Alicia Swift - Senior Vice President Richard Smith - Chairman, President and CEO Tony Hull - Chief Financial Officer.

Eli Hackel - Goldman Sachs David Ridley-Lane - Bank of America Mike Dahl - Credit Suisse Adam Rudiger - Wells Fargo Brandon Dobell - William Blair Tony Paolone - JPMorgan Will Randow - Citigroup Robert Rutschow - CLSA.

Good morning. And welcome to the Realogy Holdings Corporation Second Quarter 2014 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 later today.

A webcast replay will also be made available on the company's website until August 18th. At this time, I would like to turn the conference over to Realogy’s Senior Vice President, Alicia Swift. Please go ahead, Alicia..

Thank you, Rachel. Good morning. And welcome to Realogy's second quarter 2014 earnings conference call. On the call with me today are Realogy's Chairman, CEO and President, Richard Smith; and Chief Financial Officer, Tony Hull.

As shown on slide three of the presentation, the will be making statements about its future results and other forward-looking statements during the call. These statements are based on current expectations and current economic environment.

Forward-looking statements and projections are inherently subject to significant economic, competitive and other uncertainties and contingencies, many of which are beyond the control of management. Actual results may differ materially from those expressed or implied in the forward-looking statements.

For those who listen to the rebroadcast of this presentation, we remind you that the remarks are made herein as of today, August 4th and have not been updated subsequent to the initial earnings call.

Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release issued today, as well as in our annual and quarterly SEC filings.

Also certain non-GAAP financial measures will be discussed on this call and these measures are defined and reconciled to their most comparable GAAP measure in our press release. Now I will turn the call over to Chairman, CEO and President, Richard Smith..

Thank you, Alicia, and good morning, everyone. We are please with our results for the second quarter as we continue to execute on our strategic initiatives intended to drive market outperformance and improve customer engagement, while generating strong cash flows and deleveraging.

In that regard, we see an exceptional opportunity to drive growth in our brokerage operations and undertake a significant technology upgrade to our recently announced agreement to acquire ZipRealty which we will discuss in a moment. First, let’s discuss the second quarter, as well as current housing market trends.

You will recall that our previous guidance for the second quarter transaction volume was a range of down 2% to plus 2% compared to the prior year's results, which was based on our open contracts of the time of our first quarter call coupled with the broader market insight at the time.

We are pleased to report that the second quarter improved after we gave guidance and as shown slide four, we outperformed those expectations by achieving homesale transaction volume of plus 3% for the quarter on a combined basis between our company-owned brokerage and our franchise business segments.

While price was a principal reason for the overall increase better than expected size comparisons also drove the better than expected performance. As previously discussed, we expect that our third quarter 2014 comparisons will be difficult given a very strong performance of the third quarter of 2013.

However, the trendline for homesale transaction volume to the balance of this year appears to be more positive than we had previously anticipated. On slide five for the third quarter in particular we're expecting volume again to be down 2% to plus 2% relative the same period in 2013 for RFG and NRT on a combined basis.

Our free cash flow for the quarter was strong, a trend we fully expect to continue through year end.

We expect to be well-positioned to call the remaining 77-H debt in early 2015, which currently about $330 million, contributing to our goal of reaching a ratio of three times net debt to adjusted while simultaneously strengthening our growth trajectory through the strategic deployment of capital.

Our business unit performed well given the current market conditions. Turning to slide six, year-to-date franchise sales are up 27% over the same period for 2013 and we're on track to achieve our sales target of $300 million of new gross commission income or GCI for the year.

And our team made four tuck-in acquisitions in the quarter, totaling $5 million in GCI and we currently have one of the strongest pipelines of prospective brokerage acquisitions that we have seen in the recent past. These are higher quality small to medium-sized highly accretive tuck-in acquisition prospects.

As we have discussed previously, NRT acquisitions accrue not only to the benefit of NRT but to RFG and TRG our title operations, as well as our mortgage joint venture.

NRT's technology initiatives, which were discussed during our Investor Day presentation in May are progressing nicely, major portions of which we expect will be operational during the fourth quarter of this year. These efforts will continue in addition to the initiatives we expect once we closed the ZipRealty acquisition.

