Z - NASDAQ

Good afternoon. My name is Siarah and I'll be your conference operator for today. At this time I would like to welcome everyone to

Thank you. Good afternoon, and welcome to

Thank you, Siarah. And thanks, Brad. Good afternoon, everyone. Thanks for dialing-in for our fourth quarter and full year 2023 results. We are posting great revenue numbers across the whole of our increasingly diversified and growing businesses. Our early cohort of enhanced markets are working. So we are pressing the accelerator on expansion in 2024. I'm also pleased to share that we released an updated investor presentation available on our Investor Relations website to bring them all up to speed on the progress we've made on our growth pillars. We'll kick off the discussion today by walking you through our quarterly results, briefly addressing what's happening in the broader real estate industry, highlighting the opportunity in front of

Thank you, Rich. And good afternoon, everyone. As Rich said,

Thanks, Jeremy. And hello, everyone. As you've heard from Rich and Jeremy, we are pleased with how we've executed on our strategy and we are starting to see those efforts show up in our financial results despite the persistently challenging housing macro backdrop. In my comments today, I will cover our Q4 results, our outlook for Q1, some early thoughts on 2024 to help you all understand how we expect the year to play out, as well as the financial philosophy that underpins how we’ll manage the business moving forward. I will start with our Q4 2023 results, which exceeded expectations across the board. Revenue growth accelerated in Q4, up 9% year-over-year to $474 million, which was more than $31 million above the midpoint of our outlook range. Revenue outperformance was driven by acceleration across each of our revenue lines for residential, mortgages and rentals. On a GAAP basis, Q4 net loss was $73 million, representing 15% of our revenue. EBITDA was $69 million for the quarter. When excluding the impact of a $14 million one-time expense related to the partial lease termination of our Seattle office space, EBITDA would have been $83 million, resulting in an 18% EBITDA margin and marking a return to positive year-over-year EBITDA margin expansion. The combination of our revenue outperformance and effective cost management delivered the improved year-over-year EBITDA results despite a macro housing environment that remains constraint. Going a quick deeper, the partial lease termination option for our Seattle office space, which we previewed on our last earnings call was exercised in December. As a result, we estimate our 2024 facilities costs will decrease by $8 million and we will release an estimated $37 million in EBITDA expenses in total over the remaining life of the Seattle lease, which more than makes up for this one-time expense impacting our Q4 EBITDA. Returning to more details on the quarter, our Q4 residential revenue of $349 million outperformed our outlook range and revenue growth accelerated to 3% year-over-year. Our residential revenue performance was 700 basis points above the industry decline of 4%, according to data from the National Association of Realtors. We believe our Q4 outperformance was primarily driven by our ongoing investments in our top of funnel and mid funnel experiences that continue to drive improvements in our overall lead volumes. Rentals revenue growth accelerated in Q4 with revenue increasing 37% year-over-year to $93 million, primarily driven by our multifamily revenue, which grew 52% year-over-year in Q4. Our rental strategy is working well and our team is executing on growing the number of multifamily properties on our apps and sites, which reached an all-time high of 37,000 multifamily properties as of year-end. Total listings across our entire rentals marketplace were also up 40% year-over-year to an industry leading 1.7 million listings. Mortgages revenue of $22 million in Q4 returned to positive growth, up 22% year-over-year. With purchased loan origination volume growing 105% year-over-year. We are executing on our mortgage strategy to help more of our customers get financing through

Thank you. [Operator Instructions] Our first question today comes from John Campbell with Stephens. Please proceed.

Hey, guys. Good afternoon.

Good afternoon, John.

For the share gains, I just wanted to start -- Hey, maybe if we could start on the share gains. You guys are obviously using total real estate revenue. I guess there's a basis of comparison versus the industry. I know you guys aren't directly reporting on premier agent. But if we can maybe below the surface isolate that for now. But my question is, what the growth initiatives you have in place. And then obviously the flex pricing changes, would you expect to see a similar rate or maybe even greater degree of outperformance versus the national market just over the balance of the year and maybe even in next.

Hey, John. This is Jeremy Wacksman. I think the way we think about it is the share gains that we gave out this quarter are the two most mature markets over that two year period helps show the path for what you should expect to see as we roll out more enhanced markets. As a reminder, those were the ones where we had great year-over-year data and enough time for the cohorts to mature. And then as I said earlier, the nine markets that we're now -- we're seeing connections growth that out -- that grows faster in the industry, which is a great leading indicator for share gains. So that's why we're so confident in getting from nine to what will be 40 by the end of 2024. And as we build the depth with more partners to offer the services to more customers in those markets, you should expect to see similar share gains from the set of customers and partners that we're working within those markets.

