Q2 2024 Redfin Corp Earnings Call

Unknown Executive: Good day, ladies and gentlemen, and welcome to the Redfin Corp. 2nd quarter, 2024, earnings conference call.

Operator: Good morning, ladies and gentlemen, and welcome to the Redfin Corporation second quarter 2024 earnings conference call. Our host for today's call is Meg Nunnally, head of investor relations. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would like to now turn the call over to your host. Ms. Nunnally, you may begin.

Good day, ladies and gentlemen, and welcome to the Redfin Corporation second quarter 'twenty 'twenty four earnings conference call. Our hosts for todays call is Nag Nunley head of Investor Relations. At this time all participants are in a listen only mode. Later, we will conduct a question and answer.

Meg Nunnally: Our host for today's call is Meg Nunnally, Head of Investor Relations. At this time, all participants are in a listen-only mode.

Unknown Executive: Later, we will conduct a question-and-answer session.

Unknown Executive: I would need to now turn the call over to your host.

MS. Stanley: I would like to now turn the call over to your host MS. Stanley you may begin.

Meg Nunnally: Miss Nunnally, you may begin. Thank you. Good afternoon and welcome to Redfin's financial results conference call. For the second quarter ended June 30, 2024.

Meg Nunnally: Thank you. Good afternoon, and welcome to Redfin's financial results conference call for the second quarter ended June 30, 2024. I'm Meg Nunnally, Redfin's Head of Investor Relations. Joining me on the call today are Glenn Kelman, our CEO, and Chris Nielsen, our CFO.

Speaker Change: Thank you good afternoon, and welcome to Redfin financial results Conference call for the second quarter ended June 30th 2024 <unk>.

Meg Nunnally: I'm Meg Nunnally, Redfin's Head and Investor Relations. Joining me on the call today is Glenn Kelman, RCO, and Chris Nielsen, RCFO.

Meg mentally redfin as head of Investor Relations.

Speaker Change: Joining me on the call today is Glenn Kelman, our CEO and Chris Nielsen our CFO.

Meg Nunnally: Before we start, note that some of our statements on today's call are forward-looking. We believe our assumptions and expectations related to these forward-looking statements are reasonable, but our actual results may turn out to be materially different. Please read and consider the risk factors in our SEC filings together with the content 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.

Meg Nunnally: Before we start, note 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 and RCC filings together with a contented today's call. Any forward-looking statements are based in our assumptions today, and we don't undertake to update these statements in light of new information or future events.

Speaker Change: 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.

Speaker Change: Please read and consider the risk factors in our SEC filings together with the content of today's call.

Speaker Change: 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.

Meg Nunnally: 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 at investors.redfin.com, for more information related to our non-GAAP measures, including the most directly comparable gap financial measure and related reconciliation. All comparisons made in the course of this call are against continuing operations for the same period in the prior year, unless otherwise stated. Lastly, we will be providing a copy of our prepared remarks on our website by the conclusion of today's call, and a full transcript and audio replay will also be available soon after the call. With that, I'll turn the call over to Glenn.

Meg Nunnally: On this call, we will present non-GAAP measures who are discussing our financial results. We encourage you to review today's earnings release, which is available on our website at investors.redson.com. For more information, we're related to our non-GAAP measures, including the most directly comparable GAAP financial measure and related reconciliation. All comparisons made in the course of this call are against continuing operations to the same period in the prior year and less, otherwise stated.

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 at investors thought redfin dot com for more information related to our non-GAAP measures.

<unk>, the most directly comparable GAAP financial measure and related reconciliation.

Speaker Change: All comparisons made in the course of this call are against continuing operations for the same period in the prior year unless otherwise stated.

Meg Nunnally: Lastly, we'll 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. We also will be able to see now to the call.

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

Glenn Kelman: With that, I'll turn the call over to Glenn.

Glenn Kelman: Thanks Meg, and hi everyone. Redfin's second-quarter earnings were at or near the top of the range we discussed in our last call, setting us up to be roughly adjusted EBITDA break-even for the full year. Second quarter at Just Adipa Tao was break-even, when we had said it would be between a $4 million loss and a $2 million loss. Real Estate Services revenue was $188 million compared to guidance of $180 to $188 million.

Glenn Kelman: Next, Meg and Hi everyone. Red 10 second quarter earnings were at or near the top of the range we discussed in our last call. Seticists have to be roughly adjusted to eat the top break even for the full year. Second quarter adjusted to eat the top with break even. When we had said it would be between $4 million lost in a $2 million dollar game. Real estate services revenue was $180 million, compared to guidance of $180 to $180 million. The share of home sales broke our own agents and through referrals to our partner agents increased from 0.75% in the second quarter of 2023 to 0.77% in the second quarter of 2024.

Glenn Kelman: Thanks, Meg and hi, everyone.

Glenn Kelman: Red <unk> second quarter earnings were at or near the top of the range. We discussed in our last call setting us up to be roughly adjusted EBITDA breakeven for the full year.

Speaker Change: Second quarter adjusted EBITDA was breakeven when we had said it would be between $4 million loss in the $2 million gain real estate services revenue was $188 million compared to guidance of 180 to 188 now.

Glenn Kelman: The share of home sales brokered by our own agents and through referrals to our partner agents increased to 0.75% in the second quarter of 2020, its first year-over-year share gain in nearly two years. We expect these games to continue in the third quarter, largely on the strength of Redfin Nets, a plan to pay agents entirely on commissions that four California markets tested in January 2024. Entering 2025, we expect Redfin Y to be next.

Speaker Change: The share of home sales brokered by our own agents and through referrals to our partner agents increased from seven 5% in the second quarter of 2023 to <unk>, 77% in the second quarter of 2024, our first year over year share gains in nearly two years.

Glenn Kelman: Our first year of a year share gain in nearly two years. We expect these gains to continue in the third quarter largely on the strength of Red 10 next. The plan to pay age in entirely on commissions that four California markets tested in January 2024. In ring 2025, we expect next to be Red 10 wide. For the first time in years, we have a plausible basis for accelerations in brokerage market share. But being the best at monetizing four sale housing demand is only one half; our strategy. Energy. The other is broadening our online guidance, excuse me, our online audience, to include people looking for a rental home.

Speaker Change: We expect these gains to continue in the third quarter largely on the strength of Redfin next the plan to pay agents entirely on commissions that for California markets tested in January 2024.

Speaker Change: Entering 2025, we expect next to be redfin wide.

Glenn Kelman: For the first time in years, we have a plausible basis for acceleration of brokerage market share. But being the best at monetizing for sale housing demand is only one half of our strategy. The other is broadening our online audience to include people looking for a rental home, to focus our resources on growing our rental market. Redfin began integrating rent in January 2024, so that both businesses draw on the same human resources experts, finance system, and cloud software. As a result, Rent's second-quarter operating expenses fell 19% year-over-year, with a nearly identical marketing budget.

Speaker Change: For the first time in years, we have a plausible basis for accelerations in brokerage market share.

Speaker Change: The best monetizing for sale housing demand is only one half our strategy.

Speaker Change: The other is broadening our online guidance excuse me our online audience to include people looking for a rental home.

Glenn Kelman: To focus our resources on growing our rental's marketplace, Redfin began integrating Red in January 2024, so that both businesses draw on the same human resources expert's finance system and cloud software. As a result, Red's second this restructuring of rent caps a series of seismic changes that began just as we system the downturn. In 2022, we ditched our own loan origination system and closed our mortgage business in favor of buying one of our customers' favorite lenders, Bay Equity. In 2023, we closed our iBying business, Redfin now, and invested in digital businesses that immediately began contributing significant profits.

Speaker Change: To focus our resources on growing our rentals marketplace Redfin began integrating rent in January 2024, so that both businesses strong the same human resources experts finance system and cloud software.

Speaker Change: As a result, <unk> second quarter operating expenses fell 19% year over year with a nearly identical marketing budget.

Glenn Kelman: This restructuring of rent caps a series of seismic changes that began just as we tipped into the downturn. In 2022, we ditched our own loan origination system and closed our mortgage business in favor of buying one of our customers' favorite lenders, Bay Equity. In 2023, we closed our iBuying business, Redfin Now, and invested in digital businesses that immediately began contributing significant profits. And now, in 2024, with the integration of rent and the shift to a sales force paid entirely on commissions, Redfin is more efficient, resilient, and ready. Already, profits are better.

Speaker Change: This restructuring of rent cast a series of seismic changes that began just as we sit into the downturn.

Speaker Change: In 2022, we did start one loan origination system and closed our mortgage business in favor of buying one of our customers favorite lenders.

Speaker Change: Equity in 2023, we closed our <unk> business Redfin, now and investing in digital businesses that immediately began contributing significant profits and now in 2024 with the integration of rent and the shift to a salesforce paid entirely on commission.

Glenn Kelman: And now, in 2024, with the integration of rent and the shift to a sales force paid entirely on commission, Redfin is more efficient, resilient, and ready to scale. Our ready profits are better. From the first half of 2023 to the first half of 2024, sales of existing US homes fell 3%, but Redfin revenues increased 6%, and our profits improved by more than 40 million bucks. As our restructuring drives more rentals traffic and better brokerage service, we expect revenue growth to accelerate, with most of that growth falling to the bottom line. When the housing market starts to recover, we'll do even better.