NRT has an extremely strong track record of sales associate retention over the past 10 years and for the first half of 2014, NRT management retained well over 90% with top producing sales associates. Cartus continues to grow its global reach, expand its client services and retool its expense base in a challenging world-wide relocation market.

On slide seven, Cartus signed 38 new clients, expanded the scope of relocation-related services with 113 of its existing clients and continued to see growth in its affinity business.

The strategic alliance Cartus entered into with Learnship, an exciting new digitized language training platform has been well-received by Cartus clients and we are optimistic as to its growth prospects.

Also in the quarter, TRG launched Title!Snap an innovative agent-centric mobile app that provides instant and accurate closing cost estimates that empowers NRT’s sales associates to help their customers gauge the true closing costs for any given property.

The power of this instant information should help NRT’s sales associates close more deals which benefit NRT, as well as our Title business at TRG. Of course, the most exciting recent news is our planned acquisitions of ZipRealty, which is expected to close during the third quarter.

As shown on slide eight, the ZipRealty is a great fit for our business on two fronts.

The addition of Zips’ residential brokerage operations and approximately 1,800 sales associates across the United States into the NRT brokerage operations and an integrated leading-edge real estate technology platform that Realogy intends to leverage across all of our franchise brands and company-owned offices.

Technology is becoming increasingly important to our franchise value proposition.

We fully expect that this acquisition will strengthen the competitive advantages of the Realogy brands by ensuring they are equipped with the productivity platform that will not only drive more customers to their affiliated brokers and sales associates but that will provide consumers with more personalized service to strengthen relationships and convert more leads to homesales.

We are excited about this new strategic initiative and look forward to providing advanced productivity tools to our franchisees and sales associates. Now taking a broader look at the housing markets, slide nine shows existing home inventory levels by month from 2010 through June 2014.

Focusing on the green 2014 line, you can see the inventory levels were at 2.3 million units in June, which is up 22% from 1.9 million units in January. Although, inventory is improving at a slower pace than we would like to see, it is nevertheless improving.

Slide 10 provides a summary of NAR and Fannie Mae’s 2014 and 2015 full year existing homesale units and median price forecasts. NAR is forecasting an overall decline of 3% in units for full year 2014. Fannie Mae is forecasting a similar movement in units.

These forecasts are based on a seasonally adjusted annualized rate of approximately 4.7 million units in the first half of the year and forecasts an increase to an annualized rate of about 5 million units for the back half of the year, expected back half strengthening is an encouraging trend that supports the 2015 forecasts from NAR and Fannie Mae, indicating a low teens increase in overall transaction volume due to both existing homesale units and median price gains.

We believe the combination of still low mortgage interest rates, improving home inventory and unit sale trends and improving job market and relatively high homeownership affordability all bode well for the continuation of the housing recovery.

In summary, we believe we have executed very well year-to-date despite the challenging economic backdrop and look forward to the exciting opportunities that lie here. With that, I'll turn the call over to Tony, our CFO.

Tony?.

Thank you. Turning to slides 11, let me make some comments about second quarter results. Revenue of $1.5 billion was down 1%, compared to the second quarter of 2013, driven by lower refinance volume of TRG and adjusted EBITDA was $269 million down 3%.

Although, transaction volume increased at RFG and NRT, it was not sufficient to offset approximately $11 million of lower EBIDTA that resulted from reduced mortgage refinancing activity at PHH home loans and TRG relative to the same period in 2013. The company generated $198 million of free cash flow during the quarter or $1.36 per share.

Next, I will discuss key revenue drivers for the quarter shown on slide 12. RFG homesale sides decreased 3% year-over-year in the second quarter 2014 and average homesale price increased 7%. NRT homesale sides decreased 5% year-over-year compared to 2013 and its average homesale price improved 7%.

Average broker commission rate decreased 2 basis points for RFG and NRT in the quarter, primarily due to the strong increase in average homesale prices we have experienced over the past several quarters. The price gains at both RFG and NRT reflect the continue strength of sales of mid-to-high priced homes in the second quarter.

Homes with price points above $750,000 represented 24% of the homesale volume at RFG, up from 22% in the prior year period. At NRT, those homes represented 52% of homesale volume, up from 48% in the prior year. Conversely, low inventory and difficult credit underwriting standards continue to negatively affect sales of lower-priced homes.

