Q2 2020 Realogy Holdings Corp Earnings Call
[music].
Today's call is being recorded in the written transcript will be made available in the investor information section of the company's website tomorrow.
Webcast replay will also be made available in the company's website.
At this time, we'd like to turn the conference over to really de senior Vice President Alicia Swift. Please go ahead. Please.
Thank you Chris Good afternoon, and welcome to relocate second quarter 2020 earnings conference call on the call with me today are really de CEO, and President, Brian Snyder and Chief Financial Officer Charlotte's Imminently.
Shown on slide three of the presentation. The company will be making statements about its future results in other forward looking statements during this call.
Statements are based on the current expectation and the current economic environment.
Forward looking statements and projections are inherently subject to significant economic competitive and other uncertainties and contingencies many of which are beyond the control of management.
Including any statements, we make related to expectations with respect to the ongoing Kobe crisis.
Actual results may differ materially from those expressed or implied in the forward looking statements.
For those who listen to the rebroadcast of this presentation. We remind you that the remarks made herein are as of today July Thirtyth and have not been updated subsequent to the initial earnings call.
Important assumptions and other important factors that could cause actual results could differ materially from those and the forward looking statements are specified in our earnings release issued today.
As well as in our annual and quarterly FTP filing.
Also certain non-GAAP financial measures will be discussed on this call and per FCC rules important information regarding these non-GAAP financial measures is included in our earnings press release.
Lastly for the second quarter of 2020, the relocation business continued to be reported as discontinued operations.
Now I will turn the call over to our CEO and President range Snyder.
Thank you for joining us with yesterday I want to start thinking Realogy employees affiliated agency franchisees for their dedication and hard work, helping customers safely buying so houses during these challenging times.
I also want to thank our employees agents will open assuring the different challenges.
Overall.
Great and their local markets that opened its helped us move quicker as a company to implement solutions to better support agents and customers.
Finally, thanks to all our employees for their thoughtful dialogue on diversity and inclusion, especially those who shared experiences that help all of us better understand the unique challenges people face today.
And for all your joining our call today I hope you in your loved ones remain safe and healthy.
Today's discussion will be structured like last quarter I will start with summary remarks, and key takeaways the turnover the Charlotte for a brief overview of the financials, but I will come back to talk about what were seen in the housing market, including early results from July.
So I'm excited to share our Q2 results and our continued strategic progress during this incredibly turbulent time.
We demonstrated strong performance delivering $172 million operating EBITDA from continuing operations in Q2, even in the depths of the cobot crisis.
Our operating EBITDA performance in the quarter was driven by three things.
First closed transaction volume across both our franchise and owned brokerage businesses fell dramatically in April and May but improved markedly in June.
We're seeing continued closed transaction volume improvement in July and we're particularly excited by the very strong new opened transaction volume we have seen in June and July which I will share with you later in the call.
Second we delivered substantial cost reduction in the quarter, both temporary reductions we shared with you on our last call and permanent savings we implemented in 2019.
And third our mortgage business had a very strong quarter.
We made good strategic progress in this business in the past year, especially expanded our coverage in the market and greater integration with our brokerage business. This strategic progress combined with the obviously strong refinancing trends helped drive the quarter's results.
And along with our operating EBITDA delivery, we continue to invest and drive our strategic agenda in the second quarter.
So first our technology focused in innovations are delivering results, we had substantial adoption acceleration of our products in the quarter.
We delivered real expansion of our virtual capabilities in the past four months virtual staging virtual open houses virtual tours virtual title closings virtual mortgage closings.
We also continue to deliver marketing lead generation and other products to help agents do more deals.
The combination of virtual capabilities strong products, an increase adoption helped agents dry volume successfully and safely during this crisis.
And we're excited to virtualize and simplify the real estate transaction in the future.
Second we grew brokerage agents, 2% year over year, and our top two core tile agent retention improved a bit the.
The Q2 competitive environment was overshadowed by coded but pretty much continued the trend from Q1 of 2020 of being more rational than a year ago.
Third we continue to expand our other strategic growth initiatives, we're growing our corporate franchise more broadly we like the pace of franchise sales even during cobot.
We've been able to do franchise sales and onboarding of new franchisees in a purely virtual manner, which will serve us well in the future.
And we are increasing our marketing for high quality lead generation efforts like our new a RP program.
And fourth we seized the market opportunity to refinance $550 million of debt at an attractive price. We retired our 2021 unsecured notes improving our debt maturity profile and likely in the term of the debt on our balance sheet.
Putting this all together we demonstrated resiliency in tough times, we feel good about our performance in trajectory and we really like our position for the future, especially given the improving volumes. We are seeing in June and July.
