Alicia Swift - Senior Vice President-Investor Relations Richard A. Smith - Chairman, President & Chief Executive Officer Anthony E. Hull - Chief Financial Officer, Treasurer & Executive VP.

Stephen S. Kim - Barclays Capital, Inc. Will Randow - Citigroup Global Markets, Inc. (Broker) John Campbell - Stephens, Inc. Ryan McKeveny - Zelman & Associates Brandon B. Dobell - William Blair & Co. LLC Anthony Paolone - JPMorgan Securities LLC Brad Burke - Goldman Sachs & Co. Chas Tyson - Keefe, Bruyette & Woods, Inc. Michael G.

Dahl - Credit Suisse Securities (USA) LLC (Broker) David E. Ridley-Lane - Bank of America Merrill Lynch Jason S. Deleeuw - Piper Jaffray & Co. (Broker).

Good morning, and welcome to the Realogy Holdings Corporation First Quarter 2016 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 May 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, Stephanie. Good morning, and welcome to Realogy's first quarter 2016 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 company will be making statements about its future results and other forward-looking statements during this call. These statements are based on current expectations and the current economic environment.

Forward-looking statements 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 a rebroadcast of this presentation, we remind you that the remarks made herein are as of today, May 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 as per SEC rules, important information regarding these non-GAAP financial measures are included in our earnings press release. Now, I will turn the call over to our Chairman, CEO and President, Richard Smith..

Thank you, Alicia, and good morning, everyone. We delivered solid results this quarter, as you can see on slide four, revenue was $1.1 billion in the first quarter, an increase of 7%. The revenue gains were primarily driven by a 6% increase in homesale transaction volume at our franchise and company-owned real estate brokerage operations.

Adjusted EBITDA was $77 million, which represents an increase of 10% year-over-year. We continue to execute on our business optimization initiatives to ensure the efficiency of our operations and cost structure. We remain on track to achieve our annualized run rate savings target of $40 million.

The changes we have implemented today are designed to help us grow our business and deliver the highest levels of service for our clients, affiliated brokers, and agents and the customers they serve.

Before I turn to my commentary regarding our markets and the performance of our business, I'd like to highlight the progress we have made on our long-term financial goals.

On May 2, we retired $500 million of our 3.375% Senior Notes at the maturity using a combination of cash on hand and borrowings under our revolving credit facility continuing to reduce our leverage ratio of corporate debt-to-adjusted EBITDA.

During the first quarter, we repurchased one million shares of company's common stock in the open market with $33.5 million and that's under the $275 million repurchase plan that we announced in February.

As we have previously stated, our strong free cash flow generation should continue to enable us to return value to our shareholders, while maintaining the flexibility to invest in the growth of our company.

In the current market environment, we are confident that Realogy is on track to continue to generate significant free cash flow for full-year 2016. Now turning to slide five, let me discuss the performance of our business units.

On the growth front, RFG completed new franchisee and sales production of $89 million in franchisee gross commission income in the first quarter, which was a 27% increase from the first quarter of last year. On the technology front, we have accelerated the installation of ZAP and RFG's rollout of our innovative platform is well-ahead of schedule.

Today, more than 750 Realogy franchise brokerages have been activated and are live on the ZAP platform almost double the franchise installations and the platform at year-end. We now have over 41,000 affiliated agents on the ZAP platform, which is approximately 30% of RFG's total affiliated U.S. agent count.

Our ERA real estate brand reached a significant milestone by being the first of our franchises to connect its entire network on the ZAP platform, thus linking its consumer facing era.com website and thousands of ERA affiliated broker and agent sites with ZAP's online customer relationship management system.

Driven by predictive analytics, ZAP enables Realogy brand affiliated brokerage and agents to reach, engage and follow-up with prospective clients in a timely and efficient manner. We are in the early stages of agent adoption which will mature over time, as agents become more proficient in utilizing the ZAP productivity tools.

ZAP is a long-term investment, designed to substantially enhance the value proposition of our franchise offerings, delivery and productivity tools which will help our franchisees increase transaction volume and thus the profitability of their companies.

Looking at our company-owned operations, NRT was ranked the number one residential real estate brokerage company in the United States for the 19th consecutive year and the annual REAL Trends 500 rankings released in the first quarter. The top 500 brokerages in the nation were ranked based on their 2015 closed sales volume and closed transaction side.

On the pro forma basis used by REAL Trends that includes the impact of acquisitions made during the year. NRT is approximately $167 billion in sales volumes is 2.1 times greater than its next closest competitor and is 342,300 transaction side or 1.5 times greater.

In March, NRT continued to diversify by expanding into new markets through the acquisition of a leading independent real estate firm in Columbia, South Carolina.