Across RFG, the volume of homesales at price points under $300,000 in Q2 of 2014 decreased to 43% of total homesale volume that was 46% in the previous year. Turning to other key drivers, RFG’s net effective royalty rate was 4.47% year-to-date, which was driven by a larger affiliates continuing to achieve higher volume levels.

We continue to expect that the net effective royalty rate will be approximately 4.5% for the year which is flat to last year. The NRT commission split was 68.3% year-to-date, an increase of 30 basis points compared to the first half of 2013.

Splits increased year-over-year as the high end of NRT's markets continue to strengthen, which resulted in a greater percentage of revenue being generated by the top quartile of its sales associates. On a full-year basis, we are managing this metric to be relatively flat year-over-year.

The third quarter of 2013 was especially strong as RFG and NRT combined experience exceptional year-over-year transaction volume growth of 29%. This makes Q3 2014 comparisons challenging.

Accordingly, as indicated on slide 13, we expect our overall third quarter homesale transaction volume to be in the range of minus 2% to plus 2% compared to the same period in 2013 for both RFG and NRT.

This guidance is comprised of an expected transaction sides decline of between 4% and 6% year-over-year offset by an expected increase in average sales price of 4% to 6%. Now, let’s look at revenue and EBITDA for the second quarter 2014 as shown on slide 14.

While NRT and RFG revenue is flat to modestly up, TRG revenue declined 17% year-over-year due to a 72% decrease in refinance units. As a result, Realogy's overall revenue declined 1%.

Adjusted EBITDA declined $9 million to $269 million due to an $8 million decrease in our mortgage joint venture earnings, as well as $3 million decrease in TRG EBITDA, both primarily related to lower refinancing activity and partially offset by improved EBITDA due to higher homesale transaction volume as well as lower employee-related costs.

Slide 15 highlights book interest expense for the second quarter of 2014 compared to the same period last year, and year-to-date, corporate cash interest expense in 2014 compared to the first half of 2013.

Book interest expense increased in the quarter compared to last year primarily due to the impact of mark-to-market adjustments for interest rate swaps. While this impact is non-cash in nature, in the second quarter it adversely impacted book interest expense by about $14 million.

Looking over a longer period for the six months ended June 30, 2014, cash interest expense was $52 million lower than the same period of the previous year. And we continue to estimate that corporate cash interest would be approximately $230 million for full year 2014. Slide 16 provides additional cash flow guidance for 2014.

One other item of note, on the income statement is the GAAP tax increased to $51 million in the second quarter compared to $9 million in the previous year period.

Subsequent to the release of our full valuation allowance in 2013, quarterly tax expense is computed by applying our estimated annual effective tax rate of 41% to pretax earnings, with adjustments for discrete items such as early extinguishment of debt.

Last year, we've not yet reversed our valuation allowance and under GAAP requirements did not apply our effective tax rate. As shown on slide 16, cash taxes are expected to total $15 million to $20 million this year. In closing, we are pleased with our performance in the second quarter despite a challenging housing market so far this year.

As shown on slide 17, while 2014 has not shown the dramatic growth that we recorded in 2012 and 2013, we have seen an improvement in the monthly seasonally adjusted annual rate of homesales over the past several months. Based on this upward trend, we are optimistic about the outlook for the balance of 2014.

Slide 18 shows 2015 existing homesale units and medium price forecast from various industry sources. As you can see, the indicator range of 7% to 12% for transaction volume growth in 2015.

In 2014, our free cash flow generation remained strong and we intend to use free cash flow to continue to deleverage the company and pursue growth opportunities to further enhance shareholder value. With that, I'll turn it over to the operator who will open up the call for Q&A..

(Operator Instructions) Your first question is from the line of Eli Hackel, Goldman Sachs..

Thanks. Good morning.

Could you just talk a little bit about the rate at which agents are now coming back into the industry now, several years into the recovery and maybe how that’s changed over the past 12 month or so and if there is different trends in RFG or in NRT?.

Eli, it’s Richard. I think you’ve seen an increase in licensed stages as you would expect as the market starts to recover. I think what’s most important to us is that productive agents are coming back into the industry, I think, what we report above 4% or so in headcount. So it’s a continuing trend.

