how many people we need to hire next year.
We plan to base, 25% of executive bonuses on those targets focusing on 2021 since we cancel 2020 executive bonuses.
What's even more.
More importantly in recruiting.
Is developing the people that color now at Red Bend for senior roles here through better management training and Mentorship programs by year end. We also expect to add a new board member, which gives us an opportunity to add a diverse perspective on redsun at the company's highest level.
It has been a wild year. We responded quickly to the downturn now were scrambling to capture demand blowing out our financial projections from just a few months ago, we're running naked through the jungle with the Boeing night clinched between our team which is the rate.
All of you from my deemed that impulses to turn these calls into a fiasco.
Ticket away Chris.
Thanks, Glenn the impact of cover 19 on our second quarter results was less than we had anticipated.
Typically in June when we meaningfully exceeded our expectations.
Second quarter revenue was $214 million up 8% from a year ago.
Real estate services revenue, which includes our brokerage and partner businesses declined 12% year over year.
Brokerage revenue or revenue from home sales close fire on agency was down 12%.
On an 11% decrease in brokerage transactions.
Revenue from our partners was down 13% on a 20% decrease in partner transactions.
The property segment, which consists of homes sold through our Redsun now program generated $72 million in revenue.
81% from one year ago.
Our other segment, which includes mortgage title and other services contributed revenue of $7 million, an increase of 37% year over year.
Total gross profit was $46 million down 5% year over year.
Real estate services gross margin was 34.2% up 200 basis points year over year, primarily driven by a 140 basis point decrease in home touring and field expenses.
And 80 basis point decrease in personal technology expenses.
70 basis point decrease of listening expenses, and a 50 basis point decrease in travel and entertainment expenses.
Each as a percentage of revenue.
This was partially offset by 170 basis point increase in personnel costs and transaction bonuses as a percentage of revenue driven by additional pay for agents as deal volumes temporarily declined.
Properties gross margin was negative 1.6%.
Up 90 basis points from a year ago, primarily driven by a 270 basis point decrease in personnel costs and transaction bonuses as a percentage of revenue.
This was partially offset by a 220 basis point increase in home purchase costs unrelated capitalized improvement as a percentage of revenue.
We're still being careful about the prices that we pay to buy homes through Redsun now.
Since we believe that the real estate market has normalized after covert 19 related disruptions earlier this year.
We'll go back to no longer providing an update on the capital limit for this business.
Other segment had a gross margin of 13.2% an increase of 1100 basis points from a year ago, primarily driven by a 690 basis point decrease and outside services costs as a percentage of revenue.
These businesses continue to scale against their fixed cost.
Total operating expenses were down 17% year over year and represented 24% of revenue down from 31% of revenue one year ago.
Technology and development expenses increased 12% from last year, driven by an increase in personnel cost.
Marketing expenses declined 65% year over year, as we paused, our mass media and performance marketing campaigns in late March.
General and administrative expenses grew 30% year over year, driven entirely by in that $6.2 million of incremental indirect restructuring costs related to cover 19.
Our net loss, including stock based compensation depreciation was $6.6 million.
Compared to a net loss of $12.6 million in the second quarter of 2019.
We also recorded a dividend on convertible preferred stock of $1.3 million.
As a result, our net loss attributable to common stock was $7.9 million.
Diluted loss per common share was eight cents compared with a net loss of 14 cents per share one year ago.
Now turning to our financial expectations for the third quarter of 2020.
Revenue is expected to be between $214 million, some $225 million, representing a year over year decrease between 10% and 6%.
We expect our property segment to account for $10 million to $14 million of that revenue.
Representing a decrease between 88% and 83%.
We don't typically provide guidance on gross margin because our lead agents are so busy right now with serious customers. We do expect real estate services gross margin to increase year over year for the third quarter.
This woodmark, our fifth straight quarter of improving real estate services gross margin as compared with the prior year.
Net income is expected to be between $18 million from $23 million compared with a 6.8 million dollar net income in the third quarter of 2019.
This guidance assumes that we stand at the high end of the advertising range that Glenn mentioned.
Our guidance also includes approximately $8.8 million a stock based compensation.
And $3.8 million of depreciation and amortization.
We also expect to pay quarterly dividend of 30640 shares of common stock to our preferred stockholder.
Accordingly, the value of those shares will impact our net income attributable to common stock.