Speaker Change: <unk> is more efficient resilient and ready to scale.

Glenn Kelman: From the first half of 2023 to the first half of 2024, sales of existing U.S. homes fell 3%, but Redfin revenues increased 6%, and our profits improved by more than $40 million. As our restructuring drives more rental traffic and better brokerage service, we expect revenue growth to accelerate, with most of that growth falling to the bottom line. When the housing market starts to recover, we'll do even better. Now, let's dive into our detailed business review, which starts, as it always does, with the network of websites that are our primary source of customers. We keep finding new applications for artificial intelligence to determine which photo of an apartment to show first and to let homeowners imagine how to redecorate their place.

Speaker Change: Already profits or better from the first half of 2023. The first half of 2024 sales of existing U S homes fell, 3%, but redfin revenues increased 6% and our profits improved by more than 40 million Bucks.

Speaker Change: As our restructuring drives more rentals traffic and better brokerage service, we expect revenue growth to accelerate with most of that growth falling to the bottom line. When the housing market starts to recover we will do even better.

Glenn Kelman: We've also developed a new self-service tool for the owner of a rental property to post their listing on Redfin.com, which will reach the entire U.S. in September. Building a better mousetrap has kept bringing more people to our door. According to Comscore, second-quarter visitors to Redfin.com grew 4% year over year, faster than both Realtor.com and Zillow.com. This year, we've competed effectively for traffic, even as our largest online competitors have been able to quintuple our mass media advertising budget.

Glenn Kelman: Now, let's dive into our detailed business review, which starts as it always does with the network of websites that are our primary source of customers. We keep finding new applications for artificial intelligence to determine which photo of an apartment to show first, and to let homeowners imagine how to redecorate their place. We've also developed a new self-service tool for the owner of a rental property to post your listing on Redfin.com, which will reach the entire U.S. in September. Building a better mouse trap is kept bringing more people to our door. Coordinate comm score, second quarter visitors to Redfin.com group 4% year-over-year, faster than both Reelser.com and Zilla.com.

Speaker Change: Now, let's dive into our detailed business review, which starts as it always does with a network of websites that are our primary source of customers. We keep finding new applications for artificial intelligence to determine which photo of an apartment to show first and then let homeowners imagine how to redecorate their place.

Speaker Change: We've also developed a new self service tool for the owner of a rental property to poster listing on redfin dot com, which will reach the entire U S. In September.

Speaker Change: A better mouse trap has kept bringing more people to our door. According to Comscore second quarter visitors to redfin Dot com grew 4% year over year faster than both realtor dot com and Zillow Dot com.

Glenn Kelman: This year, we've competed effectively for traffic, even as our largest online competitors have been able to quintuple our mass media advertising budget. When consumer interest in home buying rises from its current low, we'll hit back with larger ad campaigns of our own. The Redfin.com has drawn visitors from competitors. Our 2024 sharegames have mostly come from sales execution. In the four California markets that piloted Redfin Next, first half share increased by six basis points year-over-year. For the customers that come from Redfin.com, next agents close more sales, but it is roughly the same margin as their salary agents.

Speaker Change: This year, we've competed effectively for traffic even as our largest online competitors have been able to quintuple our mass media advertising budget when consumer interest in home buying rises from its current low will hit back with larger AD campaigns of our own.

Glenn Kelman: When consumer interest in home buying rises from its current low, we'll hit back with larger ad campaigns of our own. Though Redfin.com has drawn visitors from competitors, our 2024 share gains have mostly come from sales execution. In the four California markets that piloted Redfin Next, first-half share increased by six basis points year-over-year. For customers that come from Redfin.com, Next agents close more sales, but at roughly the same margin as their salaried agents.

Speaker Change: The redfin Dot com has drawn visitors from competitors or 2024 share gains have mostly come from sales execution and the four California markets that piloted redfin next first half share increased by six basis points year over year.

Speaker Change: Customers that come from Redfin Dot Com next agents close more sales, but it roughly the same margin as our salaried agents.

Glenn Kelman: Rolling out next across 2024 is lowering second and out third quarter real estate services margins due to one time transition pay for Redfin agents losing their salaries. The increasing variability of our agents' income will also dampen the seasonality of our margins. Next agents can earn more than before in busy summer months and less than before in the winter. DeGenerate. Getting similar full-year margins with less seasonal volatility should make Redfin easier to run. The capacity that next is given us to hire more and better agents with less financial risk has been why we could become more disciplined about requiring a lead agent to host the first meeting with a home buyer in the All You Can Meet program we launched broadly this spring.

Glenn Kelman: Rolling out Next across 2024 is lowering second and now third quarter real estate services margins due to one-time transition pay for Redfin agents losing their staff. The increasing variability of our agent's income will also dampen the seasonality of our margins. Next agents can earn more than before in busy summer months and less than before in the winter. Getting similar full-year margins with less seasonal volatility should make Redfin easier to run.

Speaker Change: Rolling out next across 2024 is lowering second and now third quarter real estate services margin due to onetime transition pay for redfin agents, losing their salaries.

Speaker Change: The increase in variability of our agents' income will also dampen the seasonality of our margins.

Speaker Change: <unk> agents can earn more than before and busy summer months and less than before in the winter.

Speaker Change: Getting similar full year margins with less seasonal volatility should be easier to run.

Glenn Kelman: The capacity that NEXT has given us to hire more and better agents with less financial risk has been why we could become more disciplined about requiring a lead agent to host the first meeting with a homebuyer in the All You Can Meet program we launched broadly this spring. In years past, Redfin asked the contractors we hired for short notice property access to handle up to 40% of our customers' first tours.

Speaker Change: The capacity that <unk> has given us to hire more and better agents with less financial risk has been why we could become more disciplined about requiring our lead agent to host the first meeting with a homebuyer and the all you can meet program. We launched broadly this spring in years past Redfin asked the contractors we hire.

Glenn Kelman: In years past, Redfin asked the contractors we hired for short notice property access to handle up to 40% of our customers' first tours. Our lead agents make the Redfin case far better than these contractors. Meeting every new customer has in turn been a prerequisite for our sign and state program, also launched widely this spring, in which the lead agent asked the home buyer for a commitment to that agent in exchange for lowering our commission. Nearly half our sales now come from customers who signed the Redfin contract weeks or months before bidding on a home. Early data on customer engagement indicates that all you can meet and sign and state have listed home buyer close rate for the first time since 2020, but the gain would be larger if we have more agents.

Speaker Change: <unk> for short notice property access to handle up to 40% of our customers first horse our lead agents make the redfin case far better than these contractors meeting every new customer Hasnt turned been a prerequisite for our client and St program also launched widely this spring.

Glenn Kelman: Our lead agents make the Redfin case far better than these contracts. Meeting every new customer has, in turn, been a prerequisite for our Sign and Save program, also launched widely this spring, in which the lead agent asked the homebuyer for a commitment to that agent in exchange for lowering our commission. Nearly half our sales now come from customers who signed a Redfin contract weeks or months before bidding on a home. Early data on customer engagement indicates that All You Can Meet and Sign and Save have lifted homebuyer close rates for the first time since 2020, but the gain would be larger if we had more agents. We've hired more than 200 top producers over the last six months.

Speaker Change: In which the lead agent as the home buyer for our commitment to that agent in exchange for lowering our commission.

Speaker Change: Nearly half our sales now come from customers, who signed a redfin contract weeks or months before bidding on at home.

Speaker Change: Early data on customer engagement indicates that all you can me ensign and say have lifted homebuyer close rate for the first time since 2020, but the gain would be larger if we had more agents.

Glenn Kelman: We've hired more than 200 top producers over the last six months. Over the next nine months, our lead agent census is likely to keep increasing, but without the capital risk of salary agents. This month, next will be how we pay agents and markets that accounted for 74% of 2023 revenue, up from 17% in January and 30% in May. Changes mandated by the National Association of Realtors, March 15, 7 out of a class action lawsuit, which must be complete by August 17, may help with recruiting by encouraging more agents to consider a brokerage built to compete on price.

Speaker Change: We've hired more than 200 top producers over the last six months over the next nine months, our lead agent census is likely to keep increasing but without the capital risk of salary agents. This month next will be how we pay agents in markets that accounted for 74% of 2023 revenue up from 17% in January and 30 <unk>.

Glenn Kelman: Over the next nine months, our lead agent census is likely to keep increasing, but without the capital risk of salaried agents. This month next will be how we pay agents and markets, which accounted for 74% of 2023 revenue, up from 17% in January and 30% in May. Changes mandated by the National Association of Realtors March 15th settlement of a Class Action Lawsuit, which must be complete by August 17th, may help with recruiting by encouraging more agents to consider a brokerage built to compete on price.

Speaker Change: <unk> in May.

Speaker Change: Changes mandated by the National Association of Realtors March 15th settlement of a class action lawsuit, which must be complete by August 17th May help with recruiting by encouraging more agents to consider a brokerage built to compete on price and the handful of markets, where the local multiple listing service has already stopped showing the commission.

