Good day, ladies and gentlemen Welcome to the Redfin Corporation Q4 2018 earnings call. Today's conference is being recorded. At this time, I would like to hang things over to Ms. Elena Perron. Please go ahead, ma'am..

Thank you Lisa. Good afternoon and welcome to Redfin's financial results conference call for the fourth quarter and full-year ended December 31, 2018. Joining me on the call today are Glenn Kelman our CEO and Chris Nielsen, our CFO. You can find the press release on our website at investors.redfin.com.

Before we start, note that some of our statements on today's call are forward-looking. We believe our assumptions and expectations related to these forward-looking statements are reasonable, but our actual results may turn out to be materially different.

Please read and consider the risk factors in our SEC filings together with the content of today's call. Any forward-looking statements are based on our assumptions today and we don't undertake to update these statements in light of new information or future events.

During this call, the financial metrics, unless otherwise noted, will be presented on a GAAP basis and includes stock-based compensation as well as depreciation and amortization expenses. You will find reconciliations of non-GAAP measures discussed today to the most comparable GAAP measures in our earnings release.

All comparisons made in the course of this call are against the same period in the prior year unless otherwise stated. With that, let me turn the call over to Glenn..

Thanks Elena and hi everyone. Redfin's fourth quarter revenues were $124.1 million, up 30% from the fourth quarter of 2017. We lost $12.2 million, compared to $1.8 million loss in the fourth quarter of 2017. Our revenues and earnings were both better than the projections we gave you in our November earnings call.

In our core business of brokering home sales through Redfin agents and through other firm's agents working as our partners, revenues increased 13%. This was due in large part to the weakening market we discussed in our last call, especially in the coastal cities where Redfin's has had the largest presence. Our share gains continued.

Comparing the fourth quarter of 2018 to the same quarter in 2017, our market share gain was 10 basis points. This was less than the 14 basis point gain we saw in the third quarter mostly due to a single month shortfall that we see as an anomaly rather than a trend.

Visitors to our website increased 18% over the same quarter last year, less than the third quarter's 19% growth and the same growth is the second quarter. For all of 2018, revenue increased 32% over 2017 to $486.9 million with a loss of $42 million, compared to a loss of $15 million in 2017.

The larger loss was due to more spending on direct advertising and to fund long-term growth through investments in personal service, RedfinNow and Redfin Mortgage. We feel sure these investments are good bets, starting with the investment in personal service.

The software we built for governing how many customers each agent gets and the cultural change to meet customers more often in person have now given us the latitude that let agent serves more customers in 2019 while still expecting each customer to be served well.

The renovations capabilities that we are investing in for RedfinNow should over time benefit our whole home selling business.

And we believe that investing in our own loan origination system integrated with our brokerage software for a seamless customer experience between buying a home and getting a mortgage will in time lead to more customers using Redfin for both services. That homegrown system still limits our productivity now.

But it should in the coming years lead to automation gains over other lenders that depend on hardwiring our own software to Redfin's lending processes. With Redfin system highlighting the task across many loans that require human attention. In today's call, we will talk about our fourth quarter results.

But even in the best of years not much happens in real estate through the holidays. At Redfin, we spend that time preparing for next year. And so we would like to spend our time today discussing our 2019 plans to accelerate growth, to raise consumer's awareness of Redfin and to broaden the services we offer our customers.

We will also discuss our outlook on a 2019 housing market that has taken a modest turn for the better. So let's start with 2019's big ad campaign. By the end of the fourth quarter, Redfin introduced the video, radio and Billboard ads for our 2019 media campaign, which we launched on January 28 in 22 markets.

In 10 of those markets, we never meaningfully advertised before. We developed the ad without an agency so we could allocate most of our budget to placing the ads broadly. And so, we could test many different versions of each ad.

Encouraged by 2018's results, we brought back the all-red billboards that show only a Redfin yard sign and the promise of a 1% listing fee. We call this ad the sledgehammer. But as the market has become more balanced between buyers and sellers, we are running a second Billboard highlighting our performance.

Three consecutive studies over three years show that when comparing the listing price to the sales price, Redfin sells homes for more money than traditional brokers. In test, our target customers have responded well to the phrase, sell for more than the home next door.

All of our ads make a direct pitch, but the 30 second spot we developed for TV also seeks to frame Redfin as the modern way to buy or sell a home, arguing that paying an agent a high fee for the same old service is going the way of dial-up modems, Jazzercise and rotary phones.

In head-to-head YouTube test between this ad and its predecessors, more viewers of this ad visited Redfin.com to learn about our brokerage giving us reason to believe that it can be our most profitable yet.

But as we explained in our last earnings call, our 2019 ad campaign will increase this year's losses, especially in the first quarter when we buy media for recruiting customers who won't close until the summer.

The ads should accelerate 2019 revenue growth and contribute to profits by 2021 by creating the consumer awareness of a multibillion-dollar company. As this awareness builds, we plan for ad spending to decline after 2019 as a fraction of our total budget, while we expect the ad's cumulative impact to increase each year.

Our mass media campaign is important for another reason. As an alternative to direct marketing where the cost of meeting a Redfin customer increased significantly, mostly due to price increases on Google and Facebook, but also because consumer see most of our ads from a phone, a device better suited to impulse purchases than signing up to buy a home.

To keep making money from direct marketing ads, we have to getting smarter about the simple actions consumers can take from a phone that still indicates serious interest using data most websites don't have about who actually buys or sells a home and how.

For each potential customer, we are now working to personalize which ads we show, the ad spending and what Redfin.com asks the customer to do next, an engineering effort that we believe will over the years let us directly recruit real estate customers from Facebook and Google at an unprecedented scale.

Until then, more of our money will go to awareness campaigns that seem well-suited for an infrequent and emotional purchase. For this awareness to drive sales, we have to deliver on the ad's promise of better service.

For the fourth consecutive year, a third party study commissioned by Redfin found that our customer satisfaction, as measured by a net promoter score, is higher than traditional brokerages. In our November 2018 survey, Redfin was 49% better.

But improvements in the rate at which our customer successfully buy a home have been hard to come by, despite a major 2018 investment in personal service. In the fourth quarter, the likelihood that Redfin homebuyers would successfully close on a sale within 180 days of their first home tour continued its now 38 month trend of year-over-year declines.

