Q2 2022 Redfin Corp Earnings Call
Please standby we're about to begin.
Good day and welcome to the Redfin Corporation Q2, 2022 earnings Conference call Today's conference is being recorded.
This time I'd like to turn the conference over to Nick Natalie. Please go ahead ma'am.
Thanks, Katie good afternoon, and welcome to Red and financial results Conference call for the second quarter ended June 30th 2022.
Meg mentally redfin head of Investor Relations joining me on the call today are Glenn Kelman, our CEO and Chris Nielsen our CFO .
Before we start.
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 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.
On this call we will present non-GAAP measures when discussing our financial results. We encourage you to review today's earnings release, which is available on our website.
Just your thought redfin dot com for more information related to our non-GAAP measures.
And the most directly comparable GAAP financial measure and related reconciliation Hawkins.
All comparisons made in the course of this call are against the same period in the prior year unless otherwise stated lastly, ill 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 with that I'll turn the call over to Glenn.
Thanks, Meg and Hello, everyone.
Red sand in the second quarter performed below the expectations, we set in our last call with revenue of $607 million compared to a projection of $613 million to $650 million.
The shortfall was due to the largest rate hike in 35 years, which in June curtailed second quarter lending revenues pay equity the lender we acquired in April by $15 million.
Our net income was nonetheless in line with expectations. After the exclusion of $10 million in restructuring costs was 6% of our employees we laid off in June .
The adjusted EBITDA loss was $29 million.
In five years as a public company and Greg said as never before have fallen short of our revenue projections.
This is also true.
That even as the housing market weakened our results redfin has gotten stronger.
We expanded our site for 91% of the homes in America to 94% to compete as a national rather than a regional destination.
Year over year brokerage share gains once again began to accelerate from four basis points in the first quarter to five basis points in the second quarter.
We hired agents to quickly during the pandemic, but now sales execution is improving across the board.
Of the redfin customers, who bought a home a higher percentage stuck with us for that purchase the first such gains since April 2020.
The percentage of Redfin, homebuyers, who got them redfin mortgage increased to 11% in June and 15% in July which is nearly double the five year monthly high of 8% that we'd reach prior to acquiring the equity home loans.
Title forward second quarter attach rate also more than doubled from 12% in 2021% to 32% in 2022.
We've learned where low fees led us to take share and where we can raise prices to increase profits in the markets, where we came back to advertising the 1% listing fee we charge our move up customers New Redfin listings in July grew 10 points faster than the market overall in the month prior to the campaign's launch new redfin listings are growing more slowly than the market.
As we invest more in advertising this fee in 2023, we expect listing share to accelerate.
Okay.
But will likely stop trying to convince buyers they should save money on their own agents since buyers arent the ones, who pay that agents directly on July 26th we eliminated the commission refund we offered homebuyers in 22 markets with few objections from customers or agents.
This pilot continues to be successful we will eliminate the refund entirely as early as January 2023, improving full year gross margins in our core business by more than 500 basis points.
And the nice small markets that already eliminated the refund in 2019, we kept taking share.
Our mission to put customers first is stronger than ever, but we need to save customers money at the points of the moving process when money matters, the most when choosing which listing agent to hire and when shopping for mortgage rates.
This pricing decision is one of thousands that redfin is making to become profitable as this market correction has forced us to simplify our business. Our goal isn't just to survive the downturn, but to come out of it stronger prop.
Profit discipline and sales execution have become more important to read said with housing demand weakening.
As affordability pressure began to Mount in February more people search Google for rental homes and real estate favoring sites like Zillow with well established rental search redfin is still competing effectively for new visitors searching online for homes for sale, but our visitors have become less likely to return with some suspending their home search until the economy.
Improves.
The shift in interest towards rentals slow traffic growth to redfin dot com and residents' mobile applications from 11% year over year in the first quarter to 9% in the second.
Overtime redfin expects to compete better for renters, not just home buyers.
Since adding rental listings to redfin dot com at the end of March visits to rental listings on redfin Dot com and redfin mobile application has grown at a monthly rate of 9% and the number of inquiries redfin Dot com Central property management customers has grown even faster already redfin dot com accounts for 4% of the rental inquiries.
Generated by all of our rental search site.
The redfin Dot Com contribution is just one reason that rent path. The rentals marketplace. We acquired out of bankruptcy in April 2021 recorded its first ever quarter on quarter revenue growth since 2017.
