Anywhere Real Estate - Earnings Call - Q2 2025

Executive Summary

• Revenue of $1.68B grew 1% YoY but missed S&P Global consensus ($1.72B); Primary EPS modestly missed consensus, while Operating EBITDA was solid at $133M amid higher benefit costs and Reimagine investments.
• Guidance maintained: FY25 Operating EBITDA ~$350M and FCF ex one-time items ~$70M; cost savings target ~$100M with ~$39M YTD and $25M in Q2 delivered.
• Balance sheet flexibility improved through $500M second-lien issuance and $345M exchangeable note repurchase; no meaningful note maturities until 2029; revolver balance reduced to $460M by July 28.
• Luxury outperformance and recruiting/retention momentum, plus July open volume +9% YoY and listings +11% YoY, are positive back-half catalysts despite mixed geography (strong NYC, weaker Florida).

What Went Well and What Went Wrong

What Went Well

• Luxury strength: volume +3.5% YoY in Q2; 369 homes ≥$10M sold (+20% YoY); July luxury open volume up double-digits (Sotheby’s +13%, Corcoran ~+20%).
• Agent momentum: Advisors recruited 625 productive agents, business recruited +31% YoY; top-half agent retention ~95%—near record levels.
• Operating execution: Franchise Operating EBITDA rose to $163M (+$4M YoY), Title Operating EBITDA $10M (+$1M YoY); $25M cost savings in Q2 and $39M YTD, on track for $100M in FY25.
• Strategic financing: $500M second-lien notes issued; $345M exchangeables repurchased at discount; revolver reduced in July, enhancing flexibility.

What Went Wrong

• Revenue and EPS vs consensus: Revenue $1.682B vs $1.719B consensus*; Primary EPS 0.316 vs 0.327 consensus*—small miss likely weighed by higher benefit costs and investment in Reimagine.
• Owned Brokerage margin pressure: Advisors Operating EBITDA was $0 (down $4M YoY); agent commission splits rose to 80.9% (+36 bps YoY), with mix shift toward top agents.
• Free cash flow headwinds: Q2 FCF was -$5M, impacted by a $41M legacy tax payment and ~$25M securitization timing drag; operating cash flow -$28M vs +$39M prior year.
• Geographic variance: Florida volumes down double-digits with price mix pressure (fewer $50M+ transactions vs prior year), contrasting strong NYC performance.

Transcript

Operator (participant)

Good morning and welcome to the Anywhere Real Estate second quarter 2025 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. Unless stated otherwise, growth figures should be assumed to be year-over-year. At this time, I would like to turn the conference over to Anywhere Vice President Tom Hudson. Please go ahead, Tom.

Tom Hudson (VP)

Thank you, Bella. Good morning and welcome to the second quarter 2025 earnings conference call for Anywhere Real Estate. On the call with me today are Anywhere CEO and President Ryan Schneider and CFO Charlotte Simonelli. As shown on slide three of the presentation, the company will be making statements about its future results and other forward-looking statements during the call. These statements are based on current expectations and a 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.

July month-to-date data is through July 21, 2025, with both open and closed volume comparisons made from the same number of business days in July 2025 versus last year. Three one-time free cash flow headwinds are excluded from our 2025 free cash flow guidance. First, $41 million was paid in Q2 for a 1999 suspended legacy tax matter that we intend to appeal. Next, $20 million that we expect to pay in Q3 for the TCPA litigation settlement. Last, the final $54 million payment towards our antitrust litigation settlement will be due when the appeals are resolved, the timing of which is uncertain but is now estimated to be made in late 2025 or early 2026. Growth in business recruitment pursuant to other productive agent recruiting programs at advisors is measured using the estimated last 12 months' closed gross commission income of the new agents prior to joining Anywhere.

The top half of agents retained at advisors is measured using the amount of production generated by agents remaining with the company a year following the initial 12-month period, based on gross commission income generated during the initial measuring period. 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 dated 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 remarks made here and as of today, July 29, have not been updated after the initial call. Now I'd like to turn the call over to our CEO and President Ryan Schneider.