This guidance assumes among other things at no additional business acquisitions investments restructurings or legal settlements are concluded and there are no further revisions to stock based compensation estimates.
And now we'll take your questions.
At this time, we will open the floor for questions.
I would like to ask a question. Please press star one on your telephone keypad now.
I wonder to accommodate everyone's question. Please limit yourself to one question at a time.
After you ask your question M&A Press Star one again to return to the question. Thank you.
Yes. So that your question has already been answered you May press star to at any time again that star one to ask a question.
We'll take our first question from Jason.
Bill Stein of Oppenheimer.
Thanks, Hey, guys.
And the lane and we'll Miss you and the IR Roe.
So.
Yeah.
So on them I don't know again multi tasking did you comment on on what you thought the impact was on the change in market share normally gain market share. This quarter. It was basically flat on a year over year basis, and then just a follow up on increases comment about the gross the real estate gross margin for this.
Second quarter, it sounds like it be basically, 38% or better which should be up sequentially and it would seem like.
Maybe second quarter was even better than you thought for real estate gross margins, though it should we start to think that we're kind of it and new.
I don't want to new paradigm, but at a new level.
Of agent productivity and you feel like obviously pending market volatility that that new level of gross margin real estate gross margin is sustainable. Thanks.
Why don't I handle share and Chris you can talk margin.
Jason that quick comment we gave any earnings script was just about how.
Share was flat to down because we are concentrated in western markets, which were hit hardest by the pandemic.
But also because we laid off or furlough thousand people.
So.
Demand went down 40%.
Couple of months later, it was up 40%.
And we had to hire as many people as quickly as we could.
So we're pleased at how many folks came back from furlough, we're now hiring above and beyond that but we need to do that to.
Get back to really strong share gains.
And then with regard to margin, we do expect third quarter real estate services gross margin to the improved over the third quarter of last year.
I would be just a little bit careful about extrapolating that too far though because our agents are just super busy right now they have really not a lot of.
Customers over the last few months with very high intent, that's allowing for very strong productivity, but that may or may not be kind of the normal state of the housing market and so it's something that we'll just have to watch here for awhile.
Just as it relates back to the second quarter.
We were pleased with the gross margin, we were able to achieve and a big chunk of that is just that demand came in strong and close strong and.
That obviously helps gross margin when when the revenue piece of that works out well.
Thank you. Please take our next question from Tom White of D.A. Davidson.
Okay, great. Thanks, good too if I may just first on on your mortgage business can you talk a bit more about the strength there.
Is it just kind of the expansions into new states over the last several months.
Is it rising attach rates to your your buy side transactions is the Pandora pandemic.
Driving more consumers to utilize the product perhaps.
Just some color there and if you could update on attach rates due for mortgage and title that would be great and then just a quick follow.
Great. So there are many reasons with the mortgage business is growing our agents love recommending that product. So we're bullish on attach rates. We also just see more opportunity for profit because rates are so low and every lender is so busy so what.
We did and what other lenders have done just to limit volume is to raise our rates above what they would normally be increasing revenue per mortgage.
We're expanding and at the same time, we think we can monetize a vast rechin dot com audience by offering mortgages to people, who are not redfin brokerage customers, who may want that to buy a home through another agent or who want it for refinancings. We had requests from our customers did use red tend to buy a home, but two or three years.
Ago have redfin handled the refinancing so.
For many months out redfin mortgage is going to grow as fast as we can scale, our hiring our training our culture.
Great and then just on.
Yes, there's been a lot of data points out there about this trend of urban played into believing congestion congested cities Glenn I'd just be curious to hear.
About.
Is that an opportunity or risk for you guys. Obviously, there's a lot of larger urban markets that are big core markets for you.
And if people are leaving I guess, that's good for the sell side part of your business, but if they're moving to rural areas, where maybe you are not us.
No not as big.
Perfect.
If Cheyenne Wyoming has a real estate boom, we'll miss out on it because we don't cover that market, but.
We do cover a massive number of markets, where in places like Rochester in Buffalo and rally in Savannah. So it has been a huge business business benefit to us.
Almost all of our agents are reporting an exodus from San Francisco, L.A., Boston and New York, If you talk to those folks you hear about how proximity to transit doesn't matter in Connecticut about how people aren't worried about an open floor plan anymore. They want to different room to zoom from for the kids for themselves. So.
