Anywhere Real Estate Inc. Q1 2023 Earnings Call

Good afternoon, and welcome to the anywhere real estate first quarter 20 twenty-three earnings conference call via webcast.

Today's call is being recorded and a written transcript will be made available and the investor information section of the company's website tomorrow.

A webcast replay will also be made available on the company's website.

This time I would like to turn the conference over to you anywhere senior Vice President Alicia West. Please go ahead Alicia.

Thank you Briana good afternoon, and welcome to the first quarter 20 twenty-three earnings conference call for anywhere real estate on the call.

[noise] with me today or anywhere C E O and President Ryan Schneider, and Chief Financial Officer, Charlotte's in an alley.

As shown on slide three of the presentation. The company will be making statements about its future results. Another forward looking statements during this call.

These statements are based on the current expectation in the current economic environment.

[noise] looking statements estimates and projections are inherently subject to significant economic competitive litigation regulatory and other uncertainties in contingency many of which are beyond the control of management.

Including among others industry and macroeconomic development any concept liabilities that are in excess of amount of crude or payments made in connection with pending litigation.

Actual results may differ materially from those expressed or implied in the forward looking statements important assumptions and factors that could cause actual results to differ materially from those in the forward looking statements are specified in our earnings release issue today as well as our annual and quarterly SEC filings.

Those who listened to the rebroadcast of this presentation, we remind you that the remarks made hearing or as of today may 3rd and have not been updated subsequent to the initial earnings call.

Now I will turn the call over to our C E O and President Brian Schneider.

Good afternoon, everyone, even in the face of a challenge in housing market.

Work continues to charge ahead and make meaningful progress.

Ending up a company for even greater success in the future.

In the first quarter of 2023, we stayed focused on our existing business days for future growth, especially franchising luxury.

Civic successes in old brokerage agent with routine and recharging Enfranchise shield across our great branch, we should actually lowered our cost base, including permanently changing how we operate.

To execute 200 million in cost savings for the year.

And we continue to invest in re maggi and the agent of consumer experience.

Simpler more integrated a real estate transaction, but also lets us capture greater economic.

I don't share more on each of these later on the call, but I Wanna start by thank you have a great employees agents and franchisees for helping our customers navigate a tough environment cause anywhere stays laser focus driving our strategic priorities, including an intense innovation agenda.

In that spirit, our company got a lot of energy from being named 104 change most innovative companies for the first time ever.

I told him to the housing market, there's no hiding from the fact, we are in the midst of a very challenging year, most forecasts predict home sales and the low for millions rage, which would be one of the worst years, we've seen in a long time.

And we still believe the year over year volume comparisons will improve throughout the year and I'm starting to hear from somebody interesting franchisees about greater optimism for the market improving going forward and we have a few of those positive indicators in our portfolio.

Q, what our business performed the whiter round expectations, we delivered 15 billion of cost savings in a tough quarter when volume is down about 30% both of which we signaled in advance to Ya.

All of them decline was almost all unit driven with a 29% decline in home sale units.

Well home sales were down substantially across all markets. There was significant geographic variation in price changes a few markets in particular, California, New York City at prices down 5% to 10% versus prior year, while about two thirds of the states, including large ones like Texas, and Florida saw prices hold steady or.

Increase versus last year.

Revenue was over $1 billion in operating EBITDA was minus 52 million. However are operating EBITDA was meaningfully impacted by new legal accruals in the corner.

A reminder, in addition to the two other class action jury trials later this year.

Large industry anti trust claims.

Action with certified in March.

Illegal accruals aside.

We were pleased that March operating EBITDA was solidly positive.

Trained to continue.

We're also glad to see open volumetric continuing to outperform close of all your metrics in Q1, which indicates positive future volume levels.

And our number for April so far are continuing the trend of open volume metrics running better than clothes volume efforts.