But we are closely watching the cobot and macro uncertainty.
I look forward to share in more detail about what we're seeing in the housing market, what we're seeing in consumer behavior and our thoughts on the future later in the call.
So I will now turn over to Charlotte to briefly discuss the financials.
Thank you Ryan good afternoon, everyone before getting into our financial performance I would like to say that I'm very pleased by both the Swift actions, we took across three election as well as the progress delivering on our strategic priority.
We adapted new ways of working on remained focused on emerging stronger on the other side amid this uncertain time religion has become more agile and officials and has effectively managed IP areas of our business under our control.
Now onto the second quarter partner.
Q2 revenue was 1.2 billion down 27% versus prior year due to lower closed transaction volume, while the year over year decline with expected. We have now seeing new App opened transaction volume rebounding, especially later in Q2 and in July.
Operating EBITDA from continuing operations was 172 million, we were pleased with this delivery in the midst of a crisis and benefited from strong cost management exceptional performance from our GRA mortgage JV and improving closed transaction volume and the latter part of the corridor.
The volume decline, we held operating margin flat at the regulatory level and the quarter with a strong focus on cost management.
Q2, operating EBITDA was down 63 million versus prior year, primarily driven by the closed transaction volume decline and by a 164 basis points year over year increase an agent commissions.
The higher commission splits year over year was primarily driven by upward pressure from retention efforts over the last 12 months and the mix shift to higher performing agents in the quarter. We expect this pressure to continue in the second half of 2020.
Our GRA mortgage JV contributed 35 million in operating EBITDA. This strong result, with the combination of the strategic progress we made expanding geographic coverage growing loan officers and improving service quality over the past year, which enabled us to capture more business we.
Also benefited from a very attractive Q2 mortgage environment, which has been driving a refinance film. This demonstrates the power of our ancillary businesses, which is a strategic advantage and we really like the financials.
We successfully reduced costs and reallocated been.
Collectively operating marketing engineering expenses declined 95 million in the quarter. The permanent cost reductions we worked hard to deliver continued to come to fruition and contributed to the quarter along with a temporary action, we executed and realized in Q2.
Given the improved transaction volume, we are saying we have pulled back many of the temporary cost actions, we anticipate that approximately 30 million of the temporary cost saving will remain in the third quarter. We also expect nearly all temporary cost actions will be lifted by Q4.
Finally on cost we are using learnings from this crisis to identify ways, we can permanently lower our cost base across religion.
It's too early to give you the overall numbers for 2021, and we still have worked to do so we are encouraged by our early findings just to give you. One example, we expect to reduce administrative facilities by 10 to 15 million an annual lease expense.
We ended the quarter with 686 million in cash inclusive of revolver borrowings, we proactively drew down at the onset of coal bed and generated free cash flow from continuing operations of 106 million, including discontinued operations free cash flow was 47 million as we saw.
Our use of working capital driven by our securitization facility.
We have been proactive with our balance sheet and remain committed to de leveraging in early June we executed and oversubscribed 550 million dollar second lien notes offering maturing in 2025, thereby eliminating the 2021 notes overhang that transaction lengthened our maturity profile.
While also supporting our near term liquidity.
Our total net leverage ratio was 5.6 times and the senior secured leverage ratio was 3.29 times as of June Thirtyth 2020, well within compliance with our financial covenants and the second quarter.
Finally last week, we amended our credit agreement to ease the 4.75 times senior secured leverage ratio financial covenants to 6.5 times commencing in Q3 2020 for four quarters with a gradual return to the original level by mid 2022.
This was accomplished for a minimal upfront costs with no change in pricing.
Our Q2 results show, we are well in and expect to remain in compliance with our original covenants, but took this proactive measure as tail risk insurance for the next four to eight quarters.
Overall I'm very pleased with our performance in Q2, despite coated related volume declines we successfully managed costs to ensure our operating EBITDA and free cash flow delivery in the quarter.
We also continue delivering key strategic priorities during the quarter to ensure continued momentum.
I will now turn the call back to Ryan to discuss what we're seeing more broadly across the business.
Thank you Charlotte what I want to do now is tell you what we're seeing in the world and what we expected in the future. So let me start with our numbers.
So in Q2 Realogy is closed transaction volume was down 24%.
Brokerage closed transaction volume was down 30% in the quarter with June down 17%.
Energized closed transaction volume is down 20% in the quarter with gene only down 2%.
And the main difference between our brokerage and franchise closed transaction volume numbers is the same geographic variation that we referenced last quarter. For example in Q2, New York City closed transaction volume was down more than 50%.