Ryan Schneider (CEO and President)

Thank you, Tom. It is incredibly exciting to speak with you here in late July. AI will change how real estate is done, and we plan to lead the way. We are using generative AI to revolutionize how this industry works, both how we go to market and how we run our company. This transformation is creating better experiences, faster, and at lower cost, all with the goal of driving growth for our great agents and franchisees, unlocking efficiencies, and improving margins. The future of the real estate industry includes a truly end-to-end integrated transaction for the consumer. We are leveraging our scale across brokerage, title, mortgage, and home services to deliver more seamless and connected home buying and selling experiences and to drive better economics.

While we are in a historically challenging housing cycle, we are winning and creating octane for the future with powerful proof points in productive agent recruiting and retention, franchise sales, and especially luxury success. Most excitingly, we are seeing strong growth momentum this month that has us more optimistic for the back half of the year. Turning to Q2, we exited the quarter with confidence, supported by meaningful operating EBITDA, a strengthened balance sheet, and our unique collection of assets. This strong foundation enables us to invest in AI-driven initiatives and capture scale operating efficiency across the company. We delivered $1.7 billion of revenue and $133 million of operating EBITDA, demonstrating the strength and resilience of our model. Closed transaction volume was flat year-over-year in Q2. The quarter started off challenged due to macroeconomic volatility, but we saw volume trends improve with June closed volume solidly positive.

We love the business momentum we are delivering in July. July closed transaction volume is up mid-single digits year-over-year with growth in both units and price. Even more exciting, July open volume is up 9%, with this future growth indicator about equally driven by increases in both units and price. Looking even farther into the future, our July advisors' listings are up significantly, over 10% compared to the prior year. Together, this paints a strong growth picture for the back half of the year that we hope continues. Q2 also saw notable geographic variation across key markets where our advisors' business is concentrated. New York City outperformed the broader portfolio, delivering double-digit growth in both units and price, and Florida, by contrast, faced a more challenging quarter with volume down double digits.

Our industry-leading luxury businesses, anchored by Sotheby's International Realty, Corcoran, and Coldwell Banker Global Luxury, continue to be a strategic growth engine, outperforming the broader market. Luxury delivered 3.5% year-over-year volume growth in the quarter and about 8% year-over-year growth in the first half, as we obviously love this higher margin, high-impact segment. We sold 369 homes priced $10 million or higher in Q2, a 20% increase from the prior year. Our luxury businesses are delivering incredibly strong growth momentum in July. For example, Sotheby's International Realty's July open volume is up 13%, and Corcoran's is up about 20%. We are also raising the bar on what's possible in luxury real estate, bringing new innovative ways to deliver value to agents, franchisees, and the consumer. Our Sotheby's Concierge Auction JV is a great example.

It provides an innovative way to match buyers and sellers of luxury properties while enabling us to capture much higher per transaction economics. The venture continues to scale with Q2 revenue up 10% and an average sales price of $5 million. Beyond our success in luxury, we're driving meaningful growth across our broader portfolio. Our high-margin franchise business welcomed 13 new U.S. franchisees and three international expansions, strategically expanding our footprint, including in key growth markets such as California, North Carolina, and Georgia. We are seeing strong momentum in our advisors' business, driven by robust agent recruiting and near-record levels of agent retention for productive agents. Our compelling value proposition, centered on delivering best-in-class products and services, great marketing, and industry-leading support, is increasingly resonating with great agents across the country.

Advisors recruited 625 productive agents in the quarter and saw 31% year-over-year growth in business recruited, with strong gains against many of our biggest competitors. We are having even greater success retaining top talent in this highly competitive market, with advisors' agent retention reaching 95%, about 95% among the top half of producing agents. This is rarefied air, right around the highest rates we've ever achieved. In our great luxury brands, our retention is even higher. Putting this all together, you can see why I'm excited about our growth potential going into the back half of the year.