So you’re seeing more productive agents coming back into the market. But it’s not happening as strongly as one might think. That will occur as housing is stronger. So you’re right, its trend is up. We like what we see so far and it bodes well for the industry..

Great. And then just one, second one, Richard, maybe you could just comment on the lending standards and credit. I mean, do you hear anecdotes about things maybe getting a little easier. It’s hard to see concrete funds.

What’s your view on where things are from a credit standard perspective and what’s your outlook over the next 12 months or so? Thank you..

Thank you, Eli. None of our forecast are based on the credit box expanding although we thought that based on Mel Watt’s previous statements about expanding the credit boxes would've shown up by now, it hasn’t. We think that is still the intent to lessen some of the difficulty in underwriting but we’ve seen no evidence of that so far.

So the overlays have been stripped away. So lenders are not as cautious, let us, say have been in some areas but they are still very cautious. So that’s just an opportunity in the horizon when credit becomes more realistic and reasonable. So news at 11 as they go but unfortunately..

Great. Thanks very much..

Your next question is from the line of David Ridley-Lane, Bank of America..

Sure.

One for Tony, last quarter you gave some details on the guidance between RFG and NRT and wanted to see if either segment had a bias towards either the higher or lower end of the range in third quarter?.

No, they are both in minus 2 to plus 2 range for this quarter. You are right though last quarter, NRT was obviously on lower end but this quarter, they are both right in line with each other..

Okay, and then one story that U.S. housing market is the clearing of distressed and NAR data suggest distressed sales were down something like 24% in the second quarter, with non-distressed only down slightly.

Which Realogy’s relative market share among distressed and non-distressed homesales and do you see this as a source of potential outperformance in the back half of ‘14?.

Traditionally we haven't been -- our share of the distressed has not been equal to what we've seen at NAR, just looking anecdotally at NRT and RFG. So we’ve been -- we’re more of a retail shop. So our fortunes really go up or down by what's happening on the retail side.

Obviously, we had a foreclosure shop, asset management shop at NRT that during the downturn had significant number of assets that are managed and obviously the earnings from that are down pretty significantly because of less activity. But other than that, I’d say we generally play less in that market than the market in general..

Okay. And if I could squeeze in one more. Since you’ve seen the transaction volume trend line a bit better than expected, would you be more inclined to think that the adjusted EBITDA margin decline of 59 basis points would be a little bit just better than midpoint? Thank you very much..

I’m sure. The range is still the same as we gave on Investor Day. I think obviously to the extent the market is better than expected. You’d expect us to do a little better but -- and that’s before, obviously, you factor in the Zip transaction to the equation. But we definitely still are in the range that we gave on Investor Day..

Thanks very much..

Your next question is from the line of Mike Dahl, Credit Suisse..

Hi. Thanks. My first question is just on the overall sales environment -- talked about some of the improvement and expectations for improvement in back half.

Wondering if you could characterize, how much of it you think is really being driven by some of the inventory coming back on to the market and allowing for some of the pent-up demand, perhaps to come through versus a more meaningful, positive shift in buyer sentiment?.

It is combination of both, obviously. The inventory levels have improved. It’s not just that inventory levels have improved but it sellable inventory. We still have stale inventory out there that’s not priced right. It is distressed or it’s in bad condition and just not as attractive as it might be otherwise to a retail buyer.

But we see that improving, so we see better inventory coming into market. It’s not as strong as we’d prefer but nevertheless as we indicated in our comments, it’s improving. So that’s a good sign. So that plus, I think, people opportunistically taking advantage of still very attractive home affordability.

So you’ve got good pricing in markets, still have very low interest rates. And you have more people coming back into the market when all those things add up to a buyer’s market. So it’s encouraging. And I think the inventory levels that we have set since the early part of this year are necessary to see a more robust housing recovery..

Okay. Thanks. And then second question, Tony, the comments around expectations for agent commission splits to still be flat for the full year. I guess, that implies that the back half would have to be down from what you just saw in 2Q. And I know you’ve had a number of initiatives to try to stabilize that, hasn’t seemed to have really shown through yet.

So just -- what are you seeing to give you that confidence that you’ll be down in the back half?.

