Anywhere Real Estate Inc. (04M.DU) Earnings Call Transcript

I'm Matthew Bouley, Barclays' U.S. homebuilding and building products analyst. Thanks, everyone, for joining Day 2 of our virtual Building and Building Products Conference this year. Very happy to have Realogy joining us here for the next fireside chat, Ryan Schneider, CEO. [Operator Instructions] So Ryan, thank you very much for joining us today. If you would begin with your overview and any update commentary that you want to give on Realogy, and then we'll dive right into Q&A from there. So Ryan, please go ahead, sir.

Well, Matt, thanks to you and Barclays for having us. For all of you out there, thanks for listening in on our story. This is a really exciting time for Realogy and its investors and potential investors. We are demonstrating some really impressive results, above market results, not just with record earnings with a balance sheet that's gotten to the best position it's ever been in as a public company and the lowest leverage ratio we've ever had, but massive revenue growth. We are gaining market share. We've been doing that for 4 quarters in a row. And we are, frankly, changing our industry with some of the things we're doing to change the transaction, and it's showing up in two ways. One is, we are increasingly using our technology and our digital products to capture a lot more title and mortgage economics. And you've seen that as a trend in our financials for multiple years. But second, we partnered with Home Partners of America to be part of actually reinventing the transaction. Our RealSure product and our joint venture with Home Partners of America, who is now owned by Blackstone, is now in 21 cities. We are helping customers sell their house frictionlessly. We're helping people buy their next house. And we're doing it from a position of advantage, because unlike many people trying to solve that problem out there, we're able to leverage 200,000 Realogy agents to make that happen. And we really like our model. We like our early results. We are substantially increasing our investment in that business. And we think it is a great future growth trajectory for us alongside the growth we have today, especially from our luxury leading business and especially from how our technology and data is helping drive our agents to be productive. Again, not just to take advantage of the strong housing market we have, but to actually take share in that market and frankly, substantial share for multiple quarters. And unlike many people in our industry, we are doing it with massive profitable growth and strong margins, and you see that across all of our businesses and culminating in a record quarter of over $300 million of operating EBITDA and a leverage ratio that's now down to 2.5x, which both are things we are really proud of, but we think they're just the beginning of a strong future for our company, both strategically and financially. So we are incredibly excited to be here, and thank you for taking an interest. And I'd love, Matt, to turn it back to you to take any questions that you've got to tell our story.

Wonderful. Well, thank you very much for that helpful overview there, Ryan. So plenty of varies to jump off into there. Maybe starting off on the market share side. You mentioned 4 consecutive quarters of outpacing the market. It's clearly been not just the small outpacing of the market, I would argue. So if you could kind of parse out what's driving that? There's clearly some geography strength at the higher end of the market. What is it that you see as driving the share? And then can you tell, even within some of those things, like within high-end real estate or if you're actually taking share from others as well?

First off, Matt, great question. We absolutely can get into all of that. Let me start with your first point, which is not only are we taking share, we're taking a lot of share. Our transaction volume is substantially above the industry's numbers for the last 4 quarters. And when I say substantially, it's almost double last quarter, industry up like 50%. We were up north of 80%. So we're taking substantial share. And we're taking share for 2 reasons. One is we have a number of strategic initiatives that are working, whether it's our agent growth, our franchise expansion with Corcoran, the way our technology and data is driving more transactions, that has been a really powerful part of us taking share. The other part of us taking share is we are the #1 player in luxury and luxury has had a disproportionate rebound coming out of COVID. We sell more $1 million houses than anybody in the industry. We sell more $10 million houses than anyone in the industry. And we like our share gains here, architected in luxury, but also in the broader strategic things we're doing around growth expansion and technology. And you pair that with the strength of the higher title and mortgage results that we've been getting, and you print some numbers that are pretty impressive, and you improve your balance sheet whether it's through our very strong free cash flow or our substantial reduction in our net debt.