As just said first ever I meant to say, it's first quarter on quarter revenue growth in 2017, excuse me total rental site visits including rental traffic on redfin Dot com are up 9% year over year, while we still need to improve customer retention second quarter bookings were up 24% year over year.
Since July 2021, and the productivity of salespeople at generating new bookings has doubled.
The June National apartment Association conference rent path relaunched as rent.
<unk> rent dot com is our flagship site rather than apartment guide and simplifying the story of how our marketing services and online marketplaces work together.
Excuse me I just lost my point.
As rent recruits more property managers to promote their apartment buildings at our network of sites will compete more effectively with the largest real estate portals. Our goal is to surpass realtor dot com now second only to Zillow and real estate traffic.
Among people looking to buy or sell a home in the 20 largest U S markets, 30% in the second quarter named Redfin is one of the first three real estate sites that come to mind compared to 23% for realtor Dot com.
At the beginning of 2021. These numbers were reversed becoming one of North America's top two real estate search sites can have a seismic impact on demand accelerating brokerage share gains.
And we can invest more in driving demand as we improve monetization.
This is where redfin has made the most progress over the last three months first by eliminating our commission refund in the 'twenty two market pilot.
By increasing the rate at which the redfin customers, who buy homes stick with a redfin agent for the purchase.
The buyer pull back from the market downturn with many of our agents idle swinging real estate services to a second quarter adjusted EBITDA loss, but.
But we reduced cost within the quarter lowering expenses quickly while holding onto the people needed for long term growth.
This June 14th lay off maybe a setback for near term gains in share and close rate, but not over time.
The agencies state had a close rate nearly double that of the agents who left.
Even if the buyers now returning to the market will take time to close our agent sales pipelines are now mostly full.
Another improving measure of agent performance is loyalty sales the fraction of our brokerage sales that come from past clients client referrals are through agents personal networks had already increased from 24% in 2019% to 27% in 2020% to 32% in 2021.
But in the second quarter of 2022, it rose even higher to 35% outset.
Outside of our lay off agent attrition has also improved falling by five points from the second quarter of 2021 into the second quarter of 2022.
This is why we expect loyalty sales to keep outpacing sales of our site our site excuse me, especially as we offer more incentives for top performing agents.
Red sand employees many of the agents, we recommend honor side, because we believe those agents to deliver better service.
But employing agents also gives us the standing to ask those agents to sell redfin suite of lending title and renovation services.
Why are we could double the rate at which redfin homebuyers get a redfin mortgage though we've only owned by equity since April one.
Our success in Atlanta, and Salt Lake City, where 34% of homebuyers got a pay equity mortgage in July tells us that read since overall attach rate of 15% is just the beginning.
Over time, we also expect significant margin expansion on our loans.
When we announced the acquisition, we told investors that bay equity in redfin or the similar amount of gross profit per homebuyer in 2021 attribute to bay equities underwriting efficiency.
Since then a massive contraction in mortgage lending has led many lenders to issue mortgages at a loss, forcing pay equity to cut its gross profit per loan in half.
The equity already reduced staffing on July 28.
When rates stabilize in bay equity can raise prices on new loans and also refinance many of our 2022 loans will have the potential to generate more profit from a customer than any other broker.
This acquisition can change the fundamental physics of our business.
Redfin has been a new source of sales for pay equity, but also recruiting partner for building Bay equities traditional business meeting homebuyers through agents at other brokerages in market aftermarket from Washington D. C to Seattle to Chicago Bay equity has recruited loan officers to one's got plenty of loans from run fit agents were working competitors.
But then saw that loan volume dwindle after our acquisition.
Joining bay equity alone officer gets a steady source of referrals from redfin agents, but also brings over other customers and agent partners outside of the rest of the network.
Beyond mortgage the business most affected by market forces is redfin, now, which gives homeowners and immediate cash offer our property segment earned $6 $8 million in second quarter gross profit up from $5 million in the second quarter of last year.
Because of a sharp decline in U S home buying demand, we now expect to sell the homes. We agreed to buy in April and May for loss after accounting for holding costs selling costs and repairs.
That won't be enough to sink our battleship our forecast assumes home prices keep declining moderately through the rest of 2022, but we still expect our properties division to earn a significant gross profit for the full year.
We aren't worried about the homes, we agreed to buy in June or July because we haven't bought as many are paid as much for these homes.
In April and May Redfin now offer amounts are based on the assumption that home prices would hold steady over the four months that it typically takes us to clear out the original owner to get the home on the market and to get the next owner under contract in June and July Redfin, now assumed home prices would decline about 6% over that time.