Well, again the 700 managers at our offices are part -- a fairly significant part of their conversation is based on managing agent splits. So we think that that’s a process that continues during the year. In Q2, we had a very large increase in the number of over $1 million homes that we sold and those mostly go to the first quartile agent.

So we don’t think that’s going to continue for the rest of the year. And then finally as we start to see -- as you start to see to the extent when the Zip deal closes, those agents operate at lower margin. So that should take some lower splits. So that should take some pressure off splits as well for the remainder of the year..

Got it. Thank you..

Your next question is from the line of Adam Rudiger, Wells Fargo..

Hi. Thank you.

I was wondering if you could talk about ZipRealty, how, if that all, that opportunity you think has changed? And how you view it since the announce Trulia Zillow deal, if at all and also maybe in there, just could you offer your comments on that transaction?.

Sure. This is Richard. The ZipRealty acquisition has very little to do with Trulia and Zillow. Remember Trulia and Zillow are current marketing channels for us and they do that quite well. And we expect that that will continue.

And we’ll see when they close the transaction but we fully expect that we’ll enjoy the benefit of soon being their largest customer, so that relationship should continue. The ZipRealty is distinctly different.

This is back office and consumer facing technology that will substantially improve the productivity and efficiency of our franchise companies as well as our company-owned operations. So this is really the nuts and bolts of technology and the impact on the business.

So one that generate more leads and make us more productive, increase the flow through to EBITDA, so convert more leads to homesales. It's one of those overlooked assets within our industry. We saw it for what it is. It’s very meaningful to us. It’s been having a fairly substantial impact on the success of our franchisees and our value proposition.

So we’re excited about it, but there are distinctly different issues, one not having a lot to do with the other..

The other thing I’d add is since the announcement we've gotten feedback from our franchisees from potential independents who are looking to franchise, as well as our agents. And I think the reaction has been universally positive. I think in age where there are going to be more -- leads from internet are still fairly small part of sourcing.

But to the extent that’s growing, having a platform that allows us to capitalize on leads better and our franchisees to capitalize on leads better is obviously going to benefit us tremendously..

Okay. Thank you. And then in last quarter, I think it was -- there was appeared to be a pretty noticeable change, I think, Richard and perhaps the whole company’s or your sentiment. Harder for me to pick up where you are this quarter.

How would you characterize your outlook and sentiment this quarter versus three months ago?.

Well, let me take a start and then Richard can. I think three months ago, we were looking at the NAR forecast and the Fannie forecast and they were all forecasting that the back half of the year would be at a seasonally adjusted annual rate of unit sales of well over 5 million like. And then I think, their forecast is 5.2 million.

We were cautious whether or not that could occur, but clearly what’s given what we've seen in the monthly SAR numbers since then as which basically was at 5 million in June. We’re encouraged that we could be at a plus 5 million unit number in the back half.

And obviously, its taken about a year for consumers to digest the higher rates we saw in the third quarter of last year and I think that's they’re digesting that and getting used to that. So I think that's all driving a better SAR number and that's really what encourages us for the balance of the year..

This is Richard. So the third quarter of last year was very strong, that we're even close to performing year-over-year, quarter-over-quarter is a strong indication as to the continuing recovery in housing. So it’s not as robust as we would like to see.

I think all of us would like to see something much, much stronger but nevertheless I think, the year-over-year comparisons are tough that we’re performing that well. I think is another leading indicator that the recovery is currently slower than we had anticipated. So we feel pretty good about that part of our forecast..

Great. Thanks for taking my questions..

Your next question is from the line of Brandon Dobell, William Blair..

Thanks. Maybe in light of the Zip transaction.

How do guys think about spending on technology across the different segments? I guess, in the back half of this year in 2015 versus where you thought or how you thought about technology spending as you opened the year this year?.

There could be some offsets. Some of the technology that we will have the good fortune of having post closing at the acquisition will be. I think possible offsets for some of our current spending. But I don’t see dramatic changes in that as our CapEx spending is pretty low to begin with. So it’s going to be complementary to that.

But over time, we clearly will see synergies as we’re contemplating moving more and more of the technology production to ZipRealty, which is probably something that has a lot of opportunity for us. Again there maybe some offset but I don’t think it’s going to be substantial..

Okay.