We are most excited about our strategic progress to set us up for greater success, especially in stronger future housing markets. So first we're working hard to position anywhere to achieve sure growth, especially as the market rebounds, with a particular focus on our franchise business at our luxury leadership.

Anywhere advisers agent base again grew year over year, and we continue to have record agent retention levels are anywhere brands businesses delivery and robust franchise sales, both domestically and internationally and we continue to see agents and brokers attracted to are compelling value proposition that includes innovative technology data in marketing products.

And high quality lead generation programs.

Second we are moving our business to a permanently lower cost base as you can see from our cost results in 2022, and Q1 of 2023, we're rearchitecting and reducing our real estate footprint in automated our operations.

Includes our most recent actions as we bring together or title and brokerage physical footprints and operations to better serve agents lower costs and improve the transaction experience.

And third we continue to invest and make progress since our goal to simplify and integrate the agent and consumer transaction experience. We believe this will have multiple benefits, including capturing additional economics and the transaction and further reducing the stress and friction for consumers agents and franchisees a.

A few examples include the following from the quarter are.

Real Vitalize product provides a turnkey solution to help sellers prepare their home for sale.

Adds to our value proposition by simplifying the agent and consumers transaction experience and enabled us to capture additional economics. So for example in Q1, we captured title on over 80% of the real vitalize transactions and seller controlled markets.

We've scaled up our lead the engine product, which simplifies and speeds up the process of matching consumers with agents lead to engine is part of our ongoing successful effort to shorten the time to connect interested consumers with agents and more broadly meet consumers, where they are or even earlier in their home buying or selling journey.

One click title, which is the name suggests simplifies and integrates this high bill ordering process to a single quick across our title and brokerage operations launch last year and Coldwell banker Realty I mean, Q1, nearly 30% of our CBR agents, who closed transactions use the feature so in addition to better.

Integrating the transaction one click title is also an example of changing how we work by automating a complex part of the transaction.

And finally upward tied all our new multi franchise titled Joint venture program went live in its first market, Florida and is on track to launch in our next plan markets of California in Pennsylvania. Later. This year. This program allows our franchisees to benefit from our scale and title and extends the reach of our integrated title offering to our franchise network.

So in the midst of it clearly tough housing market I'm excited by our strategic progress our teams continuing track record delivery and how we're seizing this moment to further position anywhere to capture the opportunities ahead of us, especially in stronger housing markets now I will turn it over to Charlotte to discuss our results in more detail.

Good afternoon, everyone.

And the market dynamics, we had solid financial and operational performance in the first quarter and continue to focus on what we can control our cost savings and executing against our strategic goals.

We believe our execution strategic focus and industry leadership will enable us to drive differentiated performance and emerge stronger when the housing market improves.

Now I will highlight our first quarter financial results.

Q1 revenue was 1.1 billion down 31% versus prior year and in line with our transaction volume decline.

Q1, operating EBITDA negative 52 million down versus prior year.

Transaction volume and higher agent condition costs offset in part by cost savings across the enterprise.

Our results are also impacted by the significant legal across Brian referred to earlier.

We are prudently managing our cash cash.

Cash on hand at the end of the queue line was 122 million and Q1 free cash flow as negative 120 million.

This result is better than what we normally see in the first quarter are seasonally slowest.

Or revolver borrowing at the end of the quarter was 380 million only 30 million higher than year, and 2022, and driven by our prudent cash management and better working capital.

Also almost all of our revolver borrowings relate to the note redemption. We did in November last year, which leaves us with limited maturity until 2026.

Now, let me go into more detail on our business segment performance.

Or anywhere brands business, which includes leads and relocation generated 97 million in operating EBITA.

Alright, and EBITDA decreased 41 million year over year, primarily due to lower revenue related to transaction volume declines, partially offset by decreases and operating and marketing costs.

R Q1 anywhere advisors operating EBITA with negative $75 million down 35 million versus prior year due to lower volume and higher agent Commission costs offset in part by lower operating and marketing expenses.