Okay. That's helpful. And then one quick follow-up. I'm sure you guys are bracing for this question, but on the CoStar media blitz, if you will, obviously, spinning, I guess we'll find out soon how much this year, but it seems like a lot. I think the burning question with lot of investors is, will you guys respond, will this be something that requires you guys maybe up your brand investment spend, maybe if you could talk to that. I know you guys have called out the 80% organic traffic which is pretty important number but maybe if you could just shed some light on that.

Okay, John. Yeah, this is Rich. So, I guess I'd start off by saying we're not -- we're not currently seeing any impact from this spend, nor the buildup to the spend. As really Jeremy Hofmann discussed, our numbers are great, our progress versus our growth pillars, it's great. And we really like our go forward growth plan to expand our Super App to more markets of Jeremy Wacksman was just talking about. And all of this culminated, we are giving Jeremy -- Jeremy Hofmann gave his 2024 soft guidance on revenue growth to double digits with this -- with the competitive context in mind. And so that's how we feel things are going to develop. To your specific question or do you think we'll need to change anything. We are a company that believe -- as we think about our marketing mix, we think about it very broadly. We are technologists in our DNA, we are product builders, the customer is our north star. We have always believed that the most important part of the marketing mix is the product itself. This has served us really well historically, it is what has put us in a position we are in today being the traffic leader, the brand leader, the engagement leader and it's put us in a strategic position that is highly differentiated from anybody else in the industry, we are really trying to digitize the whole of the transaction. We're trying to re-platform this whole industry, we're trying to integrate it all into the same

Makes a lot of sense. Thanks for the time, guys.

Your next question comes from Brad Erickson with RBC. Please proceed.

Thanks. I guess just first on real-time touring in the markets where you've had time to see how it plays and appreciate the chart on the presentation. What would you say are kind of like the main friction points and then timeframe that like kind of between an agent getting -- starting to get those new higher quality leads and then choosing to lean in with their spend. And then I have a follow-up.

Yes, Brad. On real-time touring, it is a mix of eligibility with both the consumer and the agent and the listing, it's like all three things. And so, we're really pleased with how real-time touring has gone and I think you heard earlier, we talked about getting from 10% of connections, currently did 20% by the end of 2024 and that's through a mix of going broader into more markets but also going deeper in those markets with both customers and agents. And then on your specific question on the sort of agent partnering with the buyer, what we tend to find as we talked about this enhanced market strategy is when we start to work with these enhanced partners on the whole basket of services real-time touring,

Got it. And then maybe just a quick follow-up on Follow Up Boss. Can you just give a little more detail there, just kind of on the unlock of the synergies you guys are going after within the PA business. And then just any Integration costs for investment embedded there. Any color on that would be great. Thanks.

Yes, maybe I'll start on the strategy, and Jeremy, you can hit cost. This the strategy for Follow Up Boss as Jeremy Hofmann said, it's really twofold, right? One, it help make what is already one of the best CRMs in the industry, even better, right, give them oxygen and the ability to accelerate the roadmap of features and services that they have. And then secondly, it's to help introduce Follow Up Boss to more customers. So it's already the most popular CRM with our premier agents. But many of our premier agents don't yet use it and obviously many agents industry-wide don't yet use it, so helping them grow and attract more agent customers is the second part. When we do both of those things that rising tide is going to lift all boats, it's going to lift the

Yes, it's Jeremy Hofmann. I'll reiterate what Jeremy Wacksman just said. It is early, right? So, I highlighted in our prepared remarks, we're having -- we're seeing the first quarter of full cost to Follow Up Boss early and integration. I wouldn't say that there's outside investment at this moment, but definitely, really pleased with the product roadmap they have and the opportunity we have to really help them accelerate from here as we integrate them into our sales motions.

Got it. Thanks.

Our next question today comes from Mark Mahaney with Evercore. Please proceed.

Okay, two questions please. This sort of outperformance, I think you said it was about 700 bps of outperformance versus the residential market. I think you first guided the 400 bps, so just explain why you think you've been able to outperform, I know you've been doing it for a while, but maybe you outperformed a little bit more than you had expected in the quarter. Just how should we think about or how do you think about how your level of outperformance versus the market goes into this next year into '24. And then, I want to switch and ask you about costs and get back to this question. If you're going to keep fixed cost, fixed -- this $1.1 billion in variable costs, get leverage against it at that $400 million level. And how long do you think you can sustain that for. You've been talking about it for a couple of quarters. It sounds like you're giving in a little bit on the variable cost, showing a little bit of deleverage first before leverage. But just is that framework is still going to hold for you that you can keep that fixed cost of $1.1 billion and variable at $400 million in getting leveraging instead overtime.

Yes. So it's Jeremy Hofmann. Mark, I'll take the second one first. On the cost structure we feel -- continue to feel really good. So the fixed cost base, we expect to get leverage on over time, we feel like we're at the right levels right now. It'll grow with inflation a bit, but generally at the right levels. And that's really with an eye towards our year end 2025 targets on customer share gains. And we feel like we're well-invested on the fixed side. And then on the variable side, you're right, over time we will get leverage of course and listing showcase and rentals in

Thank you, Jeremy.

