Q2 2021 Redfin Corp Earnings Call

[music].

Good day and welcome to the Redfin Corporation Q2, 2021earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Mac Natalie head of Investor Relations. Please go ahead.

Thanks for Patterson.

Afternoon, and welcome to Redfin financial results Conference call for the second quarter ended June 32021.

Meg mentally redfin head of Investor relations joining.

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 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.

For 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 for 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 will close to the most comparable GAAP measure and a reconciliation on our website.

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

Lastly, bill for be providing a copy of our prepared remarks on our website or.

For the conclusion of today's call and a full transcript and audio replay will also be available soon after the call for that let me turn the call over to Glenn.

Thanks, Greg and Howdy everyone.

Redfin second quarter net income and revenues were better than we projected on our last earnings call.

Second quarter revenues grew year over year by 121 per cent from $214 million for $471 million with 43 million coming from the Red hat acquisition that closed in April.

Even if the housing market grew by leaps and bounds since its near death experience on the second quarter of 2020 redfin share of that market also increased by a whopping 24 basis points, reaching 118 per cent of all home sales based on the value of the homes sold.

This is our largest market share gains since redfin 2017 initial public offering in the fourth straight quarter of share gain acceleration.

Net loss net losses widened from $7 million from the second quarter of $2000.20 million to $28 million from the second quarter of 2021.

The loss widened almost entirely because rents have lost $13 million and we spent another $6 million in transaction fees.

Redfin marketing media expenses ramp back up to $37 million from a year ago media costs were $7 million.

Gross profit was $126 million, an increase of $80 million for 174% compared to the second quarter of 2020.

Gross profit from the rent path acquisition in April contributed 35 million for the total.

For our core real estate services business of brokering home sales through redfin agents and through other firms' agents working as our partners.

Second quarter gross margins increased year over year by 70 basis points to 34, 9%. Our total gross margin was 26, 8% up from 21, 5% a year before.

But just as important as our financial results has been our brokerage has returned to being fully staffed the emergence of redfin now is a large scale profitable business and the hiring of a world class rent past CEO to bring back property management customers by the thousands to our rentals marketplace parts of redfin that have been on the defense of Crouch can now go on.

The attack.

Every major property technology company are scrambling to build a complete real estate solution that redfin envisioned years ago online listing search a brokerage and I buyer on national home renovate or a lender on a title company as.

As redfin addresses 1 by 1 the challenges created by rapid growth.

We can combine these services in new ways to make moving from home to home profoundly better this.

This is why we believe we can build a company an order of magnitude larger than the 1 we have today.

Since the third quarter of 2020, we told investors that it would take until June 2021 day match Redfin agent supply with demand we kept to the schedule with the number of lead agents at redfin, increasing by 2.5 per cent from the first for the second quarter 2021. This.

This is 1 reason why our market share gains reached a record high.

Now, we just need to develop these new agents into long term top producers throughout our history redfin has been better than traditional brokerages that retaining agents, but in our May earnings call. We noted that first quarter attrition among new agents was at an annualized rate of 53% compared to 26% a year ago.

Second quarter attrition, among new agents fell to an annualized rate of 49%, we expect to make more significant progress on new agent attrition when a new class of agents joins redfin at the start of 2022.

Overall, each penetration reached an annualized rate of 37% on the second quarter up from 31 per cent in the first quarter.

Annualized attrition among tenured agents with 2 plus years of experience remains low but still it rose from an annualized rate of 9% on the first quarter to 18% on the second attrition among our highest performing group of agents has remained below 5%.

A major cause of higher attrition on the first half of 2021 with SaaS hiring.

New agents are already are the group most likely to leave redfin and we havent had such a high proportion of new agents in years.

We've been eager to return to market share growth, we probably also made more hiring mistakes.

Only half the people who left in the second quarter, where people we wouldn't choose to hire again.

Well capitalized companies trying to build a brokerage quickly have bid up agent compensation, some but the housing market has probably been a larger cause of attrition with realtors outnumbering lifting so it's been hard for any buyers agents put a deal together and most new redfin agent start out as buyers agents, we can't say for sure where the agents, who just left will turn on.

But of the agents, who took an exit survey about 1 in 5 plan to leave real estate entirely.

Those who left in the first 3 months of 2021 only 21% had completed the sale and other brokerage by July 27th.

I guess, new redfin agents, a chance to learn how to compete on a hot housing market, we've already east performance standards and offered onetime bonuses to new agents based on submitted offers rather than close sales but.

Attrition may remain above read since historical levels until we roll out a comprehensive pay update for buyers' agents in January 2022.

Taken together with efficiency gains and pricing changes, we don't expect the new pay to change brokerage gross margins meaningfully.

And we think we can keep our new agents busy.

Comparing the second quarters for 2021 and 2020 the average number of Redfin monthly visitors grew 14%. This is the second consecutive quarter of that year over year traffic growth decelerated from 44% in the fourth quarter of 2020% to 30% in the first quarter of 2021.

For Redfin Dot com and probably other real estate websites traffic peaked in March this year when the typical peak is in May.

This is a trend we already discussed in our May earnings call.

The economies reopen more people have been exploring life beyond the home and with the number of listings near historic lows there hasn't been much to look at anyway.

Since December Redfin has also exceeded some search share to realtor dot com.

It seems likely to continue at least until year end when redfin dot com will import more neighborhood data for <unk>.

Still growing faster than Zillow and Trulia.

Starting June 4th ahead of any other major real estate authority Redfin reported that the housing mania was waning some with fewer bidding wars and more price reductions growth in the number of homes toward and offers written by redfin agents slowed after memorial day, but now more customers are getting sales under contract whats driving redfin sales now isn't.

More online visitors or even more home buying customers.

Just needed more homes for our customers to buy new listings grew 8% year over year on June and now at least for redfin sales are increasing too.

To drive long term demand on April 19th we started running our new App called Redfin World, which introduces red tend to on demand towards is the best way to beat other buyers for the punch.

We spent $29 million to advertise on local broadcast stations national cable channels and online in the second quarter with another $21 million underway on the third quarter and a final $1 million coming in the fourth quarter early measurements of adults awareness of redfin had been encouraging but the most reliable consumer survey won't be ready until the end of August.

We focused on awareness because our goal isn't just to drive immediate sales, but to educate consumers about the premise of redfin than an agent on what technology can deliver better service better value.

The economics of investing in long term demand growth are easier to justify when our brokerage is getting more efficient among.

Among redfin agents with at least 6 months of tenure productivity increased 15% from the second quarter of 2020 for the second quarter of 2021.

In 2019, and 2020 roughly 1 in for sales came from repeat referral customers, but in the second quarter of 2021. This number was 1 and 3.

For our homebuyers, we've increased the percentage of tourists that are instantly confirmed from 5% in February to 16% in June but our primary service improvement for buyers, who spend a sixth market pilot to lower the number of customers an agent supports.

After 18 months of assigning 24% fewer homebuyers to each redfin agent, we found that each agent generates modestly fewer sales.

The service improvements should lead to more total sales and more gross profit.

Feedback from agents and managers has been almost universally enthusiastic and we've seen some early indications that fewer customers credit Egypt may also improve agent wellbeing and retention.

We are preparing to expand this service upgrade from a third of our agents now to all agents by the end of 2022.

We'll monitor the results from our pilot markets through the fall of 2021 before finalizing our expansion plans.

We're using similar tactics to improve the service delivered to homebuyers by our partner agents by reducing response times and limiting the number of customers. Most agents have to support from May to July the time, a partner agent took to respond to a customer fell by 65% as a result of better call tracking.

We believe we can further increase sales by signing customers only the agents with the time to serve those customers well in January of 2021 agents, who are already busy with 8 or more referrals connected with 21% of our partner programs customers.

June this number has fallen to less than 1%.

Where we've made the biggest service improvements as with our brokerages listing customers, especially at the high end since launching redfin Premier service for listings above a million dollars in February the number of redfin consultations in this price range has increased 111% over last year when other consultation from the same markets increased 33 per cent.

Million dollar listings accounted for 13% of our second quarter lifting business compared to 5% a year ago.

Of all the luxury listing sold by any broker in U S. Redfin markets Premier service has been available in markets, representing 64% of those listings on July 29th we expanded premier to markets, representing 85% of those listings.