Some of the Delta is driven by price since there were fewer Q2 transactions in the highest price ranges EG million dollars plus homes, where our brokerage business is just more heavily represented.
But close volume trends continue to improve in July based on the preliminary data through most of July franchise close volume franchise closed transaction volume excuse me is up about 10% versus 2019 and brokerage closed transaction volume is up about 5% versus 2019.
On the franchise side. The include improving closed transaction volume is driven by price and on the brokerage side. The improvement is from both units and price.
More interesting for the future is what's happening with open transaction volume, which remember is the new contracts getting side.
Opened volume is showing very strong growth in June open volume was up 21% versus 2019 up 30% in franchising up 9% in brokerage.
And again most of the Delta was driven by geographic variation and based on the preliminary data through most of July.
This trend continues to improve with bolt franchise and brokerage opened volume up approximately 30% versus 2019.
So what's driving such strong opened volume growth across both our brokerage and franchise businesses.
So look first there's definitely some pent up demand from the massive drop off we all saw in late March April and May.
And second there's no doubt the incredibly low mortgage rates are helping more and more people buy homes.
But third low inventory is really driving up price today, we are seeing inventory down at least 15% or more in every price band compared to a year ago when inventory was already at historic lows.
And that depth of inventory decline.
And especially the fact that the inventories down across all price band.
It's something our most tenured industry leaders here Realogy say they have not seen before.
And then finally, we are seeing both incremental housing transactions and people willing to pay more for a house because of the suicidal shifts driven by the coated crisis.
We are seeing increased demand for suburban living in living in multiple geographies driving more transactions and higher prices.
We are seeing an increase rotation in homes within this suburban markets as people's needs are changing EG greater home office needs EG, putting a premium on outdoor space UGI the ability to live in a different geography, given virtual work.
We're seeing well off consumers accelerate second home purchases.
And frankly, we're seeing the already ongoing flight to attractive tax and whether destinations accelerating.
And we see these for consumer shifts I just mentioned.
When we look across both the transaction data and the anecdotes, we get when we serve a large numbers of consumers and agents across our brands.
So we're really excited by what we're seeing in June and July right. The new open volume is incredibly strong.
But we're not running in a way too much with our excitement and you shouldn't either right. The volume drop in March April and May was unprecedented.
In the increase in open volume, we're seeing here in June and July is also unprecedented.
And how long this growth will continue is hard to predict.
Right Theres macro and cobot uncertainty.
And we just don't know how long trends like pent up demand. Unlike the consumer behavior changes, we are seen will less so because of that uncertainty. We're very focused on what is actually happening today and sharing that with you. We are not actually extrapolating too far into the future.
So look wrapping up Q to begin with unprecedented challenges and an unprecedented drop in volume in our industry.
And even though there was a tremendous amount of uncertainty at the started the quarter.
We're excited to executed with 170 million in operating EBITDA from continuing operations.
We moved very rapidly in the crisis, we demonstrated strong results on cost.
We continue to drive strategic success like technology delivery agent growth corporate expansion and mortgage.
We strengthened our balance sheet and Weve, even launched efforts to Reimagine, our business and re imagine how we operate the company.
Putting all this together, especially coupled with the very strong and improving opened volumes were seeing in June and July we really like our position for the future.
To Charlotte and I look forward to taking your questions today.
Ladies and gentlemen, if you have a question that this time. Please press star one of your telephone.
Joe Your question. Please press the pound key.
Please standby power Kuni roster.
First question comes from the line of Tommy maturing with KBW. Your line is now open.
Yes. Good evening guys. Thank you appreciate the metrics on June and July trends now squaring that all loan you had expectations.
What do you think transaction volumes will look like in Threeq, you had I would break down by side, which is great.
Well look we're not giving guidance on Threeq, you transaction volume, but I basically just gave you the actual close volume for the month of July most of the month.
And I gave you are opened volume in both June for the whole month and July month to date.
Now open volume typically take 45 to 50 days uttered into closed volume.
And look there is a wide range around those numbers some deal close in one day some takes six months.
So there's a wide range around them and then we've got a little bit extra uncertainty here because.
With covert restrictions.
You can sometimes they can delay closings and if theres a big problem, we did see a cancellation spike back in March a bit so thats, what always change things, but look the opens or kind of up 30 plus percent.
And so.
You can do your own map on those things in your own assumptions about the distribution.
I don't think it's helpful to give you.
Prediction as much as to give you the actual numbers and let you decide how you think the world's going to go.
You know it again, we're we really loved the trends, we can't exactly say what'll happen with our August and September because of Covidien macro, but but boy that that we love the trends and we thought giving you as much detail as we could effectively up through last week would be the most helpful thing of what were.
