TRANSCRIPT: Third Quarter 2020 Results Webcast

Corrected Transcript

29-Oct-2020

Realogy Holdings Corp. (RLGY)

Q3 2020 Earnings Call

	Total Pages: 18
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Realogy Holdings Corp. (RLGY)	Corrected Transcript
Q3 2020 Earnings Call	29-Oct-2020

CORPORATE PARTICIPANTS

Alicia Swift	Charlotte C. Simonelli
Senior Vice President-Financial Planning & Investor Relations, Realogy	Executive Vice President & Chief Financial Officer, Realogy Holdings
Holdings Corp.	Corp.
Ryan M. Schneider
Director, Chief Executive Officer & President, Realogy Holdings Corp.

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OTHER PARTICIPANTS

Stephen Kim	Matthew Bouley
Analyst, Evercore ISI	Analyst, Barclays Capital, Inc.
Ryan McKeveny	John Campbell
Analyst, Zelman & Associates	Analyst, Stephens, Inc.
Thomas McJoynt-Griffith	Jack Micenko
Analyst, Keefe, Bruyette & Woods, Inc.	Analyst, Susquehanna International Group, LLP

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MANAGEMENT DISCUSSION SECTION

Operator: Good morning and welcome to the Realogy Holdings Corp. Third Quarter 2020 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 would like to turn the conference over to the Realogy's Senior Vice President, Alicia Swift. Please go ahead, Alicia.

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Alicia Swift

Senior Vice President-Financial Planning & Investor Relations, Realogy Holdings Corp.

Thank you, Kristy. Good morning and welcome to Realogy's third quarter 2020 earnings conference call. On the call with me today are Realogy's CEO and President, Ryan Schneider; and Chief Financial Officer, Charlotte Simonelli.

As shown on slide 3 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 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 any statements we make related to expectations with respect to the ongoing COVID-19 crisis. Actual results may differ materially from those expressed or implied in the forward-looking statements.

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Realogy Holdings Corp. (RLGY)	Corrected Transcript
Q3 2020 Earnings Call	29-Oct-2020

For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, October 29, 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 in 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.

Now, I will turn the call over to our CEO and President, Ryan Schneider.

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Ryan M. Schneider

Director, Chief Executive Officer & President, Realogy Holdings Corp.

Good morning and thank you for joining us today.

Q3 was a tremendous quarter for Realogy. The strategic and technology progress we have been driving combined with the strong housing market came together to drive huge earnings delivery, substantial transaction volume growth, market share gains in the prior quarter and material debt paydown. Our growth continues to look good based on our preliminary volume data through most of October and we like our momentum.

Realogy delivered $309 million of operating EBITDA from continuing operations in the quarter, $103 million above 2019 powered by substantial revenue growth and our cost actions. And excitingly, we are leading the strategic race to capture the integrated real estate transaction economics with nearly a third of the operating EBITDA we delivered in the quarter from our title and mortgage businesses. Revenue growth was driven by 28% closed transaction volume growth versus a year ago. This volume growth momentum improved each month in the quarter. July was plus 15% year-over-year, August was plus 22% year-over-year, and September was plus 50% year-over-year. It was about equally driven by increased transaction units and by increased price.

Franchise was up 31% and brokerage was up 22% with the delta continuing to be driven by geographic differences like the brokerage headwinds in New York City. Our volume results in the quarter demonstrated market share gain, not just stabilization, but gain when compared to NAR's plus 23% Q3 data. This is incredibly exciting for us, because we faced market share headwinds for over a year. To see us move to positive share gain in the quarter is a very powerful testament to what we are building and delivering.

We believe this success is happening from the strategic and technology progress we have been delivering combined with consumer behavior changes, housing market strength and digital acceleration in the past months. Specifically, we are seeing our growth initiatives mature. Our consistent brokerage agent growth over the past year and improved agent retention, both drove more volume in Q3.

Our franchise business is very powerful. We really like the performance of our great brands, especially our Sotheby's International Realty brand, which really stood out in Q3 with its substantial growth in both transaction units and price. And we are excited by our strategic franchise growth initiatives, especially Corcoran, which recently expanded to new markets in California, New York, Hawaii, Colorado and Arizona. And our technology efforts to digitize and virtualize the real estate transaction gained traction, as the world changed in the past six months. Adoption of our digital and virtual products is up dramatically. And we believe these Realogy-driven digital and virtual products are helping agents win more business, close more transactions and gain share. Well, many companies talk about digitizing the real estate transactions someday, we are living it, and it's showing up in our financial results.

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Realogy Holdings Corp. (RLGY)	Corrected Transcript
Q3 2020 Earnings Call	29-Oct-2020

Finally, we remain very strong believers in the value of great agents and they are demonstrating it during this turbulent year. We believe the combination of great agents and technology is accelerating our momentum. And it's not lost on us that others have realized the need to partner with or hire agents, whereas we start with the industry-leading agent base across multiple great brands.

Shifting to our balance sheet, we made substantial progress on our leverage in Q3. We generated $344 million in free cash flow from continuing operations, reduced our net debt by $276 million versus a year ago, and ended the quarter with 4.2 times net leverage. In October, we have already paid off all of our revolver borrowings. So, our revolver balance is now zero. And as our momentum going into Q4, we like the trajectory of our deleveraging.

So, looking ahead, preliminary Realogy closed transaction volume data through most of October is up approximately 35% versus 2019 in both franchise and brokerage, with half or even more of that growth driven by more unit sales. And Realogy open volume through most of October is even better. It's up approximately 55% year-over-year, with half or more of that growth also driven by more unit sales.

So, based on that preliminary October data, combined with our continued cost focus, strategic progress and market share momentum, we believe we're on track for a very strong Q4, subject to the macro, COVID and competitive uncertainties. And we expect this momentum to continue as we enter 2021 with strong volume trends and positive consumer trends, I will discuss later, low mortgage rates and continued cost discipline.

Having said that, we also expect there will be headwinds in 2021 from the absence of the temporary cost savings and significant continued COVID, competitive and macro uncertainties, including how long these housing and consumer trends will last. But, overall, we are very excited about our progress and position. Finally, our capital allocation priorities remain unchanged. We plan to invest in the business and continue to de-lever.

With that, I'm going to turn the call over to Charlotte to review the third quarter financial performance in greater detail.

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Charlotte C. Simonelli

Executive Vice President & Chief Financial Officer, Realogy Holdings Corp.

Thank you, Ryan. Good morning, everyone. Realogy continued to execute from a position of strength in the third quarter. We demonstrated the power of our brands and delivered exceptional top line and bottom line growth, taking advantage of our strong foundation of virtual capabilities. We drove market share gains in the third quarter relative to NAR, improved operating margins, and made significant progress on debt paydown and deleveraging our business.

Turning to our outstanding third quarter highlights. Q3 revenue was $1.9 billion, up 20% year-over-year and our biggest Q3 by far on record. Revenue growth was predominantly due to higher transaction volume growth across the brokerage, franchise and title businesses. Operating from continuing operations increased $103 million year- over-year to $309 million in the quarter. We also significantly expanded margins in the third quarter at 335 points year-over-year on a continuing op basis. Strong volume growth in brokerage and franchise, robust earnings in mortgage and title, temporary cost actions and ongoing cost management, all contributed meaningfully to our profitability.

We realized an even greater share of real estate transaction economics with our mortgage JV and title businesses. Our mortgage business continued its strong momentum and contributed $51 million in operating EBITDA in the quarter, up $46 million versus last year. Additionally, our title business contributed $44 million in

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