We will also continue to see returns from our investment in locally licensed desk based agents for connecting customers to redfin now cash authors and home valuation analysis for the second straight quarter. These agents have significantly increased the number of people who decide to meet a redfin agent about lifting at home.

Spawning quickly and educating customers about a complete set of options for selling a home leads to more total sales.

Unifying the sales force for Redfin now on our brokerage has made it easier for customers to figure out which service meets their needs.

For not only getting more brokerage sales from redfin now inquiries. We're also getting more redfin now sales.

Revenue from our properties business increased 139% in the second quarter with gross margins up 450 basis points to 2.9%. This was our second consecutive quarter of significant properties gross profit.

This revenue growth will continue even though we started in late March to offer less for redfin now homes..1 reason for our pricing caution has been seasonal as well end up selling late spring and early summer purchases in late summer other fall when typically fewer people are moving on.

Another reason for caution is our expectation that U S home price appreciation will moderate in the second half of 2021.

Even with more cautious offers we bought nearly 40% more homes in the second quarter than we did in all of 2020 significantly exceeding our second quarter target, we expanded redfin now to Tucson, Boston and Portland, Oregon, broadening our coverage from markets that accounted for 64% of our 2020 listings for 72%.

This Tuesday, we added Chicago spanning our coverage to nearly 80%.

Competition will always be fierce with open doors offers being especially aggressive but our main issue in 2021, that's been hiring of labor to renovate homes, either as employees and redfin branded dance or as vendors.

The increase renovations capacity, we're racing to become 1 of North America's Best General contractors with wells script soaked work and fast payment for the simple upgrades needed to get a home on the market.

We've made major investments on our home services organization, giving us the capability to fix up homes for higher margin sales.

But the software we're building to support and operations of that scale still has to improve we're also investing significantly in machine learning to identify which homes it will be hard or easy to sell accounting for the time and money required for renovations.

Because of our renovations expertise and the analytics to know which renovations are needed our listings in the second quarter sales faster than any other than those of any other major institutional buyer.

Brad since net redfin now success has funded other businesses in redfin portfolio like redfin mortgage which had some growing pains on the second quarter.

Mortgage revenue grew 47% year over year as compared with nearly 200% on the first quarter.

This revenue deceleration was expected we deferred hiring redfin mortgage salespeople in February and March to focus on improving service quality.

From March to May the net promoter score we earn from our lending customers had increased from 58 to 73, giving us the confidence to bring new salespeople on board in July.

This hiring should lift transaction growth in the fourth quarter and beyond improving utilization of the mortgage employees to prepare loan paperwork make lending decisions and fund loans.

Beyond the sales increase on our existing markets Redfin mortgage is expanded in California later in August.

It's on mortgage markets will account for 81% of our brokerages purchase transactions by the end of this month up from 75 per cent of the started the second quarter, we expect redfin mortgage markets to cover 94% of redfin purchase transactions by the end of 2021.

Transaction growth is crucial because like the rest of the industry, we're generating less revenue per loan lender.

Lenders you staffed up to handle refinancings are now trying to keep their employees busy with purchase loans, even as our revenue from each sold loans fell 5% year over year on the second quarter, our cost per loan increase.

In order to establish our buyers credentials for bidding wars with the buyers only sometimes when.

Redfin mortgage is underwriting more borrowers who don't close on a home for these reasons redfin mortgage no longer expects to turn our full year gross profit.

But as that brokerage gets more efficient redfin mortgage should get more efficient to easing competition, among homebuyers and read some initiatives to improve our homebuyer success rate will benefit redfin mortgage almost as much as the brokerage we still expect redfin mortgage over time to be a major source of profit.

We're also pleased with our progress rebuilding rent path the rentals marketplace, we acquired out of bankruptcy. This April.

The most important development has been the hiring of John Ziglar announced on July 28th as rent <unk> New CEO.

Redfin also hired a senior engineering leader to develop rental search on redfin Dot com.

Don previously ran park mobile leading parking and mobility service provider in North America, where he led an 800 per cent increase from customers over 6 years and that time the company not only expanded the number of parking lots using park mobile, but also the number of parked mobile transactions per lot.

Even though for John's August 16th start we've taken initial steps to improve sales execution in June we elevated the new sales leader and earlier. This month, we simplified sales compensation and reduced the number of products are selling.

There are bigger changes to come John on need a few months to set a strategy and develop a financial forecast, but the sales force is gaining confidence already and customers have been glad to hear that rent path as a stable on are committed to long term growth.

We still need more property managers to promote their communities via rent path, but we have reason to believe we can get them.

The number of inquiries per property is up 38 per cent compared to the second quarter last year customers are paying 22% less per inquiry as.

As we published listings by Redfin Dot Com next spring the value we offer these customers will increase.

Now, let's turn to the housing market.

Demand remains above historical levels, but as we already noted online interest in real estate began to wane in April and in June many of the buyers touring and bidding on homes took a break from their search and part to celebrate graduations and take family trips.

This has been a welcome return to a more sustainable housing market at least some of the drop in demand has been a belated revolt against runaway prices and may prices and increased by 26% the largest year over year gain in the 10 years for which we have data in June price increase that's still sizzling 25 per cent.

Prices increased the most in midsized cities with Austin, and Boise prices up approximately 36% year over year compared to a 7% gain in San Francisco or 13% in Chicago.

1 reason price [laughter] flame reason price growth may subside is that the number of homes for sale is finally rising not just from the panic stricken nobody sets foot in this house level for the second quarter in 2020, but relative to the year before to comparing the for weeks ending July 18th to the same period in 2019, new listings increase.

For 2%.

Not all of that inventory was snapped up by buyers. The number of active listings increased 1.5 per cent compared to the for weeks prior.

Unlike earlier in 2021, its individual homeowners not builders, who are providing the inventory relief with labor and material shortages building Perm itself 5.1% from May to June and many redfin agents have told our buyers to focus on what's available now.

Earlier, we'd council people to avoid a bidding war by buying a new home, even more construction might take a year to finish.

Our advice to home sellers just change too.

<unk> clients, who need once advised to get their home on the market without waiting for repairs now need to get the place fixed up in order to get a good sale, sometimes through redfin concierge service for coordinating that work listing clients, who were once insistent about pricing in future months of appreciation now acknowledged the market may have peaked.

On average for the for weeks ending July 18th for 3% of the active listings reduce their prices each week compared to 3.6% during that period in 2020 and $4.7 per cent for that period in 2019.

Price drops have risen the most in places like Phoenix, Austin and Bend were due to an influx of Californian home on California home prices have increased the most through June the.

The market's still hot just not as hot as before which has made it easier for our agents in July to put deals together if interest rates stay low we're optimistic that U S home sales will improve from June levels with that I'll turn the call over to Chris.

Thanks, Glenn our second quarter results exceeded our expectations as tailwind from the robust housing market as well as competitive share gains continue to propel growth.

Second quarter revenue was $471 million up 121% from a year ago we.

We acquired rent path, our rental segment business at the beginning of the quarter.

Rentals generated $43 million from revenue and contributed approximately 20 percentage points to total revenue growth.

Our organic businesses also posted strong growth.

Real estate services revenue, which includes our brokerage and partner businesses generated $500.252 million on revenue.

87% year over year.

Brokerage revenue or revenue from home sales closed by our own agents was up 85% on a 52% increase in brokerage transactions.

Revenue from our partners was up 126% on a 71% increase on partner transactions.

Revenue per partner transaction was up 20% year over year and continues to benefit from rising home prices.

The properties segment, which consists primarily of homes sold through redfin now generated $172 million on revenue and was up 139% on on 80% increase in redfin now transactions.

Our other segment, which includes mortgage title and other services contributed revenue of $9 million, an increase of 18% year over year.

Gross decelerated quarter over quarter due to an intentional pause on all our title business as we realign operations as well as slower than expected ramp in our mortgage business.

Although both are smaller businesses within redfin at present, we remain excited about their long term growth potential.

Total gross profit was $126 million up 174% year over year.

Real estate services gross margin was 34, 9% up 70 basis points year over year. This.

This increase was driven by a 50 basis point decrease in personnel costs and transaction bonuses and 80 basis point decrease from listing expenses and an 80 basis point decrease in office and occupancy expenses.