What they wanted a house and where they want to live coupled with the fact that they're just thinking more about home means that there are going to be more real estate transactions in the United States and it's up to us to take advantage of that and continue to shift our operations to smaller and mid size market. We think we have an opportunity to take more.
Search share in the small and midsize markets because our engineers are located in places like Seattle, and San Francisco Weve unconsciously.
Bias the site towards those cities searches work much better there than they do in the smaller places and so as we redefined neighborhood boundaries and recognized listing attribute may not have Venezuela that in some of the big cities I think will take more search share definitely a higher faster in the smaller market.
We're really bullish on growth so it would be hard to say that this is anything but a boon to read Chad.
Thank you.
We'll take our next question from.
Edward Yruma of Keybanc capital markets.
Hey, guys. Thanks for taking my questions. This afternoon, two quick ones from me I guess first.
Ill use that gives us statistics around agents on furlough that came back but given the kind of intense market do you have right now what's the retention like on your lead agent or are you seeing higher attrition and then as a follow up.
I know you guys have been very innovative in terms of kind of contact list showing what's your sense on the consumer appetite for this going forward as as we start to see mobility improve thank you.
Got it well first of all just to comment on agent attrition, we haven't seen a significant uptick in attrition, but we are worried about the welfare of our employees folks are working really hard under stressful conditions because their kids at home unable to go to Camper school and they're worried about meeting customers one after the other way.
In fashion risk is still high so we're just drawing on the reserves in our culture and we've been doing that all summer.
The employee love for Redsun has been tested and so far we pass that test, but we're really going to have to be mindful of that when earlier. There was a question about gross margins in the opportunity to get more leverage over gross margins Chris responded cautiously because.
We could maximize agent output over the next six weeks and have everybody quit when we're done with the quarter and instead, we want to play a long game and be the best employer in real estate. So the fact that we're not taking share quite as fast as we could the fact that were not working our agents absolutely to the bone is because we are trying to be balanced.
With financial objectives, and long term agent welfare long term customer satisfaction.
As for contact list showings.
We're really enthusiastic about.
Self service access to properties, if you talk to a listing customer what their most worried about is the open house and all the private showings, but when you get a vacant listing you could sell it all day.
So the challenge for US is getting an iPhone enabled lock on the doors of those houses and letting people into the properties. We experimented first with Red Bend now just because we wanted to be the Guinea pig and what we discovered is that it's not just look you lose your people trying to have a party in house folks who walk through the property on a contact list iPhone enabled.
For end up making offers and now we can make that pitch to people who own the house. Besides redpin and say it is worth it you should put that lock on your door, you're going to get more offers as a result, and we think it is an awesome part of the future whether there is a pandemic or not.
Thank you.
We'll take our next question.
You're wrong you everyone from web.
Security.
Yes.
Yes.
Good afternoon, thanks for taking the question.
So.
Maybe just those obviously a lot going on and.
And trying to understand the the demand than.
How's accelerated since the beginning.
Of the pandemic end time that into your guided yield is I always think about what part of that is pent up demand that you would've seen in.
At March and April.
How much of it is being driven by lower rate since kind of new environment of work from home et cetera, or do you do not think about it that way and then I'll ask one on right now properties and.
You you mentioned.
Or at least what it sounded like to me kind of slowing down the expansion of rats are now pronounce the unify the sales process. So.
Maybe any additional color on how to think about the expansion of our breadth and now it's going to look like for further at the year.
Are you going to be a lot more active in the market your end or just kind of ticket using slow until we get into 2021. Thanks.
Sure. So on pent up demand I think it's still hard for us to tell how much of what we're seeing right now is a carryover from the second quarter. It's something we've been trying to pay a lot of attention too I think we're now getting more comfortable that there's a lot of muscle underneath this because we've now been seen.
Looking at for a while it was not just an initial kind of rebound that it's now been several months, where we've seen really strong demand and.
When you put that together with the kind of traffic growth Glen talked about we do you find that to be very encouraging in a long run for growth.
And on Redfin now.
We remain committed to it as one part of a larger solution. We thank everybody who's going to sell a house at least the house under six or $700000 is going to want to compare an instant offer to a brokerage sale. They're also going a lot to look at brokers, who can fix up the house as part of the Concierge service. So.