And as we think about second half of the year, within TRG given the fall-off in refinance volumes, how do we think about profitability, maybe second half versus first half? And has there been any effort to strip the cost structure down or resize that business just given the refi volumes?.

Well, I’m pretty happy with the fact that their refi volumes were down 72% in the second quarter and because of all the actions they took on cost cutting that their EBITDA was only $3 million. I think that’s a pretty impressive feed for TRG management to have accomplished.

Fortunately, their refi volume has stabilized over the last -- the amount of -- sort of opens they have in their pipeline has stabilized. And I think, we’ll see much less of an impact in Q3 and in Q4 where refis were down significantly last year. We should start to see some positive comps.

So I think their cost cutting is behind them and they’ve done an admirable job on that to align themselves with the current market..

Okay..

This is Richard. I have nothing to add to that. They do remarkable job of cutting cost ahead of the curve. So they’re obviously execute against that continuing plan and quite well..

Okay. Great. Thanks..

Yes sir..

Your next question is from the line of Tony Paolone with JPMorgan..

Thanks. Good morning..

Hey, Tony..

Hi.

Just first thing I want to clarify in your 3Q volume guidance, is there any impact from -- is it we are okay in that number?.

No. And you shouldn’t. On a company-wide basis it won’t -- you won’t see a big impact in Q3 and we won’t own it until earliest sort of middle August..

Okay.

So any sides and price from their system, it does have just wrong show or?.

I think, it will be -- it will show but it will be, it won’t move the needle that much, although, on an overall basis. You probably see a little, if you see it all, you will see in what NRT than RFG, obviously..

Okay.

And then, in the first quarter, I think, the Realogy System outperformed NAR by like a 1000 basis points in the second quarter? It seems like about 400? Just, how do you guys think through that or how do you breakdown where you are beating and what’s driving that and how should we think about that going into the rest of the year?.

Well, as we have already said the first quarter given -- due to very low volume. It’s tough to drive a lot of conclusions. The bottom-line is in the second quarter, RGF beat NOR by 2 points on sides and I think that’s what we have sort of set our expectations are in terms with franchise sales and agent growth and that sort of thing.

We would expect RFG to outperform NAR by 2 points on sides and on price we beat them by 4 points. I think that's a continue testament to the impact of the Sotheby’s growing significantly in the overall franchise group but their average price reflecting itself in RFG’s result.

So, again, we are very pleased that, obviously, outperformed them pretty significantly in the quarter..

Okay.

And then in NRT, if I just look at the OpEx, if revenue base were came in pretty much where it was last year in this quarter and if you just take PHH out, it just looks like despite the acquisitions and probably, some inflation through some of the cost structure, you guys were able to keep that pretty flattish? Any initiatives there or anything we should read into how that's working?.

I think, you saw -- we saw that $3 million EBITDA come into NRT from our two large acquisitions, the Martha Turner and Frank Howard Allen acquisitions, and then as we have talked about in Investor Day, there was $2 million of incremental royalties are achieved from these acquisitions.

So, overall, those acquisitions delivered $5 million to the quarter. So, obviously, they are working well and we have had to have the incremental -- we had about $6 million of incremental costs related to those acquisitions. But even with that incremental cost, the EBITDA was favorable from those deals.

So the only other thing is just, the -- you are going to see the employee-related cost not only at NRT, but at all the business units and corporate are down year-over-year because last year we were over-achieving on bonus accrual and this year we are under 100%. So that’s, obviously, works in our favor in all business units.

So maybe that’s the item you are looking at..

Okay. Got it.

And then, just on the tuck-in transactions, you mentioned that pipeline was fairly sizable, any ability to put some dollar amount around, just nagging to the spend there over the balance of the year?.

I think, when Richard mentioned the pipeline, I think, he means million dollar deals and $5 million deals.

There is probably maybe one or two that are sort of up the magnitude of Martha Turner or Frank Howard Allen for the remainder of the year and who knows of those will come to fruition, but it’s -- I don’t think it’s a big number and obviously, the ROI on this is very attractive to the company as a whole. So, we’ll keep pushing to get them..

Tony, what’s interesting, given our footprint and our ability to acquire the small tuck-in acquisitions and take all the costs out of the acquired entity, it’s unique to us, given our footprint. So we -- and this is in our wheelhouse, we do it quite well, but Tony, is right, vast majority are small tuck-in acquisitions.