The magnitude of those declines is narrowed from three percentage points for the customers we met at the beginning of 2018 to 0.3 point for the customers we met last July. Any increase in customer success rate we would hope to earn through personal service was likely offset by a market fall in the second half of 2018.

We feel humbled by this result, but undeterred. It may take years, but we believe the pairing service and software improvements can make Redfin better than any other brokerage at guiding customers through the six-month topsy-turvy search for a home.

As we discussed in our last earnings call, we are now increasing the number of new customers each agent gets by about 8% over the course of 2019, slightly exceeding 2017 levels. Agent productivity in 2019 should increase modestly even if customer success rates don't improve, just because we expect agents to have more opportunities for a sale.

But we also think we can lift customer success rates on this higher volume. One reason our agents can do more is because of the system we built in 2018 for governing how many customers each agent gets.

Rather than overwhelming an agent with too many new customers in one day, this system distributes new customers throughout the month and assigns more customers to top-performing agents. This should result in more sales month-to-month and better service day-to-day.

The cultural transformation we started in 2018 for agents to meet customers more often face-to-face will also be crucial for our 2019 success. But in 2019, we will extend this program to engage customers more frequently between those meetings.

Our best agents already connect with homebuyers nearly every day recommending listings, commenting on relevant sales and showing market updates via text messages and email. In 2019, we will identify the most valuable types of follow-up and build software so that it's easier for every agent to follow-up more often with every homebuyer.

Since we expect it will be harder to sell a home in 2019, we will take the same approach with our listing agents.

One of the challenges in improving homebuyer success rate is that there are so many reasons outside of the home buying process itself that customers decide not to buy a home, because they can't sell the old home or they can't get a loan or because the closing gets hung up. We have come to recognize all of those problems as Redfin's problems.

With one new Redfin service rolling out after another for fixing up homes with Redfin Concierge Service buying them on the spot with RedfinNow, for lending money through Redfin Mortgage and handling the closing through Title Forward, our 2019 strategy is to take responsibility for every part of a customer's move.

Our customers need this from us and in delivering it, we can grow revenues faster than our customer base. Offering a complete solution depends on a cultural change. To maximize efficiency, we have historically narrowed our agents' focus to either buyers or sellers.

Redfin's listing specialists have let their customer sort out which agent to use the buy their next home and how to finance it before their old home sells and how to coordinate the closings to keep a roof over their heads.

But as we broaden Redfin's mandate to encompass a customer's home move, we will ask a Redfin agent to act more like an account manager responsible for the customer's entire move. This starts with making sure that when we sell a customer's old home, we help the customer buy the next one too.

Handling both sides of the move has gotten more important as our 1% listing fee becomes the point of attack for meeting new customers of all types.

It's early days for a new program to get sellers to buy their next home through Redfin, but we have already seen a significant year-over-year increase in the percentage of third quarter listing consultations that led to a meeting with a Redfin buyers' agent in the fourth quarter and by the increasing proportion of sellers' agents who decided to represent their customers as buyers.

When the sellers' agent has instead recommended a Redfin colleague to handle a purchase, this buyers' agent is now often invited to the listing consultations. All those efforts still have to yield more sales. But we are encouraged by the changes so far in agent and customer behavior.

We have also changed our site to ask out listing customers about their home buying plan and changed our agent software to make it easy for sellers' agents to recommend the right buyers' agent in any market we serve.

In 2019, we will experiment with more incentives for agents and a pricing change to reward customers who both buy and sell a home with Redfin. But our sellers' agents aren't just recommending Redfin's home buying service. We are also taking a larger role in getting customer's homes sold.

We expanded Redfin Concierge Service for fixing up a listing before putting it on the market. From California and Washington, DC markets to Seattle. We charge a 2% listing fee for Concierge service.

So it's still less expensive than a traditional agent, but the before and after pictures of the homes we painted, landscaped or staged would knock your socks off. In the first full month since its November launch in Seattle, Concierge has accounted for 20% of Redfin's Seattle listings priced above $500,000.

We now plan to expand this service to other markets later this year. We are building a new field organization for coordinating simple home renovations, which will be used not only for Concierge listings, but also by RedfinNow. The synergy between RedfinNow and our brokerage goes beyond renovations.

As a new business, RedfinNow ran as a separate organization with a separate salesforce but in 2019, Redfin is mainlining RedfinNow. In some RedfinNow markets, we are testing whether or sellers' agents and not a separate RedfinNow employee can effectively offer RedfinNow to every homeowner as an alternative to a brokered sale.

Using our existing demand channels and field organization should let us expand RedfinNow more quickly. Already it expanded from Orange County, San Diego and the Inland Empire to Los Angeles in January and to Dallas this week. We also continue to find that our brokerage software is useful for RedfinNow.

If this year goes as planned, software we are already building for the brokerage will also be used by RedfinNow for automatically booking a homeowner consultation, for capturing the information needed for an online listing and for preparing offer paperwork.

We have been pleased not only at how well RedfinNow fits into our product portfolio, but also by homeowner interest in evaluating an instant offer. Just as McDonald's customers are asked about getting fries with their burger, it now seems likely that many homeowners will want to consider a RedfinNow offer alongside our listing presentation.

What's surprising is that our agents are also clamoring for RedfinNow to come to their market. Far from worrying about losing a sale to RedfinNow, both buyers' and sellers' agents at Redfin want instant offers as a tool in their toolbox.

So we consult a wider range of customer problems, whether those are cash crunches, estate sales, relocations or remote sales by investors. Of course, while we can pay for a home and whether it's a good deal for both the owner and RedfinNow is still a tricky business.

In the fourth quarter, for example, a worrisome end of year market limited the number of homes we bought and increase the number we sold. Revenues will shift between brokerage sales and instant offers as we price in more or less market risk. But giving customers the option of an instant offer seems here to stay.

The final component of the solution we want to offer nearly all our customers is a loan to finance their next purchase and a title company to handle the closing. Redfin Mortgage is already to the number one lender for Redfin homebuyers in its home state of Texas, but not anywhere else.

From the start, Redfin agents have wanted our mortgage advisers to work with them side-by-side in the field, but we corralled the mortgage team in Dallas until we could work out how to handle every step of loaning our buyers money.

Now in 2019, we are ready to hire local mortgage advisers with some already in place in Austin, Chicago, Houston and the Virginia and Maryland suburbs of Washington, DC. The immediate increase in loan applications in those markets has already made us wish we have done this earlier.

