Q1 2024 Anywhere Real Estate Inc Earnings Call

Participants

Alicia Swift; Senior Vice President, Investor Relations and Treasury; Anywhere Real Estate Inc

Ryan Schneider; President, Chief Executive Officer, Director; Anywhere Real Estate Inc

Charlotte Simonelli; Chief Financial Officer, Executive Vice President, Treasurer; Anywhere Real Estate Inc

Matthew Bouley; Anlayst; Barclays

Anthony Paolone; Analyst; J.P. Morgan - North American Equity Research

Soham Bhonsle; Analyst; BTIG

Thomas McJoynt-Griffith; Analyst; KBW

Ryan McKeveny; Analyst; Zelman & Associates

Presentation

Operator

Good morning, and welcome to the Anywhere Real Estate first quarter 2024 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 available on the company's website.
At this time, I would like to turn the conference over to anywhere Senior Vice President, Alicia Swift. Please go ahead, Alicia.

Alicia Swift

Thank you, Gavin, and good morning and welcome to the first quarter 2024 for our 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 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 current expectations and the current economic environment. Forward-looking statements, estimates and projections are inherently subject to significant economic, competitive antitrust and other litigation, regulatory and other uncertainties and contingencies, many of which are beyond the control of management, including among others, industry and macroeconomic developments Actual results may differ materially from those expressed or implied in the forward-looking statements. References made to April month to date in these remarks reflect data through April 21st, 2024.
Our discussion on an open volume basis reflects like-for-like number of business days. The timing of the reference litigation payments can be impacted by developments in the proceedings. The reference to core franchise in these remarks is the franchise segment, excluding relocation and lease.
Finally, Charlotte pro forma 2024 for illustration financial range is not a financial forecast or guidance for 2024, it is provided purely to illustrate anywhere financial octane at home sale market for 2024 was $5 million to $5.5 million compared to the $4.1 million existing home sale market in 2023 as reported by the National Association of Realtors.
The illustration included higher mortgage joint venture earnings, higher variable expenses related to a higher existing home sales environment, including increasing commission splits and royalty rates, but makes no adjustments in performance of our underwriter joint venture refinance volume, corporate relocation business, free cash flow exclude the $100 million of one-time anticipated payments related to the litigation and the sudden send and tech legacy tax matter.
These assumptions are inherently subject to a high degree of uncertainty and risk. Additionally, this illustration makes no assumptions regarding the potential financial impact of pending antitrust settlements or regulatory reform related to the communication negotiation or payment of fire broker commission.
Fee are forward-looking statements for additional information. 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 issued today as well as in our annual and quarterly SEC filings.
For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today April 25th, and have not been updated subsequent to the initial earnings call.
And now I will turn the call over to our CEO and President, Ryan Schneider.

