Anywhere Real Estate Inc.

Q3 2022 Earnings Conference Call

10/27/2022

spk03: Good morning and welcome to the Anywhere Real Estate third quarter 2022 earnings conference call via webcast. Today's call is being recorded and a written transcript will be made available in the investor information section of the company's website tomorrow. A webcast replay will also be made available on the company's website. At this time, I'd like to turn the conference over to Anywhere Senior Vice President, Alicia Swift. Please go ahead, Alicia.
spk00: Thank you, Chris. Good morning and welcome to the third quarter 2022 earnings conference call for Anywhere Real Estate. On the call with me today are Anywhere CEO and President Ryan Schneider and Chief Financial Officer Charlotte Simonelli. As shown on slide three of the presentation, the company will be making statements about its future results and other forward-looking statements during this call. These statements are based on the current expectation and the current economic environment. Forward-looking statements and projections are inherently subject to significant economic, competitive, litigation, regulatory, and other uncertainties and contingencies, many of which are beyond the control of management, including, among others, rising inflation and mortgage rates, constrained inventory, declining affordability, and other macroeconomic concerns, as well as the impact of the foregoing on consumer demand. Actual results may differ materially from those expressed or implied in the forward-looking statements. For those who listened to this rebroadcast of this presentation, we remind you that the remarks made herein are as of today, October 27th, and have not been updated subsequent to the initial earnings call. Important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release issued today, as well as in our annual and quarterly SEC filings. Now, I will turn the call over to our CEO and President, Ryan Schneider.
spk05: Ryan Schneider Thank you, Alicia. We delivered meaningful Q3 profitability, even in a clearly challenging housing market. We began to see the competitive environment shift in our favor, and our position of strength allows us to invest for growth in our core business and to simplify the consumer experience of buying and selling a home. The biggest challenge today is the rapid deterioration of the housing market. Our Q3 transaction volume was down 17%, consistent with our down 10% to 20% estimates. But the market is unfortunately worsening beyond that. Based off what we're seeing in the market today, including our September and October open contracts, we're seeing more like over 25% volume reductions driven by lower unit sales. And recent third-party forecasts predict lower 2023 volume driven by a decline in unit sales versus their 2022 forecasts. Now, the macroeconomic drivers of this fall off in housing activity are not a mystery. with mortgage rates more than doubling to now at or above 7%, affordability challenges given the rise in home prices, and economic uncertainty anchored in high inflation. And beyond those macro factors, I can't emphasize enough how the continued lack of inventory contributes to this drop-off. Many homeowners are locked into their current home with low mortgage rates, creating a barrier to new supply coming onto the market. And even before mortgage rates increased, we already had a lack of inventory problem, especially in the highest demand entry level part of the market and in many of the more attractive destination geographies. So while a challenging macro housing outlook for the rest of 2022 and 2023 is clearly disappointing, we are confronting it head on and making a series of moves to both deliver financially and to expand our competitive differentiation. Before I talk more about that future, let me share our Q3 results. We earned $166 million of operating EBITDA in the quarter. Our business delivered well above that number, but it was reduced by us taking several legal accruals in the quarter. These earnings are a powerful financial result on both an absolute basis and relative to our competition. We delivered $1.8 billion in revenue. Our transaction volume was down 17% year-over-year, consistent with the range we estimated during Q2 earnings. Our owned brokerage volume performed a bit better than our franchise business. Our luxury leadership position was one of the more important drivers of that difference, as we consistently saw less decline in the 750 and up segment of the market in both our transactions and in our listings. Second, we are seeing pretty meaningful geographic variations. with about 25 percent volume