Q1 2021 Redfin Corp Earnings Call

May 5, 2021

[music].

Good day and welcome to the Redfin Corporation Q4, 2020 earnings call. Today's conference is being recorded at this time I would like to turn the call over to Meg Natalie. Please go ahead ma'am.

Thanks, Travis good afternoon, and welcome to Redfin financial results Conference call, Chris first quarter ended March 31st 2021 on that.

Mentally redfin head of Investor Relations.

Joining me on the call today is Glenn Kelman, our CEO and Chris Nielsen Our CFO you.

You can find the press release on our website at investors day at Redfin Dot com.

Before we start note that some of our statements on today's call are 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 the risk factors in our SEC filings together with the content on today's call.

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

They then can we discuss any non-GAAP measures today real post the most comparable GAAP measure and a reconciliation on our website.

All comparisons made on the course of this call are against the same period in the prior year unless otherwise stated.

Lastly, we will be providing a copy of our prepared remarks on our website by the conclusion of today's call and a full transcript and audio replay will also be available soon after the call.

That let me turn the call over to Glenn.

Thanks, Meg and hi, everyone read since first quarter net income and revenues were better than we projected in our last earnings call net income increased from a loss of $60 million from the first quarter of 2020 to a loss of $36 million from the first quarter of 2021.

Gross profit was $42 million up 229% from the first quarter of 2020.

For our core real estate services business of brokering home sales through redfin agents and through other firms' agents working as our partners first quarter gross margins increased year over year by 1010 basis points to 24%.

Because we hire so many new agents to meet so many new customers in advance of the summer home buying season first quarter margins are usually our lowest of the year.

Total total revenue increased 40% from the first quarter of 2000 $20 million to $268 million with real estate services revenue up 55%.

After two quarters of declining sales, our properties business, which buys and sells homes through redfin now grew 17% to $93 million generating its first gross profit since its earliest months on.

Our other segment, which consists primarily of mortgage and title services grew revenue, 120% to $9 million.

A bull housing market has boosted our growth, but we're also gaining U S market share with the first quarter increase of 21 basis points to 114%.

Since we lost share on the second quarter of 2020 due to a furlough of about 32% of our lead agents our share gains have accelerated in each of the last three quarters.

We've gained share as we recruited more agents the number of these agents redfin employed on March 31, 2021 was up 26% from the same day, a year ago with partners up 93%.

Comparing the first two months of 2020 to the first two months of 2021 the rate at which we hired lead agents increased 74%.

With 12% of lead agents, who started on the first quarter coming from digital ads on Facebook Linkedin and indeed.

Hiring a candidate through online as it's still about 20 times more expensive than traditional recruiting, but we believe our digital campaigns can get much more efficient we should have enough lead agents to serve forecasted levels of demand in June 2021, just as we promised in the last two earnings calls.

Read since field managers and the demand generated by our site, let us develop almost anyone with grit and brains into top producing agents, we still recruit about half on new agents from other brokerages, but recently the other half have included a windows sales person car salespeople at Schuff and actor political canvassers recruiters.

On hospitality and restaurant workers.

We're also recruiting more stay at home parents, who decide to become breadwinners after their partner lots of job during the pandemic.

Our challenge has been retaining newly hired agents most of our new agents start out serving buyers not sellers, but with competition. So intense day by almost any home on the market. It's hard for these agents to earn their first bonuses among agents with less than 12 months of experience redfin annualized rate of attrition in the first.

Quarter of 2021 was 53% a year ago. This number was 26%.

This is likely an industry wide trend, but that's hardly constellation for redfin or the people we've hired.

In April 2021, we started paying a 500 dollar retention bonus for newly hired agents, who guide customers to the point of bidding on homes, regardless of whether those bids when we.

We expect this bonus and training programs to repairing agents to compete in this crazy market to bring attrition rates for new agents under 35%.

And we're pleased to see that even in such a competitive market, we're retaining tenured agents as well as ever.

Among agents with at least one year of tenure attrition was 15% growth last year and this year.

Our recruiting success has given us the capacity to handle the demand increase from mass media ads on April 19th we started running our new App called Redfin World, which introduces redfin on demand choices. This groovy magical portal to a better life, we plan to spend $52 million on media for the <unk>.

The amount budgeted for 2020 before the pandemic cut our campaign shirt and 33% more than our previous high in 2019.

Because sales have grown so much since then our mass media investment can increase in absolute terms, but decreased as a percentage of revenue.

Because redfin is the only major brokerage to use technology for giving customers better results at a lower fee.

The World, who we are is a worthwhile investment.

The ads should drive more customers and more traffic to our website that still growing fast comparing the first quarters of 2021 and 2020. The average number of Red 10 monthly visitors grew 30%. This is a deceleration from the fourth quarter when traffic grew 44%.

Much of this deceleration is a market wide trend comscore and similar web show traffic growth slowing for nearly all the major housing sites with the number of homes for sale at record lows Theres, just less to look at online and in person.

The good news is that redfin is making the most of every visitor compared to a year ago first quarter visitors were 13% more likely to subscribe to a search to participate on a shared search or to download our mobile application and.

And visitors are still asking for service at high rates with service request for our agents on our partner agents up 55% over last year.

But to improve our competitive standing we need to keep taking search share by adding more data about our home more local search criteria and more predictions about home values and demographic trends are already on the last four months, we've added flood risk data and six new search filters with more local data coming later in 2021.

We also need to get more listings.

Because of our commitment to local listing data and local service redfin Dot com has been the only major U S. Real estate site that doesn't show listings nationwide in the first quarter, we added support for four new areas in Florida and for Ottawa, Canada.

We also increased the number of listings on our site by 8%, adding listings from the outlying areas of markets we already serve.

I'll cover 85% of the U S population up from 79% in the fourth quarter and 27% of the Canadian population up from 23% in the prior quarter, we expect to add a total of at least 30 new markets in 2021.

The other source of new listings as rent path. The network of rentals website <unk> acquisition, we announced on February 19, and closed on April 2nd.

Already we have length of sites together boosting our authority with search engines in our last earnings call. We said that we've published rent path listings on redfin dot com in the second half of 2022.

But we now expect that to happen as early as March 2022.

This integration will broaden redfin dot Coms authority as an all purpose real estate destination, especially among consumers under 30.

It will also give rent past property management customers access to a larger audience of potential residents for their rental listings.

But a subscription business can be slow to rebuild even if more customers sign up to promote their properties through rent path. This summer it might take months offset a year of canceled subscriptions and longer if more customers pay only when the leases signed in moving up from subscription.

Rent path revenues declined 19% year over year on the first quarter of 2021 and.

And we expect a similar decline in continued losses at least through the second quarter.

We knew when we bought rent path for three times. Its 2020 revenues that we would have to invest in both sides of this online marketplace to get more rental listings and more renters looking to live in those listings rent.

Brent path websites last year kept growing traffic and uncertainty from rent pass bankruptcy and arrivals year long effort to buy the company rattled are property management customers of the 299 sales people rent path employed when it entered bankruptcy on February 12, 2020, 38% quit over the next 12 months more.

And half of whom still haven't been replaced.

Its CEO resigned in December 2020, with a long standing board member gearing Fonseca stepping in as an interim leader.

Our priorities are to hire a long term rent path leader and to recruit more property management customers to list their homes on rent path sites in the second half of 2021.

We aim to be the partner that property management companies love by aligning our products and pricing to their needs and by offering better value than any other internet listing service on.

Our long term challenge is to digitize the process of renting a home for both the consumer and the property manager.

Once the new rent path liter starts here she will need six months to develop this plan.

The good news is that rent past customers and employees are already enthusiastic about the acquisition.

All but one of rent past 680, <unk> employees sign their redfin offer letters and many customers seem excited to gain access to redfin dot coms audience.

Our investment in our rentals marketplace and other new businesses will be paid for in large part by our brokerage, which keeps getting larger and more efficient.

Our lead agents with at least six months of tenure first quarter productivity increased 13% year over year.

And regardless of 10 year pay for agents, who worked in the first full quarter this year.

Increased 22% over agents, who work the first full quarter of 2020.

We're just now getting data on the success rate for homebuyers, who first met our agents in the third quarter of 2020, which shows a 15% year over year increase success rate as a measure of how many buyers closed on a sale with redfin within six months of meeting their redfin agent.