And local lenders should also lead to better service, which is more important than increasing sales. We have always told our agents to recommend Redfin Mortgages or title service, only when that's what's best for the customer. Investing in all these businesses, mortgage, title, RedfinNow is like compressing a spring. Let me say that again, sorry.

Inventing in all these businesses, mortgage, title, RedfinNow is like compressing a spring, straining our income statement and our people. But if and when these businesses pay off, our expectation is that the spring won't just return to its former shape, but launch the company into a new competitive position.

Before turning the call over to Chris, let's address the U.S. housing market. In August and again in November, we argue that the market was weaker than many analysts had realized with buyers affected by rising mortgage rates.

But we also said that the underlying economy was strong and that buyers in 2019 could come back to a market where there are still relatively few homes for sale, wishing they had been greedy when others were fearful. Now, we believe the housing market is getting stronger.

Mortgage rates reached nearly 5% mid-November, but in February declined below 4.5% to their lowest level since April 2018.

Despite some regional setbacks due to Midwest and Seattle weather and the many federal workers in the Washington, DC area who spent January waiting for a paycheck, homebuyers seem more confident now than they were in the second half of 2018. This is a significant but still modest change.

Yes, demand is weaker now than it was at the beginning of last year. Comparing January 2019 to January 2018, the number of price drops increased 4%, but no one is surprised by that. What matters is that this year-over-year change was larger in the fourth quarter when price drops had increased 7%.

Another encouraging sign is that we expect the supply of homes for sale to increase giving buyers more homes to buy, but not so many that prices drop broadly. The number of homes for sale on February 1 was 5% higher in 2019 than 2018, but still 11% below the 10-year average.

More homes will likely reach the market soon as our listing consultations increase nicely over the past two weeks and many of our agents report that homeowners from last year who wanted to wait for a better market are now coming back.

Buyers in more affordable markets like Phoenix and Southern California's Inland Empire are still careful, but Atlanta is probably the nation's hottest large market continuing a trend favoring affordable, diverse and builder friendly cities like Houston, Nashville and San Antonio.

Seattle has recovered somewhat as fears of Amazon's departure were overblown and tax reform has encouraged some people to migrate to states like ours with no income tax. All of this gives us reason for cautious optimism. The market is not as sick as it was in the last half of 2018 but it isn't as strong as it was in the first half either.

With that, let's hear from Chris on our first quarter guidance..

Thanks Glenn. We finished 2018 with fourth quarter results that exceeded the top of our guidance range. Total revenue was $124 million, an increase of 30% from last year. Real estate services revenue, which includes our brokerage and partner businesses, grew 13% year-over-year.

Brokerage revenue or revenue from home sales closed by our own agents was also up 13% on 14% growth in brokerage transactions. Brokerage revenue per transaction was down by 1% as average home value per transaction declined year-over-year. Revenue from our partner agents grew 9% on flat growth in partner transactions.

Revenue per partner transaction increased by 9% as we finished lapping the conclusion of our partner program customer refund at the end of 2017. For the property segment, which consists of homes sold through RedfinNow, we record the entire value of a home sale as revenue.

In the fourth quarter, the properties segment generated nearly $22 million of revenue, up from $5 million in the fourth quarter of 2017.

To support the continued growth of RedfinNow, we plan to further increased our capital limit which includes properties we own and also those that we are committed to purchase at any one time from $35 million to $50 million. We still expect that over time, more of the capital to buy homes will come from lenders using the homes we buy as collateral.

Our other segment, which includes mortgage, title and other services, contributed revenue of $2.5 million, up from $1.9 million in the fourth quarter of 2017.

I would also note that we are now beginning to break out our intercompany revenue, which represents brokerage services revenue earned by Redfin agents for representing buyers of properties sold by RedfinNow. Prior to the fourth quarter, this revenue was reported in the other segment.

For the fourth quarter of 2018, intercompany revenue amounted to $71,000. Gross profit was $26.2 million, down 10% year-over-year with negative gross profit contributions from both properties and other segments.

Real estate services gross margin was 27.8%, down 570 basis points year-over-year due to continued deceleration in our real estate services growth pressuring our margins. This was primarily driven by a 440 basis point increase in personnel costs, including stock-based compensation due to increased headcount as a percentage of revenue.

For our property segment, cost of revenue includes the purchase price, capitalized improvement, selling costs and home maintenance expenses.

In the fourth quarter, properties gross margin of minus 4.3% was down from 2.4% in the fourth quarter of 2017, primarily due to a 490 basis point increase in the cost of properties, a 150 basis point increase in personnel costs, including stock-based compensation due to increased headcount and an 80 basis point increase in transaction bonuses, each is a percentage of revenue.

Our other segment had a gross margin of minus 28.1%, up from minus 33.5% in the fourth quarter of 2017 as those businesses continue to scale. Operating expenses increased 23% year-over-year and represented 31% of revenue, down from 33% one year ago.

Technology and development and general and administrative expenses both grew slower than revenue increasing by 21% and 20% year-over-year, respectively as we continue to leverage our fixed costs. Marketing expenses grew faster than revenue. Our marketing spend increased 33% year-over-year on increased advertising.

Our stock-based compensation increased 94% year-over-year to 4.8% of revenue, up from 3.2% of revenue in the fourth quarter of 2017. And our net loss including stock-based compensation and depreciation was $12.2 million, compared to a $1.8 million net loss in fourth quarter of 2017.

Diluted net loss per common share was $0.14, compared with the $0.02 diluted net loss per common share in the fourth quarter of 2017. Before moving to our first quarter outlook, I would like to briefly summarize our full-year 2018 performance. Our customers booked over $25 billion in real estate transactions.

Compared to 5% commission, we saved our brokerage customers over $154 million. We delivered full-year revenue of approximately $487 million, up 32% year-over-year and gross profit of $119 million, up 7%. Our total operating expenses grew 28% and net loss for the year increased from $15 million in 2017 to about $42 million in 2018.

Now turning to our financial expectations for the first quarter of 2019. Revenue is expected to be between $101.5 million and $105.1 million, representing year-over-year growth between 27% and 32%. We expect our property segment to account for $15.0 million to $16.5 million of that revenue.

Net loss is expected to be between $69.2 million and $67.8 million, compared with the $36.4 million net loss in the first quarter of 2018. As we discussed on the third quarter earnings call and Glenn mentioned earlier, we are spending more in 2019 on offline advertising than we did in 2018.