Seen in the market and what it applies for our future.
Okay got it thank you.
In tissue you.
Did you see moving pieces in the franchise business, yes, this quarters and do some less marketing spend and you had announced determination in the listing fee contracts.
Can you just kind of walk three days, there's nothing PC monetization and impact that segment Bottomline.
So on the franchise side of things here, we did have lower marketing expenses. We also had a lower contribution into the brand marketing fun and so those those basically are.
More correlated the absence of the revenue, but also the absence of the spend we actually recognize that in the piano.
As as its expense so thats more of an EBITDA neutral there were some some minor impacts in the PML and I think when we publish the Q there'll be more information available for you in that but.
The bigger driver on the franchise side was there the absence of the brand marketing fund and on the marketing expense and then the additional cost savings.
The temporary cost saving that.
Our cloud through the piano on a pro rata basis sort of based on the number of employees. We have this impacts across our business.
Got it thank you.
Thank you and our next question comes from the line of Anthony Powell loans with JP Morgan Your line is open.
Hi, Thank you. Good afternoon I guess my first question is in as you think about a stronger housing market, which seems a little bit different than maybe what we were sure four of a few months ago. How do you think that ends up impacting the competitive landscape and things like spreads because that does.
That brings back.
The heated competition compared to maybe what when things were looking like a few months ago or does that.
You know change that in some way.
Any color there would be great.
Yes, I draw less look the competitive environment bluntly has not really been correlated with the housing market strength.
2018, and parts or 19 were kind of flat or in some cases, even down housing market and the competitive environment at times or just you know you know just incredible.
We're happy that Q2, you know like Q1 felt like a much more rational competitor environment the year before still tough out there were part of that tough competition out there in the market.
The bigger thing probably for split is your remember the stronger the volume is on a out there the more people can kind of work their way up the tables and so I think there may have been a hypothesis that going into cove is that.
The weak housing years, maybe you won't have to pay as much in split that people don't do as much volume, but the stronger volume comes back then the more bulk business people, though do and especially at the higher end agents like Charlie talked about.
Kind of higher splits kind of coming from that as people move up the tables, but.
But look we'd rather have the stronger volume and pay people to move up the tables than the reverse so we're okay with that but the market strengthen the and the competitive environment have not been really correlated and I don't think that is whats ever really driven the competitive the competitive environment, but there is the relationship with just pure volume and split.
We have talked about before.
Got it.
And then in the title and and mortgage business, which did really well keep any sense as to how much was just.
Just the sheer amount of refinancing is quite strong, but just also it sounded like maybe do you all gained market share. So I guess, particularly in something like the guaranteed rate joint venture doing $35 million versus peers like $7 million year ago. Yeah. If you had this level of market share what would last year, Ben just trying to dissect those as we think about the future.
As you know, it's funny because of all the refi stuff, it's a little bit harder to ripped out apart, but look let me just telling our story right, which as you.
We started this new thing a couple of years ago, and we lost money on it the first year as were building it up and we started off with you know.
Not the greatest position as we were building off something that had been kind of falling apart before but boy over the last couple of years. The teams worked really hard we've expanded the number of loan officers substantially the quality loan officers gotten better we've expanded our geographic coverage and guaranteed rate us on the mortgage.
Title fighter a brokerage business done a lot of work to better integrate this thing into the brokerage business to improve how much of our own business, we capture effectively through our mortgage or associated through our brokerage business and you know.
That would have taken last year's number in definitely made a bigger all on its own and then there was clearly a big chunk that comes from just the market here. So we haven't actually rented a park to get to the decimal point, you're talking about but we really like the trajectory.
And we like the financials and you know this shows the power of ancillary services and and a lot of people talk about someday they'll make money from ancillary services, but we're doing it right now and this quarter was one of our better examples of it.
Okay can I sneak one more in.
Sure.
So I mean, one thing I'm curious you actually have a lot of people in the organization there has been through a pretty extreme ups and downs.
Thoughts on just how to bridge high unemployment rate in maybe a recovery that seems to be stalling a little bit here with with just the housing market, that's showing very strong trends and trying to think about how you know how sustainable that might be.
We don't know we've talked about it as they look this is unprecedented know what has ever seen the speed no. One at Realogy that I believe it or few years, but I talked all the veterans.
No one has ever seen even if you go back to the great recession, the speed of the drop that happened in late March April, especially.
And no one has ever seen that.
The speed of the come back that's happened in June July like we were talking about it we're going to have our busiest.
Closing day, we like ever had since I've been here Tomorrow, and we were literally talking about taking people from other parts of our company to help our title team get closings Don.