declines in the West, but only kind of high single-digit declines in places like the Midwest and the Northeast. And we're also seeing the same geographic variations in dynamics of the market. So, taking Coldwell Banker as an example, you know, average days on market in Q3 increased five versus prior year to 20 days overall, while average days on market stayed flat in the Northeast but increased by 11 days in the West. But to put it in context, that 20 average days on market is still substantially lower than more normalized years like 2019 when it was 30 days. Now, finally, through all this, we remain laser-focused on costs. As we've seen the housing market worsen, we increased our cost reduction even more during Q3, as Charlotte will discuss later in the call. Now, looking forward, as we head into a worsening housing market, we continue to be proactive preparing for that environment. So, first, Our commitment to increase in our efficiency is absolutely at the top of the list. Not only have we focused on cost reduction every year for the past four years, but in both Q2 and here again in Q3, we increased our cost reduction for this year as we saw the market deteriorate. Second, our investor day highlighted the scale advantages and the growth opportunity from integrating our brokerage title and mortgage services. There are also speed and synergy opportunities from that integration. And we have begun operationally integrating our Coldwell Banker-owned brokerage with our title and mortgage JV, which should pay off in both faster service delivery and greater efficiency. Third, we remain very disciplined with our investments. We continue to selectively invest to grow and to improve the consumer experience. And as we've seen the market worsening, we have pulled back on some investments where the ROI isn't as attractive in a weaker market. And the largest examples of that will show up in our lower marketing expense and our reduced capital expenditures. And fourth, as you know from our SEC filings, there are a large number of industry class action lawsuits as well as additional litigation facing the companies. Two, have trial dates set in the next six months. All these cases are complex and constantly evolving, and while we're vigorously defending these lawsuits and believe we have substantial defenses, we increased our legal accruals for several matters in Q3. And then fifth and finally, we are proactively redeeming the outstanding balance on our 2023 notes in November. Now, on the growth side, we see the competitive environment improving to our benefit. And we are working hard to create competitive differentiation in this current part of the market so that we emerge even stronger on both an absolute and a relative basis as the market improves. We like how our products and technology, our value proposition and our profitability are making a difference. So to start, you know, we really like our franchise results and how we're leveraging the better competitive environment to outperform 2021 on two critical metrics. As you saw at our Investor Day, we continue to have success growing through franchise sales. We are running ahead of last year's numbers, including our Corcoran franchise expanding into its 50th market since launching two years ago. And one thing we didn't discuss at Investor Day is renewals. And both last year and this year featured over a billion dollars of gross commission income renewals through Q3, with 2022 pacing slightly ahead of 2021. Second, we saw the better competitive environment in our own brokerage recruiting and retention. We analyze MLS data to determine everyone in the industry's net gain of agent production from recruiting and retention. And we were really excited for our own brokerage business to be at the top of the list across the industry for the quarter. Our relocation business continues to gain share by signing several new clients, including a global Fortune 25 account and expanding services with over 50 existing clients. And our current successes are driven by the great talent at our company, as we were just recognized again this year by Forbes as a world's best employer. I'm proud we were able to achieve solid financial results in the quarter. Going forward, our most important focus is on the challenging environment ahead, executing cost savings, making prudent growth investments, and capitalizing on the better competitive dynamics to set us up for even stronger outcomes and greater competitive differentiation as the market improves. Now I will turn over to Charlotte to discuss more details about Q3, and then I'll come back at the end to make a few more comments on the longer term.