In addition to growth, our other main priority is Reimagine '25, as we leverage and harness emerging technologies like generative AI to reshape how real estate works for agents, franchisees, consumers, and how we operate our company, all in the spirit of delivering better experiences faster and at lower cost, to drive growth for our great agents and franchisees, unlock efficiencies, and improve margins. Anywhere is accelerating generative AI-driven innovation across every corner of its businesses. We are delivering AI-enabled tools to help agents and consumers better sell homes, such as listing concierge. We are using AI for productive agent and franchisee recruiting, for smarter lead targeting, to use AI to generate higher quality content, and to process documents faster and at lower cost. We have pilots and at-scale examples across the whole company.

Since we last spoke, we piloted Amazon Q in our contact centers and AI-generated comparative market analysis as we continue to build proof points of our broader strategy to scale AI. Our open architecture approach lets us also deploy best-in-class third-party AI-driven products to agents through enterprise agreements like our just-announced Canva offering. The future of real estate includes a truly end-to-end integrated transaction for the consumer. This means a seamless and connected home buying and selling experience across not only real estate brokerage but across mortgage, title, home insurance, and other home services. We have all of these transaction components in our unique collection of assets and continue to innovate and succeed on this holy grail that others are chasing. In that spirit, we're increasingly delivering better experiences to consumers by introducing the right services at the right time.

This better experience of an integrated transaction also adds to our economics. Let me give you two real examples that crystallized in Q2. First, as I told you last quarter, we see the opportunity to turn buyer agreements, a perceived market risk, into an opportunity and have begun using this consumer interaction to integrate the marketing of both our title and our mortgage services. While the title pilot results are still pending, our initial mortgage pilot showed approximately 2.5 percentage points increase in mortgage capture, the biggest increase that we've seen from any past initiative to drive this higher revenue per transaction. Second, we redesigned the consumer workflow to embed our warranty offering more seamlessly into the home sale transaction. Based on pilots in multiple markets, we've seen attach rates increase by approximately 4 percentage points. With these exciting results, we plan to roll out both pilots nationally later this year.

By integrating more components of the real estate transaction, we enhance the customer journey, increase satisfaction, and generate greater per-transaction economics. This also elevates the agent's central role in the transaction, helping them build deeper, more trusted relationships with consumers. We're excited to be here in July with powerful growth momentum, AI-led Reimagine '25 transformation progress, and more proof points on our ability to integrate the transaction and generate greater per-transaction economics. With that, let me turn the call over to Charlotte.

Charlotte Simonelli (CFO)

Good morning, everyone. Anywhere delivered another strong quarter, driving solid operating EBITDA, accelerating cost efficiencies, and increasing our financial flexibility. We are continuing to build on years of disciplined operational excellence, commitment to leveraging the balance sheet, and foresight to prime the business for its next chapter of AI-enabled growth. I will now highlight our Q2 2025 financial results. Q2 revenue was $1.7 billion, up 1% versus prior year, and Q2 operating EBITDA was $133 million, a decrease of $10 million versus prior year, primarily due to higher employee benefit costs, increased investment in Reimagine initiatives, and an increase in agent commission costs in our own brokerage business. We realized $25 million in cost savings in the quarter and $39 million of cost savings year to date. We are on target to achieve $100 million in cost savings for 2025, with 95% of our savings already identified.

Q2 free cash flow was $36 million before the $41 million one-time payment made for a 1999 suspended legacy tax matter. Free cash flow was also negatively impacted by $25 million in seasonal volatility from our securitization facility. This facility historically can create working capital volatility quarter by quarter due to the seasonality of the business. Consistent with our capital allocation priorities, we opportunistically issued $500 million in new second lien debt and repurchased $345 million of our exchangeable notes at a discount. In addition, we utilized the excess proceeds to further reduce our revolver balance. As of July 28, our revolver balance was $460 million, down to $230 million from our last earnings release date. We expect to repurchase the remaining $58 million in exchangeable notes outstanding over the next six months.