Glenn Kelman: In the handful of markets where the local multiple listing service has already stopped showing the commission offered to a buyer's agent for a listing. Agents are calling one another to find out what the seller's willing to pay. The answer is usually that the amount is negotiable. Few listings are offering a fixed percentage to the buyer's agent. Negotiations have been straightforward, at least for now, first because many sellers who listed their homes before the rules changed already expected to pay a fixed percentage commission. A second reason is that the market began shifting in buyers' favor as the rules changed, leaving many sellers glad to get any offer before the home buying fees are enhanced.

Speaker Change: <unk> offered to a buyer's agent for our listing agents are calling one another to find out what the sellers willing to pay.

Speaker Change: The answer is usually that the amount is negotiable.

Speaker Change: Few listings they are offering a six percentage to the buyers age negotiations have been straightforward at least for now first because many sellers who listed their homes before the rules changed already expected to pay a six percentage Commission.

Glenn Kelman: A second reason is that the market began shifting in buyers' favor as the rules changed. 28% of Bay Equity customers use Bay Equity, the same as in the first quarter, but up from 24% in the second quarter of last year. To drive this number even higher, we're investing more in our systems for introducing brokerage customers to our loan office. We rarely talk about our title business, Title Forward, which is part of our other segment.

Speaker Change: A second reason is that the market began shifting and buyers favors the rules changed leaving many sellers glad to get any offer before the home buying season.

Glenn Kelman: Our experiments with the Sign and Save program beginning in late 2023 have already prepared us to disclose our fees from the first tour, and we've been an outlier among industry readers in believing that reforms could meaningfully lower fees. Like nearly every real estate business will make less on each sale; of fees go down. But we may be the only large-scale broker eager to offset that with more sales at lower prices. In the event home buyers become as value-oriented as sellers already are, Redfin will use more aggressive Sign and Save pricing and more direct sales of a listing to the buyer to gain share.

Speaker Change: Our experiments with the sign and save program beginning in late 2023 have already prepared us to disclose our fees from the first tour and we have been an outlier among industry leaders in believing that reforms could meaningfully lower fees like nearly every real estate business will make less on each sale can you just go down.

Speaker Change: But we may be the only large scale broker eager to offset that with more sales at lower prices in the event homebuyers become as value oriented as sellers RDR redfin will use more aggressive condensate pricing and more direct sales of listening to the buyer.

Speaker Change: Gain share.

Glenn Kelman: Our answer to businesses are the one reason we can make money from brokerage customers at a lower price. Bay Equity improved adjusted EBITDA from $2.2 million loss in the second quarter of 2023 to a $1.1 million profit in the second quarter of 2024. Of the brokerage customers who finance their second quarter home purchase, 28% use Bay Equity, the same as in the first quarter, but up from 24% in the second quarter of last year. To drive this member even higher, we're investing more in our systems, introducing brokerage customers to our loan officers.

Speaker Change: Our ancillary businesses are one reason, we can make money from brokerage customers at a lower price.

Speaker Change: Pay equity improved adjusted EBITDA from $2 $2 million loss in the second quarter of 2023 to a $1 1 million profit in the second quarter of 2024.

Speaker Change: The brokerage customers, who finance their second quarter home purchase 28% user pay equity the same as in the first quarter, but up from 24% in the second quarter of last year.

Speaker Change: To drive this number even higher we're investing more in our system introducing brokerage customers to our loan officers.

Glenn Kelman: We really talk about our title business, Title Forward, which is part of our other segment. That segment also includes the money we earn from display ads and our mortgage marketplace for routing website visitors directly to a lender. The title forwards performance has been extraordinary, with second quarter attachments above 60% and year-over-year revenue growth above 50%. We've said the title forwards long-term gross margin goal was 20%, but the second quarter showed it could be greater than 30%. Before turning to the state of the housing market, let's discuss our rental segment, which improved adjusted EBITDA from a $9 million loss in the second quarter of 2023 to a $1 million profit in the second quarter of 2024, on 12% revenue growth.

Speaker Change: We rarely talk about our title business titled forward, which is part of our other segment.

Glenn Kelman: That segment also includes the money we earn from display ads in our mortgage marketplace for routing website visitors directly to a lender. We've been glad the rental segment has reduced our dependence on the for-sale market because the for-sale market had, at least until last week, been terrible. Over the four weeks ending July 28, industry-wide pending sales fell 5.3% year-over-year, and the decline had been widening even as rates began to ease. Inventory is rising, but 30% below pre-pandemic levels.

Speaker Change: That segment also includes the money we earned from display ads on our mortgage marketplace for rounding website visitors directly to a lender.

Speaker Change: The title forward performance has been extraordinary with second quarter attach rates above 60% and year over year revenue growth above 50%.

Speaker Change: We've said the title forward long term gross margin goal is 20%, but the second quarter showed it could be greater than 30%.

Speaker Change: Before turning to the state of the housing market.

Speaker Change: Discuss our rental segment, which improved adjusted EBITDA from a $9 million loss in the second quarter of 2023 to a $1 million profit in the second quarter of 2024 on 12% revenue growth.

Glenn Kelman: We expect growth to remain muted through the second half of 2024, but then to increase on the strength of significant investments being made now in traffic. We've hired a new president, Damon Joshua, to run Rent. Previously, he worked for 12 years at Market Source, leading a global team responsible for billions in revenue. When we get more traffic, Damon will get more sales. In the meantime, rent will still make money. After losing $31 million in 2022 and $15 million in 2023, rent this year will generate its first full-year adjusted EBITDA profit as a revenue business unit.

Speaker Change: We expect growth to remain muted through the second half of 2024, but then to increase on the strength of significant investments being made now in traffic we've hired a new president David Joshua to run rent previously he worked for 12 years at market source, leading a global team responsible for billions in revenue when we get more traffic Damon will get.

Speaker Change: More sales in the meantime, rent will still make money after losing $31 million in 2022 and $15 million in 2023 rent. This year will generate its first full year adjusted EBITDA profit is a regimen business unit.

Glenn Kelman: We've been glad the rental segment has reduced our dependence on the four-sale market because the four-sale market had, at least until last week, been terrible. Over the four weeks ending July 28th, industry-wide pending sales fell 5.3% year-over-year, and the decline had been widening, even as rates began to ease. Inventory is rising, but 30% below pre-pandemic levels. The affordability is near a 40-year low, yet, as we already noted, the market is significantly shifting in buyer's favor. 22% of active listings have dropped their price. The highest percentage since we began tracking this number in 2020, excuse me, 2012.

Speaker Change: We've been glad the rental segment has reduced our dependence on the for sale market because the for sale market had at least until last week been terrible over.

Speaker Change: Over the four weeks ending July 28, industrywide pending sales fell five 3% year over year and the decline had been widening even as rates began to ease.

Speaker Change: Inventories rising, but 30% below pre pandemic levels affordability is near a 40 year low.

Glenn Kelman: Affordability is near a 40-year low, and it has been the first time in years that a major interest rate drop had no impact on home buying. Then, from July 24th to yesterday, rates dropped below 6.35%. And finally, the number of Redfin.com home buyer inquiries increased last weekend over the prior two weeks.

Speaker Change: Yes, as we already noted the market is significantly shifting and buyers' favor 22% of active listings have dropped their price is the highest percentage since we began tracking this number in 2012 excuse me 2012, 36% excuse me, 36% of listings success isn't an offer within two weeks of their debut down from 41.

Glenn Kelman: 36% of listings, except in an offer within two weeks of their debut, down from 41% to year prior; interest rates declined to haven't so far increased competition for listings. From April 30 to July 24, mortgage interest rates fell from about 7.5% to about 6.9%, with almost no reaction from home buyers. Industry-wide mortgage purchase applications have been mostly below last year's levels. It has been the first time in years that a major interest rate drop had no impact on home buying demand. Then, from July 24th to yesterday, rates dropped below 6.35%, and finally, the number of RedSend.com home buyer inquiries increased last weekend over the prior two weekends.

Speaker Change: Percent the year prior.

Speaker Change: Interest rates declines havent, so far increased competition for listings from April 30 to July 24 mortgage interest rates fell from about seven 5% to about six 9%.

Speaker Change: Most no reaction from homebuyers and.

Speaker Change: Industry wide mortgage purchase applications have been mostly below last year's levels.

Speaker Change: It has been the first time in years that a major interest rate drop had no impact on home buying demand.

Speaker Change: Then from July 24th to yesterday rates dropped below 635% and finally, the number of redfin Dot homebuyer inquiries increase last weekend over the prior two weekend.

Glenn Kelman: But that gain was still only modest, and, among the customers already engaged with our agents, offer riding activity actually declined compared to the prior two weekends. Agents we pulled on Monday about the low number of offers cited broadening economic anxieties, the distraction of our presidential election, and home buyers' growing belief that time is on their side. In a shifting market, sellers often get stuck on the asking price from last month, while buyers imagine they can get an even better deal next month. The rates keep falling; US home sales should increase. We expect rates will stay low through the winter and in the next spring, which should lead to a much stronger housing market in 2025.

Speaker Change: But that gain was still only modest and among the customers already engaged with our agents offer riding activity actually declined compared to the prior to weekend.

Speaker Change: Agents, we pulled on Monday about the low number of author cited broadening economic anxieties the distraction of a presidential election, and homebuyers growing belief that time is on their side.