spk08: Good morning, everyone. As Ryan said, we are proud of our results delivery, and we are well equipped to navigate today's environment. Our competitive differentiation is driven by our well-established profitability, strong balance sheet and liquidity, and our proven track record to deliver efficiencies in our cost structure. Last quarter, we announced an additional $70 million of cost savings, putting our full-year target north of $140 million. We are on track to realize the entire amount this year, plus incremental new actions, which increase our full-year 2022 savings target to over $150 million. We expect about one-third of the additional $80 million of savings will be permanent, And this is on top of the $240 million of permanent savings we have taken out of the business over the past three years. The remaining portion of the savings in 2022 are temporary and were actioned in response to temporary shifts in the housing market. With some of the cost savings actions coming much later in the year, the 2023 run rate benefit for those actions is worth about $70 million. We are also beginning to identify more structural savings tied to the strategy we shared with you at Investor Day, and I will provide further information about our full year 2023 savings target in next quarter's call. The integration of our brokerage and title operations is another great example of how we are changing the way we operate to make us faster, more efficient, and to deliver on the future we outlined during Investor Day. These businesses represent about 70% of our cost base and the lion's share of our customer interactions across the business, and we are excited by this opportunity. As we integrate these businesses, we plan to report the brokerage and title financial segments combined together in our full year 2022 results and going forward. With that context, I will now briefly highlight our Q3 financial results. Q3 revenue was $1.8 billion, down 17% in line with our transaction volume decline. Q3 operating EBITDA was $166 million, down due to lower transaction volume, higher agent commission costs, and a decline in title, offset in part by favorable relocation earnings driven by strong volume growth. Our results were also impacted by the legal accruals Ryan referred to earlier. Cash on hand at the end of Q3 was $272 million, and free cash flow was $99 million. We ended Q3 with a senior secured leverage ratio of 0.02 times and a net debt leverage ratio of 3.8 times. Free cash flow in the quarter was down versus prior year due to lower earnings and working capital timing. Our Anywhere Brands business, which includes leads and relocation, generated $202 million in operating EBITDA in the quarter. Operating EBITDA decreased primarily due to lower revenue related to transaction volume declines, partially offset by a decrease in operating and marketing costs. Our relocation business substantially outperformed 2021, driven by strong client initiations. Our Anywhere Advisors business generated negative $1 million in operating EBITDA in the quarter and $96 million before the transfer of intercompany royalties and marketing fees paid to our franchise business. Our agent base was up 7% year over year, like for like, with all three brands delivering agent growth. Commission split increases were up 215 basis points year over year, but down 15 basis points in absolute terms versus Q2. and continue to sequentially moderate as expected. We are seeing a recent positive change in the competitive market in what it is taking to attract and retain agents. And if this dynamic continues, we expect the split environment to improve over time. This split moderation will also be driven by continued volume declines as commission tables reset. And this will be partially offset by the amortization of previous agent investments as well as agent mix. as we expect our highest producers who earn the highest split rates to continue to drive more of the volume. Anywhere Integrated Services delivered $9 million in operating EBITDA in Q3. Operating EBITDA declined $45 million year-over-year due to lower resale and refinance volumes, lower earnings due to the title underwriter sale, and lower mortgage JV earnings as seen across the entire mortgage industry, driven by massively rising rates and margin compression. We believe our profitability is a competitive advantage. We are pleased with the progress we have made on our balance sheet. We have a long-dated maturity stack and have lowered our cost of capital. We have $272 million of cash on the balance sheet. As Ryan mentioned, we are executing on our promise to address the 2023 notes. We opportunistically repurchased about $7 million in Q3 in the open market, and we issued a notice to redeem the remaining 2023 notes on November 17th. We will use revolver borrowings and cash on hand to address these notes. And after that, we have limited debt maturities until 2026. Looking forward, we will continue to balance these priorities with the impacts of the broader economy and our need to prudently invest in the business to advance our goal to make the transaction process simpler for consumers. In Q3, our volume was down 17%, consistent with our down 10% to 20% estimate. But the market is unfortunately worsening beyond that. And based on what we see today, our current view on transaction volume for Q4 is down over 25%. The further deterioration of volume from our previous guidance, combined with the legal accruals, has us below our previous EBITDA guidance. We do not plan to give new guidance at this point due to the high degree of macro volatility. We continue to make decisions that set us up for the near term while also remaining committed to our long-term strategy, balancing the emphasis on cost efficiencies and prudent investments designed to drive long-term value. We believe this balance, along with our size, scale, and cost discipline, positions us well for long-term success. I will now turn the call over to Ryan for some closing remarks.