Commission splits in Q1, we're at 84 basis points here over a year, which was better than we expected in the corner.

<unk> worse than the prior year due to the impact of amortization of prior recruiting and retention payments over a much lower volume and due to the mix of agents, we've recruited over the past year.

It was also impacted by timing on our corporate new development business.

Anywhere integrated services with negative 17 million and operating EBITA in Q1.

Operating EBITDA declined 14 million year over year at a lower purchase and refinance volumes and 6 million lower earnings to to the sale of our title underwriter business.

This was partially offset by lower operating expenses due to cost savings initiatives and 6 million and improved G. R. A J V performance.

Moving onto cost.

We have a relentless focus on changing how we operate our company to drive greater efficiency.

We continue to execute on our 200 million cost savings program. Realizing 50 million of this in the first quarter and expect the balance to be recognized fairly evenly across the remainder of the year.

The majority of the savings will come from head count and real estate footprint efficiencies, representing about 70% of our 2023 savings.

We have reduced our head count by 11% since June of 2022.

The real estate footprint, we are focusing our efforts to re imagine and transform a real estate brokerage offices to be more efficient flexible and integrated with transaction services like title and mortgage.

These efforts are focused on how we deliver services to agents and customers by advancing our technology and product solutions, which drive efficiencies.

A couple of examples.

In the first quarter. These efforts resulted in a reduction in our coldwell banker realty offices of about 10%.

We have historically operated title and brokerage separately, but now are focused on the opportunity to integrate administrative operations.

This will change how we deliver services to brokerage expanding our value proposition.

<unk> the transaction for agents and consumers shortening timelines and improving the end user experience.

This will also drive efficiencies and streamline operations by leveraging work that had previously been done in both title and brokerage and now eliminating those redundancies.

We are also targeting higher ROI spending.

For example, we are moving away from advertising in March Madness to Amazon Prime video for Thursday Night football.

The same dollar investment doubles are rich and offers re targeting opportunities and Brandon and show integration.

We consider approximately two thirds of our full your savings to be permanent and are not expected to return when volumes increase.

The savings will be offset in part by inflation and by intensifying litigation costs driven by the cases, Brian mentioned previously.

Now onto our new estimates for 2023.

First we expect our queue to close volumes to be down about 25% versus prior year.

Second based on the Q1 split trends, we now expect <unk> 2023 split pressure of about 100 basis points, which is better than our previous estimate.

Estimates that remain the same as our last call.

For full year 2023, we continue to expect transaction volume declines to about 15% to 20% year over year, which is consistent with our past estimate and in line with industry forecast.

We also still expect to transaction volumes will improve sequentially throughout the year.

We expect our operating free cash flow to the modestly positive as favorable working capital robust savings programs and our cash management discipline will help counterbalance this tough year in housing.

Finally, we are on track to realize $200 million of P&L cost savings in 2023.

Let me now turn the call back to Ryan for some closing remarks. Thank you Charlotte So as I reflect in the first quarter I'm proud of our team navigated the tough housing environment and deliver I'm also excited about the strategic progress we made a new quarter to set our business up for greater growth when the market rebounds to permanently streamline our call.

Basically we operate differently and to re imagine the agent and customer transactions experience.

Looking ahead, you know we we continue to believe the housing market will improve through the course of the year and I remain quite optimistic about the housing market over the medium term and our ability to lead in it too.

<unk>, even greater success in the future. We continue to seize this moment condition anywhere to capture the benefits of that better housing environment was together with our agents and franchisees, we move real estate to what's next.

I'll turn the call back over to the operator for any questions.

And this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.

Your first question comes from Tommy MC Joint with K B W. Your line is now open.

Good evening guys. Thanks for taking the questions.

So when it started off asking about the commission split number so assuming the the full year transaction volumes are down 15 20 per cent. I think you guys are too for the full year, an understanding that the productivity mix among agents can vary what's <unk>, what's a reasonable range for where that commission split could end up this.