These decreases were offset by an 80 basis point increase in tour and field cost due to the combination of pandemic related touring shutdowns last year and low inventory this year, which is forcing buyers to increase touring activity to find a home.

Properties gross margin was up 450 basis points year over year to 2.9%. This was our second consecutive quarter of significant positive gross profit in our properties business.

The improvement was primarily attributable to a 700 basis point decrease on home purchase costs and related capitalized improvements showing that we're buying homes better.

This improvement was offset by a 170 basis point increase in personnel costs from transaction bonuses.

Other segment gross margin was negative 22, 8% down from positive 13, 2% a year ago.

This was primarily attributable to a 3410 basis point increase in personnel costs and transaction bonuses.

Operating expenses were up 210% year over year and represented 33% of revenue up from 24% of revenue 1 year ago approximately half of the increase was attributable to the acquisition of rent path on marketing expenses were impacted by the timing shift of our annual campaign.

Technology and development expenses increased by $23.5 million as compared with the same period in 2020.

The increase was primarily attributable to a 13.0 million dollar increase from that path and the remaining increase was primarily attributable to an $8.6 million increase in personnel costs.

Due to increased head count.

Total technology and development expenses represented 9% of revenue up from 8% 1 year ago.

Marketing expenses increased by $45.9 million as compared with the same period in 2020.

The increase was primarily attributable to a $12.6 million.

Increase from rent path.

The remainder was primarily attributable to an increase in mass media marketing costs as we shifted the launch of our annual TV commercial from the first quarter to the second quarter.

In the second quarter of 2020, we had largely shut down television advertising in response to the impact that COVID-19 might have had on our business.

Total marketing expenses represented 12% of revenue up from 4% 1 year ago.

General and administrative expenses increased by $36.5 million as compared with the same period in 2020.

The increase was primarily attributable to 23.0 million dollar increase from Redpath. The remaining increase was primarily attributable to a $9.3 million increase in personnel cost due to increased head count and a $5.6 million increase from transaction costs from our acquisition of rent path.

This was partially offset by a $6.2 million decrease in prior year restructuring expenses.

Total G&A expenses represented 13% of revenue up from 11% 1 year ago.

Net loss of $28 million beat the better end of our $38 million to $32 million guidance range.

Diluted loss per share attributable to common stock was 29 cents compared with diluted loss attributable to common stock of <unk> <unk> per share 1 year ago.

Youll see rent past financial results broken out on our filing I wanted to make 2 callouts, referring you back to second quarter guidance that we provided.

Through the purchase accounting, which you now see reflected in our financials, we determined that we acquired $211 million on intangible assets.

This in turn led to depreciation and amortization for rent path of $9 million.

$3 million more than our guidance.

We expect this greater depreciation to continue through the useful lives of the acquired intangible assets. We also determined that Rep pass sales team should report be reported in our G&A expenses rather than in marketing as I described on our last call.

There were $11 million of such expenses. Both of these differences are now reflected in our third quarter guidance.

We also received a $5 million tax benefit associated with the <unk> acquisition, which youll see in our financials.

Now turning to our financial expectations for the third quarter of 2021 consolidated revenue is expected to be between $530 million and $541 million year over year growth between 124% and 128%.

We expect our property segment to account for $231 million to $236 million of that revenue.

<unk> revenue is expected to be between $40 million from $41 million and contribution to net loss of approximately $17 million.

Our consolidated net loss is expected to be between $24 million from $20 million compared with $34 million net income in the third quarter of 2020.

Although real estate services gross margins have grown year over year for the past 8 quarters, we expect real estate services gross margin to decrease in the third quarter as compared with the same quarter in the prior year, primarily due to prior year comparisons when the business was understaffed due to the market rebound.

As previously discussed we incurred the bulk of our anticipated mass media campaign expenses in the second quarter for timing delays have shifted some of this expense into the third quarter and we are also allocating incremental spending where we see an opportunity for strong return.

In the third quarter, we expect $50 million on total company marketing expense, which includes rent pass on marketing expenses.

On a consolidated basis. This guidance includes approximately $14 million for stock based compensation for $14 million of depreciation and amortization and $4 million of interest expense associated with our convertible senior notes and other credit obligations. In addition, we expect to pay a quarterly dividend of $30000.

<unk> hundred 40 shares of common stock to our preferred stock holder.

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 with that we'll open the line to take your questions.

Thank you.

Like to ask a question. Please signal by pressing star 1 on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your sticking on to meet your equipment.

On press Star 1 to ask a question.

Go ahead and take our first question from.

Edward <unk> with Keybanc capital markets. Please go ahead hey.

Good afternoon, guys why is it clicked on on rent path, a little bit I know you have a new CEO. There as you think about investments that you need to make in the business how should we take that and consider kind of the profitability picture over the medium term, maybe more specifically when will that be a contributor to overall profit and then second just on redfin mortgage I appreciate all the detail there.

Any competitive dynamics that may have changed and should we think about any environment, where you might receive more of a lift. Thank you.

Glenn I think you might be on mute.

Oh, my gosh on such a goofball sorry, no problem over time.

I'll just repeat what I said into the void.

Generally digital businesses digital marketplaces like Redpath have very high gross margin. So expect this business to be very profitable long term.

I mean, there's there's always been a question about what's the right way to compensate.

Agents.

And do you think that the your dialed in now are there still needs to be more changes to the compensation model to you know keep the people you want and not not keep the people you don't want a muscle generating the kind of margins you want and then second question. Chris can you just review the the impact the bread Pan rent.

Have to each of the Opex line, just kind of line by line for the corner. Thanks.

Chris You want me to go first or do you Wanna go first.

I'll go first I'd.

Hi, Jason.

So we don't expect a sea change in how we compensate agents Ah.

Adam Weiner is the new president of the brokerage Scott Nagel transition to a different role as he approaches his retirement and that's something that we talked about last quarter. So we want to give out on the latitude and his first couple of months on the job to make sure that the incentive plan fits his values, but in general he has.

<unk> have been quite simpatico longterm trend for each in compensation.

Is that we will pay agents more for business that they generate a repeat customer referral customer or someone in their personal network and will continue to drive efficiency gains for customers that agents meet through our website and the key to driving agent will be each in compensation and overall Chris profit. It's just.

Yeah.

I'm not going to speculate on a share next quarter, but I do think that.

We will see more experienced agents talking to customers and the third and the fourth quarter than we do in the first in a second.

That's almost always the case every year at redfin that we bring on a new class of agents. Just this year that class was massive relative to the size for the rest of the company because it was such a V shaped recovery so.

I'm not worried that in the third and fourth quarter more new agents will have low productivity. The average experience level of a redfin agent will be higher on the second half of the year than the first.

And I'm also not worried about having enough agents to handle demand, it's such a seasonal business that really you try to staff up for the middle of the summer we have seen strong sales growth in July it's been a really welcome surprise June was a little bit soft that's why we were warning everyone that the housing.

Marketed really changed since memorial day, but I think there's been a change again, just because some inventory has come on to the market. It's easier to put deals together there might not be as much price pressure, but I do think that we're gonna see a sales pick up just because buyers and sellers from mating in the wild So having said all that we're optimistic.

Out being able to staff up for 2022, they're the challenges that as we lower agent productivity expectations slightly and [noise].

Lower customers per agents significantly, we'll see a higher closed right, but will also have to hire more agents to staff to that but I think we can do it so.

We expect to see more gross profit and more sales from her field organization in 2022, because we think our customers are gonna be happy to get better service and we've seen plenty of data over 18 months of tests and these pilot markets too.

Validate that uhm.

Uhm. So I think we're gonna have more experienced agents on the second half and then in the first half of next year, there's gonna be another bullis at agents coming on board and we just have to do a great job of wrapping them up to speed quickly I think we've learned a lot from 21.

Okay Uhm, it's really helpful. I I want to ask will follow up on different direction can you expand on the comments about redfin dot com and I think what you said is they are taking share can what what's driving that is that that new and what's the fix all that day. Thank you mentioned it a little bit but can extend on it.

Share it with some of it's driven by a December update to Google search algorithm. So that realtor dot com has begun to rank higher than it did before so through most of 2020, we were taking search share hand over fist, not just from Zillow and truly at that also from realtor and then for me.