spk05: Thank you, Charlotte. While it's clearly a volatile and challenging housing market right now and in the near future, I like anywhere real estate's demonstrated ability to deliver meaningful profitability, cost discipline, prudent growth investments, and our potential for differentiation in an improving competitive environment. I still believe the long-term housing market outlook is pretty good, driven in large part by positive demographics, strong consumer balance sheets, and strong demand for housing. But today and in the near future, we're clearly facing a tough part of the cycle. We believe we're well positioned for the future, taking a proactive approach to confront the challenging near-term market and continuing to look ahead to grow our business, simplify the transaction for the consumer, and create competitive differentiation. We believe we've got the scale, innovation capabilities, and the right focus on the future to navigate the tough parts of the cycle and position anywhere for greater success in better housing markets down the road. With that, we will take your questions.
spk03: Thank you. If you would like to ask a question, please press star then one on your telephone keypad. Our first question is from Ryan McEveney with Zellman and Associates. Your line is open.
spk02: Hey, good morning, and thanks for taking the question. Charlotte, I know you mentioned you'll get into more detail on the cost side of things for 23 next quarter, but Can you help us think about the process of potentially temporary cost savings becoming permanent or becoming, you know, kept out of the business longer? And I ask because, you know, Ryan, you mentioned there's many that expect next year could be, in fact, worse than this year. So I'm just curious, you know, how much of the cost saves that are coming out this year, you know, you know, remain out of the business? Is there a level of like if the market is still down, if transaction volume is still down, then those temporary costs stay out? Or, you know, on the other hand, what would what would cause those to come back into the business as expenses next year?
spk08: And it's a great question. And so how I think about it and a good analog is what we had in COVID. Right. So when the volume was down, the costs were out. And then you saw a little bit of quarter by quarter variation, especially year over year, like as we started adding those back when volume completely boomerang back to that point, if volumes are still down next year, I would fully expect that some of these temporary cost savings remain temporary cost savings in line with whatever the market is delivering for us. So it really will depend on the volumes. And good examples of that is, you know, so marketing expenses. Lots of industries, lots of companies tie their marketing expenses to volumes. So that's highly variable. Some employee-related costs, you know, just even processing costs, those definitely vary with the market. So absolutely, we would expect those to stay out tied with the volumes that we're seeing if those volumes decline into 2023.
spk02: Got it. Okay. That's very helpful. And a second one, just, you know, capital allocation, and I know this is also kind of a longer-term thought process, but obviously the near-term focus is on, you know, the redemption of the notes, as you've mentioned in the past. But how are you thinking about or how should we be thinking about your focus between things like share repurchase, even M&A opportunities as the market softens, investment in the business, and generally assuming cash flows remain positive, how do you think about allocating that capital across the various opportunities going forward?
spk08: Another great question. We're committed to our capital allocation priorities, but here's a way of thinking about it. You know, we did more share repurchases in the quarter. You saw the amount that we did. We continue to invest in the business, but we are being very judicious about where we place our investment money. From an M&A perspective, you know, we've had some of those throughout the year. But it really comes down to value, like, you know, what the price that we would pay, the multiple we'd pay on those things. And we really haven't seen a lot of distressed assets at this point. So, obviously, you see from our actions, the number one priority right now is taking care of those 2023 notes. And then the rest of it, like you said, will just depend on our free cash flow. We like the balance of our capital allocation priorities. The amounts will likely vary based on what we're seeing in the volume market.
spk02: Michael Heaney- Got it.
spk03: Okay, thank you very much. The next question is from Matthew Boulay with Barclays. Your line is open.