Ryan Schneider

Thank you, Alicia, and good morning, everyone. I'm excited by anyway real estate's position to drive success and to deliver value for our shareholders. We continue to demonstrate a powerful track record of delivery strategic foresight and innovation as we lead the industry through fast moving change.
And I'm really excited about how our efforts transforming how we operate anchored in our meaningful cost reductions should translate to financial octane in more normal housing market. While the first quarter of 2024 was another tough time in the housing market, I'm proud of how our affiliated agents franchisees. Employees help customers navigate ongoing complexities every day.
Real estate agents guide consumers, whether the first-time homebuyer, the growing family in search of more space or the retiree relocating for a lifestyle reboot during the meaningful life moments that come with these big decisions, the value agents provide helps homebuyers and sellers achieve their dreams. And I wanted to start the call by thanking them for their commitment.
In the first quarter of 2024, we delivered $1.1 billion of revenue and negative $17 million of operating EBITDA. Remember, this is the seasonally slow part of the year. And we are in a very difficult housing market with a record low level of unit sales.
But as we move into the selling season, I'm very excited because our March operating EBITDA was solidly positive. We realized approximately $30 million of cost savings in the quarter and are on track to deliver our $100 million permanent cost savings target this year, and we are working hard to exceed that initial target.
Our capital allocation priorities remain focused on paying down debt and investing in the business. And speaking of investment in the business. Unlike our competitors who are still pulling back given the challenging 2020 for housing market, we continue to invest in our business to position us for future growth and to streamline our company.
So for example, growing our franchise network, one of our most important strategic priorities by enhancing our value proposition for both new and existing franchisees we are bringing them new profit sources like upward title. We are providing them excellent technology with our BoxWorks offering.
We are reducing their costs with products like our listings, direct technology and we are using anywhere as data scale to provide actionable franchisee insights to help them run their businesses better through our affiliate Insights tool.
Another strategic point is that we love and are strengthening our luxury leadership position. And remember, we sell more million-dollar-plus homes than anyone. Our Sotheby's International Realty brand continues to gain share as it consistently outperforms both the market and the rest of our portfolio, including again, in Q1, our Corcoran brand dominates the important New York City market and was ranked as the number one brand in Manhattan for the fourth consecutive year.
And we love expanding corporate on the franchise side with new cities like Boston and Portland coming online in Q1. And finally, we continue to demonstrate our preeminent position selling the most expensive homes in America just to share some fund data at the highest end of the market.
We currently have seven listings of $100 million plus homes with three of them under contract and three other [$300 million] plus homes through sales we closed in Q1. Now we're also integrating and digitizing our brokerage and title operations, both agent and customer facing and back office. We are better assisting agents and customers consumers from contract to close, creating a more frictionless transaction experience.
This integrative services, a win for our agents as we provide them high value transaction coordination services as part of the value proposition, saving them time and hassle of either managing this work themselves are paying hundreds of dollars per transaction for someone else to handle it so that they could focus on earning new business.
It's a win for consumers as we create a simpler transaction experience and a faster more seamless closing process. It is a win for anywhere as this should help us lower our title and mortgage capture should help assuming as this should help, our title and mortgage capture rates and should contribute to a lower cost base.
This more integrated and high-quality service is now available in about third of the U.S., and we will be rolled out nationwide by the end of the year. We are already seeing more than a third of transactions in available markets using the service.
And we're seeing usage rates above 50% in some of our earliest launch locations. We're also combining more of our brokerage and title back offices to drive more and consistently better service and lower costs. As I referred to in previous calls.
This is actually one of the best examples of where we're able to use generative AI. to improve our production processes as we continue to continue our general AI. agenda across many parts of the company have.
Finally, we really like some of the recent innovative and exciting investment opportunities we're finding to leverage our strategic assets. First, as single-family rental companies are shifting to selling their homes directly to consumers. We are finding that our national reach, our curated high quality leads network and the ability to integrate title are creating opportunities for us to be a great partner in selling their homes.
Second, we like our innovation around different ways to sell homes and have been selling more luxury homes through auctions recently with our conscious auction business. And remember, the auction economic model is different as there is a buyer premium that we collect along with the seller commissions.
Many of you saw the TV coverage of our recent New York City live auction. We've also recently hosted auctions in Hong Kong and Los Angeles and next month, Contreras auctions will be hosting the first ever live real estate auction at the historic Sotheby's London auction house with both Dubai and Hong Kong to follow later in 2024.
And third, while we don't talk about international much. We're seeing some interesting international expansions, especially in our Corcoran and Sotheby's International Realty brands. And remember for those two brands internationally, we do normal franchise agreements, not master franchisees in Q1, we opened four new SI., our franchise offices in Greater London and recently listed at $218 million penthouse.
And we're seeing similar success in Dubai's thriving luxury real estate market where we just sold a $40 million homes.
Now let me turn to housing. The Q1 market was a continuation of 2023, which was one of the top US housing markets in the last 30 years. Unit transactions in the quarter as an industry were down versus Q1 of 2023 as limited inventory and supply challenges continued to meet demand outpaces supply that showed up as higher prices in the market overall.
And we saw that in our book with more than 90% of the country having year-over-year price growth in the quarter. It's hard to overstate how high mortgage rates are hurting housing, especially by keeping supply off the market and creating affordability issues. And the recent inflation news has clearly put more headwind against the timing of future rate cuts.
Now in our book Q. one was the first quarter of year over year close volume growth we've seen in about two years as our close volume was up 2% versus the prior year with units down 4% and price up 7%. Our luxury segment continued to outperform with our Sotheby's International Realty brand, seeing close volume up 7% year over year with about half of that from unit growth as it again meaningfully outperformed both the market and our portfolio.
And I'm a little more optimistic about the future because our open volume, which represents new contracts and future closings, was up year over year and improved each month during the quarter. And so far in April, our open volume is up 6% year over year. We are seeing some improvement in areas like California and New York, where we have disproportionate own brokerage businesses with a meaningful piece of that improvement coming from growth in units, and we're beginning to see more growth in listings.
We saw listings growth in our portfolio up 4% year over year in the quarter. This is the first time in a couple of years, we saw that listings growth, and we're really excited about how listings growth is increasingly differentiated for us in luxury as our million-dollar-plus listings in the quarter were up 16% versus a year ago.
Now, look, we're clearly at a low point in the cycle but the housing market is going to improve over time. And I still believe the medium term outlook for housing should be quite strong, fueled by demographic demand and a continued desire for homeownership, and I really like our financial octane in stronger housing markets.
Now before I turn it over to Charlotte, there is substantial uncertainty in the industry in light of litigation and regulation developments since we last talked, we were excited for a level playing field on these topics and think there will be both interesting opportunities and challenges ahead.
And we are bringing the same proactive thinking and leadership there that we've demonstrated relative to the competition in our litigation strategy. And I also appreciate how the world continues to recognize anywhere real estate for its leadership anywhere was recently named to Fortune's America's Most Innovative Companies list for the 2nd year in a row and once again was named one of the World's Most Ethical Companies for the 13th consecutive year.
With that, let me turn it over to Charlotte.