We're now selling homes much more quickly than we are buying them in July we put more than four homes under contract to sell for everyone. We put under contract to buy our inventory should peak early next week at $436 million in home Zone, and then declined quickly we expect that virtually all of the homes. We bid on the spring will be under contract with the ultimate buyer by October .
And off our books by year end.
We have long believed that homeowners interest in immediate liquidity is here to stay but we wouldn't know <unk> true margins until we weather the downturn that lasted longer than the false starts of late 2018 and mid 2020.
We also believe that buying is only worthwhile as part of our brokerage the conserve homeowners, even when market conditions make eye buying nearly cost prohibitive.
That latter belief because it's already been vindicated for every redfin now inquiry that led to an accepted offer in June two more led to the homeowner hiring a redfin agent to list the home its debt.
Driving brokerage shares the rationale not just for redfin now, but for every one of residents businesses, we invested in rentals, because becoming one of the internet's top real estate destinations is crucial to our share growth we.
We built the title business and bought a lender because employing agents lesser sell a suite of services better than any other broker.
Every extra dollar that these businesses earned from a customer can be reinvested in driving more brokerage demand or can be returned to investors.
After all we're too small to mention driven to be a holding company for housing related business.
We tell ourselves that if the business doesn't drive brokerage share it's out of there.
But though each of these businesses shares the same market share goal, we presented the profits of each separately to clarify the scope of our investment in each.
Plan to generate our first annual net income in 2024 entails generating adjusted EBITDA in 2023.
Only one of our major businesses rentals can lose a significant amount of money next year.
Our brokerage generated profits in 2021 and bay equity have been profitable for almost its entire 16 year history. Prior to this summer's rate hike. So both can return to profits when the market settles down we expect the remainder of our businesses will be near breakeven in 2023.
Before turning the call over to Chris, let's discuss the housing market, which got significantly worse than June but that improved in July .
The breaking point for many buyers came on Friday June 10th when mortgage rates spiked 30 basis points and climbed another 43 basis points to 628% the following Monday and Tuesday, So the biggest one week jump since 1987.
From June 2022 to June .
2021, pending home sales I said that wrong excuse me from June 2021 to June 2022, pending home sales dropped 20%.
Just from May 2022 to June 2022, the drop was a whopping, 9% when economists expected it to be 1%.
Existing home sales may dip below an annualized rate of 5 million units.
The line for housing that we havent breach for full year since 2014.
The percentage of homes that had a price drop in June doubled from 9% in 2021% to 18% in 2022, a trend that we expect to accelerate when the dust settles on July numbers and.
And pandemic markets like Denver more than half of all those things had a price reduction in Boise that number was 62%.
From March to mid July year over year price growth slowed from 16% to 9%, but the value of most homes probably fell further.
The reported numbers reflect sale prices only for homes that sold when we know the market has become more selective.
Beautiful homes on quarter lot still sell readily but the homes. The funky layoffs now don't sell at all in lieu of publicly reported price drops builders are funding lower mortgage rates paying closing closing costs doubling agent commissions buying washers and dryers and upgrading kitchen finishes.
One reason prices are falling fast is the fraction of inventory now being sold by buyers builders and other institutions, which has increased from 27% in 2017 to nearly 35% in 2022.
Reade said knows from our experience as a broker that people have with their whole lives in a home just arent going to mark it down after a few weeks.
But I buyers price the listing below every current comparable and price at even lower if it doesn't get an offer in the opening weekend builders also respond to market downturns quickly.
This makes market correction sharper, but may be also shorter tubes.
The good news is that buyers are already responding to drops in prices and mortgage rates the market wide data on sales closed in July and August reflect how far demand fell in June but now demand is modestly improved in the second third and fourth weeks of July .
May improve further as mortgage rates dropped this week to around 5% from a peak north of 6% in June .
If the housing market and the overall economy can stabilize many many Americans still wants to move and we're here to help them with low fees and the best service in the brokerage industry.
Take it away Chris.
Thanks, Glenn this is a volatile quarter, and we're being responsive to the changing macro environment and taking actions to manage towards profitability, including reducing the number of homes, we purchased through our property segment.
Laying off employees in our headquarters real estate services and mortgage businesses and limiting backfill for voluntary attrition.
Second quarter revenue was $607 million up 29% from a year ago and below the low end of our $613 million $650 million guidance range.
The difference was due to a quicker than anticipated decline in refinancing and purchase home volumes for equity.
Real estate services revenue, which includes our brokerage and partner businesses.
<unk> $252 million in revenue, which was flat year over year and in line with guidance.