Here Uhm relative to what it was last year.

Yeah. So I think the guidance that I just indicated in the prepared remarks with to be around 100 basis points worse than prior year, the first quarter being down 84, and again the drivers of what's causing the split the pressure is the amortization of prior recruiting and retention payments as well as you know.

The mix of some of the agents that we've recruited over the past year. So those are the big drivers Uhm down 84 basis points and Q1 and our call for the full year at this point is to be down about 100.

Or worse worse address for Sandra.

Right.

Right right got it Okay and then my second question have you seen any early indications of a slowdown in available jumbo mortgage credit that's impacting the luxury housing market. Following the pullback by some of the banks that historically were pretty prominent in that market.

No we have not.

You know our mortgage businesses meaningfully sized.

You know kind of has a pretty broad distribution out there obviously, we're not a bank. So you know we do operate differently than some of the banks are in our joint venture, but you know we haven't seen any pressure on housing results because of mortgage pullbacks.

A massive amount of pressure on housing resolved because of mortgage rates with frankly the supply.

Issue and the fact that so many people have a low rate and are kind of locked into their homes and we're getting so little inventory on the market is even bigger than the affordability that comes with you know six or seven per cent mortgage rates, but on the list of things that are kind of affecting housing transactions, both the number the pricing et cetera.

The pull back and mortgage credit and then the jumbo market in particular is not.

You know anywhere near the top of the list is not something that comes up and you know look the luxury segment has a disproportionate majority of cash transactions relative to the market. So you know good question given everything that's going on but it is not a driver we believe it'll be there are resolved or the.

Results you know out there in in the industry and again you know we you know it to talk to you for housing right now because of those right environment, but we.

We think of the longer term outlook for housing with demographics and you know the fact that it's not a loose credit environment and we don't have the balance sheet issues of 15 years ago does have is more optimistic over the medium term but.

Pretty strong no on your question in terms of what we're seeing in what's affecting our results.

Understood. Thanks right.

Your next question comes from Matthew believe with Barclays. Your line is now open.

Hey, good evening, everyone. Thank you for taking the questions. So I guess on the on the G&A spend you know I guess, presumably that it that includes some of these meaningful legal accruals that you're speaking to and I know you didn't add those back to adjusted EBITDA.

I don't know if you want to quantify those or you know or if you.

Kind of holding that back, but maybe send another way is is there a way to kind of think about sort of normalize level of.

G&A spend ongoing maybe be a way to put it thank you well.

Well look this is three quarters in a row that we've had slowly meaningful legal work rules that affect our EBITDA and to your point you know, we just put it in the operating and EBITDA and we don't try to adjust that out you know, but we talk about them and we make it clear that is meaningful. So you should obviously be assuming on a run rate basis.

That are you know.

Absent those things are G&A would've been would've been lower than our our EBITDA EBITDA would've been higher you know, we're we're we're not gonna get in the business of given the numbers out partly cause you wouldn't want us to be shared them with the plaintiffs but.

Ah, but you know we're pretty transparent about what's going on there and that it's a meaningful impact and you're right that is where the lion's share of that stuff shows up.

I think Matt I mean, you've probably looked at our corporate G. N O G. In a over a longer period of time, and you know kind of where our cost savings confirm with the majority which are coming out of brokerage and entitle. So you know I think you can probably estimate for yourself, where do you think the run rate of corporate G&A would be.

Yeah, I mean, the other thing probably to keep it in mind when you look at the the legal look rules kind of get the results you know Mad obviously, they they go straight into the operating EBITDA number that we quoted but you know illegal accruals. Aside you know March was was a positive EBITDA month for US. It was solidly positive. So you know we like that we'd like the trend.

There and then underlying that is the <unk> you know every month so far this year, we've seen the open transactions.