Realtor that had reverse where realtor has taken back some of the share that we gained in 2020th so in general there's a tailwind on the housing market and in general Redfin is taking share but in hand to hand combat with 1 particular website realtor dot com they have been doing better and it's just to trade.

The off so redfin has sometimes optimized page load, where we get listings to load very quickly and what we call long click where we get people to go from 1 listening to another to another once you discover redfin, you're gonna use it as your home search site.

And realtor Dot com had optimized to provide more data uhm at Google seize this unique information about a neighborhood.

And so it's just gonna take us a little while to import that data and then it's gonna take a little while longer for Google to recognize that and of course, it's always a mystery need anyway trying to figure out how to rank number 1 for a particular search but this is just an area, where we thought we needed to do better and we wanted to tell investors about it.

[noise] helpful. Thank you.

Thank you.

I cannot Taiwan to ask a question. Thanks for your question has been answered you name. It is tough for me I can't buy packing sorry, too well go ahead and take our next question from John Campbell with Stevens.

Please go ahead.

Good afternoon.

Hi, John Hey, Chris Thanks for thanks for calling him a real estate gross margin I think that was helpful and I I think we might be able to get to this kind of with the with the inputs, we have but I'm, hoping you might be a a short cut it for us, but you know relative to last year, what what what was the margin mix shift kind of impact from the partner transactions. You know there are obviously representing a good bit.

You know on a smaller portion of the transaction mix now.

Yeah, it's not something we'd broken out into a lot of detail that generally you should think of revenue from partner transactions is having very high gross margin because the cost to serve the customer mostly comes from the agent who does that and not someone from within redfin. So I.

Again, we haven't broken it out that you can certainly use that assumption that is very high gross margin on the partner business and disentangle that using now okay.

Okay. That's helpful. And then I don't know if you could provide us I think it would be helpful for us to kind of understand that.

Maybe a pick up on productivity as you kind of get through the next couple of quarters, but you know out of out of the 20.2200 agents for show you have now just roughly what faith.

How many <unk> <unk>, maybe just what percent of that is less than 1 year tenure with redfin. So it kind of newer agents.

I don't think we segment that.

That's that's not something that we have historically alright, it's not something we've we've historically broken out it. It is certainly true and just buy a commentary we have hired a lot over the last year, but it's not a detailed that we.

Provided.

Is it fair to say that you're probably running higher than you would normally have in the past.

Yes.

Some of that has been mitigated by the fact that the newer agents have turned more than they have in the past.

It's just been a really hard market to be on your real estate agent.

Understood. Thank you guys.

Alright, we can go ahead and take on next question IV Salmon T E. L. Other salminen Associates go ahead. Thank you. Good afternoon, guys I appreciate the opportunity to ask questions. So Glenn just big picture.

Recognizing your point about July improving after Jane said, a little bit of softness I'm, just thinking through sort of the complexities of the market and especially with the redfin now how much of your redfin now transactions are so directly to S. F. R operators and roughly 1 per cent of your transaction would be and you are.

For.

Data and all of the research that you guys do you have any application of the amount on the investors and just you know navy classify them as non primary I know that might be difficult because there's so many investors it whether it's a fixed and flip or it's a second home in a true co primary or you've got all of your capital with institutional capital chasing so much on.

For tuning how can we really understand primary so maybe you guys have done the research he can help us. Thank you.

Yeah, well Ivy I'm, a nut job out of principle, we don't sell to single family.

Residency institutions, we really believe that we Wanna make housing more affordable on that we want to sell homes to people are gonna live on them. So at some point, we may have to take some expedient course to.

Sales scratching debt homes to anyone who will buy them, but right now we're just selling to people are gonna live on the house.

So you're saying that within a transaction for all of Redfin Uhm aside from Redfin now are you not selling for investors as well just overall is there as a brokerage firm Ah you're saying specifically the redfin now Oh no I thought you were asking about redfin now I know ikea or they'd have been added for a homeowner yeah, yeah, yeah, yeah yeah.

My interest.

I'm sure like some individuals Pomona on first and then.

Yeah, Yeah, Yeah, that'd be February the question, Glenn like let's say, okay, great I'm glad to hear that you're not feeling directed at the park separately and you look at redfin in total.

Is your research you know and data analytics show any way to delineate between primary versus non primary because they think it's really clouding the true underlying the day ma'am.

Yeah, you know.

I talked to some folks at rent path about.

How much of the inventory being rent it out right now and single family homes is.

You know from different institutions, and it's still a small amount so that's <unk>.

1 perspective on it I know that it's increased significantly, but it's still small compared to the number of accidental landlords you have in America.

And alright, so what about the like mom and pop investors that are buying homes that are doing so I would like a clarification reasons or fix it for that for you guys have any of that yeah ability to know how many of your owners are how many of your transaction is actually a primary versus let's just say everything else or do you not break that out and and you know no we.

Don't break it out I wish I had a good answer for you there, but I don't I'm, sorry I V.

No. That's okay. Thank you for your time and good luck yeah.

Alright, we'll take our next question from Tom champion with pay per family.

Please go ahead.

Hi, Good afternoon, guys the release highlights the strong growth in.

Okay, and then the whole industry when your pricing and some home price appreciation that isn't going to last so there will be some pressure on gross margins in redfin now uhm or there will be some deceleration and gross but what was really pleasing about the most recent quarter is that we got pretty disciplined about.

How we priced our offers instill we were able to win those offers so I do think there is some secular demand growth. We're just more people are interested in liquidating their property that way less people Wanna deal with the hassle of lifting at home. There's also some share gain here, where redfin now is just doing better at <unk>.

On and quickly to offer inquiries and we're also doing better at getting the people who reject our offers to list the home, which is all about the synergy between the brokerage on I buying.

And then lastly, you'd just get some leverage from scaling now that business used to have a bunch of managers managing 1 people.

I think it's 1 person people, but nonetheless, we are just getting some advantages from scale and we just have to see how much of our efficiency gains are gonna be offset by a tough market.

Everybody thought that we'd kind of stress tested I buy in the second quarter of 2020, but I don't think that V shaped.

Cataclysm. If you will is really the model for kind of a long term softness in housing prices, we still have to see how I buying is gonna perform in those markets and then I think Martin's will probably compress a little.

Excellent.

Alright, Okay fair enough for their questions. At this time next memory I'd like to turn the conference back to you for any other smelt I click on your mind.

Thanks, Madison and thank you everyone for joining the call today and I'll look for it to getting together again next quarter.

This concludes today's call. Thank you for your participation you may not disconnect.

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Good day and welcome to the Redfin Corporation Q2, 2021 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Matt Natalie head of Investor Relations. Please go ahead.

Thanks, Pat and good afternoon, and welcome to Redfin financial results Conference call for the second quarter ended June 30th 2021on.

Meg mentally.

Head of Investor Relations.

Joining 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 got 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 for our actual results may turn out to be materially different.

Please read and consider the risk factors in our SEC filings.

For 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 for 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 Chris.

So its comparable GAAP measure and a reconciliation on our website.

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

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

Thanks, Greg and Howdy everyone.

Redfin second quarter net income and revenues were better than we projected on our last earnings call second quarter revenues grew year over year by 121% from $214 million for $471 million with 43 million coming from the rent path acquisition that closed in April.

Even if the housing market grew by leaps and bounds since its near death experience on the second quarter of 2020 redfin share of that market also increased by a whopping 24 basis points, reaching 118% of all home sales based on the value of the home sold.

This is our largest market share gains since redfin 2017 initial public offering in the fourth straight quarter of share gain acceleration.

Net loss net losses widened from $7 million in the second quarter of $2000.20 million to $28 million from the second quarter of 2021.

The loss widened almost entirely because rents have lost $13 million and we spent another $6 million in transaction fees.

Redfin marketing media expenses ramp back up to $37 million from on a year ago media costs were $7 million.

Gross profit was $126 million, an increase of $80 million for 174% compared to the second quarter of 2020.

Gross profit from the rent path acquisition in April contributed 35 million for the total.

For our core real estate services business of brokering home sales through redfin agents and through other firms' agents working as our partners.