Your next question comes from Ryan McKeveny with

Hey, thanks a lot. Congrats on the progress. Curious if you can talk about listing showcase. I guess just reception to date, between what our premier agents and let's call it non-premier agents. And I asked because, within the slide deck and kind of the opportunity ahead of getting to 5% to 10% share of listings, it seems to suggest plenty of opportunity both for premier agents and kind of cross selling the listing showcase product. And non-premier agents, so anything you can share with us to date, obviously knowing it's small at this point in time, but yeah, how that's going so far and how you think about that balance and opportunity between kind of cross selling in the PA side of things versus new agents that don't currently partner with

Yes, happy to -- I mean, you're right, it is early in listing showcase having just launched in Q3 and we're just now flipping to national. But in the early signal there is lots of signal. And as I talked about the agent response has been really positive. I think folks are seeing it as a tool to market themselves and win more listings, as well as market to listing. And then of course that provides this benefit to our buyer experience. And that results in the higher engagement with page views saves and shares, we shared some of the data on. We are seeing success with both premier agents and non-premier agents in the markets we've been in and as we've continued to take it to more markets and we expect that to continue. And that gets -- that's what gives us excitement for the intermediate-term target we shared with you all going from what is less than 1% of listings today to 5% to 10% of total active listings at some point here in the future. And we think there's growth and opportunity beyond that. Scaling this business is requires solving a bunch of operational complexity of the team has been hard at work doing as Jeremy Hofmann talked about a required a bunch of media investments. It requires a bunch of partner operations that the team has worked hard to get right. And we're now benefiting from the fruits of a lot of that investment as we take this nationwide. So it is still early, we'll share more as we learn from BMO markets with the largest set of partners. But we're really pleased with the response and the progress and the ability to work with just great agents, whether they are existing premier agents or this is their way into working with for the first time. It's an exciting opportunity for listing showcase and that's something we're seeing.

Thanks. That's helpful. And then one on

Yes, it's a good question. The short answer to your last question is, it's both. And I think the reason why it's both, it's important to remember sort of why mortgage for the customer and for

Thanks a lot.

Your next question comes from Tom Champion with Piper Sandler. Please proceed.

Hi, good afternoon. Rentals growth is really strong. And it sounds like multifamily is driving a lot of that. The business has been around for a while. I'm just curious kind of the timing and why now that it's become kind of so large and picked up so much momentum. And just curious if there's any comment on the single room initiatives. I think that was announced recently. Thanks.

Yes, Tom. I'll take both of those. I mean, I think the why now is just the rental strategy we've had in place for a while is working and it's working for us consumers and partners. We've had -- and we have grown and have the largest audience in the category where we have the most renters coming to

Our last question today comes from Ron Josey with Citigroup. Please proceed.

Great. Thanks for taking the question. Just a quick follow-up on the rentals question right there. Just when you think about growth coming going forward is that from the multifamily property growth of 37,000 and growing or the mix of single family multifamily and sort of offering everything to everyone, which given your audience, I'm assuming that's the case, but any insights on those two. And then, I think Jeremy, you talked about the staffing in head count for sales. And you mentioned rentals and listing showcase and

Yes, maybe I'll start, and you can hit the staffing. I mean the short answer is, it's going to be a mix of both. You're seeing I would say over indexing growth from a revenue contribution standpoint in multifamily right now, but back to the strategy of the most complete set of listings, we do have both multifamily growth and longer tail, smaller inventory growth in terms of our rental manager and suite of products and services that our landlords and property managers use on that side. So we're excited about both segments of supply, driving not just audience growth and engagement but the business over time. But obviously in the near-term, you're seeing a faster acceleration ramp on the multifamily side. In Q4, you saw that over index and I think you saw in Q3 as well and you should expect to see that early into next year as well. And then maybe on the various step ups, I don't know if you want --

Yes, I can hit that. I mean, I think it's natural at this point, just given the evidence of traction that we have that we should be accelerating growth, and it's across all three of those. They all are doing quite well, but have a lot of opportunity ahead of them and we want to make sure we are well-positioned from a sales staffing perspective to capture that growth.

Got it. Thank you.

Thank you for your questions. This will conclude our Q&A session. So I would like to pass the conference over to Rich for any further remarks.

Thanks, Sarah. And thanks everybody for your questions. You've heard today about our tremendous progress that we've made over the past two years on our journey to transform and re-platform this largest of industries. As we look ahead we are pressing down on the accelerator, increasing the breadth and depth of our products and services across more markets as we tap into this $30 billion TAM that's already accessible, already raising their hands for help, already inside our store. We'd like to thank you again for being on this journey with us and we look forward to sharing more progress with you in the months ahead. All right. Have a nice evening.