Speaker Change: And a shifting market sellers often get stuck on the asking price from last month.

Speaker Change: Buyers imagine, making it an even better deal next month.

Chris Nielsen: If rates keep falling, U.S. home sales should increase. Total operating expenses were $139 million, down $10 million year over year. The decrease was primarily attributable to a $5 million decrease in amortization expense as the intangible technology assets we acquired with rent completed their amortization, a $5 million decrease in restructuring costs, and a $4 million decrease in personnel costs. These reductions were partially offset by an $8 million increase in marketing, media, and production expenses.

Speaker Change: The rates keep falling U S home sales should increase.

Speaker Change: We expect rates will stay low through the winter and into next spring, which should lead to a much stronger housing market in 2025.

Glenn Kelman: I believe the housing market is about to get better, and that Redfin is also going to take share.

Speaker Change: I believe the housing market is about to get better and at Redfin is also going to take share.

Christopher Nielsen: Take it away, Chris.

Chris Nielsen: Take it away Chris.

Christopher Nielsen: Thanks, Glenn. Second quarter revenue was $295 million, up to 7% from a year ago. This marks our second straight quarter of organic revenue growth. At the same time, gross profit of $110 million was up 9% year over year, and total gross margin expanded from 36% to 37%. Total operating expenses were $139 million, down $10 million year over year. The decrease was primarily attributable to a $5 million decrease in amortization expense as the intangible technology assets we acquired with rent completed their amortization, a $5 million decrease in restructuring costs, and a $4 million decrease in personnel costs.

Chris Nielsen: Thanks, Glenn second quarter revenue was $295 million up 7% from a year ago.

Chris Nielsen: This marks our second straight quarter of organic revenue growth at the same time gross profit of $110 million was up 9% year over year and total gross margin expanded from 36% to 37%.

Speaker Change: Total operating expenses were $139 million down $10 million year over year.

Speaker Change: The decrease was primarily attributable to a $5 million decrease in amortization expense of the intangible technology assets, we acquired with Rep completed their amortization of $5 million decrease in restructuring costs and a $4 million decrease in personnel costs.

Christopher Nielsen: These reductions were partially offset by an $8 million increase in marketing media and production expenses. Our adjusted EBITDA was flat, up from a loss of $7 million in the prior year. We continue to make steady progress towards positive adjusted EBITDA. Our trailing 12-month adjusted EBITDA last stands at $33 million today, compared to a loss of $123 million one year ago. As Glenn said, we expect to be roughly adjusted EBITDA break-even for the full year.

Speaker Change: These reductions were partially offset by an $8 million increase in marketing media and production expenses.

Chris Nielsen: Our adjusted EBITDA was flat, up from a loss of $7 million in the prior year. We continue to make steady progress towards positive adjusted EBITDA. Our trailing 12-month adjusted EBITDA loss stands at $33 million today, compared to a loss of $123 million one year ago. As Glenn said, we expect to be roughly adjusted EBITDA break-even for the full year. Since our May earnings call, housing market conditions have worsened, and there's uncertainty around how quickly consumers will respond to lower mortgage interest rates and the larger macroeconomic backdrop. We'll continue to make progress on everything we can control and keep driving for profit.

Christopher Nielsen: Since our May earnings call, housing market conditions have worsened, and there's uncertainty around how quickly consumers will respond to lower mortgage interest rates and the larger macroeconomic backdrop. We'll continue to make progress on everything we can control and keep driving for profits. We've been growing our digital businesses and rolling out LEDs in Next, which makes agent compensation more variable and reduces expenses in seasonally slower months. In the result, we expect to add meaningful profits in both the third and fourth quarters. Turning back to our second quarter results, net loss was $28 million, compared to a net loss from continuing operations of $27 million in the prior year.

Christopher Nielsen: This was at the top end of our $28 million to $34 million loss guidance range. Net loss included a $6 million gain on the extinguishment of notes, which was not contemplated at the time of guidance. Our adjusted EBITDA from continuing operations was flat, which was in line with our guidance range of negative $4 million to positive $2 million. Deluted loss per share from continuing operations attributable to common stock was $0.23, compared with $0.25 one year ago.

Chris Nielsen: This was at the top end of our $28 million to $34 million loss guidance range. Our adjusted EBITDA from continuing operations was flat, which was in line with our guidance range of negative $4 million to positive $2 million. Now turning to our segment results, real estate services generated $188 million in revenue, up 4% year over year. Brokerage revenue, or revenue from home sales closed by our own agents, was up 5% on a 3% increase in brokerage transactions and a 1% increase in brokerage revenue per transaction.

Speaker Change: Gain on the extinguishment of notes, which was not contemplated at the time of guidance.

Speaker Change: Our adjusted EBITDA from continuing operations was flat, which was in line with our guidance range of negative $4 million to positive $2 million.

Speaker Change: Diluted loss per share from continuing operations attributable to common stock was 23 cents compared with 25 cents one year ago.

Christopher Nielsen: Now turning to our segment results, real estate services generated $188 million in revenue, up 4% year-over-year. brokerage revenue or revenue from home sales closed by our own agents was up 5% on a 3% increase in brokerage transactions and a 1% increase in brokerage revenue per transaction. Revenue from our partners decreased 11 percent on a 14 percent decrease in transactions, offset by a 4 percent increase in partner revenue per transaction. Real estate services growth margin was 28.6 percent, down 250 basis points year over year. This is primarily driven by a 330 basis point increase in personnel costs and transaction bonuses, partially offset by a 200 basis point decrease in home touring and field expenses as we will eliminate compensation for home touring and field expenses and replace it with transaction bonuses for some employee agents.

Speaker Change: Now turning to our segment results real estate services generated $188 million in revenue up 4% year over year.

Speaker Change: Brokerage revenue or revenue from home sales closed by our own agents was up 5% on a 3% increase in brokerage transactions and a 1% increase in brokerage revenue per transaction.

Chris Nielsen: Revenue from our partners decreased 11% on a 14% decrease in transactions offset by a 4% increase in partner revenue per transaction. Real estate services gross margin was 28.6%, down 250 basis points year over year. This is primarily driven by a 330 basis point increase in personnel costs and transaction bonuses, partially offset by a 200 basis point decrease in home touring and field expenses, as we've eliminated compensation for home touring and field expenses and replaced it with transaction bonuses for some employee agents. In addition, there was a 120 basis point increase in home improvement and cost incurred on behalf of Holmes Schelling.

Speaker Change: Revenue from our partners decreased 11% on a 14% decrease in transactions offset by a 4% increase in partner revenue per transaction.

Speaker Change: Real estate services gross margin was 28, 6% down 250 basis points year over year.

Speaker Change: This was primarily driven by a 330 basis point increase in personnel costs and transaction bonuses, partially offset by a 200 basis point decrease in home touring and field expenses, because we've eliminated compensation for home touring and field expenses and replaced it with transaction bonuses for some employee agents.

Christopher Nielsen: In addition, there was a 120 basis point increase in home improvement costs incurred on behalf of home sellers. Total net loss for real estate services was 18 million dollars compared to a net loss of 9 million dollars in the prior year, and I just leave it that loss was 4 million dollars down from positive 9 million dollars in the prior year. The decrease was attributable to lower gross margin and higher marketing expenses.

Speaker Change: In addition, there was 120 basis point increase in home improvement in costs.

Speaker Change: Incurred on behalf of home sellers.

Chris Nielsen: Total net loss for real estate services was $18 million compared to a net loss of $9 million in the prior year. And our adjusted EBITDA loss was $4 million, down from positive $9 million in the prior year. The decrease was attributable to lower gross margin and higher marketing.

Christopher Nielsen: Our rental segment posted at 7th straight quarter of growth with revenue of $51 million in growth of 12 percent. Rental's gross margin was 77.2 percent compared to 77.0 percent a year ago. Total net loss for rentals was 7 million dollars, up from a net loss of 23 million dollars in the prior year. Adjusted EBITDA for the second quarter was 1 million dollars, marking the rental segment's 4th straight quarter of positive adjusted EBITDA.

Chris Nielsen: Our rental segment posted its seventh straight quarter of growth with revenue of $51 million and growth of 12%. Rental gross margin was 77.2% compared to 77.0% a year ago. Total net loss for rentals was $7 million, up from a net loss of $23 million in the prior year. Adjusted EBITDA for the second quarter was $1 million, marking the rental segment's fourth straight quarter of positive adjusted EBITDA. Our mortgage segment generated $40 million in revenue, up 5% year-over-year.

Christopher Nielsen: Our mortgage segment generated $40 million in revenue, up 5 percent year over year. This result was within our guidance range of $39 million to $42 million. Mortgage gross margin was 19.0 percent, up from 10.8 percent a year ago. Net loss for mortgage was meal compared to a loss of $4 million in the prior year. Adjusted EBITDA was positive 1 million dollars, up from a loss of 2 million dollars in the prior year.

Chris Nielsen: This result was within our guidance range of $39 million to $42 million. Mortgage gross margin was 19.0%, up from 10.8% a year ago. Net loss for Mortgage was nil compared to a loss of $4 million in the prior year.

Chris Nielsen: I just didn't even know I was positive $1 million up from a loss of $2 million. Our other segment generated revenue of $17 million compared to $11 million in the prior year as both our title and digital revenue businesses group. Other segment gross margin was 54.0%, up from 44.1% a year ago.