And so it's just an unprecedented thing.
Just like the GDP numbers today were way down yesterday whenever were way down and the personal income numbers were like up Theres, a bunch of things in the economy right now that as a you know economists by training, but thankfully never practice.
Seem very hard to square in this unique environment. We're in you've just hit on another one I don't have an answer for you, but what I do have is the actual data that we're seeing in the market and then what we're worried about that could hurt that down the road, but also just what the momentum is as the housing market and our company has.
As.
But I don't think there's an answer the square the circle on your question just like three or four other kind of big macro contradictions out there and our economy right now.
Okay fair enough. Thank you.
Thank you.
Thank you and our next question comes from the line of Carter Tree with Stephens. Your line is now.
Hi, guys. Thanks for taking my question.
So basically constrictor on who they lend too.
So with critical the tightening the weight is.
Do you expect that to the slow housing John Eudy.
Totally are you guys here at about eight transactions that are that are going through because buyers can you get to keeping a mortgage.
We are we're not seeing that yet we've heard the same there was a bit of noise in the jumbo market back in April may well, maybe even mentioned at our last call. If we got the question I don't even remember, but it was there was a bitter noise in the jumbo market.
About people tightening in a bit of a harder time getting mortgages, but we have not seen that playing out yet.
So like the other factors that I listed that could be one of the things that you know slows down the party at some point here, but when you got macro uncertainty and cobot risk and some of the consumer trends and not know how long they are going to run I would just puts out on the list of things that could be a headwind to housing, but we're not seeing appia.
Headwind right now and other than that jumbo market anecdote.
From a few months ago. This topic has not come up for me my team or our mortgage business in the last a couple of months.
Got it thanks Ryan.
A little more on the on the cost saves.
Charlie can you remind me how much is expected in the back half of this year and should we think about the cost saves is kind of a net reduction.
Did you expense line items, so basically what I'm, what I'm getting as you guys when to reinvest some of the kind of the gross expected savings.
[laughter], how you should think about it isn't a two buckets. The first is the 70 to 90 that we talked about which is pretty evenly phase by quarter throughout the year. So those are the permanent cost reductions, we had already announced and then from the temporary cost saves you know we had the 80 to 100 that we delivered in Q2, and then that drops down.
On Saturday and C and next to nothing in Q4.
As far as reinvesting back in others Ali other cost that type of business.
We do have slightly higher litigation right now there's other things going on but says it's not a direct correlation like there's some spend back in the business, but it's relatively minor.
Okay got it. Thanks, guys. Appreciate you taking my question. Thank Carter.
Thank you.
Next question comes from the line of Matthew Bouley.
With Barclays. Your line is open.
Hey, good afternoon, everyone is doing well thanks for taking the questions.
So with the brokerage business accelerating 30 in July and open transactions and as you mentioned Ryan we're all trying to figure out kind of whats sustainable versus whats pushed out or pent up maybe it'd be helpful. If you could talk through some of the geography is there.
Try to figure that out a little I know you mentioned, New York City being down 50 at one point.
What's what's the recovery looks like there and in some of the other markets that were hit hardest versus you know what did some of those markets that perhaps you know were under the same level of locked down et cetera, you know how did those trend reverses to what degree of those markets accelerate.
Thank you yeah sure. That's a great question, let me just give you some detail I'm only going to focus on the brokerage business and let me talk about open volume you know, which you know what's kind of plus 30 through July So look New York City is still by far the toughest just given the degree of locked down and challenges. There you know it's still it's still pretty soon.
Substantially negative.
You know, it's not negative 50% anymore, but its you know negative 30% to 40% still when you look at July.
The other one that was really tough which is big for US was California was was was negative in terms of opened volume through May June was kind of breakeven July is up 30%, but you know that's the first month up from you know from from after a lot of decline.
Whereas you know you know places like Florida were pretty good good in June and are up very good in July way above, 30%, you know, Texas, Arizona, even with the covert situations there plus 25, 30%.
New Jersey is one of those destination suburbs, you know is up more than 50%, New England is up more than 30% and so it's really the the geography is the kind of did better through this through the the April may time like.
You know, Florida, and Texas, and maybe a new England.
Have continued to be be stronger than the average.
The ones that were really tough like a California like in New York are improving but are still you know outer kind of below the average.
And but then the overall, obviously look at looking looking pretty good but you know.
So we're watching it pretty closely at those local levels and you know again a lot of the things like New Jersey in New England is that suburban effect I talked about Connecticut. You know is on fire write new Jersey's on fire.
You know, Florida, which also includes that vacation home and that.
What would you call it attractive tax whether that acceleration on the consumer side.