As we have refined our plans, we now expect to be spending between $37 million and $47 million on offline advertising this year, compared to $12 million in 2018. Those advertisements will run in the first half of the year with the expenses weighted more to the first quarter than the second quarter.

Our guidance includes approximately $6.6 million of stock-based compensation and $2.1 million of depreciation and amortization. It assumes among other things that no additional business acquisitions, investments, restructurings or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.

And with that, we will open it up for your questions..

[Operator Instructions]. We will take our first question from Tom White, D.A. Davidson..

Great. Thanks for taking my questions guys. Just a quick one on market share. I saw that it was up year-over-year, but down sequentially, which at least according to my model hasn't happened in quite some time. So just maybe a little bit of color there? I think you mentioned something about a one-month anomaly.

I am not sure exactly what you are referring to there. And then just on the impact of marketing spend on revenue growth this year, it sounds like you are guiding to it having an accelerating effect on revenue. I think last quarter you talked about that being very modest.

Is it still sort of that modest benefit? Or has your thinking there changed for some reason? Thanks..

Sure. So why don't we talk about share first and then advertising second. On share, sorry, just got distracted. So on share, we always see share in the absolute sense get compressed in the fourth quarter. I know it doesn't make any sense that share should be seasonal. The whole reason you measure market share is to factor some of that out.

So we would have liked to see share grow faster. You always want that. But I wouldn't say we are particularly alarmed by whether the share is positive or negative sequentially quarter-over-quarter just because we have always measured the year-over-year gain because there have been differences between summer and winter in share.

And then the other factor around share is just that I think being concentrated in the coastal cities is probably creating a little bit of a headwind. But that's not a major factor. I would expect our share gains to be stronger going forward into 2019. As far as advertising goes, we don't want to change our expectations around growth.

I do think it will be higher growth in 2019 than in 2018. But we are not going to blow the doors off. And the reason is that it's sort of a long-term investment in awareness and it isn't something that just immediately has a huge pop. So we are going to definitely feel a difference. It's going to show up in our revenues, especially in Q2 and Q3.

And if it doesn't, I would say the advertising campaign hasn't been successful. But the benefit is going to extend over several years..

Okay.

And just on the anomaly comment, any color you can give on those?.

Well, an anomaly is always hard to explain. We have tried to look at November which is the month where it occurred to see if there was something that happened there that we understand. And we haven't been able to explain it. I just think that at some degree of granularity, you are always going to see some ups and downs.

Our share, on a daily basis, certainly goes up and down just because revenues can be lumpy, transactions can be lumpy. So if this were a long-term trend where we thought the business was going to gain share 10 basis points per quarter, we would probably have different spending discipline than we do, different growth expectations than we do.

But our expectation is that we can grow share at the same rate as we generally have. I don't want to be too explicit about multiyear guidance or anything like that, because we don't have a crystal ball, but I would say that we still view what happened in November as an anomaly..

Great. Thank you guys..

Next up, we will hear from Jason Helfstein, Oppenheimer..

Hi. First just a question about RedfinNow and then the core brokerage business.

Any more information you can share on RedfinNow? Perhaps the types of conversion rates you are saying? Like what percent of consumers actually take the offer once they are offered the average discount? And then just on RedfinNow, your plans for market expansion in 2019? Do you think you want to talk about that? And then second question would just be, Glenn, are you thinking about further market expansion? Obviously we saw Canada, but further market expansion for the brokerage business in 2019? Or just focusing on going deeper into the existing markets? Thanks..

Got it. So first of all, we are not sharing metrics about conversion and pricing on RedfinNow. What I can tell you is that most customers who get a RedfinNow offer don't take it. The pricing approach is a 10% discount once you include all the cost and fees. But there are many customers who want to see that.

And we believe that offering that choice increases the total number of homes that we sell. So I think all of that is probably enough detail. As far as expanding RedfinNow, we are not going to be as aggressive as the most aggressive players in the space. But we are probably not to be as cautious as the most cautious.

So you should think about three, four or five markets this year, something on that order. We do have a field organization already in place. We have built some brokerage software that gives us some scale. And I think the balance against that is that everything we do we want to do it well. We want to understand the financial risk.

We want to execute with excellence. And so we just don't see this as a land grab. We see this as building the best absolute product, leveraging the assets we already have in terms of Redfin.com and 1,500 real estate agents who are in customer's living rooms as we speak. The brokerage isn't going to expand much this year beyond Canada.

We bit off quite a bit there and we have to chew it. There are different labor laws. There are different privacy laws. It's just a new country. So we are going to spent some time just making sure we get really good at selling houses in Toronto and Vancouver before we go to Winnipeg or somewhere in the United States that we haven't already been..

Thank you..

Brent Thill from Jefferies is up next..

Great. Thanks for taking the question. This is Alex Giaimo, on from Brent. Just taking a look at your 1Q guide, it basically implies about a 13% year-over-year increase in real estate services revenue after stripping out the properties outlook.

And on the last call, Glenn, you articulated a potentially optimistic scenario of reacceleration real estate services topline growth for the full-year in 2019? We had it coming at 23% growth for the full-year 2018. You touched on this a bit on a previous question.

But you do view that goal for reacceleration as more of a possibility? Or is that the expectation? And if it's the expectation, it seems to rely heavily on success around the marketing campaign. So are there any early results that are providing that confidence? Thanks..

Understood. So our expectations have remained the same. We are not stepping back from those. We have already explained that when you run a TV ad, you are unlikely to see the revenue from it in the same quarter and some of that is just the six-month sales cycle to buy a house.

Even if we had somebody in escrow today who watched the TV ad last week, it would be hard to close that sale by the end of the quarter. So I think we are going to see a modestly improving housing market, greater awareness of Redfin, greater agent productivity.

So Q2 and Q3 have been consistently where we have told people you should start to see results. And then we have also tried to be clear that we think it will lead to higher growth rates beyond 2019.

We have spent four years experimenting with mass media across 14 or 15 markets, enough to be sure that there really is sustained lift even from an ad that doesn't run in ensuing years for just one year of TV.

And I think the creative has tested better than past creative and we have gotten fairly disciplined about that where we show different versions of the ad. We test it on YouTube. We do dial testing with consumers. We evaluate how much people like the ad, how likely they are to act on it.