Christopher Nielsen: Our other segment generated revenue of $17 million compared to $11 million in the prior year. It is both our title and digital revenue businesses group. Other segment gross margin was 54.0 percent, up from 44.1 percent a year ago. Total net income was 7 million dollars compared to $3 million in the prior year. An adjusted EBITDA was $8 million compared to $4 million in the prior year.

Chris Nielsen: Total net income was $7 million compared to $3 million in the prior year, and adjusted EBITDA was $8 million compared to $4 million in the prior year. Now, we turn to our consolidated financial expectations for the third quarter of 2024. Total revenue is expected to be between $273 million and $285 million, representing year-over-year growth between 1% and 6% compared to the third quarter of 2023. Included within total revenue or real estate services revenue is between $171 million and $179 million.

Christopher Nielsen: Now turning to our consolidated financial expectations for the third quarter of 2024. Total revenue is expected to be between $273 million and $285 million, representing year-over-year gross between 1 percent and 6 percent compared to the third quarter of 2023. Included within total revenue or real estate services revenue between $171 million and $179 million. Rentals revenue between $50 million and $51 million. Work is revenue between $36 million and $39 million, and other revenue between $15 million and $16 million. Total net loss is expected to be between $30 million and $22 million compared to net loss of $19 million in the third quarter of 2023.

Speaker Change: Total revenue is expected to be between $273 million and $285 million representing year over year growth between 1% and 6%.

Speaker Change: Impaired to the third quarter of 2023.

Speaker Change: Within total revenue, our real estate services revenue between $171 million and $179 million rentals revenue between $50 million and $51 million.

Speaker Change: Mortgage revenue between $36 million $39 million in other revenue between $15 million $16 million.

Speaker Change: Total net loss is expected to be between $38 million and $22 million compared to net loss of $19 million in the third quarter of 2023 adjusted.

Christopher Nielsen: Adjusted EBITDA is expected to be between $4 million and $12 million.

Speaker Change: Adjusted EBITDA is expected to be between $4 million and $12 million.

Unknown Executive: Now let's open the lines for your questions.

Chris Nielsen: Rental revenue between $50 million and $51 million, mortgage revenue between $36 million and $39 million, and other revenue between $15 million and $16 million. Total net loss is expected to be between $30 million and $22 million, compared to a net loss of $19 million in the third quarter of 2023. Adjusted EBITDA is expected to be between $4 million and $12 million. Now, let's open the lines for your questions.

Speaker Change: Now, let's open the lines for your questions.

Unknown Executive: If you would like to ask a question at this time, please press star, then the number one on your telephone keypad now. You will be placed into the queue in the order received. Please be prepared to ask your question when prompted.

Operator: If you would like to ask a question at this time, please press star, then the number 1 on your telephone keypad now. You will be placed in the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star, then the number 1 on your telephone keypad now. Your first question comes from Jason Helfstein with Oppenheimer. Your line is open.

Speaker Change: If you would like to ask a question at this time. Please press Star then the number one on your telephone keypad now you will be placed into the queue. In the order received please be prepared to ask your question when prompted.

Unknown Executive: Once again, if you have a question, please press star, then the number one on your telephone keypad now.

Speaker Change: Once again, if you have a question. Please press Star then the number one on your telephone keypad now.

Jason Helfstein: Your first question comes from Jason Helfstein. Helfstein with Oppenheimer. Your line is open.

Speaker Change: Your first question comes from Jason <unk> with Oppenheimer. Your line is open.

Jason Helfstein: Thanks for taking the questions. I guess two. How should we think about real estate gross margins once the majority of agents are under Red Finnex and then just more broadly. How should we think about long term company EBITDA margins you leverage real estate traffic across all the segments and then kind of under the red Finnex model. That's question one.

Jason Helfstein: Thanks for taking the questions. I guess two: how should we think about real estate gross margins once the majority of agents are under Redfin NEXT and, then more broadly, how should we think about long-term company EBITDA margins as you leverage real estate traffic across all the segments and then kind of under the, you know, the Redfin NEXT model? That's question one. And then just a follow-up, Chris, as you may have said in the comments, but the other EBITDA, was the strain from title or from advertising there?

Jason <unk>: Thanks for taking the questions I guess too.

Glenn Kelman: And then just a follow up. I agree that you may have said in the comments, but the other EBITDA was the strain from title or from advertising. Thanks.

Glenn Kelman: I want to take the first one, Chris, and you can take the second one. We think that long term next we'll have similar gross margins on sales source from redfinne.com. There may be incremental sales that we wouldn't have gotten in past years as agents become more entrepreneurial and source their own business. But that should be incremental gross profit. Our focus is on the gross profit we can generate from sales sourced by redfinne.com. So we expect gross profit to grow faster, and we expect margins from redfinne.com-based business to be the same or better. There might be some pressure from the now our settlement fees being lower, agents wanting better splits across the industry.

Glenn Kelman: Why don't I take the first one, Chris, and you can take the second one? We think that long term, we'll have similar gross margins on sales sourced from redfin.com. There may be incremental sales that we wouldn't have gotten in past years as agents become more entrepreneurial and source their own business, but that should be incremental gross profit. Our focus is on the gross profit we can generate from sales sourced by Redfin.com.

Glenn Kelman: So we expect gross profit to grow faster, and we expect margins from Redfin.com-based business to be the same or better. There might be some pressure from the NAR settlement, fees being lower, and agents wanting better splits across the industry, but we think we can offset that by getting more efficient with support and management. A more entrepreneurial agent doesn't need to meet her manager every week.

Glenn Kelman: But we think we can offset that by getting more efficient with support and management. A more entrepreneurial agent doesn't need to meet her manager every week. So there's some upside in our margins, and looking more broadly than real estate services, we also think there's upside because the overall trajectory of the business is to get more digital. This is an issue that you've asked about before, Jason, and we think you've been right on the money that building our digital businesses, building our rentals marketplace, having that be a larger piece of the overall puzzle should improve the gross margins of the company.

Glenn Kelman: So there's some upside in our margins. And looking more broadly than real estate services, we also think there's upside because the overall trajectory of the business is to get more digital. This is an issue that you've asked about before, Jason, and we think you've been right on the money, that building our digital businesses, building our rental marketplace, having that be a larger piece of the overall puzzle should improve the gross margins of the company. And then we're just running more efficiently.

Speaker Change: About before Jason and we think you have been right on the money.

Speaker Change: Building, our digital businesses building, our rentals marketplace, having that be a larger piece of the overall puzzle Ah should improve the gross margins of the company and then we're just running more efficiently with less fixed costs are.

Glenn Kelman: And then we're just running more efficiently, so with less fixed costs, our growth should drop more dollars to the bottom line. Obviously, we plan to become a significantly profitable company.

Chris Nielsen: So with less fixed costs, our growth should drop more dollars to the bottom line. Obviously, we plan to become a significantly profitable company. And the way that we're gonna do that is by growing while holding fixed costs steady and having gross margins move up over time. Chris, do you want to take the second part? Sure.

Speaker Change: Our growth should drop more dollars to the bottom line, obviously, we plan to become a significantly profitable company in the way that we're going to do that is by growing while holding fixed costs steady having gross margins move up over time.

Glenn Kelman: And the way that we're going to do that is by growing while holding fixed costs steady and having gross margins move up over time.

Jason <unk>: Chris do you want take the same park.

Christopher Nielsen: And then, in terms of our other segment. This is a place we've seen strength all year, and it really is those two core components that you mentioned, Jason. So both the title business is delivering well, plus we're getting more advertising revenue all the time from across the website, different inventory on the website, and different capabilities that we've been able to put in front of advertisers. So both pieces are hitting really positive, right?

Chris Nielsen: And then, in terms of our other segment, this is a place we've seen strength all year. And it really is those two core components that you mentioned, Jason. So both the title business and the advertising revenue are delivering well. Plus, we're getting more advertising revenue all the time from across the websites, different inventory on the website, and different capabilities that we've been able to put in front of advertisers. So both pieces are hitting really nicely, right?

Chris Nielsen: Sure and then in terms of our other stack Nat. This is a place we've seen strength all year and it really is those two core components that you mentioned, Jason it's above the title business is delivering world class, we're getting more advertising revenue all the time from across the websites different inventory on there.

Jason <unk>: A website and different capabilities that we've been able to put in front of advertisers. So both pieces are hitting really nicely right now.

Operator: I appreciate the call; thank you.

Jason <unk>: Appreciate the color. Thank you.

Ryan McKeveny: Your next question comes from Ryan McKeveny with Zellman and Associates. Your line is open.

Ryan McKeveny: Your next question comes from Ryan McKeveny with Zellman & Associates. Your line is open.

Speaker Change: Your next question comes from Ryan Mckenney, with Zelman and Associates. Your line is open.

Glenn Kelman: Glenn and Chris, thanks for taking the questions. Maybe for Glenn, on Redfin Next and the recruitment efforts there, I guess when we think about all the ways that we can slice and dice agents in the industry, so whether that's people new to the industry or veterans, or those who like online leads versus those who don't, or individual agents versus teams, you know, there's a lot of ways we can slice and dice things, but I'm curious if you can talk about the Is there a characteristic or type of agent out there where you're finding success on the recruiting side, or who this seems to be the most appealing option to? Thank you.

