Realogy Holdings Corp.

Good morning and welcome to the Realogy Holdings Corp's second quarter 2021 earnings conference called 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 would like to turn the conference over to Realogy Senior Vice President Alicia Swift. Please go ahead, Alicia.

Thank you, Lisa. Good morning and welcome to Realogy's second quarter 2021 earnings conference call. On the call with me today are Realogy 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 current expectations 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, among others, the ongoing COVID crisis, inventory levels, and other uncertainties related to the continued strength of the housing market. Actual results may differ materially from those expressed or implied in the forward-looking statements. For those who listened to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, July 29th, and have not been updated subsequent to the initial earnings call. Important assumptions and other important 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 our annual and quarterly SEC filings. Also, certain non-GAAP financial measures will be discussed on this call, and per SEC rules, important information regarding these non-GAAP financial measures is included in our earnings press release. NAR data referenced during today's call is based on NAR's most recent public estimates, which are subject to review and revision. Factors that may impact the comparability of our home sales statistics to NAR are outlined in our annual and quarterly reports filed with the SEC. To help contextualize year over year comparisons to 2020 on today's call, just a reminder that due to the COVID crisis, the housing market saw a sharp decline in transaction volume in Q2 2020. Given this challenge to year over year comparisons, we believe it is also helpful to compare certain metrics against 2019. As a reminder, Realogy responded to this transaction volume declines in Q2 2020 with significant temporary cost saving measures, some of which continued into the third quarter of 2020. Those temporary cost saving measures resulted in approximately 150 million of aggregate savings with approximately 100 million recognized in the second quarter of 2020. Last, the references made to July month to date in these remarks reflect data through July 22nd, 2021. Now I will turn the call over to our CEO and President, Ryan Schneider.