So there's a lot of things coming together to lead to the some of the regional strength and some of the regional challenges, but that's a little bit of local color. What we're seeing on the brokerage side and you know franchises in the same ballpark little the numbers are different but the direction is often the same.
Got it that's very helpful exactly what I was looking for.
And then I had a longer term question on splits as well you know obviously up over 74% or so for the second consecutive quarter and give some color around the drivers of that it sounded like there's going to be a bit of mix in there which may or not.
May not normalize to some degree.
A near term here and.
Then the retention side, which seems a little more structurally. The question is really if the market is normalized a year from now ever we want to define that could splits actually stepped back a bit for the first time in a while or 74% kind of that the starting point and we're just going to go from here. Thank you.
Yeah. Thank you for the question and I think were taken at day by day here and as far as their drivers for Q2, we've definitely been part of that is driven by co that and part of that will continue throughout the rest of this year as far as next year, you know, we're not giving guidance for next year and commissions, but we need to wait to see how that involves right now.
As we sort of unwind from the crisis.
Sorry, unwinding I think we'd all like to see that but.
At this point, that's not something that we've got retail.
Okay understood. Thank you both.
Thank you.
Thank you and our next question comes from the line of Stephen Kim with Evercore ISI. Your line is now.
Yeah.
Yeah. Thanks, a lot guys exciting times.
Wanted to ask a couple of clarifying questions. If I could Charlotte you you mentioned the temporary savings in a range for Twoq what was the actual number into Q.
And then the brokerage commissions, you know where were up year over year, which was encouraging I was just wanting to make sure. The lost a USAA affinity business, we thought that that might push brokerage commissions down.
That actually impact to Q or not.
Yeah, we can start with us.
Yes, so we definitely we're at the higher end of the range that we gave you. So you can you can use the higher end of the ranged from a temporary cost savings perspective in Q2 as far as I say, there's actually add another critical mission circuits and increase year over year, because those transactions came at a lower commissions.
Because the high quality rate I'm, sorry, Charlotte and then I meant the cat actual commission rate.
Sorry.
I meant that the actual brokerage Carl you mean, the average lateral broker commission rate.
Correct.
See I was actually up in the quarter a few right now so yeah, we were actually up but as you're you're asking if that correct not that I'm asking whether they.
I guess, I'm, just asking whether or not the USA the loss of USA affinity business had any impact.
Whether it had its impact in this quarter or where there was some lingering business related to the USA affinity relationship.
Yeah, It doesn't have an impact in the quarter, but that was.
Increasing conditions, but that's where you're going to see the yes in fact in the quarter because the current actions that lead and we're waiting to higher conditions not the lower ones that we would have paid on a USA business, which was nonexistent this quarter.
Okay got it that's that's what I need it okay and then the franchise.
Yes, I the margins there I was thinking that you lost some you had a listing fee a relationship I think that what's going to impact I think it got accelerated into Twoq you didn't actually hit to Q like you were thinking it was going to I know initially you thought it would be not until 2020.
Too so that's the one that I'm, referring to does that actually have an impact in twoq, because we really couldn't even see the impact of it yeah exactly there wasn't impact and Kikuyu and it was you know it has been terminated so it could get realized in the corner.
Great to the margin are looking on included that.
Yeah, Great and then lastly, you know Ryan. This is key question right then when trying to figure out you know this is this a the pent up demand or whatever or is this actually tied to secular forces, which you know we actually think it's the latter but when you when you serve at your customers I know you've you've you've done that.
I'm curious as to whether or not you're asking them when they decided to start their home purchase process, because I might give you a sense for whether you're seeing some you know pent up action or whether you're talking about people have just it's like sort of just the demand has been created a you know when when cobot hit and any aftermath. So have you have you asked that question.
Getting any sense from that.
The the sense I get and I kinda ended with it because I. It's the biggest one is there's like pent up demand kind of is what it is but that's going to run out someday and you know for all Renault it's already run out, possibly who knows.
The the price thing the the upward price benefit we're all getting in volume on inventory or that may run for a pretty long time, because there's just not that much inventory out there and you know even when you look at the July new lifting you know, there's clearly a lot more demand than they do.
Inventory coming to the market. The real Big question is how long do you kind of secular consumer changes are going to kind of go on and from the survey stuff in the agent anecdotes and franchisee anecdotes I get you know I think a lot of that the decision you know it was not pent up demand. Its decision people have made in you know.
Month like May and June for example, right. Hence the you know more June and July kind of open volume strength.
Some of those have some natural ends to them right. If people are accelerating their second home purchases, which isn't that big of a <unk> you know in the scheme of things in my view. There are still you know you're only going to do one second on purchase probably so.