Its 12 offices and over 400 affiliated sales associates complement NRT's growing presence in the region, which has increased to more than 1,000 affiliated sales associates serving home buyers and sellers in the Carolinas in the last 13 months.

On the competitive front, NRT's focus remains on profitable market share and discipline that we believe is in the best long-term interest of our company. Recently, this has put NRT's market share under modest pressure, given our focus on expanding margins.

We are increasing our efforts to optimize NRT's market position over the medium-term and long-term to take full advantage of our significant economies of scale. In addition, the high-end of residential real estate is generally softer than anticipated. It has not been offset by the growth of the lower price markets.

Low inventory levels in the lower price markets are failing to satisfy strong demand, resulting in moderate transaction volume growth. I'll address the housing inventory issues, a little bit later in my comments.

Looking ahead, the industry forecast for 2016 existing homesale transaction volume which you'll find on slide six have remained consistent since February. With each of the forecasters, we track pointing toward approximately 7% volume growth for the full-year.

Based on our current visibility into the second quarter, we are providing guidance of 3% to 7% homesale transaction volume growth for the current quarter. The housing market continues to exhibit favorable characteristics, including low mortgage rates, improving employment and in modestly improving U.S. economy.

Today, the most significant headwind through an improving housing market is the widely discussed issue of low inventory, particularly for mid and lower-priced homes. Inventory data has shown three months of sequential gains since December 2015 as reported by NAR.

Although the latest national inventory level of 4.5 month supply still fall short of the prior year. As shown on slide seven, the continued strong consumer demand for existing homesales and a corresponding lack of inventory is evident in our analysis of demand across different price level.

For NRT listings, across its markets, we found that the demand for home is as evidenced by multiple purchase offers is concentrated in the lower and intermediate price segments of the market, during the first two weeks of April. 47% of homesales in the lower-priced starter home market segment had multiple offers.

38% of homesales in the intermediate move-up segment had multiple offers. And only 11% of high-end NRT listings received multiple offers. Clearly, the demand for homes in the entry level and move-up segments is stronger than at the high-end.

This was especially true in markets such as Boston, Northern California and Southern California, where multiple offers and bidding awards were particularly strong.

When RFG surveyed its franchise brokers and agents last month about their biggest challenges in working with home buyers, 65% cited a lack of available inventory, that's up from 53% in a similar survey in October of 2015.

38% of our franchise broker owners indicated that multiple offers were their second biggest challenge and that's up from 27% in same type of assessment in October of last year. Mortgage loan approvals, as an issue dropped from 35% to 28%, indicating that credit availability continues to improve.

Our research indicates that the biggest negative in today's housing market, a lack of inventory is somewhat counter-balanced by strong demand. Supplies failing to meet demand and as inventory levels improve over time we expect to see higher sales volume.

Before turning the call to Tony, I'd like to acknowledge an important recognition we received during the quarter, being named by the Ethisphere Institute as one of the world's most ethical companies for 2016. This is the fifth consecutive year in which we have received this honor.

Integrity is one of our core values and we are proud of the recognition that we continue to receive for our commitment to ethics in business. The spring selling season is shaping up in line with industry forecasts and we are encouraged by the level of demand in this inventory constrained market.

Longer-term, we believe our investments in technology and other initiatives we have underway will continue to enhance our value proposition and support our long-term financial strategies, which include de-levering and returning capital to shareholders. Now Tony will discuss our first quarter financial performance.

Tony?.

Thank you, Richard. Before getting into a more detailed discussion on the quarter, I'd like to highlight several key areas of Realogy's Q1 performance on slide eight. Transaction volume growth of 6% was the primary driver of our 7% revenue growth. Adjusted EBITDA was $77 million, representing a 10% increase year-over-year.

Realogy continued to execute on business optimization efforts during the quarter. As a reminder, the planned focus is on several key areas of opportunity, which include process improvement efficiencies, office footprint authorization, leveraging technology and media spend, centralized procurement and organizational design.

Cost savings related to the restructuring initiatives are estimated to be approximately $40 million on an annual run rate basis, $25 million of which is expected to be realized in 2016. Q1 adjusted basic loss per share was $0.12 compared with a loss of $0.16 per share in 2015 on the same basis, that's an improvement of 25%.

One large item that we adjusted for in the quarter was the non-cash mark-to-market charge on our interest rate swaps of $31 million, which was $11 million greater after-tax than in Q1 2015.

We typically have a net loss in the first quarter of every year, since transaction volume is at its annual low and revenue generated is insufficient to offset the fixed operating costs of our businesses in addition to depreciation, amortization and interest expense that are more evenly spread over the year.

At the end of the quarter, our debt leverage was 4.1 time. One item of note, is that going forward we are providing a new financial measure called operating EBITDA, which is EBITDA before restructuring costs, early extinguishment of debt and former parent legacy items.