Second quarter gross margins increased year over year by 70 basis points to 34, 9%. Our total gross margin was 26, 8% up from 21, 5% a year before.

But just as important as our financial results has been our brokerage has returned to being fully staffed the emergence of redfin now is a large scale profitable business and the hiring of a world class rent past CEO to bring back property management customers by the thousands to our rentals marketplace parts of redfin that have been on the defensive Crouch can now go on.

The attack.

Every major property technology company are scrambling to build a complete real estate solution that redfin envisioned years ago online listing search a brokerage and I buyer on national home Renovator, a lender on a title company.

For an addresses 1 by 1 the challenges created by rapid growth. We can combine these services in new ways to make moving from home to home profoundly better this.

This is why we believe we can build a company an order of magnitude larger than the 1 we have today.

Since the third quarter of 2020, we told investors that it would take until June 2021 to match redfin agent supply with demand.

Kept for this schedule with the number of lead agents at redfin, increasing by 2.5% from the first for the second quarter 2021.

This is 1 reason why our market share gains reached a record high.

Now, we just need to develop these new agents into long term top producers throughout our history redfin has been better than traditional brokerages that retaining agents, but in our May earnings call. We noted that first quarter attrition among new agents was on an annualized rate of 53% compared to 26 per cent a year ago.

Second quarter attrition, among new agents fell to an annualized rate of 49%, we expect to make more significant progress on new agent attrition when a new class of agents joins redfin at the start of 2022.

Overall, each penetration reached an annualized rate of 37% on the second quarter up from 31% on the first quarter annualized attrition among tenured agents with 2 plus years of experience remains low but still it rose from an annualized rate of 9% on the first quarter to 18% on the second.

Christian among our highest performing group of agents is from being below 5%.

A major cause of higher attrition on the first half of 2021 with fast hiring.

New agents are already are the group most likely to leave redfin and we havent had such a high proportion of new agents in years.

Because we've been eager to return to market share growth, we'd probably also made more hiring mistakes nearly half the people who left in the second quarter, where people we wouldn't choose to hire again.

Well capitalized companies trying to build a brokerage quickly have bid up agent compensation, some but the housing market has probably been a larger cause of attrition.

With Realtors outnumbering listings that it's been hard for any buyers agent to put a deal together and most new redfin agents start out as buyers agents.

Can't say for sure where the agents, who just left will turn up but of the agents who took an exit survey about 1 in 5 planned to leave real estate entirely of those who left in the first 3 months of 2021 only 21% had completed the sale and other brokerage by July 27th.

Because new redfin agents, a chance to learn how to compete on a hot housing market. We've already he's performance standards and offered onetime bonuses to new agents based on submitted offers rather than closed sales.

But attrition may remain above red tends to historical levels until we roll out a comprehensive pay update for buyers' agents in January 2022.

Taken together with efficiency gains and pricing changes, we don't expect a new pay to change brokerage gross margins meaningfully.

And we think we can keep our new agents busy.

Comparing the second quarters for 2021 and 2020 the average number of Redfin monthly visitors grew 14%. This is the second consecutive quarter that year over year traffic growth decelerated from 44% in the fourth quarter of 2020% to 30% in the first quarter of 2021.

For Redfin Dot com and probably other real estate websites traffic peaked in March this year when the typical peak in May.

This is a trend we already discussed in our May earnings call as the economy has reopened more people have been exploring like beyond the home and with the number of listings near historic lows there hasn't been much to look at anyway.

December Redfin has also exceeded some search share to realtor dot com a trend that seems likely to continue at least until year end when redfin dot com will import more neighborhood data.

We're still growing faster than Zillow and Trulia.

Starting June 4th ahead of any other major real estate authority Redfin reported that the housing mania was waning some with fewer bidding wars and more price reductions growth in the number of homes toward and offers written by redfin agents slowed after memorial day, but now more customers are getting sales under contract.

What's driving rents and sales now isn't it more online visitors or even more home buying customers. We just needed more homes for our customers to buy new listings grew 8% year over year on June and now at least for redfin sales are increasing too.

To drive long term demand on April 19th we started running our new AD called Redfin World, which introduces redfin to on demand towards is the best way to beat other buyers for the punch with.

Spent $29 million to advertise on local broadcast stations national cable channels and online on the second quarter with another $21 million under way on the third quarter and a final $1 million coming in the fourth quarter early measurements of adults awareness of redfin have been encouraging but the most reliable consumer survey won't be ready until the end of August.

We focused on awareness because our goal isn't just to drive immediate sales, but to educate consumers about the premise of redfin that an agent on with technology can deliver better service better value.

The economics of investing in long term demand growth are easier to justify when our brokerage is getting more efficient.

On redfin agents with at least 6 months of tenure productivity increased 15% from the second quarter of 2020 for the second quarter of 2021 and.

In 2019, and 2020 roughly 1 in for sales came from repeat referral customers, but in the second quarter of 2021 December was 1 and 3.

For our homebuyers, we've increased the percentage of tourists that are instantly confirmed from 5% in February to 16% in June but our primary service improvement for buyers has been a sixth market pilot to lower the number of customers an agent supports.

After 18 months of assigning 24% fewer homebuyers to each redfin agent, we found that each agent generates modestly fewer sales.

But that the service improvements should lead to more total sales and more gross profit.

Feedback from agents and managers has been almost universally enthusiastic and we've seen some early indications that fewer customers per agent may also improve agent wellbeing and retention.

We are preparing to expand this service upgrade from a third of our agents now to all agents by the end of 2022.

We'll monitor the result from the pilot markets through the fall of 2021 before finalizing our expansion plans for you.

Using similar tactics to improve the service delivered to homebuyers by our partner agents by reducing response times and limiting the number of customers most agents have to support.

From May to July the time, a partner agent took to respond to a customer fell by 65% as a result of better call tracking.

We believe we can further increase sales by signing customers only the agents with the time to serve those customers well in January of 2021 agents, who are already busy with 8 or more referrals connected with 21% of our partner programs customers.

June this number has fallen to less than 1%.

Where we've made the biggest service improvements as with our brokerages listing customers, especially at the high end since launching redfin Premier service for listings above a $1 million in February the number of redfin consultations in this price range has increased 111% over last year when other consultation from the same markets increased 33%.

Million dollar listings accounted for 13% of our second quarter lifting business compared to 5% a year ago.

All the luxury listing sold by any broker in U S. Redfin markets Premier service has been available in markets, representing 64% of those listings on July 29th we expanded premier to markets, representing 85% of those listings.

We will also continue to see returns from our investment in locally licensed debt.

S based agents for connecting customers to redfin now cash authors and home valuation analysis for the second straight quarter. These agents have significantly increased the number of people who decided to meet a redfin agent about lifting at home responding.

<unk> quickly and educating customers about a complete set of options for selling a home leads to more total sales unifying our sales force for redfin now on our brokerage has made it easier for customers to figure out which service meets their needs.

For not only getting more brokerage sales from redfin now inquiries. We're also getting more redfin now sales revenue from our properties business increased 139% in the second quarter with gross margins up 450 basis points to 2.9%. This was our second consecutive quarter of significant properties gross profit.

This revenue growth will continue even though we started in late March to offer less for redfin now homes..1 reason for our pricing caution has been seasonal as well end up selling late spring and early summer purchases in late summer or the fall when typically fewer people are moving enel.

Another reason for caution is our expectation that U S home price appreciation will moderate in the second half of 2021.

Even with more cautious offers we bought nearly 40% more homes in the second quarter than we did in all of 2020 significantly exceeding our second quarter target, we expanded redfin now to Tucson, Boston and Portland, Oregon, broadening our coverage from markets that accounted for 64% of our 2020 listings for 72%.

This Tuesday, we added Chicago spanning our coverage to nearly 80%.

Competition will always be fierce with open doors offers being especially aggressive but our main issue in 2021, its been hiring the labor to renovate homes, either as employees and redfin branded dance or as vendors to.

The increase renovations capacity, we're racing to become 1 of North America's Best General contractors with wells script, scoped work and fast payment for the simple upgrades needed to get a home on the market.

We've made major investments on our home services organization, giving us the capability to fix up homes for higher margin sales.

But the software we're building to support on operation of that scale still has to improve we're also investing significantly in machine learning to identify which helps there'll be hard or easy to sell accounting for the time and money required for renovations.

