Alicia Swift - Senior Vice President, Investor Relations and Financial Planning and Analysis Richard Smith - Chairman, Chief Executive Officer and President Anthony Hull - Executive Vice President, Chief Financial Officer and Treasurer.

Will Randow - Citigroup Steven Kim - Barclays Brandon Dobell - William Blair Adam Rudiger - Wells Fargo Securities Michael Dahl - Credit Suisse David Ridley-Lane - Bank of America Merrill Lynch Eli Hackel - Goldman Sachs Jason Weaver - Sterne, Agee Jason Deleeuw - Piper Jaffray.

Good morning, and welcome to the Realogy Holdings Corporation third 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 in the company's website until November 19. 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, Lori. Good morning, and welcome to Realogy's third 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 3 of the presentation, the company will be making statements about its future results and other forward-looking statements during this call. These statements are based on current expectations and 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, November 5, 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 our Chairman, CEO and President, Richard Smith..

Thank you, Alicia, and good morning. We appreciate you joining our call. We are pleased with our results for the third quarter as we continue to execute on the strategic initiatives we have discussed throughout the year, while simultaneously achieving the near-term goals important to our continued success.

The quarter produced strong cash flow in part due to our continued investment in growth and lower interest expense.

As you will recall, during our second quarter earnings call, we provided a third quarter forecast for homesale transaction volume in a range of down 2% to plus 2% as compared to the prior year's results, which you will also recall was an exceptionally strong quarter in 2013.

We are pleased to report that our transaction volume for the third quarter this year was at the high end of the guidance, up 2% year-over-year on a combined basis for our company-owned and franchise business segments.

As you can see on Slide 4, Realogy Franchise Group, which we refer to as RFG, volume increased plus 3% compared to the National Association of Realtors, which was down 1% versus the third quarter of last year. On a component basis, RFG had an average sales price increase of 6% that was offset by a 3% decrease in transaction sides.

NRT volume was up 1% with price gains of 5%, partially offset by a 4% decline in sides, which included the positive impact of ZipRealty.

We think it is impressive that our third quarter homesale transaction sides were only modestly below the same period last year, even in the face of difficult comparisons from the same quarter last year, which we believe was bolstered by accelerated home closings and a rising mortgage rate environment.

As we anticipated, home values on a national basis have recovered nicely since 2012. In the near term, we believe home prices will continue to appreciate year-over-year on a national basis, but at a more moderate pace. Regional performance varied widely, as one would expect to see in a recovering housing market.

The south and west regions were the strongest with Realogy combined volume up 5%, whereas the Midwest was down 1% and the northeast was down 3%. Our free cash flow for the quarter was strong and is expected to continue to through yearend.

And as we stated in the second quarter call, we expect to be well-positioned to retire the remaining 7.875% debt early next year, which is approximately $330 million.

Again, a strong statement to the strength of the free cash flow characteristics of our business model, which we will discuss in detail during our Investor Day Presentation, just currently scheduled for March 2015. Now, let me make some operational comments, before I turn the call over to Tony.

Turn to Slide 5, as you will recall, we acquired ZipRealty for its innovative technology platform as well as its unique brokerage model, both of which offer us competitive advantages.

Our strategy is to customize the technology to the look and feel of each of our individual franchise brands, and to expand and grow the ZipRealty owned and operated brokerage model. The customization of the technology is well underway, and we expect to start deploying turnkey technology solutions to our franchisees in the middle of next year.

A broad range of our franchisees have already been exposed to the technology platform and the ground swell of interest strongly confirms our strategic promise. The brokerage operation and its 1,700 agents have been integrated into our company-owned operating unit, you'll recall as called NRT.

Plans are well underway to begin expanding the Zip brokerage operations early next year. Thus far, we are very pleased with our progress. Lanny Baker, the CEO of ZipRealty and his team are terrific additions to our company. We continue to be excited about the strategic opportunities available to us, as a result of this transaction.

On Slide 6, RFG franchise sales were strong, posting a 20% gain September year-to-date, with the addition of new domestic franchisees. And sales associates with approximately $216 million in gross commission income or GCI.

NRT continued its successful acquisition strategy completing four tuck-in acquisitions in California, Florida, Texas and Long Island, that added about $11 million in new GCI. One of the acquisitions was a property management company in Dallas, Texas, which is the first acquisition for the new NRT property management services division.