spk06: Matthew Boulay Good morning, everyone. Thank you for taking the questions. The helpful commentary there on what you're seeing in the competitive environment perhaps improving somewhat here. I'm curious if you can elaborate on that a little bit. I think you mentioned that there is potential for eventual relief on the commission split side in that scenario. You know, I guess the way to ask the question would be since this competitive environment, you know, has improved in recent weeks and that's occurring at the same time that, you know, the market has deteriorated, you know, just maybe if you can kind of read into the last four or eight weeks, you know, what are you seeing in terms of agent recruiting and commission splits specifically and sort of how that can kind of, you know, what do you think the benefit to commission splits might look like as we go out into 2023?
spk05: Matt, I think Charlotte covered the commission splits pretty well in the call, and she talked about some of the benefits we're seeing. If I can just kind of take on kind of the competitive environment side of it. Look, I think the reality is we're seeing a better competitive environment for us because if you go into kind of a downturn, it kind of exposes different people's strengths and weaknesses, and you see a lot of competitors kind of pulling back compared to, you know, in better markets. And you kind of see a bit of a return or flight to quality, you know, given our kind of financial performance and stability and our ability to, you know, even keep investing in, you know, in these kind of times. And I think that's manifested itself in what Charlotte said. You know, the economics of recruiting have been better, you know, in the third quarter than they were in the first or the second quarter. You know, our franchise sales is running ahead of last year, right, which it's, Last year was a really good year. We showed you the numbers in Investor Day, and it's run ahead of it as we're getting a lot more people wanting to be part of the ecosystem we're creating and the stability and the quality that we've got. Our renewals are running ahead of last year. So that's kind of the theme. I think Charlotte covered kind of how it will play out probably in the agent commission side, but it's a nice silver lining in an otherwise tough market. And if we can position ourselves through this to, you know, take some share, which is a goal, you know, and, you know, do the other things that you're talking about, you know, with our profitability, our ability to invest, you know, you can envision, you know, more octane out of our ecosystem coming out of a tough market. So we spent a lot of time on that, just like we spent a lot of time on, you know, focused on the expense side and you know, making sure we're only making the right investments. But it's been a meaningful change in the competitive environment. I hear it from my leaders in the field, you know, pretty much every week now in the last quarter.
spk08: But to be clear, we definitely expect further split increased moderation in the next quarter.
spk06: Got it. That's helpful. Thank you both for that. Second one, just on the market environment into 23 under COVID. you know, sort of a range of scenarios, I guess. I think I'm trying to get at, you know, sort of the offsets between what could be a further decline in the market next year, as you mentioned, the third-party sources, you know, making that call at this point, you know, versus the incremental cost savings. I think, Charlotte, at the top you said, you know, some of the recent actions would run rate around $70 million. next year. So I guess I'm just trying to balance the two. Is there a scenario where EBITDA could be flattish in 2023 if you're run rating $70 million of savings with these recent additions, plus you'll have additional announcements in the next quarter? How do you get to any kind of comfort on where your operating EBITDA may go next year? you know, and sort of the ability to offset further declines in, you know, in market volumes?
spk08: It's a great question, and I think the answer is it depends on where volumes go and how, you know, how far down they would go or not. Because when you think about our cost base, if you include commissions, it's like 80% variable, 20% fixed. If you exclude commissions, it's kind of the reverse, and it does depend by business unit. You know, obviously, we're highly motivated to make sure the cost base is right sized for the volumes that we're seeing. You know, I tried to share the 70 million to basically explain, like, that's already actioned as we go into the year. The reason I'm not giving you cost savings targets for the full year is we're still working to supplement the 70 million based on how we see volumes continuing to evolve. So I think we'll have more to share with you next quarter. But, you know, it really is highly dependent on the volumes, and those have been super volatile. And so we just, you know, we're going to wait for another quarter to see how things level out.
spk06: Great. Well, thank you, Charlotte.
spk03: Thanks, Ryan. Thank you, Matt. The next question is from Tommy McJoyant with KVW. Your line is open.