The only delay for us is just being able to renovate a large number of houses. So that we can limit the time, we hold the properties. We're scaling up our home services division to be able to do that but also just unifying salesforce in exactly the way that you said, we started redfin now with the idea that we needed to separate.
Salesforce just because it was a different product and we wanted to learn quickly before trying to train 1000 people to sell it.
But now we've gotten to the point, we'll still have offer specialists figure out how much to bid on house, but we're going to present that through a listing agent who is able to offer this balance complete view of all the customers options. We think it's in the best interest to the customer to see all of those options from one person who has their best interests at heart.
But we also think it's going to lower our delivery cost. So that we can have the most efficient channel for making ensign offers all the I buyers.
Thank you ill take our next question Andy Cohen of Suntrust.
Hi, Thank you for taking question. This is Robert seller on for new beds.
Hi, Congratulations Atlanta.
In terms of for hiring more agents I guess, how do you read your goal what could delay the plans and then also what could be like the perfect world or utopian scenario that would allow you to beat your timeline beat your timeline or hire more agents quicker than you expected.
Then I have one follow up thanks.
Great well.
The way, we think about it is how many recruiters do we have and how many agents does each recruiter bring on every week and so far we've been outpacing our goals, but we need to add recruiters. When you do a layoffs in April the first people to go are often recruiters because if you're losing employees that are gaining employees certainly don't need recruiters.
But we've been able to bring back that recruiting team and they've come back hitting on all cylinders, which contribute to that team.
The challenge is that.
If real estate is hot for Redfin, it's hot for other brokers and during those times it can be hard to lower someone to read them because they've got one or two deals pending with their traditional brokerage and they're waiting for those to close having said that.
The whole financial statement benefits from the demand that we're seeing because it's not as if we're turning away customers. When we don't have enough of our own employee hfs, we send those customers to partners and that lets our employee agents focus on more lucrative clients.
So in general.
We've been excited about the fact that we have more demand than we can handle that is nearly an ideal situation and we're fairly confident that we're going to be able to recruit folks because we've been able to get people who've come from backgrounds outside of real estate to be very effective as real estate agents very quickly we have long insisted that we can't just.
Based on other brokerages census, we have to develop agents, who are great customer relationships, great. It service hardworking and when you take somebody who is working hospitality retail or some other business and say you can make a $100000 a year after year first year at work that has a very lucrative opportunity for those.
And it's especially appealing now that theres double digit unemployment. So were excited about our ability to grow and we're just determine to make sure that its high quality growth because.
Quality of service depends on technology, and systems and policies and everything else, but it also depends just on the quality of the mammal who is delivering that service now the quality of the human beings.
Got it. Thank you and then just.
How do you how do you see the.
Pace of home sales for the next quarter and for the rest of the year with all the factors that are in the market right now such as.
Very low supply very low rates increased in prices. So just curious on on what you guys are seeing in terms of.
States Homesales Gonzales.
Well if you've been on these calls long enough you know that have a nervous nearly always talking about how the bottom could fall out or something to go wrong, but if the conditions continue the way that they are which is a big if given that theres, a second surge of infections and double digit unemployment in the new GDP results that came out today.
But right now it could not be stronger.
Every single indicator at Redfin is bright green on traffic.
Customer contacts seriousness of customer all through the pipe the issue is going to be inventory in bidding wars.
But we have a much greater supply it used to be that everybody with bidding on a 150 homes for sale in San Francisco and now they're spread out across the country.
So I do think that bidding wars will be an issue, but not as gating as it was say two or three years ago. When we had another big inventory crunch.
Thank you.
Reminder, please limit yourself to one question.
As you would like to reenter the queue <unk> Press Star one again after your question.
If your question has already been a third no press star too.
Next we will take our question from <unk> Perry of Goldman Sachs.
Hi, Thanks, just wanted to dig into a big into a couple of things.
One on the discussion that we had earlier around market share.
I know, it's largely a function of mix with the with the West Coast. If you were to try and normalize for that is there.
Almost like a.
Same store sale number that you could you could share or sort of qualify for us in some way to look at what share looked like and.
Hi in auto market by market basis sort of wait what you've seen there and then if.
On a kind of second question as you look at the age inefficiency that you're seeing is there way to separate out sort of the impact to age inefficiency from the technology efforts that you're you're making and especially the new technologies that you're providing too.