Currently, we manage approximately 20,000 residential properties. As you may recall, property management is one of the growth initiatives we discussed during Investor Day, last May. NRTs technology initiatives, namely the consumer-facing lead generation projects are progressing on schedule.

Our test website went online in August and will be in a soft launch mode through the middle of next year. The site will market listings, specific to the approximately 100 MLS' in which NRT currently operates and is intended to generate incremental buy-side leads through organic search.

Also, so far this year NRT has been yet again successful on retaining well over 90% of its top producing sales associates. In October, Cartus was named the relocation management company of the year at the Asia Expatriate Management and Mobility Award ceremony held in Singapore.

This is the third consecutive year in which Cartus has won this prestigious award. Now, as to the fourth quarter, we are expecting homesale volume to be in the range of plus 4% to plus 8% for the quarter, which reflects favorable comparisons against a weak fourth quarter in 2013.

The range is comprised of transaction site increases of plus 1% to plus 3% for RFG and NRT combined, and average sale price increases of plus 3% to plus 5%. The fourth quarter will mark the first time this year, we expect to see a year-over-year increase in transaction sides.

The moderating rate of price growth is consistent with the higher transaction site growth forecast. As for next year, the more prominent forecasters of our industry are pointing to the continuation of the recovery in the 2015, which you will see on Slide 7.

They are currently forecasting an average sales volume increase of 8%, which we expect will be refined later in the fourth quarter. Now, as to the mortgage lending. We are encouraged by the news from both the FHFA and HUD that housing policymakers are focused on expanding credit availability.

Director Watt of FHFA and HUD Secretary Castro's comments before the Mortgage Bankers Association Annual Convention made it clear that expanding the credit box is a high priority. The final regulations pertaining to QM and QRM are a substantive next step in furthering that priority.

The impact of these decisions will not be in media, but directionally are very positive for housing. In summary, we are pleased with our progress against both our short and long-term goals. We completed the ZipRealty acquisition and its integration is proceeding as planned.

The acquisition pipeline is robust and we believe the strategic investments we are making on our business will have long-term benefits, and the free cash flow characteristics of our business remain very strong.

As the housing market recovery continues, we expect our substantial free cash flow will accrue to the benefit of our shareholders, as we continue to delever our balance sheet. With that, I'll turn the call over to Tony. And following Tony's comments, we'll be very pleased to take any questions you may have.

Tony?.

Thank you, Richard. Turning to Slide 8, let me make some comments about the third quarter. Revenue of $1.5 billion was down 1% compared to the same period in 2013, driven by expected lower refinance volume at TRG, partially offset by higher transaction volume at RFG. Adjusted EBITDA was $287 million, slightly above last year's levels.

This is a good outcome, given the challenging comparisons against the strong third quarter 2013 results.

Net income was $100 million in the quarter, which is net of $71 million of GAAP income tax expense, $54 million of interest expense, $48 million of depreciation and amortization and $6 million of ZipRealty-related transaction and integration costs.

The company generated $234 million of free cash flow during the quarter or $1.60 per share, an increase of 17% over the third quarter of 2013. Lastly, our net debt to adjusted EBITDA ratio was 4.8x at September 30, 2014. Next, I will discuss our key revenue drivers for the quarter on Slide 9.

RFG homesale sides decreased 3% year-over-year in the third quarter and average homesale price increased 6%. NRT homesale sides decreased 4% year-over-year compared to 2013 and its average homesale price improved 5%.

Average broker commission rate or ABCR decreased 2 basis points for RFG and 3 basis points for NRT in the quarter, primarily due to the strong increase in average homesale prices we've experienced during the past several years.

NRT specifically had several large homesale price transactions close in the third quarter, which affected its ABCR, including two $70 million transactions in Southern California and New York City, and a total of $550 million transactions in Hawaii, New York City and the Hampton.

The high-end continues to outperform the lower price segments, as first time buyer activity is still below historical averages. Homes with price points above $750,000 represented 23% of the homesale volume at RFG, up from 20% in the prior-year period. At NRT, those homes represented 50% of homesale volume, up from 47% in the prior year.

Looking at the other side of the coin, across RFG, the volume of homesales at price points under $300,000 in third quarter of '14 decreased to 42% of total homesale volume versus 45% in the previous year. We believe that both net effective royalty rate and split rate have stabilized around current levels.