These gains are bolstered by the pandemic driven surge in housing demand.

But a pilot to assign fewer customers to an agent has most of the continued to produce significant success rate gains over and above the increase is driven by the housing market since.

We're also now tracking which customers close with other brokerages. So we can set aside market effects when measuring if our service improved from.

For five of the last six months the results are favored lowering customer loads, but we still need to make sure. The success rate gain is large enough to be profitable.

We'll decide whether to extend that pilot nationwide. This summer before a big 2022 hiring campaign <unk>.

Many other service improvements that we developed and tested in prior years are paying off now.

Most important of these especially in todays cutthroat market speed, we increased the percentage of tourists. We book completely automatically with no telephone calls between brokerages from 4% in February to 16% in April instant tour scheduling increases the likelihood that a customer will stick with redfin brokerage rather than calling around to see which agent.

And answers the phone.

More important in this competitive market it helps redfin homebuyers get into homes first.

Our investments in locally licensed desk space agents to respond immediately to online and telephone inquiries have also started to pay off.

The redfin dot com visitors, who contact us with the home valuation request, we increase the rate at which we scheduled listing consultations.

For online inquiries about a redfin now cash offer the rate at which those inquiries led to a listing consultation was more than twice as high in March as it was in 2020.

These service improvements extend beyond the first customer call to the long term relationships. Our agents are building with customers as we train more of our agents to handle both sides of the sale the percentage of brokerage customers, who both buy and sell a home with redfin increased from 11% on the first quarter of 2020% to 13% on the first quarter of 2021 over that.

Same time, the percentage of brokerage sales from repeat and referral customers increased from 17% to 21% driven by new bonuses for agents with a loyal customer following.

In February we updated redfin Premier our listing service for customers with homes above one.

$1 million to include high definition video tours on luxury advertising campaign preferential access to our top agents and a fancy new side.

We still need to promote the service on our own site and on the wider world, but already since the launch listing consultations with these customers have grown almost three times faster than listing consultations overall.

It will take us years to build a reputation on the luxury market in years, two to pair redfin premier with our concierge service for renovating and staging high end homes.

And as we deliver better results for our customers, we're going to take share.

The final change in the brokerage has been and its leadership.

After 14 years of building our brokerage from a few million dollars on annual revenue to more than $600 million are brilliant president of real estate operations, Scott Nagel, who is planning to retire.

He has been my friend and partner through thick and thin and once these completely retired chain sawing tiny helpless trees that is off the grid cabin in the badlands of northeast Washington.

On this <unk> terribly.

Scott will spend the next year working on our strategy to let our business grow faster than we can hire employees.

Adam Weiner, who joined Redfin, just three months after Scott will own the brokerage and title businesses. Scott ran alongside the mortgage on rent and now businesses Adam started.

Adam and Scott are like minded about are humbled service culture, and our strategy by uniting all the components of a complete real estate solution under Adam should over time make us better at helping customers with their whole move.

To give customers a one stop shop, we've developed redfin now's cash offers as an alternative to a brokerage sale.

Our <unk> business has grown since the start of the year on almost every front purchases sales gross margins gross profit number of markets served and range of homeserve within each market.

We said in the last earnings call that we expected redfin now it's first quarter revenues to be about the same as the first quarter of last year, but in fact, we grew revenues, 14% because the homes. We had purchased sold so quickly properties.

Properties gross margin improved from negative <unk>, 3% in the first quarter of 2020 to one 7% last quarter.

Some of our progress is due to rapidly rising home prices.

But as with the brokerage redfin now is also executing better too.

The most promising development is the success of our integrated sales force.

We launched redfin now with a specialized sales force separate from the brokerage net in July of 2020, we ask the desk based agents, who support our brokerage to respond to redfin now inquiries.

We've already discussed their success at persuading people, who reject redfin now offer to consult with a redfin agent about lifting the home instead.

But this sales force has also improved redfin now offer acceptance rates.

Part by reducing the time it takes for customers to get an offer by more than a third.

Their customer communications have also doubled the capacity of the investment specialists to decide how much we can pay for a home.

We've not only gotten more efficient at buying properties that at selling those properties too.

83% of our first quarter sales pay the agent Commission below the commission typically offered by traditional brokerages in the market compared to 16% on the first quarter of 2020.

The magnitude of the commission reduction was 43 basis points last quarter compared to 16 basis points in the same quarter last year.

Over the next year, we hope to persuade more of our listing customers to learn from redfin now its experience and pay a lower commission to the buyer's agent.

With individual homeowners follow <unk> lead more broadly lowering commissions industrywide it would favor a brokerage like redfin, which is already structured to thrive on a lower fee.

We're also offering better service to the homeowners who accept redfin now offers were 12% more likely to close on our purchase mostly because we stopped charging customers for minor repairs and because it takes so long to find a new home to buy we're giving the owner 90 days to live in a home. After the offers accepted instead of 60.

For people, who haven't been able to own two homes during the moving process I buying has been a way to get the money out of one house at just the right time to buy another.

But since they are now so few homes to buy high buying has also become a way to make sure that you arent stuck with nowhere to live and.

In such a strong market redfin now is a big challenge is scale as consumers are more likely to contact I buyers that are 10 times our size.

We've already expanded redfin now aggressively at the end of 2020 Redfin now serve brokerage markets that accounted for 47% of our listing sales today that number is 67% by year end it'll be 87% now.

Now on that Redfin now is generating gross profit, we can expand more aggressively drawing on an already vast field organization to add markets quickly.

The other business that's rapidly expanding to serve all our brokerage customers as redfin mortgage our mortgage business had another quarter of about 200% year over year revenue growth.

Within our other revenue segment. This was offset by nearly flat revenue from title forward, which a new leader is restructuring could give redfin agents one point of contact for each closing.

Little forward won't return to strong growth until 2022, we expect 2021 to be a breakout year for redfin mortgage what limits redfin mortgage's growth now and probably for years to come as our ability to hire and train great people.

Similar to the brokerage redfin mortgage increased its recruiting capacity from the fourth quarter of 2020 to the first quarter of 2021 the rate at which we added staff increased by 60% bringing.

Bringing on so many new hires, especially at a time of year. When sales are just ramping up Swann gross margins back into the red, but we expect redfin mortgage to generate full year gross profits.

We're share our new hires will be profitable because even if rates rise redfin mortgage has so much room to grow through expansion and higher attach rates to brokerage sales.

In January 2021, Redfin mortgage was available and redfin brokerage market that accounted for 71% of our homebuyers purchases by the end of the first quarter, we had expanded to reach 74% of our homebuyers by year end, we expect to reach 94%.

We can grow even more by serving a higher proportion of customers within a market already our rates are competitive but to be redfin agents go to lender, we have to broaden our support beyond conventional loans. The typical homebuyer doesn't know which launched needs until consulting and lender. So many agents are wary of recommending lenders that can't on.

Offer every loan type.

Over the past year, we've added support for jumbo loans, but it will take us at least until 2022 sport Veterans Affairs in Federal housing administration months, we've spent six months retooling, our proprietary loan origination system to support a larger lending team.

By the summer our engineers will resume work on software to improve margins and support more loans.

Excuse me support more loan types.

Everyone at Redfin is working hard to catch up to the housing market, which is breaking records left and right. The U S median home price hit a record high of $353000 in March up 17% from a year earlier, which is itself a record rate of growth.

The number of homes for sale hit a record low dropping 29% from last year, which is a record size drop.

Mortgage applications for second homes or a double their pre pandemic levels, which is one reason inventory keeps falling 42% of homes sold above their list price a record high and for the first time ever homes sold on average from above the asking price new homes accounted for 23% of the total homes for sale. Another all time high.

Lumber prices rose, 200% in one year, which is probably one reason why when I venture into the mountains here in my home state of Washington vast tracts of forest have recently been cleared.

Mortgage rates increased in February and March but fell below 3% again in April indicating that supply not demand will likely continue to be what limits us sales volume.

Even as infection rates EPS workers have felt less tethered to their office and May 2020, 42% of redfin Dot com visitors planned to work from home at least part of the week compared to 60% in April 2021.

Prices have increased almost without impunity in part because so many other people moving out of California, or New York are still spending less on housing Idaho home values could double.