Both agencies as well as buyers and sellers versus sort of what you're seeing in the the macro environment.
Thanks.
Sure so.
I'll try not to answer both questions.
We made a claim any earnings script that.
Much of this share.
Loss.
One basis point share loss, but that was largely attributable to the fact that.
There was a mix shift and the reason we are able to make that claim as we do have market by market data.
We do not disclose that data we've never done it before we shouldn't do it now it is not as reliable as the number that we release.
But thats what comforted the claim.
That we think it's largely a mix issue.
As far as agent efficiency.
The gain has been so sharp and not entirely correlated to particular technology release.
The most of it is because demand went up customer loads increased as a result.
And customer intense has been higher.
You meet people they are deadly serious about buying a house.
We have made some investments in screening out people, who were not serious about buying a house I think that is material long term to our success, but there's been a secular change in the homebuyer.
People, who used to walk through houses just because they were cool they don't want to mask up to do that it's just like walking into a store.
Don't do that anymore, unless you got your hand on your credit card and you know what you want to buy because you're in and out when you mask on and off again.
So I think people are pretty serious about buying a house the ones are engaged in the market and plenty of people are engaged.
Well I wish we could take more credit for heat.
We will take our next question FEMSA, mostly assess GLONASS financial frame.
Hey, good afternoon guys.
I just want to follow up on the mix shift I guess.
As it did this actually make for.
Hi.
Good how are you did a good reason I guess to maybe keep your efforts in sort of the coastal regions rather than move faster into the lower price markets.
As.
In order to sort of maintain that share or are you still focused on sort of.
Going not going into those lower price markets. It just seems like if you if you sort of continue your efforts in the elite.
The higher priced markets.
You won't see they sort of differential going forward.
Well never us.
We're going to try to take share on the big markets and in the small markets were hiring everywhere.
It's like those bears you see in Yellowstone Park beat the garbage the blueberries eight everything.
Okay, I guess I guess side just a quick.
Well take our next question from Brent deal of Jefferies.
Thanks. This is John Cantone on for Brian Phil.
Bigger picture question.
As the brokerage industry has had to contend with social just meeting and other constraints. So the traditional onto long process are you seeing any signs that competitors have recently stepped up their investments in digital tools for agents and other than years your site.
On your side traffic, maybe you could talk about how redfin, Maine.
Technology edge. Thanks.
So we have seen competitors start to embrace.
Three dimensional scans of listings, which make it easier to see a house of actually getting out of your car and walking into the property.
But nowhere near the universal or near Universal level that Red 10 has so we.
We do see individual agents trying to cobbled together.
Special camera for taking those scans or trying to offer a face time video to their customers just telling each customer that I'll do that for you, but our platform lets us offer that every single person, whose vision who's looking in a listing online and just being able to tell everyone that we can take you through the whole transaction well.
Having to meet you is a comfort to many customers I would say, it's just as importantly, maybe perhaps more important to home sellers that.
We know how to sell a housewife, having a host open house after open house, because we can show you how much traffic that listing is getting online we can run digital campaigns and you can see the results in real time from your computer and just talking to people about the premium amount of traffic we can do.
Deliver because of our platform because of our digital capabilities has been more importantly used to be that when you told somebody hey, we're going to run. These custom campaign can be E. Mails can be redfin dot com, it's going to be Facebook.
There's plenty of work we have the do here that fit but what about the postcard.
Are you going to send to postcard.
Nobody's really saying that anymore.
People really want to hear about how you're driving virtual showings. So I do think it favors us I do think the industry is going to try to close the gap and only get halfway there.
Thank you.
Well take our next question, Brad Erickson of Needham and company.
Thanks, and just two follow ups.
First can you just talking about your agent hiring philosophy relative to demand I guess is the goal to have your agents sort of really really busy like they are right now where you're kind of hedging on the sustainability demand or is the goal ultimately to reduce the demand bundle size reagent you hire more over time, that's the first one and then the second one just on the traffic acceleration.
You called out in June and July, particularly on FCO. What do you think is driving that was there an algo changes that you benefited you or did something change in terms of your content, maybe just talk about what you think is behind that thanks.
Sure so.
We like to send some demand to our partner agents. They are going to be ups and downs ahead. They may not be as massive is the one that we saw on April.