RFG's net effective royalty rate is running at 4.48% year-to-date and continues to reflect the strong performance of our larger affiliates. NRT's commission split was 68.4% for the quarter, which was an increase of 20 basis points compared to 2013, as the top-two quartile sales associates continue to generate 90% of its gross commission income.

Now, let's look at revenue and EBITDA for third quarter of 2014 compared to the same period in 2013, as shown on Slide 10. Revenue was down about 1%, primarily due to lower TRG revenue, which declined 17% year-over-year, due to a 63% decrease in refinance units.

RFG EBITDA increased $3 million, primarily due to higher domestic franchisee transaction volume. NRT EBITDA increased $2 million on flat revenue, primarily due to a net decrease in management incentive accruals compared to last year, and despite a $10 million increase in operating expenses for acquisitions made over the last 12 months.

Cartus EBITDA increased $2 million, primarily due to the net impact of foreign currency exchange rate gains in third quarter of '14 compared to net losses in the third quarter of 2013. Finally, TRG EBITDA decreased $2 million, again primarily due to lower refinance-related earnings.

The income tax expense rate for the quarter was approximately 41%, calculated as income tax divided by income before taxes on P&L. Remember that the PHH home loans joint venture earnings are pre-tax earnings and should be included in income before taxes, when calculating GAAP taxes.

Earnings per share in the fourth quarter could be positively impacted by certain discreet tax-related items, and potentially impacted by non-cash mark-to-market adjustments on our interest rate swaps.

The company generated $234 million of free cash flow during the quarter, and we anticipate that cash and cash equivalents will be about $400 million at yearend.

Slide 11 provides additional cash flow guidance for 2014, including our estimate for the year of CapEx of $70 million to $75 million, cash interest of $230 million, working capital use of $25 million to $35 million, and then finally cash taxes are expected to total $12 million to $15 million for 2014.

Based on the plus 4% to plus 8% volume guidance for the fourth quarter shown on Slide 12, we currently expect full year 2014 adjusted EBITDA to be between $765 million and $775 million. This implies Q4 adjusted EBITDA of between $155 million and $165 million or 3% to 9% above Q4 2013 adjusted EBITDA.

The full year adjusted EBITDA range is consistent with the margin guidance that we gave during our Investor Day at May. As you will recall, we indicate that overall adjusted EBITDA margins for the company would be in the low-to-mid 14% range.

When we gave the full year margin guidance, it did not include the impact of ZipRealty, but we expect to absorb the impact of that acquisition within that margin guidance for the year.

To summarize, we are pleased with our performance this quarter, despite difficult comparisons as shown on Slide 13, while 2014 volume growth is expected to be muted relative to the previous two years. We have seen healthy improvement in seasonally adjusted annualized homesale transaction rate during the year.

In the first quarter SAAR was 4.6 million homes, it rebounded to 4.9 million homes in the second quarter, and reached 5.1 million homes in the third quarter of 2014, all according to NAR.

Beyond that, while we don't have a crystal ball, especially as it relates to winter weather and the twist and turns of the economy, we believe that certain factors are lining up for us to see favorable transaction side comparisons in at least the first half of next year.

These factors include an improving employment picture, growing home inventory, moderating price increases and the unanticipated drop in mortgage rates we've seen over the last month or so. Industry forecast for the full year 2015 for existing homesale unit and median price indicate an average of 8% transaction volume growth.

At that level of volume gains, when added to our multi-pronged strategic initiatives, we expect to continue to generate strong free cash flow. In addition, cash flow in future periods will be enhanced by our substantial NOL balance and related minimal cash taxes as well as declining cash interest requirements.

We intend to use our free cash flow, primarily to retire debt and invest in the growth of our business. With that, I'll turn it over to the operator, who will open this call for Q&A..

(Operator Instructions) Your first question comes from Will Randow from Citigroup..

In terms of thinking about NRT operating leverage in the fourth quarter on incremental EBITDA basis, excluding PHH, how should we think about the ebbs and flows in regards to its pretty easy year-on-year comps? Just wanted to get a sense, how you think about the year-over-year walk there?.

Well, as we said on Investor Day, we expect the margins to be about 4.5% [Technical Difficulty]. There maybe a tiny bit of upside to that that's built in for the full year. We haven't broken down by quarter, but we think that Investor Day range that we gave is still relevant..

And Richard, your comments on the FHFA, in terms of potential for overlays to drop or that credit box to open a bit. The recent senior loan officer survey about two days back showed some loosening in terms of overlays or loosening in terms of prime mortgage credit availability.