Some of that's going to run out the more secular you know ship to suburban living and some of the rotation within the suburban market.
That's the one with those are the ones with the both the big numbers associated with them.
But also the big uncertainty of you know is it a small group of people kind of rush into the access to do those things or is that a really big secular trend that could go on for a long time and I. Just think we're too early right to actually no the answer to that yet because you know again, we're kind of looking at seven weeks here a very interested.
I mean.
Kind of unprecedented volume acceleration and so so that's why we kind of focused on look here's what we're seeing and even telling you what we're seeing that different local geographies per the previous question, but.
But but you know there's a real chance. The thing is got a lot of moment got a lot of legs to it but there's also a real chance the whether its cobot the macro or something else. You know you could you know this thing could kinda like fall off a cliff pretty quickly and go back to kind of a normal housing market I think the low rates.
It's probably here with us for a while that's very favorable. So those are my thoughts, but that's also why we probably gone more detail in this call than we usually do.
And and how we're thinking about the future.
If there's one thing they as you think about managing your business longer term that you would do differently if that if the secular trends are real.
Versus if they are not.
What comes to mind.
Well look the easiest to answer the easiest answer, but probably not the most important is.
What you would do differently on your cost position right. If we're in just a kind of a volume bubble here.
Right. You know you know what you would do on the cost is different than if you're in a much stronger housing mark for multiple years.
In terms of kind of how you'd want to kind of manage the margin and make sure you're investing to support.
Much larger volume than you're kinda have you been used to dealing with as industry for many years.
So that's probably the easiest one I think there's some of the stuff on on what we're doing virtualizing. The transaction that will be increasingly helpful. If this is an ongoing trend.
And then you know I like our position in business mix. You know people think were like the urban real estate company, but like ours in every geography. We're in we're in like 50 of the biggest hundred metro new out our suburban business is bigger than our urban business.
All right, even like a New York City, we got we love our business in Manhattan, Brooklyn is huge but go add up our business between Sotheby's cocoa banker and Corcoran on long Island, Westchester, Connecticut, and New Jersey, and Wow like we will be a beneficiary of the suburban you know thing if it continues.
So you know I'm, keeping that pretty high and People's minds is important to if the secular trends to the suburban thing really do continue.
Great. Thanks, very much Ryan Thank you Stephen.
Thank you and our last question comes from the line of Jack Missing go with Cisco. Your line is now open.
Hi, good afternoon.
Personal for Charlotte clarification, you had said you learn some things from the temporary cost saves me.
I would say to.
And so facilities loose savings and the 15 million am I right on the number and then it is that resulting in that as a 2021 kind of reality or how do we think about that.
You are right on the number and that's just the early stuff that we've been able to identify and start to execute on some of that could start hitting later in the year, but yeah, I think a bigger piece of that well, we'll start heading next year and and Jack if I could just editorialize on that for a minute look I think every good company is trying to reimagine themselves a bit with both.
What they we've learned from virtual work and you know the cobot crisis, and where the world maybe go and I'm really excited that we started doing that work as we talked in our last call that's kind of the next generation.
So the 70 92 million of cost savings that we did last year and even some of the temporary stuff we did now.
And to already have kind of one very tangible example, the we made decisions on to kind of put in the books feels good.
But both on the transaction side and the company side. That's just a really important thing and I was I was really glad Charles is able to share something with you about it today.
And we're looking forward to what else. We were were finding on that it's been an amazing learning experience. Most of the learnings are ready for public disclosure, yet, but but boy or we excited about doing that work.
Yeah, I think a lot of corporate America some of the realization that maybe the real estate circuit Emmis teams maybe permanently.
Got it goes part decision not to editorial everybody goes far beyond real estate. It gets into you know employee productivity you know in buildings versus at home. It gets into employee satisfaction. It gets into where you can recruit it gets into all the stuff that again I think you know tons of companies are doing all that same kind of work, but we're excited to be pushing.
Pretty hard on it and the facilities one was a great tangible dollar one you can kind of go out pretty quickly and so so we're we're having to follow that.
Oh, I love to wrap up with a big picture question right what.
Shakes the tree.
On inventory you know on one side, we always here you know price appreciation.
He'll bring sellers to the market on the other hands.
You know you today, he I'd like to sell my house, but I don't know where I'm going to go and I don't you talked in a situation where I sell my own three days in a multiple gaining have nowhere to.
So those are just as does does this environment actually create somewhat of a more ambitious cycle. Just curious how you were thinking about that.
Yeah, well, we start with the worry that you've got I mean, the inventory for the last whatever two and a half years has been.