But we try to buff ourselves against seasonal and macroeconomic swings in demand by having.
Yes, 30, 40% of demand go to partners. It also improves our margins so that our agents can focus on the most lucrative customers.
But having said that.
We also want to make sure that it's a good life for our agents.
They have a sustainable workload.
And what's been different about this summer is that they get into the Red zone for a month or two every summer by design. They know that they plan their lives around that they want the income.
And this summer it just hasn't come back down its month after month. After month. So we are intervening to bring it back down to make sure that our customers are well taking care of but also to make sure that our employees last.
So I think our philosophy is to manage load in part based on our sense of employee welfare and customer satisfaction, but increasingly to do it algorithmically based on agent close rates. So there are some agents who can handle 15 20, new customers a month and they are going to make sure.
For every single one of those customers who wants to buy home is successful and there are other agents, who get overwhelmed and you can't have one size to fit them. All so instead, you're measuring how many of those customers are actively engaged in a home search through their online activity, but no longer engage with the brokerage and then intervening with agents who need to have low.
Our customer loads on an agent by agent basis, and the reason we can do that is because weve elaborately instrumented.
The brokerage experience and the web site to keep track of a customer all the way through from their first visit.
To give any case and we know when there's a problem and that's when we're going to take action.
We don't want to get into what we've done to improve our site, but hopefully we set up some credibility when I told here that we can't take credit for increasing agent productivity. It's largely the result of increasing homebuyer antenna.
So that I can say now that some of the traffic gain is also a market driven tailwind and some of it is because we have done things to get more traffic and the simplest evidence of that is that we passed trulia. If it was just a rising tried the truly about would be lifted right alongside ours, but instead our.
It has nudged ahead.
Thank you.
I have an additional question so mostly a sask Atlanta.
Great.
Hey, guys. Thanks for getting back in here.
Just a follow up question I had was going on the I buyer business model, just thinking about it through cycle.
There's there's some debate that the IRS could play a role that they could play during volatile times on one hand, some say there is uniquely liquidity providers and.
On the other reach on the last couple of lose that.
You guys as well as others have strong buying completely so I guess the question is what are your thoughts and the evolution, that's being required to the business model to make us more of an ongoing business rather than start stop in times of volatility.
Chris do you want to start with that one.
Yes, I do you think that we will continue.
Indefinitely to adjust our pricing when we see market volatility, we want to respond to uncertain times and the way, we do that as by adjusting our pricing and so when we're not sure what we can sell on asset for if we think it might be less than today. We're just can be way more careful on pricing in the home. So.
You should expect that we'll continue to kind of turn the knob on that given where we see from a market conditions standpoint.
I completely agree I imagine if youre, an investor and you had to buy stock every single day on the market.
No. One says if you decide not to buy stock one day that you're no longer at Investor Day, just say, you're a prudent investor and Thats, what we want to be with Red can now.
There's a time to reap at a time to so and in a bad market. We may stop purchasing again, it will probably be for very long, but we need to get a sense.
Of what the clearing price for house is going to be.
Makes sense thanks, guys.
Thank you well take our next question from Nat Schindler with Bank of Bank of America Merrill Lynch.
Yes, hi, guys I'm sorry.
Well I think most my questions, but I answered, but we really have a kind of a big question that maybe you will help me out on we've been hearing about the suburbanization trend for a long time when everybody is talking about people desperate we movie now the cities to get to the suburbs and I get that.
There's just a thing I've been confused about it so theres a second side to that equation.
We are the people that are in the suburbs go.
Well I think there's a long term trend not just to the suburbs, but to outlying areas. So.
Boise Buffalo Rochester Rally Savannah, Tucson, These smaller cities and towns are also getting plenty of folks.
And then the suburbs can get bigger.
There is a perfect example of a city that's bounded on several slides by water, but there's sprawl and most cities where you can plot out new developments in for the longest time after the great financial crisis.
Developers were scared to do that they were excited about urban infill and trying to make Seattle or San Francisco more dense.
And often frustrated by zoning policies and by the cost of land, but eventually you just the side, especially in places like Nashville, where it is owning free for all.
We're just going to build houses as fast as we possibly can so the builders are really ramping up to take advantage of this.
I also just think that the suburbs themselves are going to get more depth.
So you see pressure on.
Suburbs to ups own to provide more mixed housing to be more affordable.