spk01: Hey, good morning, guys. Thanks for taking my questions. Just want to think back historically when we've seen somewhat of a sharp slowdown in the housing side and you see some competition levels eased. Does that come from just competing brokerages, you know, facing crunches and closing up shop? Or is it just, you know, some perhaps the overall agent count in the industry decreases? Just sort of what kind of typically plays out historically when we do see a slowdown in housing?
spk05: Yeah, look, I, you know, I'm benefiting from a lot of other people's history, but having, you know, tortured the historical data pretty, pretty well. You know, I wouldn't spend a lot of time on kind of agents leaving the industry because the ones that leave tend not to be, you know, the high producers and things like that. You know, what it really comes down to is, you know, the two combinations. One is Who's still going to be in business? And you've already seen a couple firms, by the way, in this industry shut their shops, you know, in Q3. And then who's in business but is going to be pulling back and behaving differently than they did when kind of the market was flush and, you know, people were kind of riding the wave, basically. And that latter thing is, you know, obviously the bigger thing that we've been seeing in the market in the last kind of, you know, kind of quarter or so. And that's why, you know, we think it's important to, you know, kind of have kind of the financial octane that we've got and to have done some of the balance sheet work that Charlotte's done and, you know, have our company prepared. Because at the end of it, like, you know, I know it's a little weird to talk about right in the moment, but we remain pretty optimistic about the long-term view of housing. I mean, we have, you know, we have a lot more demand than supply for housing in this country. There's a lot of demographic trends, et cetera. Obviously, what's happened with rates and inflation and stuff has really, you know, got us in a tough spot at the moment as an industry. But, you know, there is, you know, there is some good stuff here. And so, you know, Matt, you know, excuse me, Tommy, you know, You know, look, you know, our investor day was like, you know, feels like forever ago, but it's actually only been a few months. And, you know, the underlying things we talked about doing still need to happen. Right. We need to focus on growing our core business. We need to simplify that consumer experience because that's where the world's going. It's where the portals are going, where the product companies are going. We need to take out $300 million of cost across our company over that time period to get more efficient, and we need to gain the market share that we talked about. But the wild card of all this, as we told you, is the housing market. But we do like the long-term kind of demographics and demand for housing. So you're going to see us be very focused on steering through whatever this part of the cycle is with cost discipline, prudent investment, and competitive differentiation. But we haven't lost sight of the fact that we need to do those other strategic objectives for the longer term, you know, to really succeed here.
spk01: Okay. That's a helpful answer. And just kind of going back, I know a few questions have been asked on kind of the expense side and the commission split side. Just to hone in a bit more on the commission split side, so it has been trending around this, I guess, 79% to 80% level for most of the year. And just kind of looking back a longer time period, perhaps over the past decade or so, you've seen kind of just a gradual increase in that number. So to the extent we do see a transaction volume decrease in 2023 and perhaps even 2024, mechanically, can that 79% to 80% level reset down? And is the magnitude of that maybe 1% or just kind of any way for us to help quantify how much that could be and when that could happen?
spk08: Yeah, there's no like sort of magic ball for me to give you on what the actual number is going to be. We did see sequential improvement from Q2 to Q3. And so, again, it's highly dependent on the volumes and highly dependent on the agent mix, which agents are doing which transactions. Because you can imagine some are above that 79% and some are below that 79%. So it's it would be very difficult for me to give you an analog because it is dependent on those two things. But we like what we're seeing with the sequential decrease versus Q2. We do believe that, you know, we will continue to see improvement in Q4 from, you know, the split increase will further moderate in Q4. So the only thing I'll tell you, too, is any of the recruiting – stuff that we've done over time, it does get amortized. So that stays in the base until it's amortized. So there's a lot of variables here, but we're definitely encouraged by the trends we saw in the sequential moderation from Q2 to Q3, highly dependent on the volume and which agents are doing the transactions.
spk01: Okay, thanks. And then just last one for me real quick. What was the investment in the real sure JV this quarter? I think last quarter it was a $6 million loss.
spk08: It was modest, lower than that. So low single digits.