Pretty historically low when you look at how many months inventory are out there right at six months is the historical average.
It's been like four months inventory for a couple of years, it's even less right now and all the things that have historically you know.
Shake it a little bit inventory like the higher price thing have actually not done it to your to your point.
Look I still believe there's a huge just you know new construction thing going on here, where you know as a society. We're just not building enough halt period of any type and you can see it on the new construction numbers and where they are relative to like even just the the late ninetys and stuff like that.
There's all kinds of reasons for that so I think that's the piece the thing that may do a little more unlocking though to me if I was going to look for a positive.
Is that thing, we're seeing of kind of rotation in the suburban.
Market, where people want to need different things.
But when we survey.
You know thousands of customers and agents.
What people want to need different art isn't the same thing right. You know some people are looking first for you know.
More on the home office side or more on the external space side, others have those things, but don't want or need them as much as before and and that might be able to actually unlock some inventory if that suburban rotation is not a temporary thing and as a longer thing, but the tight inventory thing is.
As a big worry as an industry and I think even as a society that we don't talk about enough I wish I had better answers on it.
But but I don't I do think we're you know, we're well positioned to capture it whether it comes in units or price.
And because of that suburban massive presence, we have I talked about I think where the world is going is in our favor.
But we would love more inventory out there too.
Appreciate the thoughts thank you.
Thank you.
Next question comes from the line of Ryan Mckeveny with Zelman and Associates. Your line is now open.
Hey, Thank you so much guys for squeezing in so two quick ones one the commission rate and I apologize if I Miss this earlier, but the commission rate actually ticked up a bit in both the.
Franchise known side of the business. That's the first time in a while we've actually seen seen that ticked higher.
In this industry typically when inventories very tight you actually can see some some compression on the commission rates, just given kind of the competition amongst agents.
Curious you can just comment on kind of what what drove that this quarter and then second question on the corporate side of things on the franchise.
We've seen some of the announcements I'm just curious what you can you can say regarding kind of the pipeline and how things are going thus far.
Relative to two maybe how you expect things to go obviously, a little bit trips to differentiate the things.
So just curious big picture, how how that's going versus you anticipated and ultimately what's the pipeline is looking like in that side of things. Thank you.
Well, Thanks, Ryan I'll take both your question Phil.
On the average broker commission rate look we were happy to see it ticked up a little bit in franchise and brokerage and that's great. You know, we don't see a trend there something that number is kinda, it's kinda bounces around when you really look back at it over the last not just couple of years, but multiple years those numbers are pretty stable and a lot of times they move around.
Because of mix I don't think this quarter was because of mix, but but you know we'll take the fact that it was a little bit better, but I don't think theres, yet a macro trend there.
But the part of the reason, though I think it didn't go down you may want to keep in mind is actually the power of agents I know you talk about Asian competition, but there's.
Agent you know ages earn this commission in my belief.
Because they actually provide real value and agents I think provided even more value. During this past during the cobot kind of quarter that we just finished.
In terms of the work there were able to do to help customers set the right price often a higher price by the way to the customers benefit and to get deals done in a much more uncertain and much more you know health and safety kind of time. So you know the uses of agents in Q2, I bet is actually up.
Versus normal that's a gas I don't have the data. That's my guess and I think you should remember you know all of the I buyer shut down.
And agents power at all and agents got hundreds of thousands of deals done realogy agents and other agents.
And so you know you know you can see a little bit of a market dynamic there, where you know somebody's other price or other option kind of went away. So I don't think there's a lot of news and that other than its kind of continues to be a relatively stable thing out there, but I do think that there.
You know people are using agents and frankly, maybe even more during this crisis because agents are helping customers power through and get their home bought and or sold safely. So I'm, a big fan and I think they're actually proved a lot of it in the quarter.
Look on the corporate side, we're excited about the you know the franchise launch we're excited that we're building a portfolio. We added a couple more you know our first Corcoran franchisee just bought a great from in northern California to expand that's great. We've got a pipeline we can't publicly announced the you know you know what's already been signed and what's going to be announced soon hopefully.
Right, but we've got a good pipeline we feel good about it you.
Just like our Sotheby's business that we launched you know you know whatever it was.
Coming up on 15 years or more than 15 years ago or better homes and gardens over two dozen years ago. You don't built these franchise businesses overnight, but boy. We're excited by the build we've had so far and what the pipeline look and we really like obviously, the economics of franchise real estate, especially at the high end, where Corcoran play.
Yes, so thank you Ryan for both those good questions.
Very helpful. Thank you.
And ladies and gentlemen, this does conclude today's question and answer session and that does conclude todays conference call. Thank you for your participation you may now disconnect [noise].
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