I remain confident in our financial position, with no meaningful note maturities until 2029, ample revolver liquidity, and enhanced flexibility following our recent refinancing. This continues to provide the balance sheet strength to invest organically or inorganically while fortifying the business now so we can return even stronger when the housing market normalizes. Our normalized market target leverage remains three times EBITDA. Now let me provide more details about our business segment performance. Our Anywhere Brands business, which includes lease and relocation, generated $163 million in operating EBITDA. Operating EBITDA increased $4 million primarily due to strength in our Cartus relocation business. Our franchise business expanded margins in the quarter, showing improved financial leverage despite flat volume.

Our Anywhere Advisors' operating EBITDA was zero, a $4 million decrease versus prior year, driven by higher employee benefit costs, as well as commission costs, partially offset by higher revenue and cost savings initiatives. This business generated $93 million in operating EBITDA before the transfer of intercompany royalties and marketing fees paid to our franchise business. Advisors' average broker commission rate increased two basis points year-over-year, increasing revenue capture per transaction. Following last year's industry changes, we have seen changes in how and when negotiation of commission occurs, but ABCR has been sequentially stable for the last 12 months, highlighting the value that agents bring to the transaction. Q2 agent commission splits were 80.9%, up 36 basis points year-over-year.

The increase was primarily attributable to business mix with non-core items such as new development business and company-generated leads, which have lower splits on average, having a more material impact in the prior year. About one-third of the increase was because of agent mix, as our top agents continue to take a greater share of transactions. Anywhere Integrated Services' Q2 2025 operating EBITDA of $10 million was up $1 million from Q2 2024 due to higher revenue and mortgage JV earnings. We continue to enhance our operations through Reimagine '25, an ambitious multi-year transformation effort designed to set us up for greater growth and success in the future. This comprehensive program encompasses all aspects of our enterprise, and we expect it will significantly contribute to our savings targets for 2025 and beyond.

By leveraging AI-enabled technology to reduce manual processes, we aim to enhance our value proposition and unlock growth opportunities. No area of our business is out of scope for this transformation, and all our core businesses and corporate teams are engaged, finding new and innovative ways to deliver better experiences faster and at lower cost. Some of our most recent examples include leveraging generative AI to improve our brokerage document processing. Our brokerage operations team receives about 15,000 documents every day. One-third of our Coldwell Banker brokerage document submissions are now automated, with a path to 90% by the end of this year. This substantial automation not only lets us accomplish these tasks faster, but lets us operate 24/7, delivering better quality with meaningfully lower costs. Our Cartus relocation business continues to leverage transformation initiatives to enhance both revenue generation and operational performance.

These efforts have proven effective in helping secure new clients and expand current relationships to drive top-line growth. At the same time, automation and workflow improvements have significantly boosted operational efficiency, resulting in the highest quarterly margin since Q3 2022. Now turning to our 2025 estimates, we reiterate our guidance and expect operating EBITDA for the full year to be about $350 million and free cash flow, excluding one-time charges, to be about $70 million, with the biggest swing factor being the housing market itself, which is inherently volatile. Let me now turn the call back to Ryan for some closing remarks.

Ryan Schneider (CEO and President)

Thank you, Charlotte. In closing, we are using generative AI to revolutionize how this industry works. We are moving to the future of a seamless end-to-end transaction experience for the consumer, and we are winning across multiple growth sectors that build octane for the future. Most excitingly, we are seeing strong July growth momentum, increasing our optimism for the back half of the year. It's an incredibly exciting time. With that, we are happy to take your questions.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Matt Bouley with Barclays. Please go ahead. Your line is now open.

Matt Bouley (Senior Equity Research Analyst of U.S. Homebuilding and Building Products)

Hey, good morning, everyone. Thank you for taking the questions. Maybe just one around the overall housing market. I guess kind of thinking about this interplay between home prices and transaction sides, you know, Ryan, you called out a lot of geographic variation. My question is, in those markets where you may be starting to see lower home prices, is it actually starting to, on the other hand, spur some transactions? If you kind of think about the markets where you still have inventory really tight, how are you thinking about the actual unit volumes in those types of markets? Thank you.