Brokerage revenue or revenue from home sales closed by our own agents was up 1% driven by home price appreciation, while transaction volume was down 2%.
Revenue from our partners was down 23% on a 13% decrease in transactions and a mix shift to lower value houses.
Overall real estate services revenue per transaction was up 4% year over year.
The properties segment, which consists primarily of homes sold through redfin now generated $263 million in revenue up 52% from a year ago and driven by a 45% increase in homes sold.
Our rentals business generated $38 million down 10% from a year ago, but up slightly from the first quarter of 2022.
As Glenn mentioned this marks the first quarter of sequential revenue growth for this business in many years.
Our mortgage segment generated $53 million in revenue in the second quarter. This is below our guidance range as discussed above.
Thrilled with how they equity loan officers have been serving <unk> customers.
Our other segment, which now includes title and other services contributed revenue of $6 million, an increase of 72% year over year, driven by increased attach rates for our title and closing services.
Gross profit was $118 million down 6% year over year.
Total gross margin of 19, 4%.
Total operating expenses were $36 $2 million or 23% year over year.
$23 $6 million of the increase was attributable to the acquisition of Bay equity our mortgage business.
As well as restructuring expenses incurred in the quarter.
As a percentage of revenue total operating expenses represented 32% down from 33% one year ago.
Technology and development expenses increased by $10.0 million or 24% year over year.
Including included in the increase was zero point $7 million from Bay equity.
The remaining increase was primarily attributable to an $8 $7 million increase in personnel costs due to increased head count.
Total technology and development expenses represented 8% of revenue down from 9% one year ago.
Marketing expenses increased by $1 $3 million as compared to the same period in 2021.
Included in the increase was $1 $8 million from Bay equities.
The remaining decrease was primarily attributable to a $1 9 million.
A decrease in outside services and recruiting offset by a $1 $5 million increase in personnel costs.
Total marketing expenses represented 9% of revenue down from 12% one year ago.
General and administrative expenses increased by 12, 2% or 20%.
$12 2 million or 20% as compared with the same period in 2021.
Included in the increase was an $8 4 million from the equity of $3 $2 million increase in legal expenses largely due to a settlement offer and a $3 $1 million increase in personnel costs due to increased head count.
This was partially offset by a $4 $2 million decrease in acquisition related expenses.
Total G&A expenses represented 12% of revenue down from 13% one year ago.
Restructuring expenses included in total operating expenses were $12 $7 million and there were no such expenses in the same period in 2021. These.
These expenses were attributable to a $2 $4 million in severance and other costs associated with our mortgage restructuring and $10 $3 million in severance cost associated with our June 2022 workforce reduction.
Turning to the segment level profitability real estate services gross margin was 29, 4% down 550 basis points year over year. This was driven by a 670 basis point increase in personnel costs and transaction bonuses.
This increase was offset by a 210 basis point decrease in tour mcl costs, and a 50 basis point decrease in listing expenses.
Net loss for real estate services was $18 $8 million down from a net income of $7 8 million in the prior period.
The decrease was attributable to lower revenue and margins as well as a $12 $5 million year over year increase in operating expenses.
These expenses were added during a period of rapid growth in our real estate services business and we've already begun to pare back with the restructuring announced in June .
Properties gross margin was two 6% down 30 basis points year over year. This was driven by an 80 basis point increase in purchase maintenance and capital improvements costs.
This was then offset by a 50 basis point decrease in personnel costs as the business scaled.
Total net loss for properties was $3 $2 million down from a net loss of one $4 million in the prior years with the increase in operating expenses slightly exceeding the increase in gross profits.
Rental gross margin was 79, 3% down 290 basis points year over year. This was driven by a 180 basis point increase in personnel costs as we sold more marketing services that require personnel to wholesale.
Total net loss for rentals was $19 $2 million down from a net loss of $14 $1 million.
Declining profitability was primarily attributable to year over year declines in revenue as discussed earlier, while operating expenses remained roughly flat at $49 $8 million compared to the $49 $3 million in the prior year.
Mortgage gross margin was 12, 8% for the second quarter below our implied guidance of 31% to 36%. This was driven by lower refinancing and purchase volume from Bay equities Historic business.
Total net loss for mortgage was $6 $5 million, we acquired Bay equity on April one of this year and completed the wind down of our legacy mortgage business during the second quarter of 2022.
Wind down activities contributed approximately $4 $9 million to the segments not loss.
One 6 million attributable today equity.
Other segment gross margin was negative <unk>, 1% an improvement from the negative six 1% a year ago.