Do you think that's kind of the first steps and you see incremental, call it, loosening of credit and what's the timeframe you think on that?.

I do. Well, I think it's a first step. It's going to be a slow process, because lenders are fundamentally not sure about the need to strip away many of the overlays that exist today. I mean our own joint venture with PHH that stripped away a fair number of overlays and gotten comfortable with that.

So they just need to stick their toe in the water and get a little wet, and I think they're doing that. So it's an incremental process. It will take a couple of years. But the good news is that it started. And I don't see anything that happened last night that's going to fundamentally change that.

So I think the lenders will get more comfortable and we'll see more and more as credit overlay is stripped away in a more favorable lending environment..

Your next question comes from the line of Steven Kim of Barclays..

I was wondering if you could talk a little bit more about some of the regionality across the country. We've been hearing a little bit about the West Coast being a little softer. I was wondering if you could talk a little bit about the trends you are seeing in New York City in corporate business.

And maybe if you could throw in there also sort of how you're seeing you recently acquired operations contributing to your overall picture?.

For NRT, the three major acquisitions, which would have been Martha Turner, Frank Howard Allen and Zip, they added about 2.5% to 3% to the sides factor in the third quarter, so obviously helpful on that front. The EBITDA from those acquisitions in the third quarter between what's recorded at RFG and what's recorded at NRT. So RFG is the royalty.

In RFG the core operating EBITDA was about $5 million. So obviously, they're contributing nicely to NRT's bottomline. In terms of regionality, we saw for RFG was a little different than we saw for NRT, but I'll just go through -- the west region for RFG was the strongest, it was up 9%. And the weakest for RFG was the northeast, which was down 4%.

I'm talking volume, sides times price there. For NRT, as oppose to the west region, their strongest region was the south. I would factor it that's factoring in some Martha Turner helping this out, but they were up 10% in volume in the south.

And then, actually the west region was sort of flattish to up a couple points, and then the Midwest in northeast were actually each down a couple points.

I think one thing we saw in the opens in October for NRT is pretty interesting, I think, which as opposed to what I just said about weakest in the northeast, we probably saw they were one of our strongest regions in October in terms of growth.

And the other sort of flip flop we saw that we've been talking about all the year was, Northern California was flattish. And Southern California, again for the first time we've seen in probably two years, which is obviously primarily Los Angeles was actually stronger. It's pretty strong for open.

So it's nice to see some of those areas that have been historically a little bit on the weak side, turning a corner and becoming stronger. So I think that we'd like to see that trend continue obviously. So anyway that's a lot of information, but that's sort of what we're seeing..

The second question I had related to the segment. I know you touched a little bit on it, but the prognosis for opening or widening your credit box. But can you talk about anything you've seen in terms of the entry-level activity across the country.

Have you begun to see any material or any real trend that you trust indicating that there has been an improvement at the lower end of the market?.

There has been a marginal improvement. There is a lot of theories out there about the first time buyer. I mean fundamentally we've been spending a lot of time in D.C. to encourage the FHA to strip away some of these very onerous fees.

If you think about it, you can get into a typical first time buyer can buy an FHA loan, about 3.5% down payment and their closing fees are going to run 3%, which is difficult for most. They have been favorably inclined and to do something with the fees. It's going to take time as everything in D.C. takes time.

And I think that's one of the gates that could be opened. We'll make it easier for first time buyer to transact. I think there are a number of other issues and there is a lot of discussion about the demographics on student debt.

And I think it's a combination of a lot of things, but fundamentally people still want to own and will, given the right circumstances. So we see a marginal improvement. It needs to be far more robust and with stronger economic growth, I'm sure that will continue to be the case. The good news is it's not going down. It is marginally improving..

Your next question is from Brandon Dobell of William Blair..

And sticking with the entry level or first time buyers, should we expect when that eventual impact comes home to roost for you guys, that that should be a tailwind for some of the key metrics like commissions and that royalty rates for you or is it not big enough to make a difference? And I'm obviously thinking about kind of a over a longer-term perspective here?.

It's a very large component of the perspective buying population. I mean you traditionally would see a much stronger showing of first time buyers. This is one of those unusual housing recoveries for the first time buyer is sitting on the sidelines.

Now, for all the reasons we just discussed, so absolutely without a doubt this is a strong tailwind when they actually figure it out..