spk03: Okay. Thank you. The next question is from John Campbell with Stevens. Your line is open.
spk04: Hey, guys. Good morning. Hey, John. Hey. Ryan, I apologize. I had to hop on a little late here. But, you know, last call you talked to, you know, the difficult market kind of forcing a division of winners and losers. It seems to me that you may be implied that you guys might push for more profitable growth, maybe at lower margins. But I want to check back in on that commentary and see if your views change at all with looking at the world with maybe a little bit of a different lens.
spk05: Yeah, you know, I don't remember the exact comment. I'm not sure I want the headline from that comment to have been, you know, we want lower margins or anything like that. But, you know, continuing to push for profitable growth is, of course, important for us. And, you know, we actually demonstrate profitable growth. So that's a good thing. You know, again, as I kind of was saying in Tommy's answer, you know, strategically, we're not giving up on growing our core business or gaining market share or making prudent investments, even in a tough market. And we have the financial ability to do that. And we have the quality and the stability that I think is showing up in what's happening in the market with franchise sales, with recruiting and retention. And again, some of that's because of the competitive environment's gotten better. uh but you know at the same time you know we're we're being very very focused on our margins on the cost side here in this you know in as the market kind of declines here um and to you know charlotte's point you know we're being pretty selective on the investment side you know we've done you know you know we've we've always thought about a little more m a possibly in our future but you know you you'll look back and you see it's not like we've done some meaningful amount here because we really only want to do deals that we think are really good. And those haven't really been at our doorstep yet. But maybe they will be as the market continues to put people under more stress. We'll see. So, you know, bottom line is, is we're still, you know, Probably seeing the biggest difference, John, from the last time we talked is actually seeing the competitive differentiation play out in the quarter and actually seeing different competitive behaviors and seeing our value proposition resonate differently out there in the market. It has a little bit of the benefit on the agent commission splits and recruiting that Charles talked about. It's got a little benefit on the franchise sales side, etc., And so, you know, but again, as I said to Tommy, you know, we've got to grow the core business. We've got to take out $300 million of costs. We've got to improve the consumer experience. And, you know, we do need to gain market share. Those objectives have not gone away. How we navigate them, you know, through a down part of the cycle changes around the margins a bit, but we don't give up on it.
spk04: Yeah, makes sense. That's great color, Ryan. I appreciate that. And then I think you guys kind of – it seems like this was not really relevant this last quarter as far as the rule of thumb. But, you know, Charlotte, in the past you talked to, you know, every one percentage point swing in volumes would equate to about $15 million of EBITDA. Either way, are we back to that kind of sensitivity, or is there a way to think about that? Is there a revised kind of sensitivity we should think about?
spk08: It hasn't really changed. That's an annual figure, too, just so you know. So, no, I don't think we have anything to update as far as the analog on 1% of volume. I think it's still safe to use that. I think what you have to think about, though, are some of the other moving pieces with the sale of the underwriter. There's timing on, you know, other things that impact the quarter. But on a yearly basis, that's still a very relevant analog.
spk04: Okay, and then that's helpful. And then I think back to Tommy's question, I think you said the $6 million of investment in real sure. I think in past calls maybe you guys kind of bracketed out or bucketed maybe $40 million all in around real sure and some of the other strategic initiatives. Is that still kind of a good run rate?
spk08: So that's what we said in the beginning of the year for that, plus some other strategic initiatives. I think what you would expect is, you know, in a market like this, that format is probably a little less relevant. So we may have dialed back a little bit. And so that's why when he asked if it was six and I said it was low single digits, you know, clearly that run rate's not going to get you to something like $40 million. But it is tied to the market.