We have a few outliers that could develop during the year, news at 11 on that, but it’s very much in keeping with a strategy that we have deployed for long time and that this very attractive small-to-medium size tuck-in acquisitions and it’s continued on the same pace that you probably would have seen last year..

Okay.

And then, real quick, last question for you, Richard, on the Zillow Trulia tie-up, a lot of what I have read seems to be their pitching of what it’s going to do for agents and the ability of agents to really market themselves through to the site? Do you think there is any long ran implications on what that does, what sort of the agent affiliation, does that change, how the agent wants to work with their brands at all do you think or any thoughts there?.

No. Not at all. We don’t, we think it’s nothing more than what has been stated. It’s an improved media channel, the combination of the two should be attractive to agents and brokers as they become more efficient with their spend and they generate more leads online.

Remember at the end of the day, this continues to be not the most robust production of housing-related leads. The lead generation coming off the web hasn’t materially changed since 2005. So, I think, the combination of the two may improve that a little bit but it’s off a very low base to begin with.

So I see it as a productivity tool like so many other productivity tools that doesn’t change the agent’s affinity for the brand. The tools everything we represent to not only the broker which is the more important consideration but also to the agents.

So, we have been doing this for a long time, we know how to do it well and an improved media channel doesn’t change that value proposition at all..

Great. Thank you, guys..

Yeah..

Your next question is from the line of Stephen Kim, Barclays..

Hey, guys. It’s John filling in for Steve.

Just really quick on regional trends, were trends in the weather impacted area stronger this quarter, like did you see a snapback or is it more in line just across the board trends in the second quarter?.

It’s interesting that whether it’s weather-related or not for both our RFG and NRT the Northwest is our weakest region this year. And also interestingly specially given the report that came out at our new homes, our strongest region is the south for both NRT and RFG. Besides in the south where the both were basically flat to down a point or 2.

Price was up 7% and 9% in the south. So the south is our strongest region of our four regions. And again, the northeast we saw basically volume sides plus price was down 2% to 3% for both RFG and NRT. And then the west and the mid-west were on the stronger side but not as strong as the south.

So just interesting that whatever the weather impact was in the northeast anyway seems to be had continued into the second quarter..

And just following on that, splits came in a bit higher than we were expecting and given the relatively lower commission split rate in the Northeast? How much do you think that is impacting your splits on the year-over-year basis, just a regional mix? Do you have anything to add there?.

Yeah. I mean, I don’t have the specific number but it definitely put pressure. I mean, the biggest thing that drove, as I mentioned earlier in the call, the biggest thing that drove pressure on split was that the NRT sale upon a million or above increased 6%, a lot of those are done by first quarter by agents.

So that's going to put pressure on splits, whereas 300,000 and below the volume was down 8%. So this first-time buyer thing is really resonating in that split number. So as that market continues to rebound, even if it’s very slowly rebounding that should help split overall..

And if I could sneak one more in for, Richard, Richard upon Mel Watt's confirmation, as you look there was a lot of excitement coming out of DC just given the strength of the rhetoric he used in the speech, since then it seems like his actions really haven’t been as combinative as you would thought? What is your latest view on housing policy and DC?.

It’s great question. We agree that Mel Watt’s comment has to opening the credit box, expanding the credit box. His comments were very encouraging, very pro-housing. I think he continues to be very pro-housing and would like very much to move this along, I think he is feeling his way through the process.

I do expected that this will evently occur, I mean, QRM as an example, still undefined, the 25% down payments, some of the creditor overlay is still undecided. So the good news is, we know they have a desire to expand the credit box, it just like so much in government it is timing.

So, I, they have not change the intent, but execution is some slower than we would like. So I think this bodes well for the balance of this year probably early part of next year. I don’t see anything materially happening in the third quarter.

I think if they expand the credit box and take some of the initiatives that are necessary to do that, it will be later this year or early next year. But the good news is, they haven’t change their policy or the thoughts, they are just slow in execution. To Tony’s point….

Got it..

… if the sooner they can do that the sooner we can change the first-time buyer mix of business. Yes, as you know, FHA Financing is very tough..

Yes..