Charlotte Simonelli

Good morning, everyone. We had solid financial and operational performance in the first quarter and continued to focus on what we can control our cost savings and executing against our strategic goals. We continue to believe our execution, cost focus and industry leadership will enable us to drive differentiated performance and emerge with even stronger financial octane when the housing market improves.
I will now highlight our first quarter financial results. Q1 revenue was $1.1 billion, essentially flat versus prior year as transaction volume growth was offset by softness in relocation. We are encouraged by the improving volume trends even while still off a low base.
Q1 operating EBITDA was negative $17 million improved versus prior year due to transaction volume growth, lower expenses across the enterprise and the absence of litigation accruals. We continue to prudently manage our cash cash on hand at the end of Q1 was $111 million and Q1 free cash flow was negative $145 million.
This is the This result is in line with what we normally see in the first quarter, our seasonally slowest, we expect our 2024 operating free cash flow, excluding one-time items, to be modestly positive as favorable working capital, robust savings programs and our cash management discipline will help counterbalance another tough year in housing.
And as a reminder, we have over $100 million of one-time payments anticipated this year between our $73.5 million class action litigation payments and a $39 million legacy California tax matter.
Now let me go into more detail on our business segment performance. Our AnyWare brands business, which includes leads and relocation, generated $89 million in operating EBITDA. Operating EBITDA decreased $8 million year-over-year, primarily due to lower client volumes in the relocation business. We love our core franchise business and its margin stability over time. And in Q1, our core franchise margins were approximately 60%
Our Q1 anywhere advisers. Operating EBITDA was negative $59 million, improved $16 million versus prior year due to higher volume and lower operating and marketing costs. Commission splits in Q1 were 80.04%, down three basis points year over year, continuing the six quarter trend of more stable split, we are benefiting from the improved competitive environment, reduced amortization of prior recruiting and retention payments and some re-classes for one of our brands.
This benefit, however, is offset in part by unfavorable agent mix. As we saw top agents take a greater share of transactions and to a lesser degree, geography, as we saw improvement in a few higher split markets like California, anywhere integrated services was negative $15 million in operating EBITDA in Q1, operating EBITDA improved $2 million year over year due to lower operating expenses driven by cost savings initiatives.
Moving on to costs. We delivered approximately $30 million of cost savings in the first quarter and expect to realize at least $100 million in cost savings this year.
Some important items on our 2024 cost savings program, which are also illustrated on Slide 21 in our earnings presentation include we expect the cost savings to be recognized fairly evenly across the remainder of the year.
We have identified 100% of the target of which $40 million of the program is carryover savings from 2023 actions. We continue to have a relentless focus on changing how we operate to drive greater efficiencies across all areas of our company.
We continue to realize cost savings by streamlining processes, reimagining roles and footprints, optimizing resources or using AI to automate certain tasks. All of these actions will help to enhance our customer and agent experience while also improving our cost structure over the long term. And we believe these actions will actually help drive drive growth in the future.
It can be hard to see the full financial octane of our business transformation efforts, especially on the cost side in this historically low housing market, we often get the question of how will our cost work translate to the P&L in the future and in better housing markets, given that we wanted to share the following, we put together a pro forma of what 2024 would look like if we had a more normal housing market.
Slide 22 in our earnings presentation shows our historic cost savings delivery over the past five years, which includes a mix of permanent and temporary cost reductions. That total approximately $600 million, of which approximately $350 million has flowed through to our P&L about 40% of the savings were offset by inflation, new investments and other factors.
Alongside that, if you look at slide 23 in our earnings presentation, we have illustrated our pro forma 2024 financial octane, combining our cost reductions, including our end year target of $100 million and a better housing market. This illustration implies an EBITDA range of $500 million to $600 million in a $5 million to $5.5 million unit 2024 for housing market.
This also factors in higher mortgage delivery as well as higher variable expenses, including commissions and royalties for the higher unit rate environment. And to be clear, we are not assuming any consumer commission changes in this pro forma. Similarly, we believe we could see $200 million to $300 million of free cash flow generation in that same $5 million to $5.5 million existing home sale range, excluding any one-time payments.
This shows how the strategic actions we've taken on cost can translate into strong financial delivery and a higher existing home sales market. The combination of our cost actions, current and future in a more normal housing market should move us well down the path to getting back to double-digit EBITDA margins. I'm incredibly proud of our relentless focus on what we can control, enabling us to capitalize on the market when it returns.