And Brandon, it should take pressure off splits and net effective royalty rate to modest degree. So I think it definitely helps units, their lower price units, so it helps ABCR. It's probably business transacted more via our web initiatives and those are better splits on the buy side. So I think overall it's a positive for some of those metrics..

And we just think this is timing. We don't believe anything structural has changed. Looking at all the data surveys of perspective first time buyers, clearly the intent is still there to own as opposed to rent, this could be a matter of time..

Maybe segueing from that on to the technology initiatives.

Any sense now that you've had for a little bit here, how we should think about the pace of, I guess, call it, technology spending from a broad perspective, whether internal technologies or spending on technology-driven marketing? Just trying to get a better sense how the dollars should flow as we move into 2015 from a tech or IT perspective for you guys?.

We've talked about the technology piece of Zip will add about $10 million to our corporate overhead. That number is unchanged. I think the most important thing is for us to get the platform ready for primetime with the bulk of our franchisees, and that's being worked on very diligently and aggressively right now.

So we can really start to roll it out as early as next year as we can. So I think the spending is not as important as getting the platform out. And we think the spending is well within what we thought it was going to be. So that's not a concern.

The real key is to get it rolled out to our franchisees as quickly as possible, because as Richard said there is a lot of interest and demand from our franchisees to get that platform..

And then, final small one.

The impact of those, the handful of large transactions, so was that measured in kind of single-digit basis points relative to commission splits for you guys in the quarter or was it a bigger impact than that?.

No, I'd say, if it was 1 basis point or 2 basis point, I'd be surprised. Really at this point, because Martha Turner were comparable splits and so was Frank Howard. So it's really Zip has slower commission splits, and we only own that for like six weeks. So if it was 1 basis point or 2 basis points, I'd be comfortable with that kind of estimate..

Your next question comes from the line of Adam Rudiger of Wells Fargo Securities..

I wanted to ask a couple of questions about PHH venture. The first, I guess, was a little bit of an increase in income year-over-year.

I was wondering how much that was impacted by just expenses versus any kind of improvement you've seen in refinancing, given lower rates and really what your outlook was for that entity, given the lower rate environment?.

It's the same. We haven't changed it. We haven't changed our guidance on that for the year. I mean, I don't think -- most of the benefit year-over-year was in the third quarter last year. They were kind of bracing for the refi drop, so there were expenses there.

And this quarter they benefited from some of those expense initiative they've taken over the last 12 months, plus gain on sale on purchase was a little bit better in terms of profitability. So I think it's a combination of those two things. But again we haven't changed the full year.

And despite rates coming down to 4% on the 30 year unexpectedly, we monitor it everyday, but we're not seeing a lot of refi pickup. So we're not counting on that in the fourth quarter in any way or for the year in any way.

It's too soon for that, but maybe it will have an impact next year, but it's still steady she goes on the range that we gave for PHH..

And the second question was on the NRT website you were talking about.

I'm just curious how much of the intent there is to try to help alleviate pressure on splits? And how do you expect consumers, homebuyers to become aware of that site, given the strong brand names already out there? And I guess, I'm just wondering, should we expect a big marketing blitz that might impact expenses a bit next year?.

I would look at in a slightly different fashion. Agents, as you know, are independent contractors, so they generate their own business in the market.

Brokers, astute brokers generate their business and distribute that business on a different set of economic terms, which agents are very comfortable with, they've grown accustomed to, and that's exactly what our organic effort is all about to generate our own in-house book of business and then distribute that on the basis that makes more sense to us essentially, because we made the investment to generate the business.

And the beauty of organic search is you can generally do it without a lot of marketing expense. So you're not going to see consumer-based brand awareness spending that would defeat the purpose. You're going to see good old-fashioned local market organic search, so the URL we have is so attractive from that perspective.

You're not going to see a big increase in marketing spend to generate those organic leads, which again we'll hand-off to agents on a different set of economic term. So will it mitigate or enhance the split from our perspective? Sure. But that's what you would expect if you're going to make an investment in that kind of business..

So I'm trying to between to read between the lines, would you expect your agents to not use those other aggregator sites as frequently then?.

No. Listen, agents are free-spirit and independent contractors. They use everything. So they will use those agents who are classified by us as E-agents, they are accustomed to and trained and very responsive to organically generated search leads.