That's very clear and helpful. So as a follow-on to that, on the luxury market specifically, you gave some commentary on your quarterly call the other day around what you're seeing around open transaction volumes in June and July. I'm curious if you could parse into that a little bit. And just given the strength of the luxury market, perhaps help investors understand how luxury is continuing to perform within these recent trends you've outlined.

Yes. Luxury has continued to perform great. And in fact, with New York City starting to come back and us having a large presence in New York City, we have the #1 brokerage in New York City, that's even more tailwind for us on that. But we were really excited to see open transaction volume in June be up substantially, not just from 2020, but up versus 2019. And then our July open volume through, I think, about the 23rd of the month, was up versus 2019 substantially and was just as good, maybe even a little bit up versus 2020. So we're seeing the strength of the housing market. That's the biggest question we get, what's going to happen with the housing market. And we are seeing the continued strength of it, both in our open transaction volume that we shared all the way through almost the end of July and in our closed volume. Our July closed volume was up substantially versus both 2020 and 2019. And between some of the changes happening with consumers, low rates that helps a ton, we think there's a lot of momentum left to go in the strong housing market, and we are very well architected with luxury, for example, and with our geographies to disproportionately benefit from that strength as we've shown in our results.

Got it. That's very helpful. And then so one more just on the market here. As you mentioned, it is a hot topic. You've seen signs of deceleration in the overall market, particularly on unit volumes, but price appreciation remains strong. Is there any concern that some of this deceleration does translate to slower price appreciation? And just how are you guys thinking about the growth rates in the market and how you're positioned within that?

Well, to be clear, we, at Realogy, I don't want to say we've seen deceleration really. What we've really seen is units not growing. That's what's happened in July -- in our July numbers. We shared that on the call that in July, pretty much all the growth we saw was from price, like you talked about, right? Depending on the day I look at it, units are up, units are down a little bit. But we moved from like 5 million-ish units as an industry to like 6 million on a run rate basis last July. And our most of July data kind of kept going for us with, again, not unit growth, but kind of unit about stability, but then a bunch of price growth. So that feels pretty good. If we can stay at a 6 million kind of run rate as an industry for resale houses, Realogy, with our market-leading position, our #1 share and 16-plus percent market share, we're going to do really well. What I will say has happened beyond the price appreciation is I think there's been a little froth coming off the market. There was a time period earlier this year, especially in certain Florida, Texas, Arizona, Montana destination geographies where we were seeing anecdotally, 15 offers on a house, right? Now we're seeing 5. Now 5 is still a really healthy thing, but it is a little bit less frothy than maybe it was at recent times, but we are still seeing the underlying strength in kind of plus or minus kind of unit stability. We're still seeing the price appreciation, low rates helps people afford that. And we are still seeing more -- multiple offers and more houses selling above listing price than kind of we typically ever see. So we like the strength of what we've seen and some of the talk of deceleration, maybe a little overdone. On the other hand, it also may be that we continue our better-than-market performance when we look at our numbers and share them with you like we did with our July numbers.

Got it. Yes. That's very helpful clarifications there. So I want to ask about the competitive landscape. Ryan, over the years since you've been CEO, I know in different markets, you've done different things to make sure that the Realogy offering is competitive. I'm thinking about commission splits and things like that, different packages. Could you speak a little bit about just kind of the market for agents today and how that competitive landscape has sort of evolved?

Sure. And I'm going to start with the Olympics. I'm -- Go Team USA. We just finished that. When you get to the Olympics, you look at the brackets and people always ask, who's got a good draw, who's got a bad draw? Well, guess what? If you draw Realogy, you've got the bad draw. So like we're the bad draw for other people in this competitive thing. It's a very competitive market out there. Pre-WeWork, I would say it was in a different ZIP code. I've said that for a long time. Since then, I would say it's just been quite competitive, and we're a big part of that competition. And you can see our success in there in our agent growth, in our Corcoran franchise expansion, in our above-market financial growth and frankly, just the profitable financial numbers that we continue to drive. So one of our watchers made the point of in real estate, the choice is between extreme competition and very competitive and extremely competitive. It's not where it was in 2018 and most of 2019, which is good. But it is still very competitive, but we are a big part of that. And I think we're printing results that actually show a bunch of success as a formidable competitor, both on the growth side, but also making it profitable growth in, again, both our brokerage and our franchise business.