Total net loss was $2 1 million compared to a net loss of $1 $1 million in the prior period.
Turning back to consolidated results total net loss of $78 million just below the low end of our $72 million $60 million guidance range.
Our guidance Didnt include $10 3 million of restructuring expenses for <unk>.
Diluted loss per share attributable to common stock was <unk> 73.
Compared with the diluted loss per share attributable to common stock of <unk> 29.
Per share one year ago.
Now turning to our financial expectations for the third quarter of 2022.
Consolidated revenue is expected to be between $590 million and $627 million.
Representing year over year growth between 9% and 16%.
We expect our real estate services segment to account for $200 million to $208 million of that revenue in the property segment to be between $305 million and $330 million.
Rentals revenue is expected to be between $37 million and $38 million.
Mortgage revenue is expected to be between $45 million $48 million.
Total net loss is expected to be between $87 million $79 million compared to total net loss of $19 million in the prior year adjust.
Adjusted EBITDA loss is expected to be between $47 million from $39 million.
We expect real estate services gross margin to decrease in the third quarter compared with the same period of 2021 and prior earnings calls we discussed operational changes we were making that were intended to increase real estate services gross margins in the second half of 2022.
However, deteriorating macroeconomic conditions have overshadowed overshadowed these operational changes and we now expect gross margin compression.
With respect to properties, we expect gross margins to be negative in the third quarter as we worked through selling inventory that we purchased earlier in the year.
We expect inventory to peak in August .
We want to continue to offer choice to customers, but we're being more conservative on offer prices right now.
With respect to mortgage we expect gross margins to be roughly flat to slightly down quarter over quarter.
On a consolidated basis. This guidance includes approximately $37 million in total company marketing expense.
$19 million of stock based compensation $60 million of depreciation and amortization and $5 million of interest expense. In addition, we expect to pay a quarterly dividend of 30640 shares of common stock to our preferred stockholders.
This guidance assumes among other things that no additional business acquisitions investments restructurings or legal settlements are concluded that there are no further revisions to stock based compensation estimates.
And now let's take your questions.
Thank you.
Like to ask a question. Please signify pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to lay your signal to reach our equipment. Once again that is star one if you would like to ask a question.
Well pause for just a moment to allow everyone an opportunity to signal.
We'll take our first question from Brian Mike if any with Zelman and associates. Please go ahead.
Hey, Thank you very much Glenn and Chris I appreciate all the.
Detailed commentary on the levers in the business and.
Certainly the comment about the potential impact to the real estate gross margins next year for removing the buyer refund is encouraging.
But wanted to ask one more on the real estate gross margin and some of the levers.
So the comment you guys have in your filings in the 10-K is that.
The real estate gross margin is generally higher in some of the top markets and generally lower smaller markets. So I guess I'm curious on kind of the levers that you guys can pull.
How do you think about those smaller markets that maybe are subscale or lower lower margin and pushing for growth in actual brokerage business.
Versus potentially leaning more into the partner channel.
To potentially kind of grow through less.
Brokerage specific growth in brokerage specific costs and maybe more so leaning into the partner business.
Which I believe is kind of a higher margin.
Gen business. So again I'm just curious if you can talk about the balance there between kind of brokerage and partner and if there are additional level levers that you guys can pull and.
Maybe how that compares between the bigger markets and some of the smaller markets. Thank you.
Okay.
Well, we're going to manage the business to maximize gross profit dollars per customer.
So.
As these smaller markets grow their prices are also increasing which will increase both the gross profit contribution and their gross margin.
The reason that we often want to serve customers through our employees because our employee agents have higher close rates.
Higher loyalty rates are going to generate more gross profit per customer, but we are going to be financially disciplined about it if we feel like our partner <unk>.
Serve the customer well and generate more gross profit will do that.
We've been raising thresholds throughout the month of July just because demand has been stronger than we expected immediately following our lay up so there will be a modest shift towards the partner business at least in the first part of the third quarter.
Got it okay. Thanks, very much Glenn that's helpful.
And then Chris one just kind of big picture on the cash flows.
Looking ahead and thinking about the convertible debt I guess, maybe if you can just.
It gives us a big picture sense of how you guys are thinking of ultimately managing the cash flow side of things and obviously the maturities are quite a ways away, but I think to some degree people are just curious.
How do you think about managing the cash from now.
The coming years.
With those maturities on the horizon, just any big picture thoughts there would be helpful.