Ryan McKeveny: Or those who like online leads, versus those who don't, or individual agents versus teams, you know, there's a lot of ways we can slice and dice things, but I'm curious if you can talk about the types of agents that the Redfin Next approach is resonating most with.

Ryan McKeveny: Is there a characteristic or type of agent out there where you're finding success on a recruiting site, or who this seems to be the most appealing option to? Thank you. Another great question.

Operator: Another great question. Thank you, Ryan.

Glenn Kelman: Thank you, Ryan. Well, there are two dimensions to that. We do think the appeal is broad. So a wide range of agents have applied for the job. But what we've learned is that the agents who have experienced working with online opportunities, whether through Redfin's partner program, Zillow's, Realtor, or some other website, they have the systematic approach to maximize gross profits. So they're going to be very driven to have a high close rate. There's just a different way you need to approach online customers because they may have gone to three different websites for introductions to three different agents.

Glenn Kelman: Well, there are two dimensions to that. We do think the appeal is broad. So a wide range of agents have applied for the job. But what we've learned is that the agents who have experience working with online opportunities, whether through Redfin's partner program, Zillow, Realtor, or some other website, they have a systematic approach to maximize gross profit from a given online set of opportunities. So they're going to be very driven to have a high close rate.

Glenn Kelman: There's just a different way you need to approach online customers because they may have gone to three different websites for introductions to three different agents. So you need to be fast, and you need to be good. So that has been our experience.

Glenn Kelman: So you need to be fast, and you need to be good. So that has been our experience getting agents not just with a great lifetime deal count, but with good deal velocity; unsurprisingly, has also been important. So what have you done for me lately? Isn't really a key question.

Glenn Kelman: Getting agents, not just with a great lifetime deal count but with good deal velocity, unsurprisingly, has also been important, so what have you done for me lately is a really key question. And then I think the next dimension for us is teams. So we want the Redfin promise to be that when you come to our website, as opposed to any other real estate website, you're just already more likely to work with a top producer.

Glenn Kelman: And then I think the next dimension for us is teams. So we want the Redfin promise to be that when you come to our website, as opposed to any other real estate website, you're just already more likely to work with a top producer. We want to double down on that by forming teams around our top producers, which allows us to develop new to the industry type agents under a top producer. And being able to work together in those teams has already been quite effective for us in some pilots. So we think that'll let us scale out hiring and draw on a well that has been very deep for us in the past whenever we've been able to take associate agents who already know our system and move them into the agent roles.

Glenn Kelman: We want to double down on that by forming teams around our top producers, which allows us to develop new-to-the-industry-type agents under a top producer. And being able to work together in those teams has already been quite effective for us and some pilots. So we think that'll let us scale up hiring and draw on a well that has been very deep for us in the past. Whenever we've been able to take associate agents who already know our system and move them into lead agent roles, they've done well, except in the luxury segment.

Speaker Change: Take associate agents, who already know our system and move them on the reagent roles they've done well, except in the luxury segment and so now we're going after top producers and we think we can still pair them with that junior agents combined in quality and quantity we need more agents just to meet the new service levels that we've established in 2020.

Glenn Kelman: They've done well except in the luxury segment. And so now we're going after top producers, but we think we can still pair them with that junior agent, combining quality and quantity.

Glenn Kelman: And so now we're going after top producers, but we think we can still pair them with that junior agent, combining quality and quantity. We need more agents just to meet the new service levels that we have established in 2024.

Glenn Kelman: We need more agents just to meet the new service levels that we've established in 2024.

Jason <unk>: Sure.

Unknown Executive: That's very helpful.

Operator: That's very helpful. Thank you so much.

Speaker Change: That's very helpful. Thank you so much.

Unknown Executive: Thank you so much.

Ygal Arounian: Thanks Ryan. Your next question comes from Ygal Arounian with Citigroup. Your line is open.

Ryan: Thanks Ryan.

Ygal Arounian: Your next question comes from You Go Arunian with City Group. Your line is open.

Yugo Runion: Next question comes from you go a Runion with Citigroup. Your line is open.

Ygal Arounian: Hey, good afternoon, guys. I'll start on the NAR by size. It sounds like your base case here, base case expectation is that there will be some compression on fees.

Operator: Hey, good afternoon, guys. I'll start with the NAR.

Ugo Ariunion: Hey, good afternoon guys.

Speaker Change: I'll start on that and they are buy.

Speaker Change: Buy side fees, Glenn It sounds like your base case here basically is the expectation that there will be some compression on fees.

Ygal Arounian: If you could just elaborate on that and kind of where you think things will balance and maybe also elaborate on that point of trading off the lower fees per sale for driving more volume and what the strategies around that. Sure.

Speaker Change: If you could just elaborate on that and kind of where you think things will balance and.

Speaker Change: Maybe also elaborate on that point of trading off the lower fees per.

Speaker Change: Per sale for for driving more more volume and what kind of what the strategy around.

Operator: for driving more volume and kind of what the strategy around that is.

Speaker Change: Around that.

Speaker Change: Yeah.

Glenn Kelman: Sure. So another great question. We've had early experience with this in places like Indianapolis and Houston, which issued their rules ahead of the August 17th deadline. And what we've learned is that there may be.

Speaker Change: Sure.

Glenn Kelman: So another great question. We've had early experience with this in places like Indianapolis and Houston, which issued their rules ahead of the August 17th deadline. And what we've learned is that there may be different fee levels that our competitors have in those markets when they list a property and offer commission to the buyer. And if one was 2.75 and another was 2.5, it seems like 2.5 is becoming more common. Or if it were 3 and 2.75, or if it were 2.5 and 2.5, it seems to be moving towards that lower number. If you look at a chart, you can really tell how commissions have come down since March 15th.

Speaker Change: So another great question.

Speaker Change: We've had early experience with this in places like Indianapolis, and Houston, which issued their rules ahead of the August 17th deadline and what we've learned is that.

Glenn Kelman: Different fee levels that our competitors have in those markets when they list a property and offer commission to the buyer. And if one was $2.75 and another was $2.50, it seems like 2.5 is becoming more common, or if it were 3 and 2.75 or if it were 2.5 and 2.25, it seems to be moving towards that lower number. If you look at a chart, you can really see how commissions have come down since March 15.

Glenn Kelman: Commissions have been very stable over the past decade for buyer's agents where they think they've been more competitive for selling agents. So our belief is that there will be some pressure on commissions. But it's very early to make that call.

Glenn Kelman: Commissions have been very stable over the past decade for buyer's agents, or they think they've been more competitive for selling agents. So our belief is that there will be some pressure on commissions.

Glenn Kelman: It's very early to make that call. I do think that some of the people who listed their own home already had a preconceived notion of how much they would pay the buyer's agent. And next spring, when people list their home, those preconceived notions may not be as ready set. The other factor that we mentioned in the call is just that it has shifted toward a buyer's market. So if sellers are going to be careful about how much they pay a buyer's agent, that's easier to do when you have multiple offers. But right now, another reason that sellers have been fairly amenable to paying the buyer's agent is because they started to worry they're not going to get an offer.

Glenn Kelman: I do think that some of the people who listed their home already had a preconceived notion of how much they would pay the buyer's agent, and next spring, when people list their home, those preconceived notions may not be as ready set. The other factor that we mentioned in the call is just that it has shifted toward a buyer's market. So, if sellers are going to be... careful about how much they pay a buyer's agent, That's easier to do when you have multiple offers. But right now,

Glenn Kelman: Another reason that sellers have been fairly amenable to paying the buyer's agent is because they started to worry they were not going to get an offer. So we may see more price pressure over time, and we've already got a mechanism to deal with that where we meet the customer at the first store; we have the sign and save offer where we can lower the commission. And we've tried in the past to recruit buyers by offering them a better deal, and mostly, they've been confused by that because they haven't been the ones paying their agent; they don't understand how commissions work. And that seems to have significantly changed.

Glenn Kelman: So we may see more price pressure over time, and we've already got a mechanism to deal with that where we meet the customer at the first door. We have the Sign and Save offer where we can lower the commission. And we've tried in the past to recruit buyers by offering them a better deal. And mostly they've been confused by that because they haven't been the ones paying your agent. They don't understand how commissions work. And that seems to have significantly changed. And so if that happens, we think we can use prices of weapon to gain share.

Operator: And so if that happens, we think we can use price as a weapon to gain share. And over time, that may mean that the margins between our listing service and our buyer service are equilibrated. So we're making the same margin on both. Today, almost all the savings are concentrated on the seller because that is the customer who has been the most price sensitive. So our goal here would be to use this to drive a close rate where we close more of the customers by offering them a better deal from the moment we meet them.

Glenn Kelman: And over time, that may mean that the margins between our listing service and our buyer's service equilibrates. So we're making the same margin on both. Today, almost all the savings are concentrated on the seller because that is the customer who's been most price-sensitive. So our goal here would be to use this to drive close rate where we close more of the customers by offering a better deal from the moment we meet. And actually, to use it to just drive more demand off the website itself because we're known for being a beacon of value.