spk05: Yeah, John, just to build on that, you know, look, you know, Marketing expense and some capital expenditures are the two biggest place that I would say we've pulled back from investments given the weaker market. But there's been some others, including in that kind of general $40 million bucket Charlotte talked about. And I was going to say exactly what she said, which is, you know, real sure was $6 million last quarter. It was less than that this quarter, as you talked about. and none of those signal that we don't believe in marketing or we don't believe in capital expenditures or we don't believe in real sure. It's more of just really trying to be good stewards here, given how we see the market evolving differently. And in a smaller home sale market, the the roi on these things differs so we uh you know we've we've tried to be good stewards and but we're going to keep making prudent investments and that's part of i think the competitive differentiation here um that we're that we're seeing uh both on the franchise and on the owned brokerage side okay that is great answers i appreciate it guys thank you again as a reminder if you'd like to ask a question please press star then one on your telephone keypad
spk03: The next question is from Justin ages with Barenberg capital markets. Your line is open.
spk07: Hi, thanks for taking the question. Um, first you mentioned that luxury was still relatively strong. Can you just dig in there a little bit? This is your expectation that that holds up better than other facets of the market or as affordability and low inventory, you know, continue to take their toll. It's going to start impacting that as well.
spk05: Yeah, so, Justin, let me take that from, you know, and this is probably more of an anywhere real estate view than trying to speak on the whole market. But, you know, remember, you know, we're pretty clearly the leader in luxury with Sotheby's, International Realty, Corcoran, Caldwell Banker, you know, and what some of our other brands do in luxury. And, you know, when we looked at what happened in the third quarter, you know, we talked about the 17% volume decline. You know, the decline in our luxury portfolios was, and our $750,000 and up, just to use that cut, but it's also true at $1 million and up, they just declined less, right? But also, if you look forward and look at the listings we're taking, Justin, we had less decline in listings in that $750,000 and up kind of luxury area than we did below that. So, you know, in our portfolio, at least, luxury is holding up stronger than others. And I think that probably is somewhat true for the market personally because, again, you know, you don't have as many mortgages kind of in the luxury segment sometimes. And obviously, the mortgage rates and affordability is such a crush. The other is, you know, the place where there's the tightest inventory is the first-time homebuyer. I mean, that is just the place I worry the most about the intersection of affordability and inventory. And so, you know, that's probably the place with the with just the most pressure so you know uh you know luxury is not at all immune from the negative headwinds with the whole market is seen but at least in our portfolio it's been you know less of a drop both looking backwards with the actual transactions we did and looking forward with the listings that work we have on our on our books right now that's very helpful uh thank you and then i guess continuing on that can you or charlotte offer any
spk07: Kind of further detail or parsing of the expectations for volumes to be down 25%. You know, how should we think about, you know, the mortgages and affordability in terms of units versus prices? Is prices still expected to be up, you know, in fourth quarter?
spk05: That is a great question, and I'm glad we actually had a chance to get to it here in public because, you know, it is very interesting what's happening out there, right? And, again, the 25% plus that I gave you is based off us looking at the market, but also I'm giving you our latest data, literally our October open contracts, our September kind of open contracts. And, you know, what we're seeing basically is pretty much all the decline is coming from units. Even in our minus 17 in Q3, it was minus 21% units and price was up a few percentage points. Price was up four or five percentage points. And if you look at it at the state level, you see the exact same thing, right? Both in Q3 and in October month to date, sides and units are down meaningfully. You know, price is kind of, you know, flattish basically or a little bit up effectively. And I think there's some supply and demand issues that kind of create that right back to the low inventory things. But, you know, the most striking thing is how much of what's happening is the unit side. And then even if you go to the third-party forecasters, you know, almost all of the declines they're talking about for the future are unit-based. So, you know, Justin, I spend all my time effectively focused on just the unit side right now because on kind of an overall basis, that's where the real action is, unfortunately, in terms of the slowdown in the market.
spk07: All right. That's great. I appreciate the call, Ryan. Thank you. Thank you, Justin.
spk03: We have no further questions at this time and that will conclude today's conference call and webcast. Thank you everyone for participating. You may now disconnect.
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