… first-time buyers are paying more than they would have otherwise in a less stringent credit environment. So, when the first-time buyer comes back into market in big way that’s upside to the industry which eventually will occur just slower than we thought..

Thanks, guys.

Yeah..

Your next question is from the line of Will Randow, Citigroup..

Hey. Good morning and thanks for taking my question..

Hey, Will..

In regards to your, could you talk about your progress with NRT's website launch this year, including the progress in bringing on competitor listings on the full IDX website?.

Yeah. Sure. And we covered that on Investor Day and indicated towards this year that would be operational, remember its consumer facing website, generic URL. It’s not intended -- I will make this point as we did on Investor Day. It’s not intended to compete against the big portals like Zillow or Trulia.

Has a very different to approach the markets, very smart, I think, its very strategic and we will have it operational before the close of the yeas. So we encourage by the result thus far and we will see how well it produces.

The expected incremental gain in leads and as to the IDX such, as you know, IDX is fairly common in our industry, we don’t see any problem there at all. So we are on track..

Great. Thanks for that.

And then just as a follow-up, in terms of opportunities for cash flow deployment? As you guys get closer to that free time net debt to EBITDA, call it line in the sand? Have you think about the risk award of repurchasing stock once you get the notes out of the way that have the restricted payments basket on them?.

Will, we have said in a very beginning, the Board and the company have every intention of finding ways to continue to create value for shareholders.

So when that time comes, I am sure the Board will very much appreciate the optionally of doing a variety of different things to increase shareholder value, which buying back shares and dividend, buying companies like ZipRealty, which were very accretive to share price. So good news is, we have a lot of option.

So nothing will be discounted and in fact would be one of the options that would be considered by the Board at the appropriate time..

Thanks again, and congrats..

Thanks..

Your next question is from line of Robert Rutschow, CLSA..

Hey good morning A couple questions. First on the royalty rate, could you just give us some of the ins and outs on why that declined year-over-year.

And any thoughts on what we should look for going forward?.

Yeah actually the -- you're saying commission rate or royalty rate, I’m sorry..

The royalty rate..

The royalty rate. The royalty rate, again we expect it to be about 4.50% for the year and in the second quarter, our top 250 franchisees did 62% of the business versus 61% of the business last year.

So that puts some pressure on it but obviously we’re very happy that we outperformed NAR on price insights and our EBITDA is higher because they're performing even after giving them a slightly larger piece of the royalty fees. So, it’s a net positive obviously for the company.

But I think combination of the higher end doing more and them just being very successful in their initiatives -- franchisees being very successful is again putting a little, a point or two pressure on the net effective royalty rate. Nothing -- it’s very -- it seems very stabilize to us at this point..

Okay.

Just so I understand, it looks like you are calling for it to improve in the second half of the year, is that the way we should take guidance?.

Yeah, we expect it to be about flat for the year till last year. Last year, it was 449, so plus or minus point, we think it will be flat..

Okay and then just a quick question on Cartus. It looks like pricing there -- obviously there is price of seasonality. Maybe down a little bit year-over-year.

Can you just give us any color on sort of what drives that pricing trend?.

I think it’s more of -- Cartus’ experience is more reflective of corporate America’s interest and relocating employees, which as we indicated as a challenging environment as corporations try to figure out how to save money and not move employees.

That said we continue to attract very high-profile clients and we’re signing them and keeping with our historical track record of success versus losses. And we continue to expand the services we are provided -- that we are providing to our existing client base.

So it is a tough relocation environment but that reflects corporate America’s view of the macroeconomic. So we don’t see any material change in pricing up or down. We just think it’s a very competitive market. We have to continue to takeout costs in the business which we’re doing so that we come be more competitive than we are now.

And we've indicated that’s a two or three-year process of repositioning cost structure of the company and also entertaining adjacent revenue opportunities, which we’re doing through relationship like Learnship.

So we’ve done all the right things to make sure that company is properly positioned to capitalize on what is inevitable and that would be more corporations moving employees at some point in this economic cycle..

Okay. Thanks for the color..

We have no other questions. I would now like to turn conference back over to Alicia Swift for any closing remarks..

We thank you for taking the time to join us on the call. And we look forward to speaking with you over the quarter. Thank you..

This concludes today’s conference. You may now disconnect..