Operator: And actually to use it to just drive more demand off the website itself because we're known for being a beacon of value. Okay, that's really helpful. A follow-up, on the margin side.

Ygal Arounian: Great. That's really helpful. They follow up on the margin side.

Glenn Kelman: And you know, I guess clear, okay, we're getting to break even here, but you talk about being significant the only profitable in years ahead. Maybe I'm not expecting you to put a number around that right now, but you could help kind of understand the path to that or what's significantly profitable looks like. What would you guys need to get there to be helpful?

Speaker Change: I'm not expecting you to put a number around that right now, but if you could help kind of understand the path to that or what significantly profitable looks like.

Operator: What Significantly Profitable looks like, what would you...

Operator: And we guys need to get there and be helpful. Thanks. I'll start.

Speaker Change: You guys need.

Speaker Change: To get there it would be helpful. Thanks, I'll start and Chris can finish here.

Glenn Kelman: Thanks. I'll start in Chris can finish here. We do think that we can get more scale in real estate services at similar margins, and that we can generate more gross profit from the same amount of online demand, but we also expect online demand to grow. This year, it can really make more money next year, but we also expect these other digital businesses to grow.

Glenn Kelman: I'll start and Chris can finish here. We do think that we can get more scale and real estate services at similar margins and that we can generate more gross profit from the same amount of online demand. But we also expect online demand to grow. If you look at the National Association of Realtors numbers, their annualized rate as of July 23rd was $3.9 million. We haven't been at that level since 1995, when the population was 25% lower.

Speaker Change: We do think that.

Chris Nielsen: We can get more scale and real estate services at similar margins and that we can generate more gross profit from the same amount of online demand.

Chris Nielsen: We also expect on loan demand to grow if you look at the National Association of Realtors numbers Theyre annualized rate as of July 23rd was $3 9 million and we haven't been at that level since 1990 clock. When the population was 25% lower so if real estate services can crank. It out this year it can really make more money next year.

Glenn Kelman: So if real estate services can crank it out this year, they can really make more money next year. But we also expect these other digital businesses to grow.

Speaker Change: But we also expect these other digital businesses to grow.

Glenn Kelman: So we haven't completely monetized the website; we haven't really scaled our rentals marketplace. So we think that years of being over focused on the brokerage and under focused on these other digital businesses are now shifting, and that there's significant upside there. So part of our bet is that we're going to take share. Part of our bet is that even as the real estate industry gets nasty, there's still most that we can make to get more efficient.

Speaker Change: So.

Glenn Kelman: We haven't completely monetized the website, and we haven't really scaled our rental marketplace. So we think that years of being overfocused on the brokerage and underfocused on these other digital businesses are now shifting, and that there's significant upside there. So part of our bet is that we're going to take share. Part of our bet is that even as the real estate industry gets nasty, there are still moves that we can make to get more efficient.

Speaker Change: We haven't completely monetize the website, we haven't really scaled our rentals marketplace.

Speaker Change: So we think that year.

Speaker Change: Years of being over focus on the brokerage and under focused on these other digital businesses are now shifting and that there's significant upside there.

Speaker Change: So part of our bed is that we're going to take share.

Speaker Change: Part of our bed as the.

Christopher Nielsen: We talked about support and management costs. Part of our bet is that the housing market will get better, but the overarching thesis of the company has just gotten more digital, and that process will continue, and there's a lot of money to be made there.

Glenn Kelman: We talked about support and management costs. Part of our bet is that the housing market will get better. But the overarching thesis of the company is that it's just gotten more digital, and that process will continue, and there's a lot of money to be made there. Chris, why don't you add to that? I will.

Christopher Nielsen: Chris, why do you add to that? I will. The one thing I just wanted to add was on the cost front where, you know, even from the first quarter into the second quarter, we brought down tech and dev and GNA costs, and we do expect to continue to be really careful, really tight on costs to manage this is the rest of this year. But more fundamentally, we do think we have the right cost structure in place to be able to grow the business on top of that. So it is that combination of continued revenue growth and holding down costs that allows us to drive to profits.

Chris Nielsen: The one thing I just wanted to add was on the cost front, where, you know, even from the first quarter into the second quarter, we brought down tech and dev and G&A costs. And we do expect to continue to be really careful and really tight on costs to manage the business the rest of this year. But more fundamentally, we do think we have the right cost structure in place to be able to grow the business on top of that. So it is that combination of continued revenue growth and holding down costs that allows us to drive the recovery.

Unknown Executive: Great.

Operator: Great, thank you guys, it's really helpful.

Unknown Executive: Thank you guys for helpful. Thank you.

John Campbell: Your next question comes from John Campbell with Stevens Inc. Your line is open.

John Campbell: Your next question comes from John Campbell with Stevens Inc. Your line is open.

John Campbell: Hey, guys. Congrats on a great quarter. On the guidance for real estate revenue, I just want to maybe start there. At the midpoint, it looks like you're calling for a 7% sequential to go on. If I go back and look over the last years and basically take out some outliers. I just think it was a rate spike kind of fall out in 2022, and then obviously you had a big jump and, you know, during COVID in 2020, but that last in your average is up modestly sequentially. It seems like you're going to get some right rate relief here; who knows how much the market will respond to that, but Seattle, you know, that's your top market that looks like the July results were really strong.

Operator: Hey guys, congrats on a great quarter. On the guidance for real estate revenue, I just want to maybe start there. At the midpoint, it looks like you're calling for a 7% sequential decline. If I go back and look over the last 10 years and basically take out some of the outliers, I think it will be a rate spike kind of fallout in 2022. And then obviously, you had a big jump during COVID in 2020, but that last 10-year average is up modestly sequentially. It seems like you're going to get some rate relief here, but who knows how much the market will respond to that? But Seattle, that's your top market.

Operator: It looks like the July results were really strong. You had the lead agent count up 4% into 2Q. I think that probably sets the stage for some seasoning of those agents into 3Q.

Christopher Nielsen: You had lead agent count up 4% into 2Q, thinking that probably sets the stage for some seasoning of those agents into 3Q, but I'm struggling to square up all that with your guidance. So maybe you could start with unpacking how you expect the market to fare and very clear, expecting it to be down a fair amount. I guess just housing activity, or is that maybe a little bit influenced by the conservatism with some of the market changes coming off in August 17th.

Operator: But I'm struggling to square all that with your guidance. So maybe if you could start by unpacking how you expect the market to fare in 3Q. Are you expecting it to be down a fair amount, I guess just housing activity? Or is that maybe a little bit influenced by the conservatism with some of the market changes coming up on August 17th?

Christopher Nielsen: Sure, so the way we always set guidance based on what we can see in terms of customer behavior, but also book revenue. And so we're sitting here today with a view on July and somewhat on August. And, you know, I think our take is that the market has been slow the last couple of months in general. And that has influenced what the revenue guidance looks like. We're not making a significant assumption about an improving housing market as we move forward from here, coming from the lower mortgage interest rates that we've seen more recently.

Chris Nielsen: Sure. So the way we always set guidance is based on what we can see in terms of customer behavior and also booked revenue. And so we're sitting here today with a view on July and, you know, I think our take is that the market has been slow the last couple of months in general, and that has influenced what the revenue guidance looks like. We're not making a significant assumption about an improving housing market as we move forward from here. But coming from the lower mortgage interest rates that we've seen more recently, that certainly could happen. And we'd be thrilled if it pulled through in that way, but it's still too early to make that call.

Glenn Kelman: That certainly could happen, and we would be thrilled if it pulled through in that way, but it's still too early to make that.

Operator: OK, and then it was like, oh, John, just go ahead. It's been the Twilight Zone, man. The Economist dug up some weird little period in 2016 where rates went down and mortgage purchase qualifications didn't go up, but I don't remember it. I can't remember a time when rates went down this far, this fast, and the market has been so muted in its response. And we just have to believe that it will. But the immediate reaction, we have a better instrumented funnel than I think almost anyone else, has just been, meh. I know you had another question. Yeah.

Glenn Kelman: Oh, John, it's been Twilight Zone, man.

Glenn Kelman: The Economist dug up some weird little period in 2016, where rates went down, and mortgage purchase applications didn't go up, but I don't remember it.

Glenn Kelman: I can't remember a time when rates came down this far, this fast, and the market has been so muted in its response. And we just have to believe that it will, but the immediate reaction, we have a better instrumented funnel than I think almost anyone else has just been. I know you had another question.

Operator: Yeah, that's good color. And I guess, kind of related to that, as far as your market view, you know, the roughly break-even EBITDA for this year that you've put out there, I'm just curious how much of that is your, you know, that you're viewing as self-help and cost containment versus the macro. In other words, do you feel like you can still hit that mark even if consumers don't really react to lower rates like you're mentioning? Yes.

John Campbell: Yeah, that's good color.

John Campbell: And I guess kind of related to that as far as your market view, you know, the roughly, you know, break even EBITDA for this year that you put out there. I'm just curious how much of that is you're viewing a self-help and call containment person as a macro, I guess. Is that another way do you feel like you can still hit that mark even if consumers don't really react to lower rates like you're mentioning?

Unknown Executive: Yes, it isn't based on anything except self-help.

Operator: It isn't based on anything except self-help. Hope is not a strategy.