We have tested against competitors in the brokerage space who are running ads. So life is always unpredictable but we have tried to make it as predictable as we can. This is our fourth or fifth year of advertising and I think we are doing the work that we need to do to expect revenue growth in Q2 and Q3.

So we are sticking to the guidance that we gave around the full-year. And I just want to be clear that we obviously have more precision around next quarter than we do for the full-year..

Just one other comment there is that in the first and second quarters of this year, we will be comparing to what was a pretty good U.S. real estate market last year. As we get later in the year, it was a much more challenging market environment. And so that's one other factor that could play into what the year-over-year growths look like..

Much softer comps in Q3 and Q4..

Got it. Thanks guys..

Up next from SIG is Jack Micenko..

Hi. Good afternoon. Glenn, in the prepared comments you had spoke about maybe the ad spend dialing back in 2020 and I think the incremental here is $37 million to $47 million.

Not looking for guidance, but when you go into 2020, does that all go away? Do we stay elevated above the $45 million run rate we ended last year with? How do we think about the digesting period in 2020?.

So first of all, we don't think that spending will increase as a percentage of revenue. So we expect to get leverage off our advertising budget, but that doesn't mean that we take say $40 million of advertising spending down to zero. It just means that there is probably a relatively fixed cost to generate awareness of a new brand.

It's somewhere between $30 million, $40 million and maybe $70 million or $80 million per year. So you could increase that somewhat to reach the markets that we haven't yet touched, but it's not as if at $1 billion of revenue, we are going to be running double or triple the amount of mass media. So we just expect significant leverage off that spending.

We are lighting the log, not burning the fuel..

Okay. And then I think you are about 1% in 30 of, give or take, 90 markets. Any plans in 2019 to move that number meaningfully higher? I know that in some markets price points just don't work, but curious as to the outlook on 2019 for the commission rates..

Well, we talked a little bit about this in the prepared remarks but it may have been subtle that we have a 1% fee in some of the major U.S. markets where home prices are high. But I would say the most likely change is bundled pricing where the most savings go to people who both buy a home with us and sell a home with us.

We want to make sure that the economics don't get skewed too far towards sellers because what can happen is that people will price shop for the two products separately where they take the best deal on the sell side from Redfin and try to get more savings from somebody else.

So my guess is that if pricing were to go in any direction, it would be toward maximizing savings for customers who both buy and sell with Redfin..

Okay. Thanks for taking my questions..

Thanks..

Your next question today comes from Ryan McKeveny, Zelman & Associates..

Hi. Thank you guys.

On the entrance into Canada, I am wondering if you can give some color there both in terms of how you are rolling it out in terms of actual numbers of agents that we will start seeing up there? Anything you can give on any likeness or differences in terms of the agent compensation? And likewise, just how that expense base plays into things as you think about 2019? What's maybe embedded within the 1Q guidance? And bigger picture, how do you see that playing out? Because I think we have historically seen, back to your IPO is newer markets tend to be kind of a drag on margins initially obviously and then ramp up.

So if you can just give any color around how you are viewing the opportunity and ultimately the expense on things as well would be helpful. Thank you..

I think there is a tendency to see Canada as a different country, which is obviously a fact, but financially, I would think about it as two new cities added to our 87. It increases our addressable market by less than 5%. There are other cities besides Toronto and Vancouver, but that's the major opportunity.

And so I don't think that its revenue or gross profit impact will be significant, at least not in the near term. The reason that getting there when we did was significant is because they don't have a major national portal. So that would be a basis for believing that we could ramp these two markets more quickly.

The other interesting fact is just that the homes are more expensive there than they are in 88 markets that we could add in the United States. Vancouver and Toronto are big juicy burgers. So we are excited to get to markets that are that lucrative and that tasty.

And we think that we could ramp our website presence faster there just because we are not competing against some of the big U.S. portals there for traffic. There is not a national website there that shows the price of homes that's sold, as an example, which is information almost every real estate consumer wants..

Got it. Thank you. That's very helpful. And second question, I am curious on the gross margin side of things on the real estate services.

I guess what's embedded in the 1Q? And is the commentary that agent productivity should be higher in 2019 and 2018 a fair indication to suggest that your outlook would be for margins to similarly move in a positive direction?.

Sure. So were not breaking out gross margin guidance for Q1. Just as you think about the whole year, though, we do think there is an opportunity for our agent productivity to improve.

We talked on the call about increasing the number of customers our agents meet and as long as we can hold close rate the same or improve it through the programs we have in place that will lead to improving agent productivity and improving gross margins.

It is the case so as you look at Q1 really of every year that that's not necessarily indicative of the way the whole year plays out for gross margins because we are hiring agents for the peak of that year. And so the excess capacity that we have or don't have doesn't really come into play until we get into that the middle part of the year or so..

And I just wanted to add some color on -- sorry. I am just briefly going to color on agent productivity because it has been such a focus for me and Chris and the rest of the company. I think you have to account for some of the weights on agent productivity in 2018.

One of those was that we really needed to reduce customer loads temporarily to affect this cultural transformation and make sure that our agents were meeting customers. That was financially costly but good for our culture and good for our customers.

We now feel like we have developed a good habit that let us increase loads while still serving customers well. So that was the cost that we won't have in 2019. The other factors are that I think we have really instrumented our support costs so that we understand them better and we can run more efficiently.

And we have taken a more cautious view of the market where we are not hiring agents as aggressively, which could leave us exposed. That's what happened in the back half of 2018.

So the trade-off there is that I think we got some upside on gross margin, but it caps some of our revenue growth upside where if demand really shot through the roof we just wouldn't have enough agents to handle it. So we would obviously refer that business and still get some gross profit out of it, but we wouldn't take every dollar off the table..

Thank you Glenn. That's very helpful. And if I can slide in one more are related to the sledgehammer. The comment you made in the 10-K previously, maybe it will be in this one as well on just sellers as a percent of brokerage transactions. So I think in 2017, the number was slightly over 35%.

Can you guys give an update on just the sellers as a percentage of the total for 2018?.

We will be filing our K and it is included in that and the number of I believe is just slightly over 40%. So it's following the same trend we have seen over the last few years..

Thanks Chris..

Your next question today comes from Mark Mahaney, RBC Capital Markets..

Hi. Thanks. This is Mike Chen, on for Mark.

I was just wondering if you could speak a little more about your partnership with Notarize? What exactly Notarize does? How much benefit it will give the mortgage business? And other things could you do to improve the mortgage business? And then I also was wondering if you can provide some more clarification on the intercompany eliminations that you mentioned on the call.