Because of our renovations expertise and the analytics to know which renovations are needed our listings in the second quarter sales faster than any than those of any other major institutional buyer.

Brad since net redfin now success has funded other businesses in redfin portfolio like redfin mortgage which had some growing pains in the second quarter.

Mortgage revenue grew 47% year over year as compared with nearly 200% in the first quarter.

On this revenue deceleration was expected we deferred hiring redfin mortgage salespeople in February and March to focus on improving service quality.

From March to May the net promoter score we earn from our lending customers had increased from 58 to 73, giving us the confidence to bring new salespeople on board in July.

This hiring should lift transaction growth in the fourth quarter and beyond improving utilization of the mortgage employees to prepare loan paperwork make lending decisions and fund loans.

Beyond the sales increase on our existing markets Redfin mortgage is expanded in California later in August.

It's on mortgage markets will account for 81% of our brokerages purchase transactions by the end of this month up from 75 per cent of the start of the second quarter, we expect redfin mortgage markets to cover 94% of redfin purchase transactions by the end of 2021.

Transaction growth is crucial because like the rest of the industry, we're generating less revenue per loan lenders.

Lenders you staffed up to handle refinancings are now trying to keep their employees busy with purchase loans, even as our revenue from each sold loans fell 5% year over year on the second quarter, our cost per loan increase.

In order to establish our buyers credentials for bidding wars for buyers only sometimes win.

Redfin mortgage's underwriting more borrowers who don't close on a home for these reasons redfin mortgage no longer expects to turn our full year gross profit.

But as that brokerage gets more efficient redfin mortgage should get more efficient to ease and competition among homebuyers in redfin initiatives to improve our homebuyer success rate will benefit redfin mortgage almost as much as the brokerage we still expect redfin mortgage over time to be a major source of profit.

We're also pleased with our progress rebuilding rent path the rentals marketplace, we acquired out of bankruptcy. This April.

The most important development has been the hiring of John Ziegler announced on July 28th as rent <unk> New CEO.

But then also hired a senior engineering leader to develop rental search on redfin Dot com.

John previously ran park mobile leading parking and mobility service provider in North America, where he led an 800 per cent increase in customers over 6 years and that time the company not only expanded the number of parking lots using park mobile, but also the number of parked mobile transactions per lot.

Even before Jon's August 16th start we've taken initial steps to improve sales execution in June we elevated the new sales leader and earlier. This month, we simplified sales compensation and reduced the number of products or selling their bigger changes to come John on need a few months to set a strategy and develop a financial forecast, but the sales force is gaining confidence.

<unk> already and customers have been glad to hear that rent path as a stable owner committed to long term growth.

We still need more property managers to promote their communities via rent path, but we have reason to believe we can get them.

The number of inquiries per property is up 38% compared to the second quarter last year customers are paying 22% less per inquiry as.

As we published listings by Redfin Dot Com next spring the value we offer these customers will increase.

Now, let's turn to the housing market.

Demand remains above historical levels, but as we already noted on line interest in real estate began to wane in April and in June many of the buyers touring and bidding on homes took a break from their search and part to celebrate graduations and take family trips.

This has been a welcome return to a more sustainable housing market.

Some of the drop in demand has been a belated revolt against runaway prices and May price has been increased by 26% the largest year over year gain in the 10 years for which we have data in June price increase that's still sizzling 25 per cent.

Prices increased the most in midsized cities with Austin, and Boise prices up approximately 36% year over year compared to a 7% gain in San Francisco or 13% in Chicago.

1 reason price [laughter]. So I'm reason price growth may subside is that the number of homes for sale is finally rising not just from the panic stricken nobody set foot in the south levels for the second quarter in 2020, but relative to the year before to comparing the for weeks ending July 18th for the same period in 2019, new listings inquiry.

For 2%.

Not all of that inventory was snapped up by buyers. The number of active listings increased 1.5 per cent compared to the for weeks prior.

Unlike earlier in 2021, its individual homeowners not builders, who are providing the inventory relief with labor and material shortages building permit sell 5.1% from May to June and many redfin agents have told our buyers to focus on what's available now.

Earlier, we counseled people to avoid a bidding war, if I'm buying a new home, even where construction might take a year to finish.

Our advice to home sellers this change too.

Listing clients and we'd once advised to get their home on the market without waiting for repairs now need to get the place fixed up in order to get a good sale, sometimes through redfin concierge service for coordinating that work listing clients, who were once insistent about pricing in future months of appreciation now acknowledged the market may have peaked.

On average for the for weeks ending July 18th for 3% of the active listings reduced their prices each week compared to 3.6% during that period in 2020 and for 7% for that period in 2019.

Price drops have risen the most in places like Phoenix, Austin and Bend were due to an influx of California home on California home prices had increased the most through June the.

The market's still hot just not as hot as before which has made it easier for our agents in July to put deals together.

Interest rates stay low we're optimistic that U S home sales will improve from June levels.

That I will turn the call over to Chris.

Thanks, Glenn our second quarter results exceeded our expectations as tailwind from the robust housing market as well as competitive share gains continue to propel growth.

Second quarter revenue was $471 million up from 121% from a year ago.

We acquired rent path, our rental segment business at the beginning of the quarter.

Rentals generated $43 million from a revenue and contributed approximately 20 percentage points to total revenue growth.

Our organic businesses also posted strong growth.

Real estate services revenue, which includes our brokerage and partner businesses generated $500.252 million on revenue.

87% year over year.

Brokerage revenue or revenue from home sales closed by our own agents was up 85% on a 52% increase in brokerage transactions.

Revenue from our partners was up 126% on a 71% increase from partner transactions.

Revenue per partner transaction was up 20% year over year and continues to benefit from rising home prices.

The properties segment, which consists primarily of homes sold through redfin now generated $172 million on revenue and was up 139% on on 80% increase in redfin now transactions.

Our other segment, which includes mortgage title and other services contributed revenue of $9 million, an increase of 18% year over year.

Gross decelerate quarter over quarter due to an intentional pause on all our title business as we realign operations as well as slower than expected ramp in our mortgage business.

Although both are smaller businesses within redfin of precedent, we remain excited about their long term growth potential.

Total gross profit was $126 million up 174% year over year.

Real estate services gross margin was 34, 9% up 70 basis points year over year. This.

This increase was driven by a 50 basis point decrease in personnel costs from transaction bonuses and 80 basis point decrease from listing expenses and an 80 basis point decrease in office on occupancy expenses.

These decreases were offset by an 80 basis point increase in tour and field cost due to the combination of pandemic related touring shutdowns last year and low inventory this year, which is forcing buyers to increase touring activity to find a home.

Properties gross margin was up 450 basis points year over year to 2.9%. This was our second consecutive quarter of significant positive gross profit in our property business.

The improvement was primarily attributable to a 700 basis point decrease in home purchase costs and related capitalized improvements showing that we're buying homes better.

This improvement was offset by a 170 basis point increase in personnel costs and transaction bonuses.

Other segment gross margin was negative 22, 8% down from positive 13, 2% a year ago.

This was primarily attributable to a 3410 basis point increase in personnel costs and transaction bonuses.

Operating expenses were up 210% year over year and represented 33% of revenue up from 24% of revenue 1 year ago.

Only half of the increase was attributable to the acquisition of rent path on marketing expenses were impacted by the timing shift of our annual campaign.

Technology and development expenses increased by $23.5 million as compared with the same period in 2020.

The increase was primarily attributable to a 13.0 million dollar increase from that path and the remaining increase was primarily attributable to an $8.6 million increase in personnel costs.

Due to increased head count.

Total technology and development expenses represented 9% of revenue up from 8% 1 year ago.

Marketing expenses increased by $45.9 million as compared to the same period in 2020.

The increase was primarily attributable to a $12.6 million increase from rent path.

For the remainder was primarily attributable to an increase in mass media marketing costs as we shifted the launch of our annual TV commercial from the first quarter to the second quarter.

In the second quarter of 2020, we largely shut down television advertising in response to the impact of COVID-19 might have had on our business.

Total marketing expenses represented 12% of revenue up from 4% 1 year ago.

General and.

Administrative expenses increased by $36.5 million as compared to the same period in 2020.