Seemed like a steel to someone from San Francisco.

For years housing was consuming an ever larger share of family budgets now. According to an April survey of 600 homebuyers about two thirds of the people who move got a house the same size or bigger but about the same proportion two thirds spent the same or less on housing.

Because the people migrating to lower cost housing are also moving to places with lower taxes survey respondents said that disposable income was also more likely to have increased not decreased after a home purchase.

That's not likely to lead to the kind of hangover, we usually see after a price runup, whereas in previous bull markets bidding more victors, often woke up the next day wondering why did they had just done.

79% of April survey respondents who move reported having no regrets, 77% reported being happier with most saying they were significantly happier on.

All of this data suggests that there is still a large group of homebuyers that will be unfazed by rising prices.

If this pandemic has taught us anything it's that people will if given half a chance rearrange their entire lives to be able to get a nicer home.

Most of the purchases you're making your life won't make you happier at least not for very long, but housing seems to be the exception to that rule with that I'll turn it over to Chris.

Thanks, Glenn our first quarter results exceeded our expectations as we continued to benefit from a robust housing market first quarter revenue was $268 million up 40% from a year ago real estate services revenue, which includes our brokerage and partner businesses increased 55% year over year.

Brokerage revenue or revenue from home sales closed by our own agents was up 53% on a 33% increase in brokerage transactions.

Revenue from our partners was up 94% on a 59% increase from partner transactions.

Revenue per partner transaction continues to benefit from rising home prices.

The property segment, which consists primarily of homes sold through redfin now generated $93 million on revenue up 17% from one year ago.

Our other segment, which includes mortgage title and other services contributed revenue of $9 $4 million, an increase of 120% year over year.

Primarily driven by growth in our mortgage business.

Total gross profit was $42 million up 229% year over year.

Real estate services gross margin was 24.0% up 1010 basis points year over year.

This was driven by a 450 basis point decrease in personnel costs and transaction bonuses of 270 basis point decrease in travel and entertainment and a 120 basis point decrease in listing expenses.

Properties gross margin was up 200 basis points year over year to one 7% the.

The improvement was primarily attributable to a 760 basis point decrease in home purchase costs and related capitalized improvements.

This improvement was offset by a 290 basis point increase in personnel costs on transaction bonuses.

Other segment gross margin was three 9% up from minus 46, 9% one year ago.

As a reminder, our mortgage business is negatively impacted by market volatility on the first quarter of 2020, which contributed to prior year margin weakness.

The year over year improvement was driven by a 3100 basis point decrease in personnel costs and transaction bonuses and a 990 basis point decrease in outside services cost.

Total operating expenses were up 9% year over year on represented 28, 6% of revenue down from 36, 8% one year ago.

Technology and development expenses increased by 37% or $7 million.

The increase was primarily attributable to a $6 $7 million increase in personnel costs.

Marketing expenses decreased by 54% or $14 million.

The decrease was attributable to a $14 $4 million decrease on mass media marketing costs.

As we're shifting the launch of our annual TV commercial from the first quarter to the second quarter.

General and administrative expenses increased by 54% or $13 million of this amount $3 $1 million was due to increased legal expenses largely due to a rejected settlement offer from threatened claim.

And $2 1 million was for transaction expenses from the rent path acquisition.

These increases were offset by a $4 $1 million reduction in company meals from events, primarily due to our annual companywide kickoff event going virtual this year.

The remaining increase was primarily attributable to an increase from personnel costs due to increased head count and recruiting activity.

Our net loss, including stock based compensation and depreciation was $36 million compared to a net loss of $60 million from the first quarter of 2020.

We also recorded a dividend on convertible preferred stock of $2 3 million.

Diluted loss per share attributable to common stock was 37.

Compared with diluted loss of <unk> 64 per share one year ago.

Now turning to our financial expectations for the second quarter of 2021 Consol.

Consolidated revenue is expected to be between $446 million and $457 million.

Renting year over year growth between 109%.

On 114% we.

We expect our properties segment to account for $151 million to $156 million of that revenue representing year over year growth between 109% and 116%.

Our consolidated guidance also includes post acquisition results for our recently acquired were on path business.

For the second quarter ramp half revenue is expected to be between $41 million from $42 million representing.

Representing a year over year decline between 14% and 16% and contribution to net loss of $10 million to $9 billion.

This guidance includes approximately $6 million of cost of revenue $12 million of technology and development expenses $23 million on marketing expenses and $10 million and general and administrative expenses.

Included in the news ramp have cost us approximately $6 million of depreciation and amortization.

For prior year comparative purposes rent pass full year of 2020 revenue was $194 million.

<unk> business is not typically subject to large seasonal variations, but revenue did decline through 2020 by approximately $2 million per quarter.

We expect to file pro forma financials for the combined companies by June 2018.

And going forward, we'll be reporting rent path as a separate from rentals segment.

Turning back now to our consolidated guidance for the second quarter. Our net loss is expected to be between $38 million from $32 million compared with $7 million net loss from the second quarter of 2020.

For the eighth straight quarter, we expect real estate services gross margin to increase as compared with the same quarter in the prior E on Europe.

We will incur approximately $6 million of one time transaction fees associated with the ramp path acquisition.

As Glenn mentioned, we've kicked off our 2021, TV campaign, and expect $33 million on mass media and $2 million on campaign production expenses during the quarter.

Including rent path. This guidance includes approximately $13 million on stock based compensation $10 million of depreciation and amortization and $3 million of interest expense associated with our convertible senior notes on the other credit obligations in.

In addition, we expect to pay a quarterly dividend of 30640 shares of common stock to our preferred stock holder.

We are currently evaluating the tax impact of the <unk> acquisition, and therefore, we are not including any potential tax gains associated with it.

This guidance assumes among other things that no additional business acquisitions investments restructurings or legal settlements are concluded and that there are no further revisions to stock based compensation estimates.

And with that let's open the line for your questions.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

These limit your questions to just one if you have a follow up question you may reenter the queue.

Again star one to ask a question, we'll pause just for a moment to allow everyone an opportunity to signal.

Our first question comes from Michael Iranian.

Bush Securities.

Okay.

Hey, good afternoon, guys. Thanks for taking question on I wanted to circle back to the.

The hiring.

Boston common standard around on hiring has grown.

<unk> now on market share really expand faster than you've seen in a long time. So can you talk about how those two things might be connected.

And then maybe a little bit more clarity around around the nutrition piece, so with attrition so hide when hiring speeding up in <unk>.

Seeing with.

Market share gains, where do you see market share go in and you consider hiring.

Our success or is it pushing more more of a headwind to what you were expecting.

<unk>.

Yeah.

Well, we're thrilled with the progress we've made in hiring people recruiting team has worked so hard and we have just brought people in hand over fist. The reason that market share is up is because we had so much demand coming through the site in the second half of 2020 that we could not serve for lack of agents.

And now that we have those agents, we've been able to take share.

There will be some headwinds on market share as we go into the latter half of the year just because inventory is so low that is the constraint not just on sales volume at redfin, but sales volume in the industry.

As far as attrition among newly hired agents. This also as an industry wide trend you just have more agents than houses right now in the industry and as a result, all these people who are brought into the industry are really struggling to get their footing. We have tried to mitigate that first of all.

All by connecting them with customers.

And then second by giving them better training and now a new bonus. So we expect new higher attrition to go down it has always been higher among new hires than it has been among the broader agent population at redfin.

People, just realize that real estate isn't for them or that the way redfin practices.

Is it for them.

But we can do better and so that's just going to be our focus we want to outpace the industry at retaining new talent in real estate.

Okay. Thanks, and just a quick follow up on that so you're on.

The transaction, you're on brokerage transactions were up meaningfully quarter over quarter year over year.

But the partner transaction growth is still outpacing that meaningfully as well.

What can we expect to get to the point, where you're able to meet that demand.

You talked about June.

We're hiring it gets to where you need it to be but you know is that when your own transaction growth and started outpacing partner growth again.

Yes.

June that's what we've been saying now for three quarters, the past two quarters and this one that we expect to be fully staffed in June and when we are fully staffed we would expect the partner business in the brokerage to grow at similar rates as website traffic increases and as more people from the website.

So that's our expectation its just been easier to recruit partners than it has been to recruit employees, but we're finally getting caught up.

Thanks Glenn.