Thanks..

Why don't I about Notarize and you can do intercompany, Chris?.

Perfect..

So Notarize has been a great partner. This is a company that lets you get a document notarized without getting in your car and driving down to an escrow office. And the reason that we have been uniquely positioned to take advantage of Notarize is because we have our own mortgage company and our own title company.

And so when we wanted to bring this offer to our customers, we had to talk to the people we sell our loans to, to make sure they take this documentation. At first, they were hesitant but we got them on board. And the same was true of some of the folks who help us with title insurance.

And what that means is that when you buy a house with a Redfin broker and you use mortgage and title for Redfin, you are able to do a digital closing. So we have had customers on three different continents close and they love it. They love that they don't have to get in their car to close.

And it's just part of this vision of being entirely digital, making the whole process seamless and beautiful and we are just really excited that we have had a partner as good as Notarize the do this..

And then on the intercompany, so what we are describing here is that we now have situations where we are selling a home through RedfinNow and the buyer of that home has already previously chosen to work with a Redfin agent.

So when we close that transaction, we then have an expense from RedfinNow, which is paying the buyers' agent commission, but that's just going to Redfin itself. So it's dollars that from the left hand to the right hand which are not actual additional revenues for the company. And therefore there are eliminated.

And this is important, it's a very small amount of money for 2018. As Glenn discussed on the call, we do think that there are capabilities in our brokerage that are helpful for RedfinNow. So to the extent that we can utilize the services of the Redfin brokerage to support RedfinNow, we want to be able to do that.

And we are also obviously then want to record the intercompany eliminations associated with that..

Got it. Thanks for the color..

Next up, we will hear from Heath Terry, Goldman Sachs..

Great. Thanks. Glenn, I really appreciated your comment on the broader market.

When you say that you are seeing things beginning to improve and then also in the context of the tougher comps comment that you had as we got the firs half of this year, is it possible for you to quantify for us the degree of improvement that you are seeing? Are we getting back to Q3 levels? Are we getting back to Q2 levels of last year? Sort of where would you have us take those comment? And then on the rollout of RedfinNow, given what you saying is the positive reception that you are seeing, both from your customers and your agents to having Redfin rollout in a new market.

Any reason that you wouldn't want to go ahead and accelerate the rollout of that, particularly if some of the competitors accelerate their rollouts?.

Sure. Why don't we start with the market. It's better than Q3, it's worse than Q2 would be my take. In Q3, the market may not have seemed that bad to some outsiders, but we had fairly forward-looking indicators that suddenly took a turn for the worse. And so it's like a company that reports good revenues, but then guides way down.

I don't know that you can be very optimistic about that company and that's the way we felt about the economy in the third quarter, at least the housing market. And the larger point is that homebuyers have been skittish.

I think they responded much more strongly to interest rates than they normally would, probably because of a psychology that the economy has been strong for so long that everyone is waiting for the other shoe to drop.

So when rates go from 4.5% to nearly 5%, which really isn't an earth shattering change given historically where rates have been, it feels very strong to the homebuyer. And I think that's also reflected in the stock market.

Just this idea that maybe there could be a downturn has now entered American's consciousness and so at the first sign of bad news, there is at least some people who head for the hills. And of course housing is more sensitive to that than any other sector because you are signing up for a 30 year mortgage.

You are not just buying an iPad or getting cheese on your cheeseburger. As far as RedfinNow and so now you have this strong economy that's powered through that.

Sometimes the housing market brings the rest of the economy down, but corporate earnings are strong, the stock market is strong, wages and employment are strong and inventory is still fairly limited. So I think instead of having the economy get taken down by housing, I think the economy has boosted housing back up.

And the fact that the Fed backed off on rates has really given buyers a new window to win. What you will hear from our agents is that buyers are excited, because for the first time in a few years, they are able to buy a house and there isn't a bidding war. So I don't think you have to have price drops to lure buyers back.

Just the absence of competition, that demoralizing feeling that I am going to pay $50,000 or $100,000 over asking and still not be able to win isn't as strong as it once was. So I don't think we are out of the woods. It's very early days. It still just the first six weeks of 2019, but I was fairly grim in the last call.

I think it ended with our saying that the year was ending with a whimper instead of a bang. And now, things are markedly better. As for RedfinNow expanding faster, you ask why we wouldn't do that and it's because we are using our own money to buy houses. So I know that fortune can sometimes favor the bold.

I know that there is share to be had here, but this is a business where you can make money for four, five, maybe 10 quarters in a row and then find yourself long on the housing market and we have seen some fluctuations.

So every market we go into, we have to be sure that we have really got the pricing right and then I think the real rate limiting factor just operationally is the renovations. You have got a be able to keep the grass cut, pay the electric bill and do all the work of owning a house and making it look better.

And that work is going to serve us well, because we have also got this Concierge business, customers who decide that they want to own the house and live in it until they sell it still want almost everything that we do with RedfinNow. So it's sort of a double-barreled blast for our business, investing in renovations..

Great. Glenn, I really appreciate the insight. Thank you..

Thanks Heath..

Next up is Tom Champion, Cowen and Company..

Hi. Good afternoon. Apologies if I missed this, but maybe you could clarify. Did agent engagement rates continue to improve? That's the first. And then Glenn, if you would indulge the question that I am curious on your thoughts on Minneapolis 2040 and curious if you think this is a constructive template for improving housing supply? Thank you..

Sure. So quickly, agent engagement has continued to improve but what muddles that metric and here the question is really referring to this idea that even though customers aren't pulling the trigger on buying a house, they are coming back for a second or third tour, which has always been a challenge.

Many customers use as a touring service and just want to see grandma's house or just want to go on one tour because their agent is on vacation. But getting them back for a second or third tour has always led to more in sales. And we have gotten better at that. But there are confounding factors that make that number less reliable over time.

We have added features to our website that encourage you when you sign up for a first tour to go ahead and sign up for a second tour or to get coffee right after that tour with a real estate agent. And so having that second event when you sign up for both of them on day one makes that second event less meaningful.

So the more we changed the environment around the agent, the more we changed the website and our marketing efforts, the less meaningful that number has become. And so we decided after some discussion, not to include it. But it is up. I am just not sure how much stock to put in it. And I am so glad you asked about Minneapolis.