Ryan Schneider

Let me now turn the call back to Ryan for some closing remarks.
Thank you showed I'm incredibly proud of how the Anywhere team continues to lead and deliver through the challenging housing market and the ongoing industry uncertainty. 2024 is about anywhere real estate, executing on what we can control delivering on our strategic agenda and utilizing our competitive advantages to deliver value for our agents, franchisees and shareholders in the future.
With that, we will take your questions.

Question and Answer Session

Operator

(Operator Instructions)
Matthew Bouley, Barclays.

Matthew Bouley

Your line is open, but morning, everyone, and thank you for taking the questions. I guess start starting on all the news of the quarter, obviously helping agents communicate their value to consumers because has always been part of your business, the brokerage business. What are you doing differently now? Assuming homebuyers and sellers, our kind of incrementally negotiating or questioning what commission rate impact?
Thank you.

Ryan Schneider

Well, let me say a couple of things. Matt, thanks for the question. First off, as I started my call, was we just have just an awesome group of agents and franchisees. And one thing I will say is remember our business does skew luxury, and that is a place where there's probably historically been both more complexity, more of that kind of negotiation that you're describing.
And so, you know, I'm hearing from a lot of agents that they're just totally on troubled by continuing to communicate what they're doing. But it's also a great pool of learning for us to share with our broader agent population.
The other thing I would say, as again we are sharing things across our ecosystem across our six brands. Leveraging the scale we have is because we made the decision to settle this litigation many months ago, we've been working longer on this than anybody else, right.
We were thinking very hard and actually had plans of how we thought buyer agreements could be more part of our future way back in September. And so we're optimistic about our ability to have our agents be we are better than the average or better than the competition in utilizing this.
And finally, I think buyer agency agreements are great, like I think they're going to help us actually lock in some business that probably slipped through our fingers beforehand. And I really have confidence in our agents' ability to communicate their value.
So the sharing of best practices, the leverage and the history we have, especially in the luxury area of this kind of actions already and kind of a time advantage in terms of our focus and rollout of these things are examples of kind of both what we're doing, but also why we're excited on a relative basis, what we can do here.

Matthew Bouley

Excellent. Thank you for that, Ryan. On the second one on kind of a similar topic, of course, thinking around agent mix, are you starting to see or perhaps considering the potential for lower producing agents to leave the industry in a scenario like this? And if so, how do you think about the kind of profitability to anywhere lower producing agents versus the higher producing agents.
Right.
Is the question around how commission splits may pay out, assuming that there might be a change in the kind of mix of agents in the industry?

Ryan Schneider

Yes. So look, Matt, we're already seeing that as an industry. We're seeing that as a company. And I don't think it's just tied to anything recent from a litigation or regulation standpoint, you see people leave the industry in tough markets and we've been in, you know, the lowest unit market here in like 30 years.
So it's pretty tough out there if you don't have listings or if you don't, you know how how buyers and and after the INR settlement happened, I was on I talk to I had calls with all of our agents and franchisees, I told all my expect more agents to lead the industry, right? Because there will be agents who are good at articulating their value.
The way our I think our agents are. And so we think that will happen. But in terms of affecting the economics, I'm not that I don't lose a lot of sleep over yet in part because the trend of our best agents doing most of the deals is not new.
And I think most of the people who are leaving the industry are going to be the those, you know, nonproductive or very low productive agents you talked about. And so I'm sure there's some stuff on the margin.
I mean, Charlotte, even called out in this quarter, one of ours commission split headwinds was, you know, our top agents doing what, 7% more deals or something this quarter in Q1 than they had a year ago.
And so that macro trend is still there and it kind of hits on the margin a bit.
But you know, when you're starting from a place where your top 50% of agents are already doing 90, 90 plus percent of the deals. It's not a it's not a big mover, but we are also excited potentially by the costs we put into supporting nonproductive agents going down. It's not three to have people in your ecosystem. And so we'll see how the integrated economics of this thing play out. But I totally expect the number of agents to go down.

Matthew Bouley

Understood. Great color. Thanks, Ryan, and good luck.

Operator

Thank you.
Anthony Paolone, JPMorgan. Your line is IRA Yes, thanks.

Anthony Paolone

Good morning. Hi, I'm sorry. Your first question is, can you maybe just tell us what guidance you're providing just system-wide tier agents in terms of how to handle these discussions and perhaps whether there's a part of the country that you see doing business already as it might it looked like in the future? Just trying to add here, something that you have tangible about how you might think this looks as this buy-side commission matter unfolds?

Ryan Schneider

Yes, Tony, I would I would say no places doing it like the future yet in a full way. But you know, there's about 20 states today that use buyer agreements and then there's a few others where they're kind of commonplace.
So the idea of buyer agreements for us using them is not at all necessarily a new thing. However, you know, we need to we need to build and the industry is to build buyer agreements in the states that don't exist. And even the buyer agreements that do exist need to be updated for some of the dinar settlement and even some of the things we wanted to do from our own settlement and put it in there.
And so we're in the middle of doing that. And then we and then for us, it's a big pool of experimentation and we have a couple of thousand franchisees here in the U.S. and many of them have already rolled out the buyer agreements or they're in a market where there's buyer agreements and the best practice sharing is a huge is a huge thing we've got.
We've launched a lot of different training things on the not just on the agreements themselves on articulating your value and pricing and things like that. And like I said, we have a little bit of an advantage because we've been working on it longer than I think anyone else because of our set or our settlement timing, and we knew this would be a important thing for the future.
Now there are markets Tony and you're well familiar with HM, Washington State's an example where offers of compensation haven't been mandatory for a long time, right? And so there are places where the world has operated a little differently than a lot of the country, um, again, I don't think that's not the end state because there's some other stuff in these settlements that will change the agreements.
But but there are places where we have some data of kind of what works and what doesn't. And again, you know, we have some you get really good stories, especially from your best agents on how they're having these conversations and how they're being successful with them.

Anthony Paolone

And then sharing that with, you know, the 200,000 agents in our ecosystem we think is a powerful thing for the future but no place is operating there yet. We all have a lot of work to do in terms of bringing new things to life, especially in markets where they're going to be a shock to the system.
But I like our at least slight kind of advantage in terms of being we're having worked on it longer and having more kind of scale in examples to kind of share share stories from and cross-pollinate from?
And do you think a if you look out a year from now that there will be some amount of the commission that will be borne by the buyer? Or do you think it will just be navigated such that there will remain offers of compensation, the structural just perhaps be a bit different.
And I guess if so, what do you think the mechanism will be to offer that type of your website or some other portal or?

Ryan Schneider

Yes. So you know, look, I mean the Knorr settlement clearly has display and offers of compensation on broker websites as an explicit part of that, too. Obviously, that's in their settlement, but that's more of a question for them?
Look, your question is very complicated.
I think the real answer is I don't think anyone actually knows, but what I what I keep I'm talking about with my employees and my agents and my franchisees and reminding them is negotiating home sales is not a new thing, right. And you know, could could could agents be paid more by buyer.
Sure. That's absolutely possible in the future.
But I can't offers of compensation or chart can offers to buy a house, you know, can they include, hey, sellers, we want you to pay this thing, just like we want you to credit us further for the furnace that's not working right? Or that needs to be replaced kind of thing.
And so I think there's going to be a lot of experimentation. And then we're all still little handicap, Tony, because there's a lot of rules that have not yet been written, right? Whether they're MLS rules or kind of settlement rules. So we'll see.
But I would like to think that we're on as thoughtful as anybody about planning for those scenarios, thinking how it affects our cost base or other strategic moves we might do thinking about how we communicate with agents on them and share best practices. And then again, there's going to be while there may be some challenges.
There's going to be some opportunities here because every everybody out there is going to face this the same market, whether it's the macro that's tough or whether it's the change in how things operate and I like our assets relative to others to go through that change.

Anthony Paolone

Thanks for taking a crack at it.

Operator

Soham Bhonsle, BTIG.
Your line is open, your MorningStar.

Soham Bhonsle

Mostly here I'm mentioning and questions are right. I guess first one for you. Curious on your thoughts on consolidation in the space long term, adding there's 100 odd thousand brokers in the US today. And if we're in fact, going to see some commission rate pressure here, how do you think some of the boutique sort of fare in that environment and no new agents need to be at the bigger brokers to effectively compete long term?

Ryan Schneider

I think consolidation is inevitable. I've said it publicly and I thought it was inevitable even before some of the litigation and regulatory developments of the last year and done. And I think what's happened last year is only going to accelerate that, especially if there is pressure on the commission side, I mean, this is a scale business.
I mean, the economics of this business is scale as you can see, even with Charlotte showed right, you know, a normal housing market look at just how much more octane we have just because of our scale. And obviously, if there's ever revenue pressure.
One way you've got to deal with that is you've got to get even more efficient on how you deliver your high-value services and and folks on the cost side and consolidation is one way to get there. So I think it's inevitable on I think, you know, providing good technology is another reason. It's probably inevitable that not everyone can do and I think brand matters in our industry, and I know there's different views on that.
But one of our portal friends, you know, kind of stood up on stage and reminded the world that brands matter a lot and quite recently, and I believe in that. And so I think that will be helpful in the future.
Also now I will tell you, I think consolidation right at this moment is a very strange thing because there is both the over there. We're in a tough macro, but there's also the overhang from litigation payments and litigation that's still ongoing for a lot of companies.
And with the uncertainty on the revenue side, you know, I am incredibly cautious looking at consolidation right today, but but I do think it's inevitable. And Tom and I think the bigger scale players just are going to have a lot of advantages here. And I'm hoping that a company like ours, especially with our six great brands can differentiate over time on that.

Soham Bhonsle

Okay, great. And then Charlotte, I guess, is just on the on the free cash flow and then just tying that back to the balance sheet, right, is about $110 million in cash. You're guiding to sort of modestly positive operating free cash flow on the core business.
But then you have this $100 million in one-time payments this year. So can you maybe just talk about how you intend to fund that expense and also sort of what you're baking into your positive operating free cash flow guide?

Charlotte Simonelli

Yes, to go. And depending on when the timing of these things happen right now, and you know, if the supplements approved in May, there's a possibility that we'll have to pay the last bit of the settlement in Q2, and we don't start generating positive free cash flow until right about now, Tampa so we'll likely fund that from the revolver at the California tax matter, is likely to also hit in the second quarter. And so for the same reason, that will likely be funded by the revolver.
The good news is we have a a ton of capacity on the revolver. So and then we start moving into our positive sort of free cash flow generation, we'll start chipping away back after the revolver is first the guidance. So you know, when we say modestly positive, that's excluding the one-time items.

Soham Bhonsle

And so what's baked into that is our normal performance of the business. So the business how it would perform on the year, excluding those one-time payments. So the guidance, excluding the one-time payments is to be positive but there's there's a probability that it will take us negative with the one-time payments if that helps or have you contemplated like what the market can, what kind of market volumes you need to sort of hit that positive operating free cash flow?
Yes.

Charlotte Simonelli

Well, I've imparted sort of the financial octane slide that I shared with you, right? So and there's a quite a big amount of free cash flow in a normal, what we'd call a normal housing market, $5 million to $5.5 million units. And what we've said is that's going to take us to, we believe, two to $300 million of free cash flow. Now that also excludes any one-time items. So absent the one-time item, it's either modestly positive in this horrible housing market that we're in right now, but in a normal housing market likely sort of like two to $300 million. So hopefully that helps.

Soham Bhonsle

And then I guess just if I could sneak one more in on the $100 million cost savings for this year, you suggested that you could exceed that number as well. Can you just talk about like what will put you in that sort of scenario things.
Yes.

Charlotte Simonelli

Well, so think about it this way, and our cost is a permanent journey, right? That's something that we'll be doing to help improve the how we operate, just even for consumer satisfaction, agent satisfaction, but obviously also because we are always working to enhance our profitability.
So that just the fact that we had $40 million of our $100 million-plus this year was carryover savings.
What's going to take us higher than the $100 million are things that we're going to act upon now that we hadn't anticipated that will start to benefit us next year and this year into next year. So we don't stop working on costs just because we have 100% of our target achieved this year. It's a journey that it's probably pretty endless for FX. So new actions that were not anticipated, that's what's going to take us higher, and that's what we're feverishly working on right now.

Soham Bhonsle

Okay. Great. ;Thanks a lot for that.

Operator

Thomas McJoynt-Griffith, KBW. Your line is open.

Thomas McJoynt-Griffith

Hey, good morning, guys. Thanks for taking my questions. Actually, going back to one of Anthony's question, I guess it was alluded to that one of the business practice changes?
Yes, our settlement is no longer displaying offers of compensation and listings on the MLS. And but it does appear to carve out that those offers of compensation can be made of MLS such as on brokerage owned websites. Is that the plan for anywhere as brokerage owned websites to post those? And then just if so, perhaps as a byproduct, what do you see as the future of the MLSs?

Ryan Schneider

So I think it's too early to speculate on either of those questions. Unfortunately, Tommy, um, on what we're going to do part of the answer is kind of we'll see and part of the reason the answer is we'll see, as I referenced, I think in the answer with Tony was there.
The actual rules on how these different ecosystems will work are yet to be written. And remember, they're like 700 MLSs. So you've got 700 people writing rules effectively like there's no guarantee here that the rules or the actual technical rules are going to look the same across the United States.
So we're in a little bit of wait-and-see both on what we're going to do and what it means for the future, the MLSs.
But I do think there's going to be more innovation in the industry, right? I mean, there are portals in this industry. There are large brokerages there, MLSs, there are a number of third parties who work with this ecosystem from a data standpoint.
And so I think we'll all have a lot more clarity in kind of six to 12 months, both on how the ecosystem will evolve, how each of those different players will play in the ecosystem and even how companies will make kind of different choices. So it really is too early, and we saw some of that stuff supposed to be sorted out over the summer.
So I think we'll have more some at least some more clarity the next time we talk to you.
But hopefully you can feel that we're not just watching the issue closely, but we you know, we clearly have some hypotheses and are kind of doing some game theory about what we do think we want to do. And and again, most important thing is we're charging ahead with our agents and their customers to make sure they're set up for success with buyer agency agreements, which we think are great. And we think it's actually going to be helpful to us.
It makes sense.

Thomas McJoynt-Griffith

Thanks. And then switching gears in your pro forma illustration on slide 22, it looks like it sort of implies a 30% increase in transaction volumes just going from 4.1 times, call it 5.2 at the midpoint of existing home sales and what's the impact on commission splits that you're using in this analysis to get to the $500 million to $600 million of EBITDA, I guess would be helpful relative to the 80.2% that you did in 2023?

Charlotte Simonelli

Yes, there's a modest increase implied as normal with volume increases, but it's not anything material to us. It's not a it's not like in a 50 basis points or 100 basis points of an increase, that's more of a modest increase.

Thomas McJoynt-Griffith

So transaction volumes increased 30%, commission splits would increase less than 50 basis points. Is that kind of what I'm hearing correctly.

Charlotte Simonelli

I'm not like I'm not disclosing the exact number used in our pro forma, but yes, it's a modest increase.
Okay.

Thomas McJoynt-Griffith

Thank you.

Ryan Schneider

So that those numbers will be different depending on where you're starting right? You're going to, you know, you could have the same increase in units. But if you started at $5.5 million to $6.5 million, you'd get some different numbers than if you started.
And this kind of has record kind of low area with the trends that we've seen, whether it's kind of stabilization we've seen or, you know, even in today's world what you know, with this past quarter, one of our brands had commissions, let's go down again. We've referenced that before show it to you.
There's a little less extrapolation on that than maybe you're thinking. But I think Charlie's got a good the grasp on this and hopefully this kind of pro forma, it gives you a sense of just the financial octane, some of our cost work would would give us in a more normal housing market as well as the octane just a more normal housing market would give us and keep in mind like a bigger thing here is that we're assuming a similar competitive environment, right?

Charlotte Simonelli

The volume is only going to create a modest increase in commissions. But if something changes in the competitive environment, that would be different, like that's what that was, what drove and much more increases to our commissions flips over time.

Thomas McJoynt-Griffith

Got it. Thanks.

Ryan Schneider

Thanks, Alex.

Operator

Ryan McKeveny, Zelman & Associates. Your line is open and good morning.

Ryan McKeveny

Thank you for taking the question. And I know commission rates have been discussed a lot, but just one final one on that. I know a lot of factors can can move that a little bit here and there. But if we look at just the quarter's results, it looks like small movement lower, call it one to two bit in franchising brokerage. I guess what would you attribute that that downtick to?

Ryan Schneider

Yes, frankly, we in Our Brands business, for example, we were down two basis points, frankly, driven by an increase in higher priced homes. You know, in our in our owned brokerage business, we were flat. And then remember last year, you know, ABCR actually increased two basis points for the full year. And again, that was really driven by the price mix of homes.
So the real thing, Ryan, we keep seeing move in the number around, albeit quite small numbers. These days is kind of the mix of homes that we're selling and just because it's a pretty good range about what ABCR is dependent on the price of the home with more expensive homes.

Charlotte Simonelli

Having lower ABCR and in the first quarter we tend to see that that result also sometimes due to the amortizations that you're talking about, ABCR in the brands business and driven by amortization of prior payments and other things over a smaller base.

Ryan McKeveny

Got it. Okay. That makes sense. And then on the franchise side, you called out the strength in the share gains at Sotheby's, which is good to hear, I guess, more broadly across the franchise network on obviously very tough housing market.
I guess anything you could share about the general financial health or performance of the actual franchisees and maybe some thoughts around how things like new franchise sales and renewals are going.

Charlotte Simonelli

As far as the health of the franchisees? We're pretty much in a similar place to where we've been over the last, I don't know, sort of five to six quarters, and there's a process that we take when the market gets much softer that we we're sort of on top of it on a weekly basis. And we're analyzing things.
We're talking with our franchisees. We're helping them to make sure that they're making the best decisions to run their business so that they stay in a healthy spot. So while the fall, we are a little bit worse from a bad debt perspective than we would have been in the super healthy housing market, it's pretty stable actually. And so there's always some things that one quarter could be some franchisee versus another one.
So things come in and out, but on the whole. We're sort of holding our own right now, and that's because we go through a lot of effort to make sure that we're putting our best foot forward to help our franchisees throughout this time.
Yes.

Ryan Schneider

I mean, I think our guide just flat to a year ago and having gone through a tough year and have it be flat, you know, that's that's that's a good thing.
On franchise sales. We're really excited and we've talked about this before. We had a we had a record year of franchise sales in 2022, and I talked about kind of the flight to quality as the market got bad. And we really saw that effect that '23 was a solid year for us. But starting in the fall when we settled our litigation, do we are we got a big increase in kind of inbound interest.
And I think it comes down to the questions that multiple people have asked here, which is if you're going to navigate an uncertain future, how are you going to do it? One way to do it is to is to be with an industry leader who has hopefully shown some foresight and deliver, like I talked about things that help drive their profits up their costs down their insight up.
You know, we provide the technology. And so we like the franchise sales, we have a fair amount that we're feeling right now from a from both the value prop we have, but also the on the kind of flight to call it quality in this kind of uncertain future.

Ryan McKeveny

That's helpful. And if I could squeeze one more in on the on the listing side. Ryan, you talked about the growth that you saw in the first quarter and obviously industry-wide data shows similar uplift in inventory from a low base.
And I guess it seems to suggest that maybe the lock-in effect on homeowners has lessened a bit. And so I'm curious if that's your sense on whether things I don't know, life events, other reasons for movement are happening. That's that's offsetting the rate lock dynamic.
And then more recently with interest rates moving much higher again in April, I guess any indications homeowners are prospective sellers kind of moving back to the sidelines, given given the rate move? Or does it seem like those who want to sell are still kind of sticking with their listing plans? Thank you.

Ryan Schneider

A lot of things with that question, look, my quick answer is I don't think a 4% increase in listings off an incredibly low base means the lock-in effect has loosened. I mean it's like, you know, it's like a you know, it's like a two or 3% increase in home sales.
Yes, that's better than a decline. But flake off such a low base. It's still horrific kind of relative to history. So I don't think the lock-in thing has changed. I think people who do want to sell are selling, but it's at some pretty historical levels for us.
The thing I think we are more excited about was the fact that there is a lot more listings on the luxury side and because we have more share and better economics and more success there. You know, the fact that those listings were up like 16% for us like, wow, that's good.
That's and taken some share in luxury, you know, continuing the trend of Sotheby's International Realty outperforming, but I don't take too much comfort from the relatively small increase in listings to be the lock-in effect especially since a lot of the volume increase is still just price driven across our portfolio and in the industry numbers.

Ryan McKeveny

Got it. Yes, makes sense. Okay. Thank you very much.

Ryan Schneider

Thank you, Ryan.

Operator

John Campbell, Stephens Inc. Your line is open.

Hey, guys. This is Jonathan Bass on for John Campbell. I wanted to quickly touch on TRG's recently announced acquisition of Del Amo. What kind of potential do you see there with Doma? And do you feel like it can improve attach rates over time?

Ryan Schneider

So just for clarity. So TRGC. is a we are a minority player in that that used to be our underwriter a couple of years ago. We did a deal with Centerbridge Centerbridge that we really like where we sold 70% of it took took $210 million of cash, and now we own that kind of peak a piece of it. And since then, we like what they've done with the business, right? They brought in Berkshire Hathaway.
hey brought in open door or they brought in now with the dome acquisition Lennar's Now part of this thing and the valuation's gone up. And so at the end of this, all, we still think there's a chance that our stake in this will be worth more than it was when we owned the thing. So we are very excited about that and we're really rooting for them.
And I really can't speak for them too much. But if you look from where we sit as a minority player here, you know, this is a chance for TRG. to be a top five player in the market to expand their presence into both homebuilders and mortgage origination distribution channels, and then they could increase their market share in places like Florida and Texas.
And you know, I think the transaction they expect to close latter half of this year. They got to do all kinds of closing stuff. And like I said, Lennar's going to make an equity investment in this joint venture that we're a minority player. And so we're not really in the driver's seat on this one per se, but we're obviously very excited for them to be successful and down and hope that helps answer your questions.

Yes, thank you. And then may be a change gears here, but could you give us the latest business trends for Cartus and maybe how that's changed over the past couple of years?
Yes.

Charlotte Simonelli

So as I sort of mentioned in the script, Q1 was definitely softer than Q1 of last year, but Q1 of last year still held some pent-up demand from prior softness. It's a very sort of cyclical business, too, and it's kind of tied to what our clients are doing and the macros impacting our clients, which is having them pull back on some some relocations.
So I think we still feel very good about our share and how our business is performing relative to others, but it was definitely much softer from a client initiation perspective. I think you know that business tends to come back pretty quickly when the macro comes back.
So we'll see when that happens. And I think we think for this year in now, like it's going to be a TBD, I think we're planning for sort of a modest business this year, but that can all change on a dime because it's really dependent on the budgets that our clients have.
And then it's it can be can flip-flop very quickly. But Q1 was definitely much softer than Q1 last year, but Q1 last year still had some pent-up demand from prior softness. So we had a very strong 2022 and for the same reason, pent-up demand, which lingered into Q1 of '23, but it's been much softer, mostly tied to our clients pulling back just due to the macro and what they're facing Okay.

Thank you.

Operator

As there are no further questions, I would like to thank our speakers for today's presentation, and thank you for joining us. That concludes today's conference. You may now disconnect.