Glenn Kelman: Hope is not a strategy. Perfect.

Glenn Kelman: Thanks, guys.

Curtis Nagle: Your next question comes from Curtis Nagel with Bank of America. Your line is open.

Operator: Your next question comes from Curtis Nagle with Bank of America. Your line is open.

Curtis Nagle: Great, thank you so much for taking the call. So maybe, just segueing on that point, Glenn, I have a question for you. So, you know, in terms of this kind of, you know, non-response, right, from consumers and rates, right, which, you know, to your point is highly unusual, I guess, how much of it do you think is just, you know, some of the color we've picked up, people just, you know, a lot more aware of kind of total home costs, whether it's taxes, insurance, right, rates, Right, to, I guess, acclimatize, right, to higher costs, you know, or do you think, you know, with help rates and prices going down, that that'll be enough to unlock given so much underlying demand?

Curtis Nagle: Great. Thank you. I'll take it to the call.

Curtis Nagle: So maybe just say, going on that point, going on a question for you. So, you know, in terms of this kind of, you know, non-response rates and consumers and rates, right? Which, you know, to your point, is a highly unusual. I guess how much do you think is just, you know, in some of the color we picked up, people just, you know, a lot more aware of kind of total, you know, homes, costs, whether it's tax insurance, right? Great. So it's a part of that. And just, it may just simply take, you know, much longer for this than wine, right?

Speaker Change: Consumers in rates right, which to your point is a highly unusual.

Speaker Change: I guess, how much of that do you think is just.

Speaker Change: Some of the color we've picked up people just.

Speaker Change: A lot more aware of kind of total.

Speaker Change: Costs, whether it's taxes insurance rates great suppliers.

Speaker Change: Part of that and just it may just simply take much longer for the worldwide rights to <unk>.

Glenn Kelman: I guess it's a climate size, right? You know, it keeps up to higher costs. You know, or do you think, you know, we can help race and perhaps prices going down, that that will be enough to unlock given, you know, so much underlying to be in?

Speaker Change: <unk> right.

Speaker Change: Higher costs.

Or do you think.

Speaker Change: Rates and perhaps prices going down that that will be enough to mark given so.

Speaker Change: So much underlying demand.

Glenn Kelman: Great question, Curtis. I think some of it might just be that it came too late in the home buying season. Some people are on vacation this week. And so the reaction has been slower. If that had happened in April, May, June when people were rarer and ready to go, maybe we would have had a different reaction. Some of it is just that America has become so partisan that people are now convinced that the only thing that will save the housing market is if their candidate wins. When I'm not sure that goes one way or the other, but be that as it may, Americans are distracted.

Glenn Kelman: Great question, Kurt. I think some of it might just be that it came too late in the home buying season. Some people are on vacation this week, and so the reaction has been slower. It said it happened in April, May, and June, when people were raring and ready to go.

Speaker Change: Great question, Kurt I think some of it might just be that it came too late in the home buying season from people are on vacation this week.

Speaker Change: And so the reaction has been slower if that had happened in April may and June when <unk> for rare and ready to go.

Glenn Kelman: Maybe we would have had a different reaction. Some of it is just that America has become so partisan that people are now convinced that the only thing that will save the housing market is if their candidate wins, when I'm not sure that goes one way or the other. But be that as it may, Americans are distracted, there's some fatigue, and the reaction may be slower. It's just inconceivable to me that there won't be any reaction. The actual physics of how much you pay every month has significantly changed, no matter what the insurance offset might be in Florida or California.

Speaker Change: Maybe we would have had a different reaction. Some of it is just that Americans become so partisan that people are now convinced that the only thing that will save the housing market is if their candidate wins.

Speaker Change: I'm not sure that goes one way or the other.

Speaker Change: But be that as it may Americans are distracted there's some fatigue.

Glenn Kelman: There's some fatigue, and the reaction may be slower. It's just inconceivable to me that there won't be a reaction. The actual physics of how much you pay every month have significantly changed, no matter what the insurance offset might be in Florida or California. Okay, that makes sense.

Speaker Change: And the reaction may be slower, it's just inconceivable to me that there won't be a reaction the actual physics of how much you pay every month have significantly changed no matter, what the insurance offset might be in Florida or California.

Speaker Change: Got it okay that makes sense and then.

Glenn Kelman: And then, so in terms of just thinking about the partnership, business, any effect in terms of, I just prefer to contribution with next coming in, maybe we're going to need someone going to the other or, yeah, I should be thinking about that generally. You don't kind of need to use it. Well, we think that the partner businesses can continue to grow for two reasons. One is that some of the sales execution improvements we're seeing in the brokerage, we're also seeing in the partner business. We hired a new leader to run it and she's just absolutely fantastic.

Glenn Kelman: Okay, that makes sense. So in terms of just thinking about the partnership business, any effect in terms of, I guess, revenue contribution with NEXT coming in, you know, maybe revenue from one going to the other or, yeah, how should we think about that generally, you know, kind of through the years? Well, we think that the partnership business

Speaker Change: So in terms of just thinking about the partnership.

Speaker Change: Business.

In terms of.

Glenn Kelman: Well, we think that the partner businesses can continue to grow for two reasons. One is that some of the sales execution improvements we're seeing in the brokerage we're also seeing in the partner business. We hired a new leader to run it, and she's just absolutely fantastic.

Glenn Kelman: And then the other reason is that we aren't going backwards on our digital shift. We have decided that we want to focus the brokerage on the most profitable opportunities, and we do need more agents to do that because we're raising our service levels and finding out that the extra agents are paying for themselves through higher close rates, but that isn't giving them more opportunities. They're getting kind of the same proportion of opportunities but just meeting more customers, serving them better, and getting a higher close rate.

Glenn Kelman: And then the other reason is that we aren't going backwards on our digital shift. We have decided that we want to focus the brokerage on the most profitable opportunities. And we do need more agents to do that because we're raising our service levels and finding out that the extra agents are paying for themselves through higher close rates. That isn't giving them more opportunities. They're getting kind of the same proportion of opportunities, but just meeting more customers, serving them better, and getting a higher close rate. So the business is going to continue to shift forward a more digital margin.

Glenn Kelman: So... The business is going to continue to shift forward in more digital margins, and we're going to continue to be rational about who's the best person to serve this customer, who's going to deliver the highest close rate and the most profit.

Glenn Kelman: And we're going to continue to be rational about who's the best person to serve this customer, who's going to deliver the highest close rate and the most profit.

Unknown Executive: Thanks very much. Once again, to ask a question at this time, please press star in the number one on your telephone keypad.

Jay Mccanless: Once again, to ask a question at this time, please press star, then the number one on your telephone keypad. Our next question comes from Jay McCandless with Wedbush. Your line is open.

Jay Mccanless: Our next question comes from Jay McCannness with Wet Bush. Your line is open.

Jay Mccanless: Hey, good afternoon, everyone. So glad just to take this a step further. What is plan B? If more you don't come down because this to me, this sounds very much like ours to 2023, where one said, right, we're going to come down and we really didn't see that move this year until we bought the employment numbers for starting to fade a little bit. So kind of walk us through what plan B is if the grades go back to high sixes low sevens.

Operator: Hey, good afternoon, everyone. So Glenn, just to take this a step further, what is plan B if mortgage rates don't come down? Because to me, this sounds very much like August of 2023, where everyone said rates were going to come down. And we really didn't see that move this year until we thought the employment numbers were starting to fade a little bit. So kind of walk us through what plan B is if rates go back to high six, or low seven.

Glenn Kelman: Great question. Plan B is drink our own urine or our competitors' blood. Dan the foxhole, I don't know if you remember, but the last earnings call ended with me singing a line from a Who song 'Won't Get Fooled Again.' Where I had said we're not banking on low rates when other people had thought they might come down. I don't know, I'm just very, very seasoned in ups and downs in the housing market. If it comes, it'll be upside. We built a model that's more resilient, so we don't have to hire a bunch of salary agents and advance with that.

Glenn Kelman: Great question. Plan B is to drink our own urine or our competitor's blood in the foxhole. I don't know if you remember, but the last earnings call ended with me singing a line from a Who song, Won't Get Fooled Again, where I had said we're not banking on low rates when other people had thought they might come down. I don't know.

Glenn Kelman: I'm just... very seasoned in ups and downs in the housing market. If it comes, it'll be upside. We've built a model that's more resilient, so we don't have to hire a bunch of salaried agents in advance of that. We're ready to take share if the market grows. We're ready to take share if it doesn't. But we're not going to ease off.

Glenn Kelman: We're ready to take share of the market grows. We're ready to take share of the dozen, but we're not going to ease off.

Glenn Kelman: Okay, that's all I have. Thank you. We'll drink our urine before the blood. Actually, I wish I just had that.

Operator: Okay, that's all I have. Thank you.

Glenn Kelman: We'll drink our urine before the blood.

Glenn Kelman: I love or not if I hear.

Unknown Executive: There are no more questions.

Operator: On that shunning note, I...

Meg Nunnally: This concludes the Red 10th Corporation. Second quarter, 2024 earnings conference call.

Operator: This concludes Redfin Corp.

Unknown Executive: Thank you for attending, and have a great rest of your day. Thank you.

Speaker Change: [music].