I have been an advocate for density. I was really excited to see this policy change. And for those of you who don't know, there is an urban planner in Minneapolis who sits on the City Council who has basically outlawed single-family homes. The zoning is really pro-density.

I think it's nice to see folks on the left really figure out a way to drive growth that still makes housing affordable. But the question is, do you think that Minneapolis is going to outpace a Nashville, a Houston, a San Antonio, an Atlanta? Because as people have usually their second child, the condo just doesn't work anymore.

The density dreams go out the window and they want a backyard because the kids would drive them crazy. So if I had to bet just on a local economy, Minneapolis or a place where there is more land to grow and more builder favorable laws, I would bet on the latter.

If I had to bet on a place where people are going to able to afford a home, maybe not one with the yard, I would bet on Minneapolis. And it just depends on what you prioritize..

We will go to our next question is Stephen Sheldon, William Blair..

Hi. Thanks. I guess first just thinking about the broader housing market. You talked some about seeing listing consultations trending higher. So a good potential sign for overall inventory.

But what are you watching to gauge how buyer demand could be trending heading into the key home buying season? And along those lines, maybe talk about website traffic trends in January and so far in February? Have you seen any changes in traffic trends that have impacted your cautiously optimistic view on the broader housing market?.

Sure. As far as buyer demand goes, there is two metrics that are forward-looking. One is price drops. Sellers drop their prices because they can't find a buyer. And one that I like even better is the percentage of listings that go off-market within two weeks.

So there are houses that are so beautiful and so well priced that in any market, they will get an offer within two weeks. There are also a bunch of dogs that even in the strongest bull market are going to sit.

But those properties in the middle, the ones that are pretty nice, but have a few problems, in a good market they sell quickly and in a bad market they sit. And right now that data on off-market homes has been encouraging on homes that go off the market in two weeks and price drops has been very encouraging.

So those are the two things that I think we look at and we always try to square the data with anecdote, sometimes the numbers just don't square with what our agents are saying and that gives us a reason to dig more into the numbers.

I want to make sure that nobody is popping champagne corks or starting a party out there because we are not out of the woods yet. The market is significantly better. There is a window where rates are lower and people are taking advantage of it. I do think there is reason to believe that rates will stay low for the rest of the year.

Inventory is still in a reasonable place. So it's a decent market. But I just don't want to assume that we are off to the races. As far as website traffic goes, traffic has been holding up nicely. The thing that we pay attention to is not just the number of sessions. Most online businesses are getting very good at driving frequency.

You get more notifications. It's a very data-driven exercise trying to find a way to entice an already engaged user to come back more often. But remember, we don't make money from sessions. We make money by selling houses. So increasingly, we look at the pool of users who are actively engaged and whether we are increasing that pool.

And that number is also increasing. But I still think it isn't increasing as fast as a session growth. And the session growth is going up simply because we are getting people to come back more often. So the number we reported is really just about visitors. And I think that's where I would look versus sessions..

Got it. That's helpful. And then just on the marketing spend.

I just wondered how big of a delta have you seen in terms of market share gains over the last three to four years between cities where you have invested in brand marketing and the cities where you didn't? is there a way to help frame that?.

We don't want you to start modeling that at a market-by-market level. What I would say is that it's consistent across years, across different types of markets. It's correlated with spending, more spending does matter. I just think we have proven the correlation at least historically beyond any reasonable doubt.

That doesn't mean that something couldn't break the correlation. I guess that's possible but it just seems very unlikely after so many markets in so many years. But I wouldn't describe it as a hockey stick. I would just describe it as a different trajectory and it compounds over time where you think, oh, that was significantly better. That's nice.

And then the next year and it's better again. And the compounding value of being able to do that over two or three years has been really powerful for us. This is an infrequent purchase. So building long-term awareness really matters. If we were selling ab crunchers, if we didn't get a sale while the ad was running, we would judge the ad a failure.

But in this case, it seems that it just puts the market on a different long-term trajectory. And when you plot that out over four years, the two dots, one representing a city that didn't get advertising and another representing a very similar city that did, they are quite far apart. But it takes four years for that spread to become so large..

Got it. Thank you..

Our next question is Jason Deleeuw, Piper Jaffray..

Thanks for taking the question. I was just wondering on the outperformance in the Redfin properties revenue versus your guidance in the fourth quarter. What drove that? Did you just see more opportunity? And then if you could just to the competitive environment on the instant buy business..

Well, one reason we did well in the fourth quarter is because we decided to liquidate our inventory. We are not in the business of being a real estate investment trust where we want to go long on the real estate market. So in a softening market, as we saw in Q4, we didn't hope for better days.

We took the profits that we had and if we had to take losses on one or two houses we were willing to do that as well. So that limited our purchase activity, but we are starting to make up for lost ground in Q1 now. It does mean that coming into the quarter, we had a somewhat empty pantry of homes to sell. As for the competition, it's formidable.

Zillow is a very well-run company. Opendoor is a very well-run company. Each of them has one part of the equation. Zillow has got audience, amazing traffic on its website. Opendoor has really been investing in the operations of flipping a house. And we offer both.

Sometimes people ask, how you expect to compete on this when it's all that other businesses do? And I always want to turn that question around, how can you possibly compete when most customers want to compare a brokered sale to an instant offer? How can you possibly compete if you are paying acquisition costs to meet both the seller and the buyer? We have been selling houses for 13, 14 years, something like that.

And being able to do that is the number one qualification for being good at flipping houses. We know what we can sell them for and we can sell them for top dollar. So I think our competitive position is good. I don't think this is going to be a race that's settled in the first 10 meters. I think we are going to be running for a long time.

And it's going to depend on both software and in the field operational expertise. And that's a combination where we have suffered and we have competitive advantage over many companies. So tough competition, but we hope to be a tough competitor too..

Thank you very much. And then another just quick one.

The media spend, how should we think about that impact to the homebuyer versus seller mix over time? It would seem like maybe the seller mix would grow faster, but just are you thinking about that?.

We think about that a lot. It turns out that the message that works best is one targeting the seller. They know exactly what they want in a real estate agent. They want someone who will sell their house for more money and charge a lower fee. When you talk to buyers about what they want in a real estate agent, they have a much more nebulous concept.

So making an ad that really resonates is easier when you target the seller and it puts pressure on us to make sure that those sellers turn into the buyers. And if you were to compare just two programs that we launched into the field in 2018, one to increase homebuyer close rate through personal service and the other to get sellers to become buyers.