Thank you.
Well take our next question from Ryan Mckeveny.
Zelman <unk> associates.
Hi, Thank you and congratulations really a great quarter very nice guidance here.
Of course, a lot has been asked already but one big picture one for me.
So.
If I look at how this year played out so you look at the first quarter, you had very strong revenue growth and I'm talking excluding that the Red Sun now sitters real estate services and significant margin expansion.
If I look back just the last few years says, let's say since 2017.
You've had a revenue CAGR or something like 25%, but the counter was was real estate gross margins trended lower over that time, and even with the impact to covert now.
The guidance you gave for Threeq, you I think that implies real estate services revenue up something like 20% you said gross margins will be higher so it seems the revenue side of the equation I guess the question is is there any reason to think that something around a 25% revenue CAGR going forward can be continued and then part two.
It seems like the gross margins related to kicker here.
Where you've seen effectively a step function higher. So the question is just how do you keep the growth going combine that with margin obviously, that's the best both worlds.
But but I know you're not can you give specific guidance, but just curious how you think about that on a go forward basis.
Binding to revenue side with with the margin trajectory going forward. Thank you.
Sure. So on the revenue, France, we haven't given that kind of guidance on expected revenue growth rates and in part it is because they're ups and downs in the housing market and so we always just want to be careful about our focus around gaining share and the long run and not around specific CAGR is because again does come down toward.
Down based on housing market conditions, we do you believe for all the reasons, we're talking about on the call that there's plenty of opportunity to gain share going forward and so that really is our focus here and on the gross margin front.
I would just add maybe one more land and that's that over the last couple of quarters in here I'm talking about Q2, and our guidance for Q3. It is a little hard to disaggregate all of the pieces that are incidents in gross margin up that even before that we did have three quarters, two or three quarters, where it was up on a year over year basis and so.
We have been making sets of changes small changes in the business as it relates to how agent to meet customers. The tools. They use that we think are having a positive impact on gross margin and we are focused on continuing to drive that up over time.
And I do think that the.
The cloud will clear here, a little bit as we get into a more stable housing economy.
And as that happens all the little bit easier for us to comment on the actual trajectory on gross margin. Excluding some of these kind of weird recent factors.
And just to add to what Chris said and it's really your line Chris.
But his thesis has always been at Redsun Dot com is significantly under monetized that we've been promoting one brokerage service to all of our visitors when.
Weve invested so much in different products, when we have a partner network. So I.
I wouldn't just look at our revenue growth as a function of real estate services I'd be encouraged by the fact that these other businesses. They were kind of turkeys for a little while we're just investing money without getting much return are starting to pay off.
Thank you well, Turkey financially.
Well take our last question for instance, there tan of RBC capital markets.
Everyone.
Just wanted to touch on kind of the gross margin trends in the homes business.
I know that you pointed to kind of home acquisition cost as wallets and personnel costs, just trying to maybe bifurcate sun, let's see on that the gross margin.
The accretion and maybe just try to get a better understanding of kind of what you've learned enough type tough environment and whether that gross margin was a result more of kind of the coded scenario or more of kind of just overall macro environment such as.
Kind of lower inventory rate and so forth.
Sure. So we commented on two pieces on the properties gross margin one is related to a decrease in personnel costs and really that's the result of a scaling of that business. There's a certain amount of fixed cost capacity to operate the business and we did have a lot of volume and the second quarter and that allowed us.
To see it decreased as a percentage of revenue on those personnel costs and then the year over year offset to that was that we did make less on kind of the difference between what we bought the home for and while we sold it for and that really was a function of us being careful that we on a lot of how.
Comes in April and wanted to make sure that we could sell those homes quickly and until we did price the homes accordingly to move them along just given the uncertainty that we had around the housing economy at that point in time, and so that was really I think a bit of that unusual negative on the quarter.
Was that we were so aggressive in trying to sell through those homes, just given that uncertainty.
So I'm not sure it's the again I.
Its little hard to extrapolate all that to more normalized conditions, just given the unusual behavior in the second quarter.
Certainly understood. Thank you.
Thank you.
Includes the question answer session of today, we can now I'm trying to call right back to line up around.
Thank you Casey and thanks, everyone for joining us today and for your interest in Redsun I appreciate it.
Thank you ladies and gentlemen. This concludes today's call may now disconnect.
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