Volume metrics outperform the close ones, which you know kind of shows future months better than the previous and that's partly why March was a better month in January and February . So you know that the those accruals or you know you know really been a headwind to some of these numbers.

You know that we've been sharing with you on an overall basis, but but we have tried to be clear that there's you know stronger added a line business performance there and you know with the March EBITDA solve the positive is just one example of that.

Yep got it in and forgets and my second question is any any color on maybe how many more quarters of legal accrual we could look for.

Yeah. So obviously these cases continue to evolve I mean, what we're a crude for at this point is our best guess as of today, but we do have to reevaluate sorta month by month and the class was certified and so we took a position than we thought.

Was pregnant, but we're gonna have to keep watching it month by month.

Okay got it so thank you for all that helpful detail and then so secondly, just kind of question on how this overall housing market is evolving I think you know one thing you see as you look in the data is that you're.

You're seeing this sort of a larger share shift towards newbuild and I I'm thinking more of the single family side, So not really asking about the new development business that that you guys do in you know in corporate for example, so you know did you think about how that maybe plays out from anywhere perspective.

You know to what extent do your agents participate in new construction, new single family construction, you know and how would that play into you know either commission splits or even commission right. Thank you.

Yeah. So.

We play with our agents play a new new single family home construction I would say Episodically you know when the markets are hot builders don't need to use agents to sell their homes when markets are tougher like we're getting right now a bit bluntly, we have more agents, who were helping people I would say sell homes.

That said, it's never gonna be that Big you know in our marriage. Because you know you know you know if if the normal world as you know whatever five five plus million resale and.

And a good year I, just want a million or so new construction, maybe I don't know if it's a plus or minus that you know you know.

The even a big move in the in the new construction number.

Doesn't it kind of move the overall that much kind of thing and so you know our our our our world is pretty.

<unk> gonna be swamped by what happened either up or down with the with the resale market.

So you know, we'll take any of the business, we can get there, but it's neither gonna you know make up for the resale market nor is it gonna be a problem you know.

If if the new sales stuff goes away.

<unk> of our agents involvement but.

But the bigger thing is just you know it is a challenging market right now in any part of the reason that the new sale market's doing well as they are bringing new supply onto the market.

And as I said in your earlier comment you know the the lack of supply.

<unk> is by far the biggest issue out there in the world and it's true it across price points and geographies and obviously you know what's happening on the right environment is really hurt that ability and and you know you can you can look at all the forecasts.

Or whether it's you know 4.24 0.3 $4 five 4.0, whatever those work as you know those are those are like some of the lowest numbers will have seen in you know 15 to 30 or 40 years in terms of number of units sold.

So you know so we so we you know really got to stay focused on the cost side like we're doing you know we absolutely are excited that we can invest in a time when a lot of people are having to pull back even more and you know the fact that we could.

You know you know you know dry still drive meaningful EBITDA this year and even have some modestly positive free cash flow. You know you know is is feeling pretty good given the market. The red and then you know you've obviously seen how we can perform and stronger markets and so.

And then we can do to create some space with the competition because I think the competitive environment has gotten better and you know I I have a personal belief there may be some flight to quality is still going on here. So you know so we're we're we're we're sitting out in the market and how we're trying to.

<unk>, our way through it and the only thing I would add to that is add a fry and brought up our modestly positive free cashflow any ear.

Just wanted to be explicit that we have no further information about any possibility or timing or any of the outcomes in our litigation. So that's not factored into the estimates that we've shared with you.

Alright, well, thank you Charlotte, Thanks, Ryan and good luck.

Alright, thank you.

Again, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.

Your next question comes from John Campbell with Stephens, Inc. Your line is now open.

Hey, this is a J hey, stepping in for John Campbell, Thanks for taking our questions and congrats on the quarter Uhm. So we we saw in the 10-K that on third of title transactions last <unk> from your company is owned brokerages and and you're also called out that about 30% entitle attach reached for this brokerage transactions can you <unk>.