Ryan Schneider (CEO and President)

A couple of things I'll say, Matt, thank you for the good question. First off, you know, something's happening, at least in our portfolio in July, because in July, we are seeing units up and price up. I kind of gave the numbers on our closed volume in July and our open volume in July and our open luxury volume in July. It's at least 50/50 units up and price up. In luxury, it's actually mostly units up. In July, we're seeing something happen where units seem to be having a little bit of a renaissance, which is awesome because most of the gains this year so far have been price-driven. When you look at the markets out there, there's really very few where price is actually dropping. I think sometimes how the newspapers do comparisons is a problem, but we always look at year over year.

When we look at our portfolio and you look at Q2, there were only two states where prices dropped at all. One was, or at least among the meaningfully sized ones, right? One was Florida, and the other was Colorado. In Florida, the units dropped more than the price did. It's not like price is going down and it's spurring more units. In fact, in Florida, it was mostly a unit decline with a little bit of price decline. I think there is still this dynamic out there, Matt, that demand is actually greater than supply still, even at these higher affordability levels. Almost all states we're looking at have prices still rising no matter what's happening with their units. In the few places where prices are going down, it's not spurring more units.

The other thing that's unique to us is part of the reason our Florida prices are down, bluntly, is last year we sold nine homes in the second quarter over $50 million. This year, I believe we sold one. A number of those were in Florida. Even a little bit of the Florida price drop in our book is driven by the mix, not actually same-store home prices going down. I think the talk of prices falling is a little overstated out there. It hasn't spurred units, but we have seen units in July come back, but still with some price growth. It's a weird market out there.

Matt Bouley (Senior Equity Research Analyst of U.S. Homebuilding and Building Products)

Got it. Yes, understood and great caller. Very helpful. The other question is, just obviously given everything in the background around this sort of private and exclusive listings, I guess dispute, for lack of a better term, are you seeing any, I guess, disruption out there related to that? Given your public stance on the issue, is it actually kind of, I don't know, helping with the kind of recruiting and retention here? Or just any update to sort of how that's playing out from your perspective?

Ryan Schneider (CEO and President)

I'll touch on a number of different things because I think it's an important industry topic. One is it absolutely is helping us in recruiting. We are winning this year more than we did in 2024 or 2023, not just with the overall numbers I gave you on recruiting, but against many of our direct competitors. One of the things that I think is helping us win is this kind of stance on we want to do what's best for the consumer, and that's typically getting as many people looking at your listing as you can. While we sell 6% of our listings privately, we think the vast majority of people should have a broad distribution of listings. That resonates with agents who want to do business that way, and it's helping on recruiting. There is a little bit of disruption starting to happen.

I think different policies that portals have put into place have started to bite a little bit. You can see people getting kind of worked up over that. Given our stance, it hasn't really affected us, and we believe in our stance. We rolled out in the second quarter, in June, some technology we use in our own brokerages, Matt, to all of our franchisees that lets our brokerages do private listings that they want within their brokerage, just like we do, and totally compliant with all the industry parameters and Zillow's approach, et cetera. We also have other features in that thing that let people do things like sneak peeks and wants and needs kind of at the brand level. You can share things across Better Homes and Gardens Real Estate or Coldwell Banker.

In August, we're going to be enhancing that with some more of that stuff that will let you share it across any part of the Anywhere network. Finally, embedded in that is the ability to turn on private listings if we really ever want to, if the market goes that way. I view that as more of a, if the market goes that way, we're going to be ready and make sure our people are in an advantaged position. We have made that strategic progress getting that to all of our franchisees since we talked to you last. We like both the way it's going to let us do more things on, like I said, sneak peeks and wants and needs to do more kind of things within and across brands. We think that'll be additive, just a great thing to be doing out there in the world.

We like the kind of preparation for, you know, a defensive play if the world does go more toward private listing policies that will have our whole ecosystem ready to succeed on it.

Matt Bouley (Senior Equity Research Analyst of U.S. Homebuilding and Building Products)

All right. Great call. Thanks, Ryan. Good luck, guys.

Ryan Schneider (CEO and President)

Thank you, Matt.

Operator (participant)

Your next question comes from the line of Nick McAndrew with Zelman. Please go ahead.