The increase was primarily attributable to 23.0 million dollar increase from Redpath. The remaining increase was primarily attributable to a $9.3 million increase in personnel cost due to increased head count on a $5.6 million increase from transaction costs from our acquisition of rent path.

This was partially offset by a $6.2 million decrease in prior year restructuring expenses.

Total G&A expenses represented 13% of revenue up from 11% 1 year ago.

Net loss of $28 million pizza, better end of our $38 million to $32 million guidance range.

Diluted loss per share attributable to common stock was 29 cents compared with diluted loss attributable to common stock on the 8 cents per share 1 year ago.

You'll see rent past financial results broken out on our filing I wanted to make 2 callouts, referring you back for second quarter guidance that we provided.

Through the purchase accounting, which you now see reflected in our financials, we determined that we acquired $211 million on intangible assets.

This in turn led to depreciation and amortization for rent path of 9 million $3 million more than our guidance.

We expect this greater depreciation to continue through the useful lives of the acquired intangible assets. We also determined that Rep pass sales team should report be reported in our G&A expenses rather than in marketing as I described on our last call.

There were $11 million of such expenses. Both of these differences are now reflected in our third quarter guidance.

We also received a $5 million tax benefit associated with the <unk> acquisition, which youll see in our financials.

Now turning to our financial expectations for the third quarter of 2021 consolidated revenue is expected to be between $530 million and $541 million on a year over year growth between 124% and 128%.

We expect our property segment to account for $231 million to $236 million of that revenue.

Rent has revenue is expected to be between $40 million from $41 million and contribution to net loss of approximately $17 million.

Our consolidated net losses expected to be between $24 million from $20 million compared with a $34 million net income in the third quarter of 2020.

Although real estate services gross margins have grown year over year for the past day quarters, We expect real estate services gross margin to decrease in the third quarter as compared with the same quarter in the prior year, primarily due to prior year comparisons when the business was understaffed due to the market rebound.

As previously discussed we incurred the bulk of our anticipated mass media campaign expenses in the second quarter, but timing delays have shifted some of this expense into the third quarter and we are also allocating incremental spending where we see an opportunity for strong return.

In the third quarter, we expect $50 million on total company marketing expense, which includes rent pass on marketing expenses.

On a consolidated basis. This guidance includes approximately $14 million for stock based compensation for $14 million of depreciation and amortization and $4 million of interest expense associated with our convertible senior notes and other credit obligations. In addition, we expect to pay a quarterly dividend of 30000.

640 shares of common stock to our preferred stock holder.

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 we'll open the line to take your questions.

Thank you if you would like to ask a question. Please taken on what pressing star 1 on your telephone keypad.

If you are using a speaker phone. Please make sure. Your mute function is turned off to allow you sticking on to meet your equipment.

Again press Star 1 to ask a question.

Go ahead and take our first question from Edward <unk> with Keybanc capital markets. Please go ahead hey.

Good afternoon, guys wanted to click down on rent path, a little bit I know you have a new CEO. There as you think about investments that you need to make in the business how should we take that and consider kind of the profitability picture over the medium term, maybe more specifically when will that be a contributor to overall profit and then second just on redfin mortgage I appreciate all the detail there.

Any competitive dynamics that may have changed and should we think about any environment, where you might receive more of a lift. Thank you.

Generally digital businesses digital marketplaces like Redpath have very high gross margin. So expect this business to be very profitable long term.

We just don't have any immediate expectations and we don't want to box John and before he has even started to make money on.

1 quarter or another next year. This year. So we're going to invest in this business. We think we're offering better value than any other rentals marketplace. We should see more customers sign up to the platform and that is the first order of business just to restore the platform. So that when people look for listings to see more sponsored properties on the <unk>.

<unk> with higher quality photos. So that was the first part of your question and then the second part was about redfin mortgage clearly theres an industry dynamic right now Thats compressing margins, where all the people who had been focused on refinancing loans are shifting toward purchase loans and to keep those folks busy as we said on the earnings script.

Loans are just being price more aggressively the spreads are narrow or so thats going to lower revenue per loan long term. This trend favors us because we subsist almost entirely on purchase transactions and we have this brokerage that we compare with redfin mortgage so that we are getting just a steady stream of customers.

But it's still going to be tougher times ahead for the lending industry overall.

Even if it favors us relative to those other lenders.

Got it thank you.

And we'll go ahead and take our next question from Jason <unk> with Oppenheimer. Please go ahead.

Thanks, 2 questions 1 just.

I mean, there's always been a question about what's the right way to compensate.

Hum.

And do you think that debt youre dialed in now or are there still needs to be more changes to the compensation model to keep the people you want and not not keep the people you don't want from while still generating the kind of margins you want and then second question. Chris can you just review.

The impact of rent Pan rent path to each of the Opex line, just kind of line by line for the quarter. Thanks.

Chris do you want me to go first or do you want to go first.

I'll go first.

Hi, Jason.

So we don't expect a sea change in how we compensate agents.

Adam Wiener as the new president of the brokerage Scott Nagel transition to a different role as he approaches retirement and that's something that we talked about last quarter. So we want to give out on the latitude in its first couple of months on the job to make sure that the incentive plan fits his values, but in general.

He and Scott have been quiet simpatico long term trend for agent compensation.

Is that we will pay agents more for business that they generate is a repeat customer referral customer or someone in their personal network and we will continue to drive efficiency gains for customers that agents meet through our website and the key to driving agent will be agent compensation and overall gross profit.

Qualifying those customers better and this isn't just an issue with redfin every single real estate marketplace has been optimized to generate a huge number of opportunities for agents to work against but sometimes those excuse me those opportunities aren't well qualified so because we've integrated a website with the brokerage we should just be better at trying to.

Figure out the perfect handoff figuring out the right level of service for some people, who just want a touring service to be able to access properties and other people who want in depth strategy guidance on how to win this home and so my expectation is that our agents are going to keep earning more money and I'm not overly worried long term about each.

Current retention I think it is something that we need to focus on right now because the market is just hellacious and we've put a lot of new people into a really tough spot. So we're focused on the short term, but long term I think we've got it right.

And then in terms of yeah in terms of rent has operating expenses. So this is taking a look at second quarter here technology in development, we had $13 million of rent path expenses marketing expenses were $12.6 million.

And then G&A expenses were $23.0 million on touch.

<unk> broken out and MD&A in our queue as well.

Thank you.

All right. We'll go ahead and take our next question from <unk> <unk> with Wedbush Securities. Please go ahead.

Hey, good afternoon, guys. Thanks for taking my questions on.

I guess I have another 1 on.

On agents in hiring so you're you're fully staffed on target, but your attrition still really high.

So just thinking about what that means for productivity and like when things actually normalize and hopefully you called out.

At the beginning of 2022, but.

If attrition is really higher than our U.

Theoretically fully staffed right now and.

As you are at this point is this the kind of.

Last.

Less linked to keep you saw really strong share gains this quarter to keep that.

At these kind of levels going forward.

I'm not going to speculate on a share next quarter, but I do think that.

We will see more experienced agents talking to customers in the third and the fourth quarter than we do in the first and the second.

That's almost always the case every year at redfin that we bring on a new class of agents. Just this year that class was massive relative to the size of the rest of the company because it was such a V shaped recovery so.

I'm not worried that in the third and fourth quarter more new agents will have low productivity. The average experience level of a redfin agent will be higher in the second half of the year than the first.

And I'm also not worried about having enough agents to handle demand.

It's such a seasonal business.

Really you're trying to staff up for the middle of the summer we have seen strong sales growth in July it's been a really welcome surprise June was a little bit soft. That's why we were warning everyone that the housing market has really changed since memorial day, but I think theres been a change again, just because some inventory has come on to the market, it's easier to put deals together.

Other there might not be as much price pressure, but I do think.

We're going to see a sales pick up.

Just because buyers and sellers from meeting in the wild.

So having said all that we're optimistic about being able to staff up for 2022, there. The challenge is that as we lower agent productivity expectations slightly and.

Lower customers per agent significantly, we will see a higher close rate, but we'll also have to hire more agents to staff for that but.

But I think we can do it.

We.

To see more gross profit and more sales from our field organization in 2022, because we think our customers are going to be happy to get better service and we've seen plenty of data over 18 months testing these pilot markets too.