And then there are those agents, who will not be interested at all, but we have teams of agents who handle web-based leads. They do it quite effectively and they do it on the terms that we've outlined from an economic perspective. So this is a channel that we know well and we manage it quite well. So it's good for the agents, it good for us..

Your next question comes from the line of Michael Dahl of Credit Suisse..

First question, Tony, I think you made a comment that the acquisitions added 2.5 to 3 points to NRT's 3Q side.

It says you look to the 4Q guidance, what type of impact is our acquisitions having, if we think about plus 1% to 3% on sides?.

It's very small, very small, because that's combined NRT and RFG. So I bet it's a 0.5 point on that, because RFG is the bulk of our sites in the equation, so it's not going to have a big impact on that 1 to 3..

Was the comment about accelerated closings in 3Q, and I am just trying to reconcile it's a 1% to 3% on sides, seems like the market could end up doing even a bit better than that.

So were some of the 4Q closings pulled into 3Q or was that separate comment?.

Last year? Yes, definitely..

Or this year, I guess, I think Richard's commented on that..

No..

No, not this year. That was last year. So that definitely occurred last year..

Second question on price.

You called out some of the high-end transaction, so I guess if we think about all the things going on with mix moving forward, you probably won't have that same level of super high-end transaction volume going forward? Some things like Zip and the other acquisitions are at bit lower price point, and to the extent that first time buyer eventually does come back, how do you think about your average price, I guess, particularly in the NRT business over the next year given some of these tough comparisons?.

Well, you've got to remember NRT is a collection of strategic acquisitions; specifically we targeted brokers in various markets that enjoyed very high-end price points and that continues to be the case.

I don't see that materially changing, but as we add the acquisitions in key markets that are important to us strategically, such as the Southwest, which we mentioned a number of times, that's a market that we find very attractive, the volume of that business and the nature of that market will result in lower price points.

But on the average, will have pulled NRT's average price down a bit. It will. But it will be substantially offset by the volume increases from those strategic acquisitions. Listen, the high-end of the market continues to be very strong. We don't see anything changing there, probably both on price and most markets units.

And I think NRT will continue to enjoy a much higher average sale price than the national average for the industry..

Just to add, just the on-site business in New York City, a lot of the buildings that have been constructed or are being constructed they're going to be completed next year. So that's going to really help average sales price for the company as a whole..

If you're not familiar that way, as you know, through our corporate Sunshine Group in New York City, we are the on site-marketing arm for very substantial vertical developments. And a lot of that new inventory is coming into the market next year '16 and '17, and those are at very high average sell prices.

So that's sort of an incremental offset to some of this price discussion for NRT..

So you think between that business maybe Southwest drags it down a bit, I guess net.

Do you still see room for average price growth for next year?.

Absolutely..

Your next question comes from the line of David Ridley-Lane of the Bank of America Merrill Lynch..

So wanted to get your view on the potential benefits you could see in the marketplace from lower mortgage interest rates, particularly if we hold around the 4% level into next year selling season?.

Well, listen, we think about all of those things, mortgage rates in particular, when we think about the New Year. It's a positive, right. I mean, we don't see it materially going up.

But with that 4% to 4.5% range, it will continue to be a very positive rate environment, but I think all that was contemplated by those who are forecasting the year and for those of us who think about the year. So I assume that most forecasters next year gave that consideration, and they probably don't see a material change in rates..

And then I heard on you on the rollout of the back office software in Zip, and so bit curious about the web-facing side of that, the Zap technology.

Do you plan on implementing that across your company-owned websites?.

Actually, what's interesting about that the 1,700 Zip agents are already embedded in NRT footprint and that technology goes with them. So as we decide to expand that in the markets, which you've heard me mention that we intend to expand that into the company-owned operations.

You'll see us opening new markets next year, maybe even a little bit before this year closes. And then with the expansion of that brokerage model, will also grow the technology.

That technology has the unique benefit of also being repackaged to be available to our franchisees on a select basis and we absolutely without a doubt fully expect to deploy that broadly to the franchise side of our business, which we're in the process of doing. So yes to all of that..

And just a one from me.

On the fourth quarter sides guidance, is there particular bias to a stronger result at either NRT or RFG?.

No. I think it's pretty similar for both..

So both in the one to three [ph] zip code then?.

Yes..

Your next question comes from the line of Eli Hackel of Goldman Sachs..

Richard, at the beginning you mentioned about the growth of your home management business.