Thanks.

Our next question comes from Ed Jarema Keybanc capital markets.

Hey, Thanks for taking the question less on pack here I guess first on rent Pat.

As you guys sit in a sense the state of the business I know, it's obviously on the bankruptcy and had its issues, but what type of investments do you think are necessary to kind of help us regain its footing and kind of what would the timing be thinking in terms of an improvement and then as a follow up within the Offer's business, just any sense as to kind of how you think.

About home price appreciation, how that's factoring into the.

On the pricing that you're that you're doing today.

I'll comment on rent path, and then turn it over to Chris to talk about the property segment. So the key investments we need to make our first of all.

Adjusted in the sales force, we want to make sure that sales force has the data showing that we give great value to our property management customers and that's always a challenge because you send someone people who are interested in running the place that you need to track whether they ended up signing a lease and whether you are the reason that they sign that lease and so being able to make that case effects.

Lee and just rebuilding the sales force generally is going to be our first execution challenge long term, we want to explore different pricing models to make sure that our interests are aligned with the property management customers, who list their properties because even before revenue on profit. The first order of business is just getting more customers onto the platform that is.

The key to building any kind of online marketplaces, having more high quality inventory on the site and so it's going to take us about six months to work through that especially since we're still hiring a long term leader and we just need to give that woman or that man a chance to settle in to figure out what his or her plan is and then to go.

Out in nail it but the good news is that the traffic is growing very fast.

And even as we pulled back some of our digital marketing, we're still getting good organic traffic growth. So the digital asset is valuable we just need to pair that with <unk>.

Great sales force selling a great value proposition and for the longest time that sales force is just had this headwind that the company has been in bankruptcy. Its future is uncertain Costar was thinking of buying the company and so many times customers wonder if they would just get.

On rent path.

Leads.

Through a costar deal.

And now the future is brighter we're going to integrate listings on the redfin dot com and get some real sales growth in 2022, Chris.

Chris you want talk about properties share.

For Redfin now we always wanted to offer the customer a fair price for their home and give that customer the choice between selling it to redfin now and then selling it on the open market.

So that's our objective and that's how we approach the situation and the team has done a really good job of trying to stay on top of what's been a pretty pretty dynamic market over the last six months or so in that way.

I do think in the last quarter, we've benefited from probably even more home price appreciation than we originally expected as we purchased those homes, so theres, probably a little bit of upside on the on the margin front from that additional amount of home price appreciation.

But our.

This is not as a standalone business, but it is giving customers that choice between on an open market sale.

And then for those who really value the convenience selling it to redfin.

Thank you.

Our next question comes from John Campbell Stephens, Inc.

Hey, guys good afternoon.

Just a question for you Glenn.

And this is a bigger picture kind of two part question I know you love those but can you just talk about how you envision or maybe what you expect rent path look like maybe five years or so out and then separately, where you think the redfin and rent rent path marriage has.

Kind of structural advantages relative to Costar is low.

Sure well our long term vision is to make the consumer proposition better because that's just the mission of redfin to redefine real estate and consumers favor and so the idea that we can let somebody lease an apartment at 30 minutes flat, where they can use their iPhone to get into the unit and tour. It themselves. So they can get a verb.

<unk> the idea that they can sign the lease digitally that they can go through the whole process using some of the infrastructure that we've built for purchase transactions on a rental is really exciting to us and we just want to pair that with a real commitment to getting.

Long tail inventory because of course, everybody is focused on the big property management companies that have these huge high rises in the center of every American city, but we also want to focus on the homes for rent, where we've got a customer who decides not to list their house after moving up but instead rents. It out that is a natural fit for our company that already has lots of house.

Inventory on our website.

So that is our long term vision, we want to make renting better we think that the value proposition to these enterprise customers to these property management company says not just that we're going to sell you a bunch of leads but also that we're going to lower your sales costs, because if we can automate that transaction, we can lower the cost of lease.

Seeing a unit and lower the cost that you have in <unk>.

<unk> salespeople on all the rest so.

That's where we stand we think we've got a great competitive advantage against the company.

It doesn't have a huge for sale presence I know that Costar is building that fast, it's very well run so theyre going to give us a run for our money, but you know we've got only only up to go. It's just the beginning of a very long power of convergence and we think we've got great consumer talent at redfin and in rent.

Yeah.

Okay. That's helpful. On one last final question on rent passing I think you just alluded to this earlier, but just to make sure I'm clear it sounds like Youre. The paid marketing is not fully turned on rent path is that right.

No. We're just turning it down some because when rent path was in bankruptcy and then it was going to be acquired by Costar there.

We're really in the sort of cryogenic suspension my consolo at the end of the Empire strikes back that couldn't change anything even though they knew that some of their paid marketing wasn't very profitable and so we had traffic going up organically. We also had these very large paid advertising campaigns.

Even if sales were declining and so the number of leads we're generating was through the roof and some of these AD campaigns werent even profitable. So now what we're doing is really focusing on recruiting more property management companies, taking advantage of our organic traffic and just right sizing. The AD campaign, it's been out as profitable we are still going to do it but if it's not we don't have.

Two anymore, so we won't.

Makes sense. Thanks for all the color thanks, guys.

Our next question comes from Tom Champion.

Piper Sandler.

Hi, good afternoon guys.

Glenn It sounds like you're adding a lot more data to the site and to listings.

And I'm wondering if you could talk about that generally and then especially with respect to the commission data.

That that youre, putting on the listing and how how that may change the business.

And then Chris I'm wondering if you could just talk a little bit more about the properties guidance.

The.

Revenue guidance looks quite strong and just maybe if you could talk to some of the assumptions underlying that and.

Maybe the number of markets and how youre thinking about market expansion going forward. Thanks a lot.

Sure. So I'll address just the data that we're adding to the site for the longest time redfin had this structural competitive advantage in that we were one of the only major real estate sites that had complete MLS access overtime that advantage is being mitigated and we just have to keep tenure to invest it's not just a <unk>.

Presentation, you can get really precious about your design win building on consumer site, but consumers have to find information on your site that they don't see anywhere else and some of this is a real localization challenge because.

We work really well in Seattle, our site traffic is not as strong in Tulsa, Oklahoma and so we just need to make sure that we support the kind of search filters to kind of neighborhood boundaries.

That come from having real experience in Tulsa and of course, our agents have that experience and so we just have to bring some of that information from our field organization onto our site. So that it really feels like a Tulsa, Oklahoma site, but we also just have to add new layers of data about force higher risk about flood risk.

So that on Google and the consumer herself can see that we have more information about local real estate than anybody else and it's just a constant arms race and we're going to keep fighting it and one of the areas, where we're really excited to publish more information. It's just about commissions because of course, the buyers have been paying lower commissions for a long time redfin is one of them and most consumers who are.

Listing their home don't realize that the buyers are paying a much lower fee, but that secret is going to come out.

As we publish front and center the commissions that are paid on every house you can see that 25% of the inventory in a place like Atlanta is paying a lower commission to the buyer's agent and that will give you permission. When it's time to list your home to do the same everyone assumes that the fee structure that I buying is comparing itself to on the brokerage industry is <unk>.

Got it.

We are just going to stay put and.

It would be at 5% or five 5% or whatever it is of course redfin is committed to changing that we think that I bank fees are going to come down, but the brokerage fees are going to come down to and that the spread is probably going to be pretty static.

So on our properties guidance really thats reflective of the actions we've been taking now for months.

And really that starts with expanding to new markets and then having teams out there purchasing more homes, putting more offers in front of customers and you can see that reflected in our balance sheet as of the end of the first quarter, where we were at that plant up to nearly $100 million in inventory nearly.

Double where we were at the end of December.

So we do want to continue to expand to more markets going forward with redfin now, but mostly what's reflected on the guidance is what's already baked into the inventory that we purchased homes that were renovating and putting back on the market.

So we do think that business has a lot of growth going forward.

But again, our primary objective is to get that offer in front of as many customers as we can so that they can make the choice between selling to redfin now on that open market sales.

Thank you.

Just a reminder, if you would like to ask a question. Please press star. One now you can press star one to ask a question.

Our next question comes from John Egbert Stifle.

Great. Thanks for taking my question on.

On on Brent path following up there aside from setting the business strategy, which youre, obviously waiting on a new leader to help develop can you talk about on either the low hanging fruit in terms of the cost synergies are technology driven optimization do you think you can offer to that organization pretty quickly. After the deal is closed here, whether it's technology.

<unk> developer resources migrating overhead functions to your existing teams to lighten the load like any any kind of quick low.

Low hanging fruit type fixes that you can think of.

I mean, I can think of plenty, but we're not taking any near term cost synergies. The first order of business is to get rent past listings on redfin dot com, because redfin dot com can double the audience of renters that are available to rent past customers.

And when we do that it should be much easier to recruit more customers and if we don't do that none of the cost optimizations matter.

Way to make more money here, yes is to run efficiently, but mostly it's to grow this marketplace and we think there is a massive opportunity to do that or we wouldn't have invested in this business.

Okay, great and so I mean.

I guess could you characterize kind of the.

R&D investment that you plan to build around that to help kind of push that forward.

While some of it is going to be sponsored by redfin. So we had planned on adding rental listings before we bought redpath to redfin Dot com and we started building a team that could add that data and we just realized how daunting. It would be to go from one property management company to another and try to.

20, or 30, or 40000 property management customers to list their property so.

My guess is that the cost is going to be split between redfin and rent path.

We need to invest on a mobile application or a better mobile application for rent pass two thirds of traffic is mobile at this point at least.

Pat has a mobile application that it is not strong enough and then we need to build all these tools long term to revolutionize the consumer experience of renting a home redfin is just very consumer first it's very transaction oriented we are not just about putting pretty pictures of housing on the website, we want to do the whole freaking deal and.

So that's going to take us a while but it's going to unlock massive value current customers and from the consumer.

Great. Thank you.

If you would like to ask a question. Please press star one now.

Yeah.

We have no further questions in the queue at this time I would now like to turn the call back over to Meg Natalie.

Great. Thanks, Kevin and thanks to all of you for joining the call today, we look forward to talk to you again next quarter, having a day.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

[music].

Good day and welcome to the Redfin Corporation Q4, 2020 earnings call Today's conference is being recorded.

I would like to turn the call over to Meg Natalie. Please go ahead ma'am.

Thanks, Travis good afternoon, and welcome to Redfin financial results Conference call for its first quarter ended March 31, 2021, Meg mentally redfin head of Investor Relations.

With me on the call today is Glenn Kelman, our CEO and Chris Nielsen our CFO.

You can find the press release on our website at investors day at Redfin Dot com.

Before we start note that some of our statements on today's call are 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 the risk factors in our SEC filings together with the content from 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 the call the financial metrics will be presented on a GAAP basis and include stock based compensation as well as depreciation and amortization expenses cause event, we discuss any non-GAAP measures today real post the most comparable GAAP measure and a reconciliation on our website.

All comparisons made on the course of this call are against the same period in the prior year unless otherwise stated.

Lastly, we will be providing a copy of our prepared remarks on our website by the conclusion of today's call and the call transcript and audio replay will also be available soon after the call with that let me turn the call over to Glenn.

Thanks, Megan Hi, everyone Redfin first quarter net income and revenues were better than we projected in our last earnings call net income increased from a loss of $60 million from the first quarter of 2020 to a loss of $36 million from the first quarter of 2021.

Gross profit was $42 million up 229% from the first quarter of 2020.

We hired so many new agents to meet so many new customers in advance of the summer home buying season first quarter margins are usually our lowest of the year.

Total total revenue increased 40% from the first quarter of 2000 $20 million to $268 million with real estate services revenue up 55%. After two quarters of declining sales our properties business, which buys and sells home through redfin now grew 17% to $93 million generating its first growth.

Profit since its earliest months our other segment, which consists primarily of mortgage and title services grew revenue, 120% to $9 million.

A bowl housing market has boosted our growth, but we're also gaining U S market share with the first quarter increase of 21 basis points to 1.14%.

We lost share on the second quarter of 2020 due to a furlough of about 32% of our lead agents our share gains have accelerated in each of the last three quarters.

We gained share as we recruited more agents the number of lead agents redfin employed on March 31, 2021 was up 26% from the same day, a year ago with partners up 93%.

Comparing the first two months of 2020 to the first two months of 2021 the rate at which we hired lead agents increased 74%.

With 12% of lead agents, who started on the first quarter coming from digital ads on Facebook Linkedin and indeed.

Hiring a candidate through online ads is still about 20 times more expensive than traditional recruiting, but we believe our digital campaigns can get much more efficient we should have enough lead agents to serve forecasted levels of demand in June 2021, just as we promised in the last two earnings calls.

Red cells field managers and the demand generated by our site, let us develop almost anyone with grit and brain and the top producing agents, we still recruit about half our new agents from other brokerages that recently the other half have included a windows sales personal car salespeople, a chef and actor political canvassers recruiters.

On hospitality and restaurant workers.

We're also recruiting more stay at home parents, who decide to become breadwinners. After their partner has lost a job during the pandemic.

Our challenge has been retaining newly hired agents most of our new agents start out serving buyers not sellers, but with competition sell intense day by almost any home on the market. It's hard for these agents to earn their first bonuses among agents with less than 12 months of experience redfin annualized rate of attrition on the first.

Quarter of 2021 was 53% a year ago. This number was 26%.

This is likely an industry wide trend, but thats hardly constellation for redfin or the people we've hired.

In April 2021, we started paying a 500 dollar retention bonus for newly hired agents, who guide customers to the point of bidding on homes, regardless of whether those bids when we.

We expect this bonus and training programs repairing agents to compete in this crazy market to bring attrition rates for new agents under 35%.

And we're pleased to see that even in such a competitive market, we're retaining tenured agents as well as ever.

Among agents with at least one year of tenure attrition was 15% growth last year and this year.

Our recruiting success has given us the capacity to handle the demand increase from mass media ads on April 19th we started running our new AD called Redfin World, which introduces red sands on demand choices. This groovy magical portal to a better life, we plan to spend $52 million on media for the <unk>.

The amount budgeted for 2020 before the pandemic cut our campaign share and 33% more than our previous high in 2019.

Because sales have grown so much since then our mass media investment can increase in absolute terms, but decreased as a percentage of revenue.

Because redfin is the only major brokerage to use technology for giving customers better results at a lower fee.

All in the World, who we are is a worthwhile investment.

The average should drive more customers and more traffic to our website that still growing fast comparing the first quarters of 2021 and 2020. The average number of Red 10 monthly visitors grew 30%. This is a deceleration from the fourth quarter when traffic grew 44%.

And visitors are still asking for service at high rates with service requests for our agents on our partner agents up 55% over last year.

Already on the last four months, we've added flood risk data and six new search filters with more local data coming later in 2021.

We also need to get more listings.

Because of our commitment to local listing data and local service redfin dot com extend the only major U S. Real estate site that doesn't show listings nationwide in the first quarter, we added support for four new areas in Florida and for Ottawa, Canada.

We also increased the number of listings on our site by 8%, adding listings from the outlying areas of markets. We already serve we now cover 85% of the U S population up from 79% in the fourth quarter and 27% of the Canadian population up from 23% on the prior quarter, we expect to add a total of at least 30 new.

Markets in 2021.

The other source of new listings is rent path that network of rentals websites user acquisition, we announced on February 19, and closed on April 2nd.

Already we've linked the sites together boosting our authority with search engines and our last earnings call. We said that we published Redpath listings on redfin Dot com in the second half of 2022.

But we now expect that to happen as early as March 2022.

This integration will broaden redfin Dot Coms authority is on all purpose real estate destination, especially among consumers under 30.

It will also give rent past property management customers access to a larger audience of potential residents further rental listings.

But the subscription business can be slow to rebuild even if more customers sign up to promote their properties through rent path. This summer it might take months offset a year of canceled subscriptions and longer if more customers pay only when the leases signed in moving up from subscription.

Rent path revenues declined 19% year over year on the first quarter of 2021.

And we expect a similar decline in continued losses at least through the second quarter.

We knew when we bought redpath for three times. Its 2020 revenues that we would have to invest in both sides of this online marketplace to get more rental listings and more renters looking to live in those listings rent.

Brent path website last year kept growing traffic and uncertainty from rent past bankruptcy and arrivals year long effort to buy the company rattled are property management customers of the 299 salespeople rent path employed when it entered bankruptcy on February 12, 2020, 38% quit over the next 12 months.

And then half of whom still haven't been replaced.

<unk> CEO resigned in December 2020, with a long standing board member Darrin Fonseca stepping in as an interim leader.

Our priorities are to hire a long term rent path leader and to recruit more property management customers to list their homes on rent path sites in the second half of 2021.

We aim to be the partner that property management companies love by aligning our products and pricing to their needs and by offering better value than any other internet listing service or.

Our long term challenge is to digitize the process of renting a home for both the consumer and the property manager.

Once the new rent past leaders starts here she will need six months to develop this plan.

The good news is that rent path customers and employees are already a louisiana pick about the acquisition.

All but one of rent past 680 from employees sign that redfin offer letters and many customers seem excited to gain access to redfin dot coms audience.

Our investment in our rentals marketplace and other new businesses will be paid for in large part by our brokerage, which keeps getting larger and more efficient.

Our lead agents with at least six months of tenure first quarter productivity increased 13% year over year, and regardless of 10 year pay for agents, who worked in the first full quarter. This year.

Increased 22% over agents, who work the first full quarter of 2020.

These gains are bolstered by the pandemic driven surge in housing demand.

But a pilot to assign fewer customers to an agent has most of the continued to produce significant success rate gains over and above the increase is driven by the housing market since.

Since a similar 2018 initiative to increase success rates failed in part due to an interest rate increase we're being careful this time around the run on experiment for a year before making any decisions. We're also now tracking which customers close with other brokerages. So we can set aside market effects when measuring our service improved from.

Five of the last six months the results of favorite lowering customer loads, but we still need to make sure. The success rate gain is large enough to be profitable.

We'll decide whether to extend that pilot nationwide. This summer before a big 2022 hiring campaign.

Many other service improvements that we developed and tested in prior years are paying off now the most important of these especially in today's cutthroat market speed, we increased the percentage of tourists. We book completely automatically with no telephone calls between brokerages from 4% in February to 16% in April incident towards schedule.

<unk> increases the likelihood that a customer will stick with redfin brokerage rather than calling around to see which agent answers the phone more important in this competitive market. It helps redfin homebuyers get into homes first.

Our investments in locally license desk based agents to respond immediately to online and telephone inquiries have also started to pay off.

The redfin dot com visitors, who contact us with the home valuation request, we increased the rate at which we schedule listing consultations.

For online inquiries about redfin now cash offer the rate at which those inquiries led to a listing consultation was more than twice as high in March as it was in 2020.

Same time, the percentage of brokerage sales from repeat and referral customers increased from 17% to 21% driven by new bonuses for agents with a loyal customer following.

In February we updated redfin Premier our listing service for customers with homes above one.

A million dollars to include high definition video tours, a luxury advertising campaign preferential access to our top agents and a fancy new side.

We still need to promote this service on our own site and on the wider world, but already since the launch listing consultations with these customers have grown almost three times faster than listing consultations overall.

It will take us years to build a reputation on the luxury market in years two to pay a restaurant premier with our concierge service for renovating on staging high end homes.

But as we deliver better results for our customers, we're going to take share.

The final change on the brokerage has been and its leadership.

After 14 years of building our brokerage from a few million dollars in annual revenue to more than $600 million are brilliant president of real estate operations, Scott Nagel is planning to retire.

He has been my friend and partner through thick and thin and once these completely retired chain sawing tiny helpless trees that is off the grid cabin in the badlands of northeast Washington.

Im missing terribly.

Scott will spend the next year working on our strategy to let our business grow faster than we can hire employees.

Adam Weiner, who joined Redfin, just three months after Scott will own the brokerage and title businesses Scott Ray on alongside the mortgage on Redfin now businesses Adam started.

Adam and Scott are like minded about are humbled service culture, and our strategy by uniting all the components of a complete real estate solution under Adam should overtime make us better at helping customers with their whole move.

We give customers a one stop shop, we've developed redfin now's cash offers as an alternative to a brokerage sale.

Our <unk> business has grown since the start of the year on almost every front purchasing sales gross margins gross profits number of markets served and range of homeserve within each market.

We said on the last earnings call that we expected Redfin announced first quarter revenues to be about the same as the first quarter of last year, but in fact, we grew revenue 14% because the homes. We had purchased sold so quickly.

Properties gross margin improved from negative 3% on the first quarter of 2021, 7% last quarter.

Some of our progress is due to rapidly rising home prices.

But as with the brokerage Redfin now is also executing better to the most promising development is the success of our integrated sales force.

We launched redfin now with a specialized sales force separate from the brokerage net in July of 2020, we ask the desk based agents, who support our brokerage to respond to redfin now inquiries.

We've already discussed their success at persuading people, who reject redfin now offer to consult with a redfin agent about lifting the helmets that but.

But the sales force. It's also improved redfin now offer acceptance rates in part by reducing the time it takes for customers to get an offer by more than a third.

Their customer communications have also doubled the capacity of the investment specialists to decide how much we can pay for a home.

We've not only gotten more efficient at buying properties that are selling those properties too.

83% of our first quarter sales pay the agent Commission below the commission typically offered by traditional brokerages in the market compared to 16% on the first quarter of 2020.

The magnitude of the commission reduction was 43 basis points last quarter compared to 16 basis points in the same quarter last year over.

Over the next year, we hope to persuade more of our listing customers to learn from redfin now its experience and pay a lower commission to the buyer's agent.

Because the individual homeowners follow <unk> lead more broadly lowering commissions industry wide it would favor a brokerage like redfin, which is already structured to thrive on a lower fee.

We're also offering better service to the homeowners who accept redfin now offers from <unk>.

12% more likely to close on our purchase mostly because we stopped charging customers for minor repairs and because it takes so long to find a new home to buy we're giving the owner 90 days to live in a home. After the offers accepted instead of 60.

For people, who haven't been able to own two homes during the moving process I buying has been a way to get the money out of one house at just the right time to buy another.

But since they are now so few homes to buy high buying has also become a way to make sure that you arent stuck with nowhere to live and.

In such a strong market redfin now Big challenge is scale as consumers are more likely to contact I buyers that are 10 times our size.

We've already expanded redfin now aggressively at the end of 2020 Redfin now start brokerage markets that accounted for 47% of our listing sales today that number is 67% by year end it'll be 87% now.

Now that redfin now is generating gross profit, we can expand more aggressively drawing on an already vast field organization to add markets quickly.

The other business that's rapidly expanding to serve all our brokerage customers as redfin mortgage our mortgage business had another quarter of about 200% year over year revenue growth.

Within our other revenue segment. This was offset by nearly flat revenue from title forward, which a new leader is restructuring to give redfin agents one point of contact for each closing.

Little forward won't return to strong growth until 2022, but we expect 2021 to be a breakout year for redfin mortgage what limits Redfin mortgage's growth now and probably for years to come is our ability to hire and train great people.

Similar to the brokerage redfin mortgage increased its recruiting capacity from the fourth quarter of 2020 to the first quarter of 2021 the rate at which we added staff increased by 60% bringing.

Bringing on so many new hires, especially at a time of year. When sales are just ramping up Swann gross margins back into the red, but we expect redfin mortgage to generate full year gross profits.

We're share our new hires will be profitable because even if rates rise redfin mortgage has so much room to grow through expansion and higher attach rates to brokerage sales.

We can grow even more by serving a higher proportion of customers within a market already our rates are competitive but to be redfin agents go to lender, we have to broaden our support beyond conventional loans. The typical homebuyer doesn't know which launched needs until consulting on lender. So many agents are wary of recommending lenders that can't on.

Offer every loan type.

Over the past year, we've added support for jumbo loans, but it will take us at least until 2022 sport Veterans Affairs in Federal housing administration months.

We spent six months retooling, our proprietary loan origination system to support a larger lending team.

By the summer our engineers will resume work on software to improve margins and support more loans.

Excuse me support more loan types.

The number of homes for sale hit a record low dropping 29% from last year, which is a record size drop.

Mortgage applications for second homes or a double their pre pandemic levels, which is one reason inventory keeps falling.

42% of homes sold above their list price a record high and for the first time ever homes sold on average for above the asking price.

New homes accounted for 23% on the total homes for sale. Another all time high lumber prices rose, 200% in one year, which is probably one reason why when I venture into the mountains here in my home state of Washington vast tracts of forest have recently been cleared.

Mortgage rates increased in February and March but fell below 3% again in April indicating that supply not demand will likely continue to be what limits us sales volume.

Even as infection rates eased workers have felt less tethered to their office and May 2020, 42% of redfin Dot com visitors plan to work from home at least part of the week compared to 60% in April 2021.

Prices have increased almost without impunity in part because so many other people moving out of California, or New York are still spending less on housing Idaho home values could double and still seem like a steel somewhat from San Francisco.

79% of April survey respondents who moved reported having no regrets, 77% reported being happier with most saying they were significantly happier on.

All of this data suggests that there is still a large group of homebuyers that will be unfazed by rising prices.

If this pandemic has taught us anything it's that.

People will if given half a chance rearrange their entire lives to be able to get a nicer home.

Most of the purchases you're making your life won't make you happier at least not for very long, but housing seems to be the exception to that rule with that I'll turn it over to Chris.

Brokerage revenue or revenue from home sales closed by our own agents was up 53% on a 33% increase in brokerage transactions.

Revenue from our partners was up 94% on a 59% increase on partner transactions.

Revenue per partner transaction continues to benefit from rising home prices.

The property segment, which consists primarily of homes sold through redfin now generated $93 million on revenue up 17% from one year ago.

Our other segment, which includes mortgage title and other services contributed revenue of $9 4 million, an increase of 120% year over year.

Primarily driven by growth in our mortgage business.

Total gross profit was $42 million up 229% year over year.

Real estate services gross margin was 24.0% up 1010 basis points year over year.

This was driven by a 450 basis point decrease in personnel costs from transaction bonuses at 270 basis point decrease in travel and entertainment and a 120 basis point decrease in listing expenses.

Properties gross margin was up 200 basis points year over year to one 7% the.

The improvement was primarily attributable to a 760 basis point decrease in home purchase costs and related capitalized improvements.

This improvement was offset by a 290 basis point increase in personnel costs on transaction bonuses.

Other segment gross margin was three 9% up from minus 46, 9% one year ago.

As a reminder, our mortgage business was negatively impacted by market volatility on the first quarter of 2020, which contributed to prior year margin weakness.

The year over year improvement was driven by 3100 basis point decrease in personnel costs and transaction bonuses and a 990 basis point decrease in outside services costs.

Total operating expenses were up 9% year over year and represented 28, 6% of revenue down from 36, 8% one year ago.

Technology and development expenses increased by 37% or $7 million.

The increase was primarily attributable to a $6 $7 million increase in personnel costs.

Marketing expenses decreased by 54% or $14 million.

The decrease was attributable to a $14 $4 million decrease on mass media marketing cost.

As we're shifting the launch of our annual TV commercial from the first quarter to the second quarter.

General and administrative expenses increased by 54% or $13 million of.

Of this amount $3 $1 million was due to increased legal expenses largely due to a rejected settlement offer free threaten claims.

And $2 1 million was for transaction expenses from the <unk> acquisition.

These increases were offset by a $4 $1 million reduction in company miele from events, primarily due to our annual company wide kickoff event going virtual this year.

The remaining increase was primarily attributable to an increase from personnel costs due to increased head count and recruiting activity.

Our net loss, including stock based compensation and depreciation was $36 million compared to a net loss of $60 million from the first quarter of 2020, we.

We also recorded a dividend on convertible preferred stock of $2 3 million.

Diluted loss per share attributable to common stock was 37.

Compared with diluted loss of <unk> 64 per share one year ago.

Now turning to our financial expectations for the second quarter of 2021 Consol.

Consolidated revenue is expected to be between $446 million and $457 million.

Representing year over year growth between 109% and 114%.

We expect our properties segment to account for $151 million to $156 million of that revenue representing year over year growth between 109% and 116%.

Our consolidated guidance also includes post acquisition results for our recently acquired run past business.

For the second quarter ramp half revenue is expected to be between $41 million from $42 million representing.

Representing a year over year decline between 14% and 16% and contribution to net loss of $10 million to $9 billion.

Included in these ramp have cost us approximately $6 million of depreciation and amortization.

For prior year comparative purposes rent path full year of 2020 revenue was $194 million.

<unk> business is not typically subject to large seasonal variations, but revenue did decline through 2020 by approximately $2 million per quarter.

We expect to file pro forma financials for the combined companies by June 2018.

And going forward, we'll be reporting rent path as a separate from rentals segment.

Turning back now to our consolidated guidance for the second quarter. Our net loss is expected to be between $38 million from $32 million compared with the $7 million net loss from the second quarter of 2020.

For the eighth straight quarter, we expect real estate services gross margin to increase as compared with the same quarter in the prior year on year.

We will incur approximately $6 million of one time transaction fees associated with the ramp <unk> acquisition.

As Glenn mentioned, we've kicked off our 2021, TV campaign, and expect $33 million on mass media and $2 million in campaign production expenses during the quarter.

In addition, we expect to pay a quarterly dividend of 30640 shares of common stock to our preferred stock holder.

We are currently evaluating the tax impact of the <unk> acquisition, and therefore, we are not including any potential tax gains associated with it.

This guidance assumes among other things that no additional business acquisitions investments restructurings or legal settlements are concluded.

No further revisions to stock based compensation estimates.

And with that let's open the line for your questions.

Again, Thats star one to ask a question, we'll pause just for a moment to allow everyone an opportunity to signal.

Our first question comes from Michael Iranian Web.

Wedbush Securities.

Okay.

Hey, good afternoon, guys. Thanks for taking my question on I wanted to circle back to the.

The hiring.

Ill stop and the comments day all wrong.

On a hiring has grown you've seen now on market share really it's been faster than you've seen.

Long time, so can you talk about how those two things might be connected.

And then maybe a little bit more clarity around around the attrition piece, so with attrition so high on hiring.

Moving up.

We're seeing with market share gains, where do you see market share going in.

You consider hiring.

Or is the attrition more more of a headwind to what you were expecting.

Okay.

Well, we're thrilled with the progress that we've made at hiring people recruiting team has worked so hard.

And we have just brought people in hand over fist. The reason that market share is up is because we had so much demand coming through the site in the second half of 2020 net.

We could not serve for lack of agents and now that we have those agents, we've been able to take share I think there will be some headwinds on market share as we go into the latter half of the year just because inventory is so low that is the constraint not just on sales volume at redfin, but sales volume in the industry.

<unk>.

As far as attrition among newly hired agents. This also as an industry wide trend you just have more agents than houses right now in the industry and as a result, all of these people who are brought into the industry are really struggling to get their footing. We have tried to mitigate that first of all.

By connecting them with customers.

And then second by giving them better training and now on new bonus. So we expect new higher attrition to go down it has always been higher among new hires than it has been among the broader agent population at redfin. Some people just realize that real estate isn't for them or that the way redfin practices it isn't for them.

<unk>.

But we can do better and so that's just going to be our focus we want to outpace the industry at retaining new talent in real estate.

Great. Thanks, and just a quick follow up on that so you're on.

Your transaction, you're on brokerage transactions were up meaningfully quarter over quarter year over year.

But the partner transaction growth is still outpacing that meaningfully as well.

What can we expect to get to the point, where you're able to meet that demand and I know you talked about June is appointed we're hiring that gets to where you need it to be but you know is that when you're on transaction growth and start outpacing partner growth again.

Yes.

June that's what we've been saying now for three quarters in the past two quarters and this one that we expect to be fully staffed in June.

When we are fully staffed we would expect the partner business in the brokerage to grow at similar rates as website traffic increases and as more people from the website contact us for service.

So that's our expectation its just been easier to recruit partners than it has been to recruit employees, but we're finally getting caught up.

Thanks Glenn.

Thanks.

Our next question comes from Ed Jarema Keybanc capital markets.

Hey, Thanks for taking the question lastly on pack here I guess first on rent Pat.

As you guys sit in a sense the state of the business I know, it's obviously gone through bankruptcy and had its issues, but what type of investments do you think are necessary to kind of help it regain its footing and kind of what would the timing be thinking in terms of an improvement and then as a follow up within the Offer's business, just any sense as to kind of how you think about.

On price appreciation, how that's factoring into the the.

The price that you're that you're doing today. Thanks.

I'll comment on rent path, and then turn it over to Chris to talk about the property segment. So.

The key investments, we need to make our first of all.

Just in the sales force, we want to make sure that sales force has the data showing that we give great value to our property management customers and that's always a challenge because you send someone people who are interested in renting a place that you need to track whether they ended up signing a lease and whether you are the reason that they sign that lease and so being able to make that case effectively.

Lee and just rebuilding the sales force generally is going to be our first execution challenge long term, we want to explore different pricing models to make sure that our interests are aligned with the property management customers to list their properties, because even before revenue and profit. The first order of business is just getting more customers onto the platform that is.

The key to building any kind of online marketplace as having more high quality inventory on the site and so it's going to take us about six months to work through that especially since we are still hiring a long term leader and we just need to give that woman or that man a chance to settle in to figure out what his or her plan is and then they go on.

On a nail it but the good news is that the traffic is growing very fast.

<unk>.

And even as we pulled back some of our digital marketing, we're still getting good organic traffic growth. So the digital asset is valuable we just need to pair that with a great sales force selling a great value proposition for the longest time net sales force is just had this headwind.

The company has been in bankruptcy its future is uncertain Costar was thinking of buying the company and so many times customers wondered if they would just get.

Rent path.

Leads.

Through a costar deal.

And now the future is brighter we're going to integrate listings on the redfin dot com and get some real sales growth in 2022, Chris.

Chris you want talk about properties share.

So for Redfin now we always wanted to offer the customer a fair price for their home and give that customer the choice between selling it to redfin now and then selling it on the open market.

So that's our objective and Thats, how we approach the situation and the team has done a really good job of trying to stay on top of what's been a pretty pretty dynamic market over the last six months or so in that way.

Do you think in the last quarter, we've benefited from probably even more home price appreciation than we originally expected as we purchased those homes, so theres, probably a little bit of upside on that on the margin front from that additional amount of home price appreciation.

But.

This is not as a standalone business, but is giving customers that choice between on open market sale.

And then for those who really value the convenience selling into redfin.

Thank you.

Our next question comes from John Campbell Stephens, Inc.

Hey, guys good afternoon.

Just a question for you Glenn.

Kind of structural advantages relative to Costar is low.

Sure well our long term vision is to make the consumer proposition better because thats just the mission of redfin to redefine real estate on consumers' favor and so the idea that we can let somebody lease an apartment at 30 minutes flat, where they can use their iPhone to get into the unit and tour. It themselves. So they can get a verb.

Sure tore the idea that they can sign the lease digitally that they can go through the whole process using some of the infrastructure that we've built for purchase transactions on a rental is really exciting to us and we just want to pair that with a real commitment to getting.

Inventory on our website.

So that is our long term vision, we want to make renting better we think that the value proposition to these enterprise customers do these property management companies is not just that we're going to sell you a bunch of leads but also that we're going to lower your sales costs, because if we can automate that transaction, we can lower the cost of lease.

Seeing a unit and lower the cost that you have.

<unk> salespeople on all the rest so that's where we stand we think we've got a great competitive advantage against the company.

It doesn't have a huge for sale presents I know that Costar is building that fast, it's very well run so theyre going to give us a run for our money, but you know we've got only only up to go. It's just the beginning of a very long path of convergence and we think we've got great consumer talent at redfin in rent.

Yeah.

No. We're just turning it down some because when rent path was in bankruptcy and then it was going to be acquired by Costar. There. We're really in the sort of cryogenic suspension like Han solo at the end of Empire strikes back that couldn't change anything even though they knew that some of their paid marketing wasn't very proud.

For the ball and so we had traffic going up organically. We also had these very large paid advertising campaigns.

Sales were declining and so the number of leads you're generating was through the roof and some of these AD campaigns werent even profitable. So now what we're doing is really focusing on recruiting more property management companies, taking advantage of our organic traffic and just right sizing. The AD campaign. It's been add is profitable we are still going to do it but if it's not we don't have to anymore.

So we won't.

Makes sense. Thanks for all the color thanks, guys.

Our next question comes from Tom Champion.

Piper Sandler.

Hi, good afternoon guys.

Glenn It sounds like Youre, adding a lot more data to the site and to listings.

And I'm wondering if you could talk about that generally and then especially with respect to the commission data.

That that youre, putting on the listing and how how that may change the business.

And then Chris I'm wondering if you could just talk a little bit more about the properties guidance.

The.

Revenue guidance looks quite strong and just maybe if you could talk to some of the assumptions underlying that and.

Maybe the number of markets and how youre thinking about market expansion going forward. Thanks a lot.

Presentation, you can get really precious about your design when building a consumer site, but consumers have to find information on your site that they don't see anywhere else and some of this is a real localization challenge because.

We work really well on Seattle, our site traffic is not as strong in Tulsa, Oklahoma and so we just need to make sure that we support the kind of search filters to kind of neighborhood boundaries.

Come from having real experience in Tulsa and of course, our agents have that experience and so we just have to bring some of that information from our field organization onto our site. So that it really feels like a Tulsa, Oklahoma site, but we also just have to add new layers of data about force higher risk about flood risk.

So that Google and the consumer herself can see that we have more information about local real estate than anybody else and it's just a constant arms race and we're going to keep fighting it and one of the areas, where we're really excited to publish more information is just about commissions because of course, the buyers have been paying lower commissions for a long time redfin is one of them and most consumed.

So we're lifting their home don't realize that the buyers are paying a much lower fee, but that secret is going to come out.

As we published front and center the commissions that are paid on every house you can see that 25% of the inventory in a place like Atlanta is paying a lower commission to the buyers day in and that will give you permission. When it's time to list your home to do the same everyone assumes that the fee structure that I buying is comparing itself to on the brokerage industry is.

Got it.

We are just going to stay put.

It would be at 5% or five 5% or whatever it is of course redfin is committed to changing that we think that <unk> bank fees are going to come down, but the brokerage fees are going to come down to and that the spread is probably going to be pretty static.

So on our properties guidance really thats reflective of the actions we've been taking now for months.

Double where we were at the end of December.

So we do think that business has a lot of growth going forward.

But again, our primary objective is to get that offer in front of as many customers as we can so they can make the choice between.

Turning to redfin now on that open market sales.

Thank you.

Just a reminder, if you would like to ask a question. Please press star. One now you can press star one to ask a question. Our next question comes from John Egbert Stifel.

Great. Thanks for taking my question on <unk>.

On Brent path following up there aside from setting the business strategy, which youre, obviously waiting on a new leader to help develop can you talk about any low hanging fruit in terms of of cost synergies. Our technology driven optimization do you think you can offer to that organization pretty quickly. After the deal is closed here whether it's.

Ill ask sharing developer resources migrating overhead functions to your existing teams to lighten their low like any any kind of quick.

Low hanging fruit type fixes that you can think of.

And when we do that it should be much easier to recruit more customers and if we don't do that none of the cost optimizations matter.

Way to make more money here, yes, just to run efficiently, but mostly it's to grow this marketplace and we think there is a massive opportunity to do that or we wouldn't have invested in this business.

Okay, great and so I mean.

I guess could you characterize kind of the R&D investment that you plan to build around that to help kind of push that forward.

Well some of it is going to be sponsored by redfin. So we had planned on adding rental listings before we bought rent path to redfin Dot com and we started building a team that could add that data and we just realized how daunting. It would be to go from one property management company to another and try to.

20, or 30, or 40000 property management customers to list their property so.

My guess is that the cost is going to be split between redfin and rent path.

We need to invest on a mobile application on a better mobile application for rent path two thirds of traffic is mobile at this point at least.

And rent Pat has a mobile application that it is not strong enough and then we need to build all these tools long term to revolutionize the consumer experience of renting a home redfin is just very consumer first it's very transaction oriented we are not just about putting pretty pictures of housing on a website. We wanted to do the whole freaking deal and so.

That's going to take us a while but it's going to unlock massive value for our customers and for the consumer.

Great. Thank you.

If you would like to ask a question. Please press star one now.

Okay. We have no further questions in the queue at this time I would now like to turn the call back over to Meg Natalie.

Great. Thanks, Kevin and thanks to all of you for joining the call today, we look forward to talk to you again next quarter have a good day.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

Q1 2021 Redfin Corp Earnings Call

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