That second program has probably been an easier row to hoe. But we certainly made progress faster where just almost right away we saw more of our sellers out there with our buyers' agents looking at property. So I think there is some upside in our ability to convert sellers into buyers.

And that upside is going to be more important in a year when the ad is focused on sellers rather than buyers..

Thank you..

Your next question comes from John Campbell, Stephens..

Hi guys. Good afternoon. Back to the agent productivity gains, I guess at least from a listing side. It looks like the average days on market are up a good bit and I think 3X or so in some of your bigger markets versus I guess what was seen in 2017. You guys called out I guess higher productivity expectations this year.

But I am just curious, does the velocity in the market or just the time to sell have any influence on how productive agents can be? Are you feeling like I guess the system you put in place last year is going to solve for that?.

That's a good question. Our comments in the prepared remarks consistently referred to improving close rates for homebuyers, because that had been the area where we saw 38-month decline. And while we never like to blame the market, that's obviously a factor that became just harder and harder for buyers to close and now perhaps it will get easier.

But as the market giveth, it taketh away on the other side. It's going to get harder to sell a house. So we expect listing agent productivity to come under pressure.

And we just got back from our big kick off with our real estate agents, where we spent an enormous amount of time talking about what you are going to do at 30 days, what are you going to do at 60 days. You can't come into somebody's living room and just talk about dropping the price. You have got to have a new marketing plan.

You have got to have a way to make the property look better. You have got to get more information from the buyers' agents who are touring the property, but not pulling the trigger.

So we have always been better at selling houses than our competition, but the financial cost of a longer holding period isn't one that's just borne by the customer, it's borne by us. Ideally, we will have a balanced market. But in the event that the market really turns bearish, that's going to hurt listing agent productivity.

So our hope is for a more balanced market, because that's the market where it is easiest to put deals together from either side of the deal..

Okay. And one follow-up to that and thanks for that color, Glenn. I just want to make sure I am on the same vernacular as you guys.

But when you talk about productivity gains, you are talking about adding additional customers to the agent, not necessarily the amount of transactions the agent is doing on a year-over-year basis, if that makes sense?.

No. When we say productivity, we mean agents close more transactions than he or she did in the year prior. When we talk about customer loads, we are talking about the number of customers an agent gets.

I think the story of 2018 for our buyers' agents where agent productivity had been declining was agents wanting more customers and Redfin saying, we want to make sure that we give you the space, this cultural change. We will give you the customers back.

But first, we really have to develop these new habits around not just meeting a customer once, every few weeks, but consistently getting out there and hosting as many tours as you can, sitting down for coffee with the customer.

So the agents on the buy side are going to get more opportunities in 2019 than they got in 2018 and more even than they got in 2017. And we think we are ready for that. On the listing side, I don't expect customer loads to increase and we don't expect productivity to increase much.

Where we really want to bend the curve is around buy side agent productivity. And our hope is that the improvement in buy side agent productivity will be significant enough to lift overall productivity. And you should take that as a measure of transactions per agent per year..

Okay. So that was down 10% in 2018.

You expect that to be up 8% in 2019 is basically the gist?.

No. You almost got it. We are increasing loads 8% on buy side agents only..

Got it..

They may not have the same close rate year-over-year, but that close rate would have to drop 8% for their productivity not to increase..

Understood. That makes sense. Thanks Glenn..

And I think, just because I want to be clear about this, we don't want anyone to be misguided, we think that our buyers' agent productivity as an opportunity to improve. We think there is a possibility that listing agent productivity will decline as holding periods increase and that the net effect will be modestly positive..

Okay. Thanks Glenn..

And Brad Erickson from Needham & Company has the next question..

Hi Brad..

Hi there. Hi guys. Thanks for squeezing me in. I will follow-on to the last one, I guess, a little bit, related to that 8% load improvement in 2019.

Maybe just talk about that the dials you will turn to achieve that between I guess driving more traffic or really to the brand marketing spend versus just not hiring agents this fast?.

Well, it started with not hiring as many agents. If you look at the agent census going into 2018, we had really hired significantly because we wanted to take the pressure off our agents in terms of customer loads so that they could focus on the behavior change that we thought we needed. Now going into 2019, we haven't hired as many agents.

We also have the ability to route customers who were headed to partners to our agents. So if there were a shortfall in demand, our partners would feel that affect first and our agents would still be busy.

That isn't a perfect system, just because there are many different agents in many different regions and having every single agent perfectly loaded as our goal, but it's hard to attain. But having said that, we think that the modesty, the caution around agent hiring will let us keep our agents busy more every year.

Got it. And then not to be the dead horse, but just back to that transactions per agent clarification you just a minute ago that was helpful on the brokerage business and I guess just in the context of the accelerating narrative you are talking about as we move to 2019.

Is it the type of thing where if we saw similar level declines, I understand you are going to shift that mix between buy side and sell side a little bit.

That would be in line with your expectations? Or is the outlook here, just to be clear, that you are contemplating those on a whole basis, those per agent transaction rates stabilize or even improve from here on a net basis going forward? Maybe if you would just clarify what's contemplated in the guide there? Thanks..

I just want to be careful about this because we are not providing full-year guidance. And to the extent you are trying to build a model based on what's going to happen in Q3 agent productivity, it's not like we are hiding the ball that we know exactly what it's going to be and we are just not telling you to play some perverse game.

We don't know what it will be either. We have given you the information that we have around agent hiring and the number of customers we expect each agent to get. It is possible that there will be a demand shortfall. It is possible that we will have higher agent attrition. And I am not saying that those are the most likely scenarios.

I think the most likely scenario is that the net increase in agent productivity across sellers and buyers will be the same or slightly up. But life is uncertain. So we are trying to manage the business very closely so that our agents stay busy. It's important to the gross margins of the business, but also to the income of the agent.

People work here because they want a regular set of customers. The savings we offer those customers depends on the agent being consistently busy. And so that's the way we are managing the business..

Thanks for clarifying..

Did that add anything? Like I know you guys have been asking this and I am wondering Elena or Chris, am I missing the question?.

I think that's the best clarification we can give..

All right.

Was that it? Are we done?.

So that does conclude the question-and-answer session. I will hand things back to Elena for additional or closing remarks..

Well, thank you Lisa. And thanks everyone for joining us today and we will speak with you again next quarter..

See you in three months..

Again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect..