Anywhere Real Estate Inc (HOUS) 2023 Q4 法說會逐字稿

Good morning, and welcome to the Anywhere Real Estate year end-2023 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 Anywhere Senior Vice President, Alicia Swift. Please go ahead, Alicia.

Thank you, Brianna. Good morning and welcome to the year end 2023 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 the 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. Last, the references made to January in these remarks are actual results for the month. January 2024 included one more business day than January 2023. Our discussions on January closed volume have been disclosed as both unadjusted and adjusted to reflect like-for-like number of business days.

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, February 15 and have not been updated subsequent to the initial earnings call.

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

Thank you so much, Alicia. Good morning, everyone. I'm incredibly excited about 2024. There's more optimism in the housing market. We have increasing competitive advantages as a company, and we continue to demonstrate our ability to deliver results. And I'm really proud of what Anywhere Real Estate accomplished in 2023.

It was an incredibly difficult year in the housing market with the fewest home sale transactions since 1995, combined with unprecedented industry litigation challenges. All the while the Anywhere team stayed focused on our strategic agenda. We continued our track record of delivering meaningful results, even as we navigated the challenging market conditions. We generated $200 million of operating EBITDA and $67 million of free cash flow in 2023.

Our EBITDA would have been meaningfully higher without our litigation reserves and our free cash flow would have been above $100 million without litigation payments and taxes related to debt transactions. The ability to generate these levels of EBITDA and free cash flow even in such a challenging year for housing demonstrates our financial octane, which is a clear competitive differentiator.

We realized over $200 million of cost savings as we continued to simplify, automate and streamline our operations for the future. And we have another $100 million of cost savings targeted for 2024. We continually focus on permanently lowering our cost base, which gives us significant earnings power, especially in more normal housing markets.

And now in 2023, we also improved our capital structure with more than $300 million of debt reduction. Continuing debt reduction is critical and remains a top capital allocation priority. We utilized our competitively advantaged financials to invest in the business for future success. Unlike competitors who have had to pull back given the down 2023 housing market, we delivered products, marketing, data, AI and automation wins all to enhance our value proposition to help position us for future growth and to streamline our company.

For example, integrating and digitizing our brokerage and title operations to better assist agents and consumers from contract to close, creating a more frictionless transaction experience. Growing our franchise network, one of our most important strategic priorities through new and expanded offerings like affiliate insights, listings direct and upward title.

Strengthening our luxury leadership position through continued domestic and international expansion of our high end brands. Growing our auction partnership with Sotheby's auction house and demonstrating our preeminent position selling the most expensive homes in America, including a $295 million listing that we recently brought to the market and continuing our, an aggressive generative AI agenda across many parts of our company. Our biggest success scaling our generative AI pilots since we last spoke, are happening across brokerage and title operations and in marketing, as we are automating operational tasks and increasing our efficiency.

Finally, we successfully architected the first nationwide settlement in the seller antitrust class-action litigation. We are passionate about spending our leadership time and dollars, growing our business and supporting our customers rather than on litigation. Others have written that our position is a competitive advantage relative to the competition who face large judgments or lawsuits. And we agree with that and hope to capitalize on it going forward. And we look forward to our final approval hearing on May 9.

Now so as I started the call, we are really excited about 2024. We are seeing more optimism and positivity around housing. The market was very weak throughout 2023, with our and the markets volume down almost 20% year over year as there were only 4.1 million home sale transactions here in the United States, but we've started to see some green shoots in the macro economy. Mortgage rates have come down over recent months. Consumer sentiment around housing is improving and recently hit a two year high this month, and there are possibilities for rate cuts in 2024.

Now beyond the macro improving we really like the early indicators we're seeing in our book. Our open volume in December was up 8% year-over-year with growth in both units and price. This was the first month, we saw positive open volume since December of 2021, and our January results continued the strengthening trend. January closed volume was up 9% year-over-year with growth in units and price.

However, there was an additional business day in January, but like-for-like January closed volume was still up 4% year-over-year. Now home prices continue to be resilient as more than 80% of the country saw price gains in our portfolio in the quarter. That continues to illustrate the lack of supply challenges in the market. One of the biggest factors that made 2023 such a tough year for housing. We see demand greater than supply also showing up in other metrics. For example, a larger percentage of homes in our portfolio are selling in the first two weeks than they've done in prior years.

Now beyond potentially turning the corner with some volume momentum, we like our differentiated results in the market. Most striking is the strength of our luxury business, particularly our Sotheby's International Realty brand, whose close volume in the quarter was actually up year over year when both the market and our overall portfolio's volumes were down and our luxury leadership also serves us well moving forward as the listings growth we're seeing today on million-dollar-plus homes is meaningfully outpacing the listings trajectory, both in the market and in the rest of our portfolio.

Now while we have a lot of optimism heading into 2024 the two biggest issues of 2023 will both bear watching this year. First, with 2023, historically tough year for housing, even meaningful growth above 2023's numbers will still be another challenging year for the housing ecosystem.

And second, while we've settled our litigation, the industry and regulatory dynamics at play in residential real estate are still ongoing. You should know that we're bringing the same proactive thinking in leadership as the industry evolves that we demonstrated in our litigation strategy.

And I continue to believe the medium-term outlook for housing is quite strong given both future demographics and the potential for lower interest rates. And if you look at our 2023 results delivery relative to the competition, our business improvements throughout the year and how our financial octane translates as the housing market rebounds. It's hard not to be excited like we are.

I appreciate how the world has recognized Anywhere Real Estate's great work as we've been named one of America's most innovative companies by Fortune, enter the Forbes list of World's Best Employers for the third year in a row. This is in addition to our track record as a World's Most Ethical Company for a dozen years and a great place to work for six years.

Now, everything I've spoken about is because of our great employees, agents and franchisees who helped Anywhere lead through 2023. I'd like to thank them for their commitment and energy in a tough year, and I love the optimism, I'm hearing from our people about what's ahead for the housing market and for Anywhere Real Estate in 2024.

With that, let me turn it over to Charlotte.

Good morning, everyone. We had many successes in 2023, despite the challenging market. We generated meaningful operating EBITDA. We over delivered on cost savings. We mitigated future risk with our legal settlements. We improved our capital structure with sizable debt reduction. We saw the best commission split trends we've seen in years, and we prudently managed our cash.

We continue to execute on our controllables and position Anywhere for success going forward. We believe these accomplishments, along with our progress on strategic objectives will drive differentiated results relative to our peers and lead us to deliver long-term value to our shareholders.

I will now highlight our full year 2023 financial results. We delivered full year 2023 revenue of $5.6 billion and operating EBITDA of $200 million, even despite significantly lower industry transaction volumes. Our operating EBITDA would have been meaningfully higher without approximately $50 million of litigation reserves that we took for both antitrust and non-antitrust litigation.

We generated free cash flow of $67 million and our free cash flow without taxes related to debt transactions and litigation payments would have been above $100 million. Our free cash flow was up year-over-year due to improved working capital and lower CapEx, offset in part by lower EBITDA. Our improved working capital was primarily driven by lower incentives paid in Q1 2023.

Consistent with our capital allocation priorities, we used our free cash flow to make selective investments in the business to drive growth including attracting agents and franchisees at better margins and expanding products and services with the highest ROIs. And we continue to drastically improve both our cost and capital structures this year.

We reduced debt by over $300 million in 2023, which represents over $900 million in debt reduction since 2019. We are always evaluating ways to further improve our capital structure and I feel confident in our ability to weather the current market with only about $200 million due before 2026 and ample liquidity remaining on our $1.1 billion revolver.

We realized $222 million of cost savings, which was about 10% higher than our target last year. And we have identified another $100 million cost savings target for 2024, which continues our multiyear trend of reducing costs in the business.

Now let me go into more detail on our business segment performance. Our Anywhere brands business generated $527 million in 2023 operating EBITDA, while down versus prior year, driven by historically soft industry volumes we love our powerful franchise business with its recurring royalty stream, high margins and its relative stability over time.

Our Anywhere advisors operating EBITDA was negative $144 million in 2023. However, this business generated $171 million in operating EBITDA before the transfer of inter-company royalties and marketing fees paid to our franchise business. Commission splits were 80.2% in 2023, up 46 basis points year-over-year, with 15 basis points of that increase coming from lower new development business in 2023.

We continue to like the moderation we stand splits with only 4 basis points of year-over-year increase in the fourth quarter. And in the fourth quarter, splits would have been down year over year, excluding the new development impact. The improvement in split pressure this year was driven by lower volumes, more stable agent mix, better recruiting economic and other proactive actions we have taken, and we see those continuing into 2024.

Anywhere integrated services operating EBITDA was negative $17 million in 2023 due to lower purchase and refinance volumes, which was partially offset by cost savings. We saw improved GRA performance, which was $22 million better than prior year and given the tough market, we were pretty happy that our mortgage JV was able to breakeven for the year.

I will now provide our current outlook for 2024. As mentioned, we expect to deliver about $100 million in additional 2024 cost reductions, including carryover of approximately $40 million of actions already taken in 2023. Some of these savings will come from integrating and digitizing our support services for brokerage and title, further reducing our real estate footprint, product rationalization and automation across the enterprise. These savings will be offset in part by inflationary pressures.

We like the free cash flow our business delivers and that we demonstrated in 2023. However, remember, we have over $100 million of payments expected in 2024 between our $73.5 million class action litigation payments and the $38 million legacy California tax matter as possible headwinds. The strength or weakness of the housing market will also be one of the biggest drivers of our free cash flow in the year.

Consistent with Ryan's remarks, we are seeing a bit of volume improvement at the start of the year but most of the overall improvement in industry forecast comes in the back half of the year. And given that you should expect the shape of our earnings in 2024 to look similar to the shape of 2023.

We expect more normal seasonal volumes throughout the year, and Q1 is still at historically low unit volumes, which will likely drive our EBITDA negative in the quarter. As the market leader, we have proven our ability to navigate tough markets by continuing to prioritize investing for growth while also delivering efficiencies for today and tomorrow. We continue to be focused on reducing debt, and all of this will position us for an even stronger future.

Let me now turn the call back to Ryan for some closing remarks.

Thank you, Charlotte. I'm incredibly proud of all the Anywhere team leading delivered through the 2023 housing market. We generated meaningful operating EBITDA and free cash flow, reduced our debt, invested in the business for future growth, over-delivered on our cost savings and mitigated risks by reaching a nationwide settlement in our antitrust litigation.

2024 is about Anywhere Real Estate, executing on what we can control, delivering on our strategic agenda and utilizing our competitive advantages to drive growth to outperform the market and to lower deliver value for our agents, our franchisees and our shareholders.

With that, we will take your questions.

(Operator Instructions)

Soham Bhonsle, BTIG.

Hey, good morning, everyone. Hope you're doing well.

Great. Thank you.

So I guess the first -- great. I guess the first one for either Ryan or Charlotte on thinking about the long-term margins for the business for a second, so over the past couple of years, obviously you've been on this cost reduction journey. There's probably some that comes back as volumes come back.

But it seems like you're trying to change how you operate all together. So I guess my question is, historically, this business has been call it a low double-digit margin business. But in a normalized market, where do you think your margins can go?

Yeah. So I think prior to this, the housing market that we're seeing this year, meaning 2023, we have been at double -- low double digit margins. I mean, they've been different years. Some have been sort of Q2 year. Some have been more normal years. So I think it depends on the year. But yes, we have had lower double digit margins.

I think what's important to know for going forward is that, yes, we are trying to change how we work. And so the cost savings that we're taking out today are less likely to be added back when the housing market improves because these are like structural changes to our business.

So I'm optimistic that we will be able to keep more of this cost out of the business as the market comes back. I'm sure there's always going to be a bit of investment that we have to make as the market improves, both in like people to support the transactions and other marketing related costs that will correlate to volume. But I'm actually very optimistic that a lot of the work we're doing today are going to be costs that stay out of the business.

Yeah, look, we've been explicit that, two thirds of our cost reduction we think is totally permanent, right? We've been explicit in the cost on the temp versus permanent split. And then remember within that total margin, we also have the 40%-plus margin franchise business that we're loving our growth on that are strategically prioritizing along with the luxury area.

And so we're always -- we're hoping we can do even more on that, that helps the overall margin, but that franchise business and the financial octane we get from that is frankly probably one of the competitive advantages we've got.

And keep in mind, none of the $100 million of cost savings is as temporary. The $100 million for this year is all permanent?

Yeah.

Yeah. Got it. Okay. And Charlotte, the historically the $15 million to $17 million framework for every 100 basis points in volume, is that still a fair way to think about the business this year or is there any other puts and takes we should be thinking about.

Yeah, I think that number is more on a normal housing market. I think with the volumes that we're seeing today, it's definitely a little bit lower than that, and it's because more of this is impacted in units versus price. So yeah, I would say it's definitely lower than that in the housing market that we were in in 2023, and we'll see what happens to the housing market. But keep in mind off of this low base, like even a 10% improvement in the housing market is still a low housing market.

Right. And then just last one. On the comments around commissions splits, it's obviously encouraging trends there. But Charlotte did you mean to say in 2024 we should expect similar to what we saw in Q4, which was close to flat or what you sort of produced in all of 2023.

So there's three factors that are going to drive the commission splits. And I intentionally didn't give a number because the single biggest driver is going to be volume. And I think those are going to evolve -- volume will evolve over the year. And I think if you can look at the industry forecast, like huge swings expected in the back half, but we haven't seen those yet so part of the reason I'm not giving an actual numbers, so volume's going to be a huge piece of that.

I think I called out the new development business for a reason. Over the five years I've been here, it's never been more than a couple of basis points impact, year over year this year was 15 basis points. It was a huge impact. So to the extent that we get back to a more normal new development business and which is highly correlated to New York City, then that will be less of a headwind for us in 2024.

The third factor and is sort of the amortization of recruiting and retention payments and so to the extent that we had much improved economics in 2023. The negative impact from that amortization will also be improved in 2024. But I think you can't really correlate one quarter to a year. And so I think, think of it year over year with the three factors that I've just given you, it will depend on volume. If new developments is sort of a nil impact on an annual basis next year, that will also be a favorable year over year comparison. And we should also see a slight favorable year over year comparison on the amortization.

Okay. Understood. Thanks for all the color.

Thank you.

Matthew Bouley, Barclays.

Hey, good morning, everyone. Thanks for taking the questions. I just wanted to ask around on the commission rates news, maybe one way to put the question would be and obviously congratulations on all the work with the settlement over this past year, but kind of -- as we think about maybe some of the risks from the DOJ, how does the settlement kind of shield you from that potential risk?

And then maybe just kind of thinking a little beyond that, just the potential kind of range of outcomes in this industry from a commission perspective, kind of how are you positioning the business communicating with agents and all that, just in case you have, again a different range of potential outcomes there. Thank you.

Well, look -- first off, we're very happy to mitigated risk with the nationwide settlement, and obviously, protecting our agents and franchisees from that exposure is a really important thing, and we feel like we've accomplished that.

And then obviously, we can spend our management time and dollars on growing the business and supporting those folks. We're not going to speculate on anything related to the DOJ, we do believe in the world that we need fewer mandatory MLS rules.

We love the value agents provide. And we are always thinking through different strategic ways that markets may evolve, but we were excited to get our settlement done, get the preliminary approval back in November, and we look forward to the final approval on May 9. And beyond that, I don't think we're in the speculation business.

Yeah. Got it. Okay. That's helpful. Secondly, maybe just kind of zooming into the more recent kind of market trends. I think you said January, excluding the extra day was sort of up 4%. It sounds like you had a good result there in December as well.

So just kind of delving into that a little bit kind of what are you seeing regionally rate volatility has been extreme as always, these past few weeks. So kind of any additional kind of unpacking of those trends over these past few weeks. Thank you.

Yeah. So look at some -- it's obviously a time that you're up versus down is good. And that's a good thing right there. You all see the same rate stuff we see. So I won't trying to read too much of that. The geography mixes are different out there. Florida remains quite strong. We wish we had more inventory to sell in Florida, that is just kind of an awesome market that's doing great.

New York's kind of lagging. New York both Q4 and full year volume was down more than the market national numbers and more than our portfolio. It's a big market for us. We love it, I'll bet on New York coming back, but it's been a little bit of a headwind.

And then like I said in the call, we're seeing listings taking will be about flat basically maybe a little bit positive year over year. But the places where listings are the best is actually in the luxury area, we're the leader and we like that. We're seeing cash offers at pretty much historical high levels.

As I said in the script, we're seeing a home selling in the first two weeks in our portfolio, historically high levels. And so end of the day, there is more demand than there is supply. Lower rates is going to help unlock more supply, obviously, and we're rooting for that. And then the geographic mix out there is definitely different by geography and by part of the country. But we're excited that it's a little better than last year.

Great. Thanks, Ryan, and good luck guys.

Thank you.

Tommy McJoynt, KBW.

Hey, good morning. Thanks for taking my questions. Hey, Charlotte, I can start with you. So can you help us walk through the available cash resources? You have about $1 billion of capacity under the revolving credit facility, and it looks like you tapped into that in January.

Can you just help us think through how much you might need to tap into that in order to get through to the spring when cash flow dynamics naturally improve? And then is the plan to pay that down quickly? Or will priorities be focused elsewhere perhaps on other debt or other areas investment? How do you think about that?

Yeah. So I think it's highly correlated to how well the housing market does, how quickly we are able to satisfy the revolver. And we ended the year at a pretty low position on the revolver, and it's kind of normal that we would use cash in the first quarter and even a decent housing market. So I think what we're seeing now is actually a little bit better than our own internal forecast as far as revolver use.

Yeah, and it's likely to build like it does throughout the first quarter. We even like I said, in a good year, we start generating free cash flow, positive free cash flow in a meaningful way and sort of like the May time period.

So yeah, the revolver balance is likely to go up due to the normal Q1 seasonality, but also due to the unusually soft housing market that we're in. As far as like our plans for the future, as you know that we're always opportunistic on our capital structure.

We're always evaluating things. We're super mindful of the small stub on the Term Loan A, that's also becoming due. As you point out and as I said in the script, we have a $1.1 billion facility, and you can see that where we have tapped in so far. But like I said, we're prudently managing our cash as well. I feel very proud of the accomplishments of the team to really hone in on every bit of cash that we spent last year. I mean, it was sizable.

And like I'm very proud of the economics we had both on agent recruiting, but also on franchisee renewals and retention. So I see a lot of that continuing into 2024. We really love our liquidity. We feel very comfortable with the liquidity that we have and we're going to continue to watch the markets and be opportunistic because there's quite a few different avenues we could go. But the quicker the housing market comes back, you can that's the faster we'll be paying down that revolver too.

Got it. Thanks. And then next question with all the media attention that the commission litigation has received. Have you started to see any increase in innovation around agent commission structures, whether it be flat fee or smaller service offerings? Or has there really been no discernible shift away from the standard roughly 2.5% rate that's out there?

Well, I wouldn't say 2.5% rate is standard. I mean, it's there's a pretty wide variation, we look across our portfolio. But putting that aside to your question, I would say no, but I would actually start at a different place. And I asked this question to agents all the time, which is what are they hearing from their customers and there's a -- while there's a big increase in press on this topic, clearly other than like the days that stuff shows up in a Wall Street Journal or New York Times, it doesn't get much consumer attention is what I'm hearing. Obviously, there's a lot in the trade press that we all see and deal with everything.

So for example, I was at one of our Coldwell Banker reality offices, I don't know 10 days ago, and I had meeting with like 20 of our agents who were kind of at the high end award winners for their 2023 results. And I ask that question, how many of you have had a bad customer to ask you about these commission news or lawsuits, and it was very few hands went up and it was -- yeah, I got one question or whatever kind of thing.

I talked to another agent in Denver, her emails with her about, she said she had like four people as she has addressed it with kind of thing. So I don't think it is like really got into the water in a way that has led to anything meaningfully changing yet.

It doesn't mean we don't watch it closely. And it doesn't mean we're not, as the earlier question asked thinking very strategically about the future. But I don't think it's really like I said, kind of in the water yet the a way that's actually leading to anything.

On the flip side, though, we want to be ahead, we want to be innovators. We're big users of buyer agent and -- agent agreements, and we're going to be expanding that dramatically. And part of the reason we're doing that is we got ahead on the settlement thing. And so we kind of got a head start in doing that, we think.

And so it will be, like I said in my script, there's a lot going on here, but we're going to keep being proactive thinking about it and hopefully, the kind of strategic thinking and execution that led us to carve out a different position with the first, nationwide settlement here gives you a little confidence that will be thinking strategically about these other topics and will hopefully steer us to better outcomes that a lot of our competitors are getting.

Got it. Thanks, Ryan.

John Campbell, Stephens Inc.

Hey, guys. Good morning.

Hi, John.

Hey. So it was obviously encouraging to hear about the momentum you guys saw kind of exiting '23 and then obviously the growth and then closed volumes in January. I'm hoping, Ryan, maybe provide a little bit more color on the sides and price mix.

And then maybe to what extent you can just talk to the open listings activity and what that's signaling as far as units and price, I'm guessing that was probably pretty similar to what you probably saw in the closed activity, but any kind of pull out there?

Yeah. When you look at like December and January, this underscored in both units and price were up in one of the months. I think prices up a little more than the units were, but we hadn't seen units up in a long time. In fact, I think I said we hadn't had open volume be up since December 2021.

We hadn't had units be up year over year since May of 2021 and then they were up in December. And so the up in both December and January was a little bit kind of both the like I kind of said, like in January, I think the price was up whatever 5% or 6% and the units were up 3% kind of thing. So it's a mix of both. But it's also, like I said, with units being up and we hadn't seen that for 2.5 years kind of thing so.

So that's encouraging. And then like I mentioned, listings are kind of flat in like core Q4 year over year, but they're up in the places that we're strong. We saw them up 5% in the $750,000 to $1 million range. We saw them up a 4% in the $1 million to $5 million range, and that was -- those numbers are better than the rest of our portfolio and kind of better than the market.

And then we're also seeing about 40% of our listings sold either at or above list price in December. 34% of our listings went under contract in two weeks or less and last year was 33%. And in previous years, it was like in the 20%s kind of thing. And then cancellation rates for us dropped, in Q4 a couple of points versus 2022.

So there's -- we're on a low base here, but there's some green shoots here that it gave me the optimism to say when I said in the script.

Yeah. That all sounds great. I appreciate all that color. And then maybe for Charlotte here, I know it's early a lot going to obviously depend on the level of volumes and then also the working caps swings you guys are going to see from Cartus, but maybe if you could talk to your expectations for free cash flow conversion of EBITDA. I know in the past you guys have kind of mentioned the 25% to 55% conversion range. Is that still a good kind of rule of thumb to consider?

I think on a like-for-like basis, that's a good rule to consider. I mean, if you extract out some of the one-timers last year, we were at the high end of that last year, but I did point out we do have one-timers coming this year, and they're sizable.

So if you have to think about it with or without the potential litigation settlements as well as what will or won't happen in this California legacy tax matter from literally 1999. So if you extract those one-timers, the range definitely still holds.

It's just -- the timing of those payments and if they will happen or not, it's very subjective. And so that's why I am -- I couldn't really give you a number, but we're trying to give you the piece parts. So as things evolve and you can kind of do your own math.

No, that's very helpful. Thank you.

(Operator Instructions)

Ryan McKeveny, Zelman & Associates.

Hey, good morning. Thank you. So if I go to slide 5, in the deck. You've got kind of four pillars: leads, brokerage and franchise, settlement, mortgage. Can you give us an update on the leads category? And I guess just thoughts there on some ways that's expanding either through maybe more traditional referral approaches or maybe even some kind of online lead gen efforts there?

Yeah. So thanks for pointing that out. It's funny one of the things that happens when the housing market's really tough like it was in '22 and '23 is you actually get some return to basics, right, taking on cost and being, really sharp and reengineering your business, like Charlotte talked about a lot becomes really important.

Another thing that became really important is lead generation. Like the number one thing, our agents and franchisees want is high quality leads in a market when there's obviously much fewer transactions than there is in a normal kind of housing market.

So we think kind of the high-quality lead ecosystem we have is one of our competitive advantages and that we were able to continuing to utilize it. So we focus more on high quality referral leads. Our relocation business has always been a source there, but recently a lot of our expansion has come from a couple of places.

One is on mortgage partners. We built a stable of mortgage partners over the last four or five years to bring kind of high quality real estate leads to us. And we've -- that's worked out well for them and for us in the ecosystem. And so that's been one place that we've kind of expanded.

Second, we continue to invest in with AARP, who just has such a track record of successful programs with their members across different financial and nonfinancial products. And we really like that. We still play in certain things kind of from an online lead standpoint, but we're not as interested in kind of the low quality leads that convert at a 1% to 2% rate. We're more interested in much higher quality, higher conversion leads that you get from affinity sources, relocation sources, et cetera. And we are excited to keep expanding that anytime we can.

That's helpful. Thanks, Ryan. And last one, just any updates on upward Title, maybe just kind of uptake as far as interest from franchisees, et cetera. Thank you.

Yeah. We're really enjoying it. It's an important thing for those of you who don't know upper Title well. It's a way basically for our franchisees to join a title joint venture with multiple franchisees and doesn't have to all be in the same brand to help our franchisees who don't have access to Title directly expand their revenue and expand their business in the real estate ecosystem and leverage the assets they have. We have national Title presence.

We're good at running Title companies. So that's what we bring to it and we bring them together. We introduced in 2023. We're now up to six states. As we started obviously with one state and then went to Florida and California was two states.

Now we're up to six states, Florida, SoCal, we're in Texas, Pennsylvania, Colorado, Utah. We've got over 20 franchise partners in these things more to follow and we're getting, frankly, some of our big franchisees are joining as well as some of the more medium-sized ones who can't do Title on their own.

So we like and it's the kind of thing. When you strategically want to grow your very high margin franchise business, we're going to do the international and domestic expansion of brands like Sotheby's International Realty and Corcoran, for example.

But another way you're going to grow your franchise business is to help them just grow their revenue and also creates stickiness, right. We love the long-term kind of 10-year average contracts in franchise. But this is another way to create a strong connection to our ecosystem for franchisees. And so, we've gone from nothing to six states and we're excited to keep going.

That's great. Thank you so much.

Thank you, Ryan.

There are no further questions at this time. This will conclude today's conference. Thank you all for joining us today. You may now disconnect.