Yes, I think that the commentary on our capital matches with Glen's commentary and our March to profits here that the way, we think about continuing to drive the business forward.
Is increasing our profitability into 2023 into 2024.
<unk> net income positive in 2024 and that sets the stage then.
So feel really good about the capital position that will have a system that's start to become mature. So I do think of these things is nationally matched up that way and not separate topics.
Hello.
Thank you we'll take our next question from banks, rather than me with Evercore.
And we'll take our next question from Mark Mahaney with Evercore ISI.
Hi, This is Jen Li for Mark Mahaney, Thanks for the question.
Just wanted to add one thing to clarify sorry, if I misheard that but.
With <unk> buying the gross margin.
<unk> to be negative in Q3, with some mentioned some headwinds, but on a full year basis youre still expecting it to maintain positive gross margin did I hear that right and if you can just talk through the leverage in the business to support margins, especially if the current trends persist. Thanks.
Well, we're assuming that prices will continue to decline in the business will still generate significant gross profit for the full year.
So the labors for the business are making sure that we react quickly to the market lowering our bids on the homes that we're buying now.
Obviously, we also want to convince the customers who asked us about a redfin now offer and decided that the offer is too low to instead list the home with redfin, which is working out better than it ever has at.
At least in June .
So.
Mostly we just want to sell their homes quickly renovate them well.
Sometimes we've been backlogged in 2020 in 2021 and haven't been able to get the properties on the market because we can't just get somebody out there to fix it up.
Now we've got good capacity the homes are selling quickly we're going to reach peak inventory next week.
And then we know it's downhill from there just because we already have so many homes under contract. So I think we've got good visibility here it would take a fairly apocalyptic price drop.
For us to swing into negative territory for Redfin now we've already factored in Cigna.
Significant price declines.
Got it that's helpful and if I may one more on just marketing spend this quarter saw some leverage here. So if you can is that like a kind of a pullback in marketing spend if you can talk through kind of the inefficiencies of the brand campaign.
Yeah Okay.
More seasonal.
Probably step back a month early from our television campaign because.
Just the tone of the campaign didn't match the mood of the American consumer. It was just about a frenzied housing market coming into 2022 and that market has become less frenzy.
But other than that we've been advertising fairly aggressively actually shifting some dollars towards the 1% campaign, which is resonating well.
We just plan to end the advertising campaign in the summer we've done that every year.
Okay. Thanks, a lot guys.
Thank you and once again, if you'd like to ask a question. Please signify pressing star one will.
We'll take our next question from Jason <unk> with Oppenheimer.
Hi, it's right on our feet on for Jason <unk>.
So two quick questions. If we're thinking about real estate as the top of the funnel driver for the rest of the business.
How do you think about long term gross margins and EBITDA margins for real estate.
Assuming other segments will limit spending amount on marketing and the second question is are you, making any further changes.
To the way you compensate agents thanks.
So the brokerage has been an engine of profit for the company that generated significant adjusted EBITDA last year as you can see in this new segment reporting and it should remain that way.
So we had too many agents in the second quarter. It swung us to an adjusted EBITDA loss of that business, but we view that as.
And intolerable situation long term, so we're not going to think about the brokerage as a loss leader for getting alone or a loss leader for doing the title.
We want that business to have its own high gross margins north of 30% and then we just want to monetize that customer again, and again through mortgage and title, we'll deliver more value to the customer will offer them a great rate on the loan.
And because we have employees I think we're more capable of selling a complete real estate solution.
So.
We don't want to back off at all brokerage gross margins just because we have these ancillary businesses and thats evidenced by the price increase where we're eliminating the commission refund in 22 markets.
And possibly extending that further.
And then on the second question.
<unk>.
Yes.
I don't know, Chris do you want to answer that first.
It'd be more in your wheelhouse.
Once you go ahead Glen.
Can you just rephrase the question I want to make sure I understand it.
Yeah, and I would totally so.
Given like the recently offs are you like increments any more changes on the way you pay your age non agency yes.
Not really.
We adjusted how much repair agents at the beginning of the year, because we were lowering loads in anticipation of having better close rates, we have seen that of the customers who buy they are sticking with us.
A higher rate. So that's been encouraging we have been waiting for two years to get a result from that effort and now we have one.
But other than that we arent, making major changes to agent pay.
Thank you that's that's helpful.
Thank you <unk>.
Once again that is star I wonder if you'd like to ask a question.
Alright with no additional questions in the queue that does conclude today's question and answer session.
This concludes today's conference we thank you all for your participation you may now disconnect.
Thanks.
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Yeah.
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