I had some insight on how does looked in prior years and how you've seen a <unk> an improvement in patch read over the years and in longer term, where do you think you can take those attach rates.

Well you know I think we've had that stuff out there I don't think our tax rates are frankly really improved over the years.

I mean, you know and they've kind of state and kind of that range. There to your other point, we do do a meaningful amount a third party business and we love that right you know, we'd love to entitle business for any.

Any transactions that we can not just her own agents and so that's why I'm, a J and I appreciate you stepping in I.

I do spend as much time as I do talking about <unk> and the agent and the consumer transaction experience because I have a very strong fundamental belief a J if you'll let me just just share with you here which is.

You know everybody.

Just trying to change the way, we've done things to get a different title attachment.

It's been done for ever in our industry is unlikely to work and the fact that our results.

That core metric haven't changed that much as evidence of it.

But the way to actually get different results is it actually change how the transaction happens and make it easier for people or create products that make it easier to let you capture and the real vitalize when I use as an example that you know we give a product I've actually use this product as a home seller, where it makes it you know it takes off.

All the work of Prepping your home for sale and hands it to professionals. We're both both the agent and and a homeowner doesn't have to do any of the coordination because of professional does that right and then you know and and then we you know we recoup the cost of that stuff at the closing, but built into that product is.

Using our title.

In any market, where the home seller controls the title.

And so we get 80 plus per cent capture rapes there.

And so you know I don't talk about simplifying the transaction just for the fun of it or because of the obvious thing that we all want simpler things in life <unk>.

Making the experience, making having products and experiences that are better for the agent and the consumer and this very complex Big dollar thing you know.

Is not only good on its own right and can help with our value proposition, but my view Adrian that's the only way to really get your title and mortgage capture raise to a different ZIP code, which is wherever possible to actually embedded in the product that people one because it makes the service better or easier and real vital.

Wise as an example of that and so.

So we actually that's partly why we Wanna give those kind of data points of we're finding ways to do that and pilot programs at smaller scale that we want our role more broadly and and that's the kind of way we can get to a different capture rates just doing what we do or what are <unk>.

Industry does.

<unk> is not likely to move the needle.

But innovation and change in the experience.

That could do it and so we've got a you know that real example, we gave you this quarter and that's the kind of innovation agenda, we need to be driving.

Yeah, I really appreciate the color of their Ryan and and definitely impressive attach rates with revitalize one follow up if I. If I may with card is it's obviously buried in the brand's segment, but it seems like you've rebuild or to a great spot. After the pandemic driven fall out you'd be very helpful. If you could provide either the exact contributions are.

Maybe just talk broadly to where it is today versus pre pandemic for both revenue and margin as well.

Yeah. So what I would say is we had a really good quarter and relocation it was uhm.

It it drove a decent year over year improvement, yeah, and the it was definitely noticeable from from a revenue perspective over the past year the.

The volume was kind of driven by a couple of different things. It was driven by a little bit of a rebound a pent up demand, but it was also driven by.

No new business with existing clients and then share gains that we had and with new clients. So I think the business to your point is very healthy we have really focused on it when the real estate business was booming. We you know we continue to invest and ensure that we were driving and the right technology agenda and and so I'm really.

Happy with the way that performance is playing out I will say you know there's.

For what's to come balance of the year. There are challenges that are driven by you know if you think about the sectors that use relocation some of those sectors are suffering.

So they may you know they may have different plans for relocation in the near term as they have their own agenda to worry about that over the long haul the market share gains that we felt those with existing and new customers I think you're gonna benefit us for sure and we're very happy with that a year over year contribution from that business.

Great. Thank you so much.

[laughter].

Thank you a J operator, do we have any other questions in the queue.

There are no further questions at this time.

Alright, well, we thank all of our Cheryl there's other interested parties for joining us today and with that I think we're gonna wrap up the call.

This concludes today's you may now disconnect.

Yeah.

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