Can you just talk a little bit more about that and maybe the potential where that business has to go or help big it could potentially be?.

Well, I mean you can look at the size and scale of some of the institutional property managers now and use that as sort of possible benchmark, but that's a business you can either buy or you can build and we're in a unique position of already having that core operations.

So we fully expect as we mentioned in our Investor call last year that we think this is a interesting business to build, and grow through tuck-in acquisitions and sort of bolt-on acquisitions.

So it seems like a likely extension of what we do for living and that's managing property for people who eventually not only do they want the income from the rental, but they eventually want to sell, so it's a great lead generator, it's also a very profitable business.

I think very attractive margins, as we mentioned last year, and we don't see any change to that. So it's an interesting organic grower. It's not going to be substantially material in the near-term, but eventually it will be one of our more relevant business units..

And then I know you guys haven't given '15 guidance or anything on the such, but is it your intention just on the commissions splits and royalty rates, I mean you went out I guess early last year to say, '14 should be flattish.

Is it your goal as you go through the cycle to at least keep those numbers generally flattish?.

We work very hard everyday to not ensure, because we can't guarantee anything, but we work very hard to affect that outcome..

Your next question comes from the line of Jason Weaver of Sterne, Agee..

I just had a few topics on the capital reallocation that you discussed briefly in your comments. First of all, the $300 million that you intend to paydown of 7.875%.

Could you just clarify exactly what would be the dollar price you would pay that down after February '15, I think is the date?.

It's about $332 million outstanding; would be $345 million with the call premium..

So it's like [indiscernible 15-0.05]..

Exactly..

And subsequent to that what can you say about future, either with the paydown of debt or otherwise return of capital, what avenues would you look to from that point?.

Well, our senior secured debt is the most restrictive and it also becomes callable, all of it becomes callable by '16. So I think our first objective would be in terms of wanting to return capital to shareholders and being in position to do that would be to retire that debt in the '15, '16 timeframe.

And then the other governor on it is for the bulk of our debt is that we have to be under 4x leverage, so we'd expect, as we continue to generate free cash flow and our EBITDA goes up and our debt goes down that we should get towards that 4x in the not too distant future.

I mean we've said repeatedly since the IPO that once we get to 3x is when we want to start looking at ways to return capital to shareholders..

Your next question comes from the line of Jason Deleeuw of Piper Jaffray..

On the margins, it was good to see the EBITDA margins up.

And just looking at the guidance for the full year, it seems like I would have expected a little bit better fourth quarter, implied EBITDA margins has given an inflection point that we're seeing in the transaction volume and what we're seeing with the title business lapping the refi decline for last year.

So could you just give me the puts and takes for the fourth quarter margins? And then, what's kind of the rule of thumb or how should we think about margins as we get into next year, if the forecasts are right and we're going to have an acceleration in volume growth?.

We didn't give that much detail on Q4. I mean, again we expect margins to be within the range that we gave at Investor Day. Our overall margins, we don't break it down by business unit. We gave 14.2% to 14.6% as the range for Investor Day. So that will be factored into the fourth quarter. And we're not giving guidance for next year.

Obviously, there is operating leverage in this business, so we would expect margins to improve as the housing market continues to recover..

And then, on the first time homebuyer we had some tailwinds with employment, the quality of inventory improving a little bit.

But in your view, does policy have to change? Do the FHA premiums have to change, if we're going to really get an improvement in the first time homebuyer or can we see that without any major policy change?.

Well, we've seen the housing recovery occur without a lot of help from government. So I assume the first time buyers are going to eventually start improving in spite of the government's inattention to that need.

That said, when you have the Director of FHFA and also the HUD Secretary make public pronouncements, that their goal is to make the credit box wider, expand it, make it more available to first time buyers, that's a very strong positive.

So FHA has made it very clear that they intend to revisit the fee structure and make it easier, not easy, but easier from a fee perspective for a first time buyer to buy. I'd prefer that over the opposite, which would be a more restrictive credit box and no systems whatsoever for the first time buyers. So I am encouraged. I spent a lot time there.

I think the dialogue is strong and positive, and I expect the government to in spite of last night, I think either way however you view it, I think first time buyer will continue to be a focus of government policymakers to ensure that they are more aggressive in the marketplace than they have been over the past five years..

You have no further audio questions at this time..

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

Ladies and gentlemen, this concludes today's conference call. You may now disconnect..