Nick McAndrew (Analyst)

Hey, guys. Thanks for taking my questions. Ryan, maybe just to start, I think the pilot to introduce title and mortgage at the buyer agreement stage sounds pretty promising. I'm just wondering, as mortgage capture improves, is that being driven primarily by better timing and introduction during the process, or are there also tangible cost savings for the consumer, such as, I don't know, closing cost discounts, for example, when they choose to bundle ancillaries? I'm just trying to think about kind of the potential levers.

Ryan Schneider (CEO and President)

Nick, that's a great, great question. Look, we're really excited about this, right? I mean, again, this whole buyer agreement thing was so much work last year, but let's turn it into a positive. So far, all the upside we've seen, and it's early, and we think there can be more, and we're going to test and optimize, but we so like the 2.5% increase in capture. We've never seen anything like that, that we're going to go naturally just with what we have and want to keep making it better. So far, Nick, it is 100% driven by getting to the customer early, with a good value proposition and communicating with them right at the start of their home buying journey, as opposed to waiting until they've purchased a house. We have done no discounts. We have done no lower rates.

We know there's a few people out there in the world that will say, "Hey, if you use our, you know, if you use our stuff and bundle it, we'll give you 50 basis points off your mortgage." Maybe that stuff will be in our future, but that will be upside to what we're achieving now. The real benefit is getting there to the consumer right away at the start of their home journey with mortgage. The title results will come in soon, and we're still, we're optimistic we can get benefits there, but I don't have anything to share with you yet. Even getting the insurance, we haven't done this yet with, but we're going to definitely be piloting that. I showed you that on this warranty home service, we've been able to get some of that similar effect.

So far, it's all get to the consumer, get there at the right time with a good product, get to them directly is where the benefit is, and get to them early. That's where the benefit is coming from. We haven't had to give economics away to drive these benefits yet, and that's really exciting.

Nick McAndrew (Analyst)

Yeah, that's very helpful. Thank you for the color. Charlotte, maybe just come to you. While I know there's no formal guidance on cost savings for 2026, I'm just wondering, can you speak directionally about the potential for any additional cost action? Has most of the low-hanging fruit already been addressed, or are there further actions that could occur even in an improving housing environment?

Charlotte Simonelli (CFO)

Yeah, it's a great question. I kind of nodded to it a little bit in my prepared remarks around that Reimagine should deliver meaningful cost savings this year and beyond. As per typical, starting in Q3 or at the year-end release, I will give more specific guidance. There is still meaningful cost opportunity from my perspective. If you look back five years ago, that was the low-hanging fruit. This is more about transforming our business and using AI and things that were not as widely used five years ago to make this place like super bulletproof when the market does come back, that we won't be adding back cost in the same way to support much higher volume and transactions. I think there's a lot left to be done. I'm excited to be able to share a number with you later this year.

It will be meaningful like it has been. I think on average, in the six years I've been sitting in this seat, give or take, it's been about $100 million, and that's meaningful. I do believe there's more meaningful cost to go get. More to follow on specific numbers, but it really should be the transformative step. The low-hanging fruit is probably gone a long time ago, and this is just sort of right-sizing the business and automating what we can for better experiences as well as lower cost.

Ryan Schneider (CEO and President)

Yeah, Nick, if I can just build on that because you triggered me with the low-hanging fruit. I mean, as Charlotte said, the low-hanging fruit is gone, right? That's been done. Good stuff. The exciting thing, and I'm going to talk about this on stage at an industry conference in 48 hours, is just how every day some of the advances of like Gen AI are creating new cost efficiency opportunities. They're also creating new speed opportunities and new better experience opportunities. Even like the brokerage document processing example Charlotte gave, that wasn't technically possible three years ago. You just couldn't do it. Now it's doable. It's not only more efficient, but it runs 24/7. I'm trying to shift everybody's mindset to it's not about like low-hanging fruit and how high you can get on the tree anymore.