Got it. That's very helpful color. So I have to ask about RealSure. You really highlighted it in the last call. You just mentioned it, I would say -- I would characterize it as tangible excitement. And correct me if that is not a good characterization. But a couple of things on it. Number one, what's different about RealSure versus traditional iBuyer? And number two, obviously, from Realogy's perspective, the economics of this JV vis-a-vis it being sort of a tool for agents, how does that kind of all blend together?

So let me start with the latter. Look, it's a 50-50 JV, Realogy and Home Partners of America. They are a powerful company with deep experience buying, maintaining, renting and selling homes. They've done like 20,000 of the things. And we're a powerful company with massive distribution and kind of national coverage. And together, we're really excited about what we're doing. We're already operating in 21 markets. And what we do a bit differently than a lot of the traditional folks is we're not here to buy your house in 3 days with an exploding offer. Our offer to buy your house is good for 45 days. But during that time, we use our agents to try to sell it for a higher price. And when we sell it for that higher price, the customer keeps more money and they pay a lower fee. So we think it's really good for customers, it's good for our agents, it also means we actually don't have to buy as many houses in a world where people tend to lose money, frankly, sometimes buying and selling the houses. So we like what it is from a lead generation and agent standpoint. But we also think with HPA's expertise and our scale, we can make the economics of this thing very powerful. And here's the reality. We're in 21 cities doing this already. And you can look at the path a lot of startups have gone on this thing. And if you look at what RealSure was doing and valued it the way the startups get valued, it would change the whole value of our company. Now maybe that's not how the world works clearly in some ways, but it's a little bit of a shame that this thing is hidden within a $6 billion revenue company here. But we're very excited about it. It's very tangible. And we're now getting ready and testing some products that will help people not just sell their house, but buy their next house as we really are trying to use our scale to simplify this transaction. We think the agents can have a big role in that, and we like our distribution. And we're very excited about the product, and we're going to push it pretty hard. We like the early results a lot.

Great. That's helpful color. So can I ask about the technology tools? We saw the video you guys put out the other day around the benefits of the open ecosystem that you've championed for a while. Can you just expand a little bit on sort of how agents, you think -- how do you think agents are responding to an open ecosystem relative to more of a closed loop, so to speak? And what else do you think you need to offer agents?

Well, look, you can always find someone to say something good or bad about anything in the world if you got enough people, and we have 200,000 agents. Here's my view, just [ for a bit of havoc in this world ] we're living, which is we do work with an ecosystem of 200,000 agents, and we're growing that number of agents. We have 2,400 franchisees. And one of my learnings from the last few years is the relationship between the fact that no one -- none of the -- there's no cookie-cutter way to sell real estate. Agents operate very differently. The other is agents are independent contractors, right? We can't mandate they use a certain technology or anything like that. And so I believe in a world where you could architect an open ecosystem pretty easily today unlike 5 or 10 years ago, if you're using API as well and things like that, that we are better off providing some very good Realogy products to those agents, but also giving them options that are from third parties that we curate, that we think are really good. And we like the uptick. We have some agents who use a lot of Realogy products. We have some agents who don't, and that's fine. If they want to use Market Leader, they can use Market Leader. I'm good with that. But our job is to provide them good technology that will make them more productive and more efficient. And the challenge of doing that with a closed ecosystem is you're building something that you hope works for everybody. I'm not sure that's how the world works. And so we've gone down this open ecosystem path. We like the early results, and we're going to continue with it.

That's helpful color. And so the follow-on to that is as you've, over the years, spoken at length about your scale and access to data and how you're using that to sort of enhance the tools you have for agents. Could you just kind of update us on where you are on that? What are some of the things you're doing from leveraging your scale and access to data perspective to benefit agents?