Validate that.

So I think we're gonna have more experienced agents in the second half and then in the first half of next year, there's going to be another bolus of agents coming on board and we just have to do a great job of ramping them up to speed quickly I think we've learned a lot from 'twenty 1.

Okay.

That's really helpful. I want to follow up on different direction can you expand on the comments about realtor dot com and.

I think what you said is they are taking share.

Whats driving that is that new and whats the plant on.

That's all that I think you've mentioned it a little bit but can you expand on that.

Sure well some of it's driven by a December update to Google search algorithm, so that realtor dot com has begun to rank higher than it did before.

So through most of 2020, we were taking search share hand over fist, not just from Zillow and Trulia, but also from realtor and then for realtor that had reversed.

Where realtor has taken back some of the share that we gained in 2020. So in general there is a tailwind on the housing market and in general Redfin is taking share.

But in the hand to hand combat with 1 particular website realtor dot com they have been doing better and it's just a trade off so redfin has sometimes optimized page load, where we'd get listings to load very quickly and what we call long click where we get people to go from 1 listing to another to another once you discover redfin youre going to use it as your homes.

Search site.

And realtor Dot com had optimized.

To provide more data.

At Google sees this unique information about a neighborhood.

So it's just going to take us a little while to import that data and then it's going to take a little while longer for Google to recognize that and of course, it's always a mystery need anyway.

Trying to figure out how to rank.

Number 1 for a particular search but this is a scenario where we thought we needed to do better and we wanted to tell investors about it.

Helpful. Thank you.

Thank you.

Again, that's for 1 to ask a question. Thanks for your question has been answered you may remove yourself from the queue by pressing star 2 we'll go ahead and take our next question from John Campbell with Stephens. Please go ahead.

Guys good afternoon.

Hi, John Hey, Chris Thanks for thanks for the color on the real estate gross margin I think that was helpful.

I think we might be able to get to this kind of with a with an puts we have but I'm, hoping you might be for short cut it for us but relative to last year, what was the margin mix shift kind of impact from the partner transactions you know theyre, obviously, representing a good bit.

A smaller portion of the transaction mix now.

Yes, it's not something we've broken out into a lot of detail, but generally you should think of revenue from partner transactions as having very high gross margin because the cost to serve the customer mostly comes from the agent who does that not someone from within redfin. So.

Again, we haven't broken it out but you can certainly use that assumption that has very high gross margin on the partner business in disentangle that using them okay.

Okay. That's helpful. And then I don't know if you can provide us I think this would be helpful for us to kind of understand that.

Maybe a pickup in productivity as you kind of get through the next couple of quarters, but out of the 'twenty 'twenty 200 agents for sale you have now just roughly what base.

How many maybe just what percent of that is less than 1 year tenure with redfin, so kind of newer agents.

I don't think we segment that.

That's not something that we've historically right, it's not something we've historically broken out.

It's certainly true and just buy a commentary we have hired a lot over the last year, but it's not a detail that we've provided.

Okay is it fair to say that you're probably running higher than you would normally have in the past.

Yes.

Some of that has been mitigated by the fact that the newer agents have turned more than they have in the past.

It's just been a really hard market to be a new real estate agents.

Understood. Thank you guys.

Okay. We can go ahead and take our next question from Ivy Zelman CEO of Zelman <unk> Associates. Please go ahead. Thank you. Good afternoon, guys I appreciate the opportunity to ask questions. So Glenn just big picture.

Now recognizing your point about July improving after June showed a little bit of softness just thinking through sort of the complexities of the market and especially with redfin now how much of your redfin now transactions are sold directly to <unk> operators and roughly what percentage of your transactions would be.

And you're on.

Data and all of the research that you guys do you have any expectation of the amount on the investors and just let you know.

Maybe quantify them as non primary I know that might be difficult because theres. So many investors is whether it's a fix and flip or I'd say second home true co primary or you've got all your capital with institutional capital chasing so much opportunity how can we really understand primary. So maybe you guys have done the research you can help us. Thank you.

Yeah, well Ivy I'm, a nut job out of principle, we don't sell to single family residency.

Residency institutions, we really believe that we want to make housing more affordable and that we want to sell homes to people are going to live in them. So at some point.

We may have to take some expedient course.

Sales scratch and dent homes to anyone who will buy them, but right now we.

We're just selling to people are going to live in the house.

So you're saying that within the transactions for all of Redfin.

Aside from Redfin now are you not selling to investors as well just overall is there is the brokerage Brad are you, saying specifically to redfin now Oh no I thought you were asking about redfin now.

They have an individual homeowner yeah, yeah, yeah, yeah, yeah yeah.

I'm sure like some individual homeowner how first and then well.

No yeah, yeah yeah.

Separately the question Glenn like let's say, okay, great I'm glad to hear that you're not feeling directly at the park separately as you look at redfin in total.

Is your research.

And data analytics show any way to delineate between primary versus non primary because I think it's really clouding the true underlying the day Matt.

Yeah, you know.

I've talked to some folks at rent path.

How much of the inventory being rented out right now in single family homes is for.

From different institutions, and it's still a small amount so that's.

1 perspective on it I know that it's increased significantly, but it's still small compared to the number of accidental landlords do you have in America.

And.

So what about the like mom and pop investors that are buying homes that are doing some quick clarification reasons or fix and flip. So you guys have any of that ability to know how many of your owners or how many of your transactions actually a primary versus let's just say everything else or do not break that out and you know no. We don't break it out I wish I had a good answer for.

Are you there, but I don't I'm, sorry, I V.

No. That's okay. Thank you for your time good luck yeah.

Okay, We'll take our next question from Thomas Champion with Piper Sandler.

Please go ahead.

Hi, Good afternoon, guys the release highlights the strong growth in.

Premier services markets in.

I think higher and listings as well and just curious if.

You see this as kind of a.

A 1 quarter trend or maybe something that is that it's more lasting.

In your business.

Just any thoughts on the sustainability of.

Redfin now gross margin profitability, it's been really strong in the last.

For 2 quarters now I'm just curious if that's by design.

That trend continues thank you.

Sure so starting with Premier I think there are 2 or 3 factors that make it durable.

1 is that we're just making a concerted effort to go after the high end when before I think we had almost been disposition only focused on the middle of the market.

We have just seen that many high end customers.

Better value from their real estate agent, we've invested and concierge service to fix up homes and sell them for top dollar, which has particular appeal to high end customers. So it's been a focus and then it's also been aided by the fact that housing has just gotten more expensive. So there are more of listings that effectively qualify as luxury listings. So I do think.

They will keep taking share there I'm sure, they're going to be ups and downs in that part of the business like every part of the business, but mostly.

As with all of our market share gains. It's an inexorable March I think we're going to take more and more share whenever we focus on something thats, what we do.

As far as the durability of Redfin now gross margins I do think there's a tailwind on the whole industry when you're pricing in some home price appreciation.

That isn't going to last so there will be some pressure on gross margins in redfin now.

Or there will be some deceleration in growth, but what was really pleasing about the most recent quarter is that we got pretty disciplined.

How we priced our offers and still we were able to win those off for us. So I do think there is some secular demand growth or just more people are interested in liquidating their property that way less people on a deal with the house listing at home. There is also some share gain here, where redfin now is just doing better at.

Responding quickly to offer inquiries and we're also doing better.

Getting the people who reject our offers to list a home, which is all about the synergy between the brokerage and I buy.

And then lastly, you just get some leverage from scaling that business used to have a bunch of managers managing 1 people.

I think it's 1 person not people.

But nonetheless.

We are just getting some advantages from scale and we just have to see how much of our efficiency gains are going to be offset by a tough market.

Everybody thought that we'd kind of stress tested I buy in the second quarter of 2020.

But I don't think that V shaped.

Cataclysm. If you will is really the model for kind of a long term softness in housing prices, we still have to see how I buying is going to perform in those markets and then I think margins will probably compress a little.

Thanks Glenn.

Okay. It appears there are no further questions at this time Ms. Natalie I'd like to turn the conference back to you for any additional or closing remarks.

Thanks, Madison and thank you everyone for joining the call today, they don't look for it to getting together again next quarter.

This.

Today's call. Thank you for your participation you may now disconnect.