It's literally just the new opportunities that are getting created that touch efficiency, that touch speed, that touch the experience. They're coming at all of us pretty fast. It's true for every industry. Being a leader in using that kind of thing like generative AI to do those things has these awesome benefits, including letting us continue, even if we label it a cost program, to kind of drive changes to our margins and the bottom line, but also all those other speed and experience things. It's really exciting that it's opening up just areas that three years ago you could have never thought about for a cost program or the kind of economic changes.

Nick McAndrew (Analyst)

Yeah, that makes a lot of sense. Thanks, guys.

Ryan Schneider (CEO and President)

Thank you, Nick.

Operator (participant)

Your next question comes from the line of Tommy McJoynt with KBW, and that would be your last question for tonight. Please go ahead.

Tommy McJoynt (Director of Equity Research)

Hey, good morning, guys. Can you help us out with how we should think about modeling the brokerage commission split just as we contemplate a gradual reversion to a more normal, what we'll call a $5 million existing home sale market? We understand there are inputs of mix by top-performing agents and agents moving up commission ladders and the impact of new business development. Is there any way to rank order or even provide some magnitudes to help us quantify these factors?

Charlotte Simonelli (CFO)

Yeah, I think the best thing I can point you to is all the prepared remarks I've had over the past few years. Agent mix started and was really pronounced during COVID, as far back as 2020. You would think at some point you're lapping it and that it kind of goes away, but it really hasn't gone away. The theory is that it does improve as there are more transactions to be shared. I think that remains to be seen. I think the agent mix thing is probably the biggest contributor over time, but also has the possibility of more normalizing if it's sort of five, five and a half, or six million units again. As far as new business development, on average, that's sort of flattish on a full-year basis.

It gives us some noise quarter by quarter, but I don't think you should expect that to be a big benefit or hurt on an annual basis going forward. I think that's just seasonal and quarterly variations. As far as the split tables, not all agents are on a table. In fact, it's like half-ish. It kind of works in concert with agent mix because usually the highest producing agents are not on a table. They're on a fixed rate. If they're getting more of the transactions, you're also not going to see the uptick from what's implied in a table. I think I'd look at agent mix first. The table thing, yeah, sure, it's going to have a little bit of an impact, but it's just not all the agents are on a table.

Tommy McJoynt (Director of Equity Research)

Okay, great. That's a helpful caller. Switching over just to housekeeping, the corporate operating EBITDA was down quite a bit year over year. What caused that in the second quarter? When we think about a good run rate to assume for that corporate segment going forward, what would you use, or if you have a full-year expectation, that could help too.

Charlotte Simonelli (CFO)

On a full-year basis, the corporate costs really do tend to stay about the same. There's only some variation, and that usually is driven by bonus timing and benefits, whereas we haven't spread it out to the business units. There was an impact in the second quarter from some charges that remained at corporate that will probably be allocated out to the business units in the future. It's largely driven by bonus and by benefits. As far as on a full-year basis, the corporate costs have actually kind of stayed flattish. Cost savings are helping to offset inflation, but there was a little bit of a more pronounced impact in the second quarter of things that resided in corporate.

Tommy McJoynt (Director of Equity Research)

Is there anything in 2025 that's happening now that I guess we should think about backing out as we think about what the 2026 kind of run rate should be and beyond?

Charlotte Simonelli (CFO)

The biggest challenge, and I called it out in the script, it's kind of unusual, but we're not the only company facing it, is materially higher employee benefit costs. What we're seeing, and I think other companies are seeing, is that there's more usage. It's a bit of a price implication, but it's also usage. More people are going to the doctor than they have in the past, and it's actually material. It's material in our first half results, which is why I called it out. That's the only, so what, that I'm not sure about for next year. If this continues, you would see that flow through into 2026. Obviously, on an annual basis, you make decisions about your benefit plans. We're about to go through that process before we launch people renewing their benefit programs and things like that in the fall.

That's the single biggest factor that could potentially move into 2026 with us.

Tommy McJoynt (Director of Equity Research)

Got it. Thanks, Charlotte.

Operator (participant)

That concludes our Q&A session. Ladies and gentlemen, thank you all for joining. You may now disconnect, everyone. Have a great day.