Thank you, Alicia. Good morning, everyone. Realogy delivered an outstanding second quarter. The unmatched combination of our strategic progress, innovation through technology, and commanding position in the luxury market drove powerful financial results, including significant market share gains. We continue to invest substantially to drive future growth and are making great progress strengthening our balance sheet. Overall, Realogy is leading the industry, delivering powerful results today, and positioning our business for continued success in the future. Let me start by sharing our outstanding Q2 results. Realogy delivered exceptional profitability with $310 million of operating EBITDA, up $135 million year-over-year, and up almost $70 million versus 2019. Realogy demonstrated great transaction volume growth, up 85% year-over-year. substantially above NAR's plus 53%. Realogy outperformed NAR on both unit growth and price growth in both our brokerage and franchise businesses. And excitingly, more than half of our volume growth in the quarter was driven by unit growth. Both our brokerage and franchise businesses performed extremely well, with brokerage outpacing franchise in part driven by a very solid New York City rebound. Realogy gained significant market share for the fourth quarter in a row, ending June at 16.4% on a last 12-month basis. And as Alicia mentioned, Q2 of 2020 was a pretty unique quarter in the housing industry. Our Q2 2021 volume was up an exciting 41% when you compare to Q2 of 2019. And critically, our balance sheet is in its best position ever as a public company, as a result of our powerful operating performance, disciplined cost management, and opportunistic capital market actions. We ended the quarter with a 2.5x net leverage ratio and over $850 million in cash. Our exceptionally strong cash flow and balance sheet position gives us strategic flexibility to invest for growth, and we are deploying that flexibility in multiple investments that I will touch on later. Looking forward, We are energized by the robust open and closed transaction volume already in our pipeline as we enter Q3. So, for example, our closed transaction volume is starting off very strong. July month-to-date is up 20% versus 2020 and up 30% versus 2019. Our open transaction volume also looks great. June was up 20% versus 2020 and up 40% versus 2019. And July month-to-date is up 4% versus 2020 and up 42% versus 2019. And finally, the New York City market is improving, with both Q2 transaction volume and our recent open volume more than double 2020 and above the levels we saw in 2019. Now, remember that given the housing surge and our market outperformance in the back half of 2020, year-over-year comparisons in the back half of 2021 will be more difficult. And one way we're seeing that is in our July numbers, the increased volume is coming from price appreciation instead of unit growth, given how strong unit growth was in July of 2020. But with that backdrop, the fact that our July volume is ahead of last year is incredibly exciting. Now, beyond the Realogy-specific numbers, the biggest question we get is what are we seeing in the housing market? And bluntly, the biggest thing we're seeing is housing demand staying elevated. Demand for home purchases is substantially outpacing supply. Houses across all price points are selling fast. The percent of multiple offers and above listing price offers both remain high. And frankly, if there was more supply available, we could sell it. Now, the public inventory numbers for June have actually started to trend up a bit. The internal inventory numbers we track are similarly trending up, and we have some early optimism that we are seeing green shoots of increased supply. And finally, while price appreciation has been large, we believe that unlike 15 years ago, the large price increases we're seeing today are not speculation. They represent real demand for housing. So having saved one of the most important topics for last, let me update you on some of our exciting new growth vectors. So first, we remain extremely enthusiastic about Realsure. Remember, Realsure is our joint venture with Home Partners of America that helps customers sell their existing home and or buy their next home backed by a guaranteed cash offer. For those of you new to Realsure, it is architected differently from traditional iBuyers with greater focus on winning listings and supporting agents. We continue to invest substantially in RealSure because of our encouraging early results. We really like the results we're seeing. RealSure is a competitive advantage, helping us win listings that we monetize in our traditional business. And RealSure appeals to customers because it's structured with a 45-day cash offer and is paired with one of our great agents focused on selling their house to help our customers get top dollar. And with this structure, the joint venture is buying fewer homes than the public benchmarks, and we really think we've got a winner here. Now, second, our excitement is accelerating our operational progress. We're now operating a scale in 21 markets versus 13 markets three months ago. And we are now in the market with direct consumer marketing for RealSure to build RealSure brand awareness and, more importantly, to acquire RealSure customers. And while our core real sure product in the market today is focused on sellers, our vision is to expand to support buyers as part of the real sure value proposition. Now, stepping back from this real sure product, let me share two related topics for Realogy and Home Partners of America. As we've been doing in our core business, we remain very focused with HPA capturing broader transaction economics as part of the home buying and selling process. And to that end, Realogy and HPA have started and are operating an already profitable title business named RealTech to support our efforts together. And finally, Home Partners of America was acquired by Blackstone earlier this month. We're excited about this and what it means for our joint venture, and we view it as a vote of confidence. We look forward to continuing our work with HPA. Now shifting to another compelling growth area, our luxury business grew substantially above our overall volume numbers, in both the quarter and the past year, with Sotheby's International Realty, our number one performing brand, and now the fifth largest brand in all of U.S. residential real estate. Our Corcoran-owned brokerage business earned the number one real deal ranking in New York City for 2020, and our Corcoran franchise business expanded to seven new geographies since we last spoke. And finally, if you look across Sotheby's International Realty, Corcoran, and Cobo Banker, we continue to lead the industry in million-dollar-plus transactions. And within these businesses, we've been setting records for the number of million-dollar-plus and $10 million-plus transactions in our portfolio. But given our leadership position in luxury and our strategic optimism about the luxury market, we are investing to grow our luxury brands domestically and internationally to provide unique and differentiated luxury technology and to expand our industry-leading domestic and international luxury referral networks. Now, finally, we remain very focused investing in technology and product innovation. We are very excited about our open architecture approach to technology, which we believe is a competitive differentiator. And we've spoken to you before about some of the great products we develop internally and great products others have built that we are integrating into our open technology ecosystem. One thing we haven't discussed lately is our data progress, in particular, how we're using our industry-leading data scale and AI to generate powerful insights. The Wall Street Journal recently wrote about some of the various AI models we've built, and these and other data-driven analytic tools remain a critical area we're investing in to help us run the company better and to provide data-driven products with the goal to make our agents and brokers more productive. So wrapping up, I'm incredibly excited about our outstanding second quarter financial results, our sizable market share gains, our continued strategic progress, especially with tech and data innovation, and our balance sheet execution. We are passionate about the investments we are making to drive even more growth in the future. And looking ahead, we really like the momentum from our Q2 and July month-to-date results. And obviously, we like the strong demand for housing we're seeing. We believe our future is bright, and I will now turn the call over to Charlotte.