We will continue to report adjusted or covenant EBITDA that also includes prescribed adjustments required in our credit facilities, so that investors can keep track of our credit ratios.

We believe providing both financial measures provide transparency to our results and that operating EBITDA better reflects the comparative operating performance of the company. So, you can have a framework as to the differences in these two EBITDAs.

On slide nine, we have provided operating EBITDA and adjusted (covenant) EBITDA for the 12-month periods ended from 2012 to 2015. As you can see for 2015, operating EBITDA was $769 million, while adjusted or covenant EBITDA for the same period was $845 million.

The difference between the two is primarily non-cash stock compensation and pro forma business optimization and acquisition impact. Turning to slide 10, which are the key drivers.

For the first quarter of 2016, combined RFG and NRT closed homesale transaction volume was 6% higher than Q1 2015 and was comprised of 4% growth in size and 2% growth in average sales price. At NRT, sides were up 7% and average sales price decreased 2%. At RFG, sides and price were both up 3%.

According to NAR, the new three-day advance disclosure rule continued to delay closings by an average of approximately three days across the industry in March compared to the same period last year.

On a month-over-month basis, current trends indicate that lenders are adjusting to the regulations and reducing the time to close since the initial spike occurred in November and December of last year.

We remain cautious about the seasonal impacts that may occur with increased volume in loan and homesale closings as we head into the traditionally busiest months of the year in the second and third quarters.

As we have discussed throughout the past year, the acquisition of Coldwell Banker United had certain impacts on the comparability of NRT and RFG to the prior year. Because the anniversary of the transaction is early April, this will be the last quarter the impacts depicted on slide 11 will be highlighted.

For the first quarter of the CB United transaction at a one percentage point negative impact on RFG sides meaning without this adjustment the increase in RFG sides would have been 4% compared to the reported 3%.

Without the impact of the acquisition, RFG's volume gain of 8% would have been in line with NAR's reported volume increase in the first quarter. On the other side of the house, the addition of CB United boosted NRT's sides by six percentage points, but had a negative three percentage point impact on NRT's price.

Excluding the impact of this acquisition NRT's volume increase would have been 2%. Realogy's combined average homesale price came in lower than we expected when we gave guidance at the end of February, putting us at the low end of our guidance range, before transaction volume.

March closings skewed the results, given the months' relative importance to the quarter. March represented 40% of the total volume for the first quarter on a combined basis, which is typical as the spring selling season begins to ramp up in earnest.

Price in March was weaker than expected, because contracts that open and close in that significant month had a lower average sales price than anticipated. A shift in activity from the high-end to the entry level and mid-priced homes generally results in overall unit increases.

However, the overall transaction volume gains in the quarter were muted due to inventory constraints that are most prevalent in the entry level and mid-priced markets. The general trend for NRT for the first quarter was softness in both side and price at the high-end.

This was broad based as NRT's sales volume at the $2.5 million and above price points decreased to 19% of total volume in Q1 2016 down from 22% of total volume in Q1 of 2015. In the price range of $20 million and above, NRT had 12 transaction sides in Q1 2016, which was half as many as we saw in the first quarter of 2015.

RFG also felt pressure at the high-end, its volume of home sold over $2.5 million, which is more of a nationwide look, decreased from 8% of its total volume in Q1 of 2015 to 7% in the latest quarter.

Price impact was the greatest within the Sotheby's International Realty brand, where average sales price declined 3% in the first quarter compared to the same period last year. Having said that, transaction sides for our Sotheby's International Realty franchisees were up 14% in the quarter.

Regionally for NRT, the Northeast excluding New York City, and the Hamptons had strong volume gains with an increase of 10%. We receive many questions about the New York City market. The Corcoran Group, which has operations in Manhattan, Brooklyn, the Hamptons and Palm Beach had 12% volume gains in the quarter.

This was aided by new development sales in New York and collectively the areas Corcoran serves continue to be a significant market for us. The Midwest had volume increases of 7%. Weaker NRT markets include Florida, which had volume declines of 5% and California where volume decreased 4%, primarily due to inventory constraints.

Few quick comments on the other drivers, before I move on to revenue and EBITDA. On slide 12, you will see that RFG's average broker commission rate decreased 2.51% and its net effective royalty rate also decreased one basis point. Our splits at NRT were 67.6%, or 31 basis point improvement year-over-year.

For 2016, we continue to expect commission rate, net effective rate and splits to remain relatively flat to 2015 levels. Now, turning to revenue and EBITDA at the business unit level on slide 13.

RFG revenue increased $6 million or 4%, driven by domestic franchise volume increase, as well as $2 million increase in royalties received from NRT and those were predominately from its acquisitions. RFG's EBITDA also increased $6 million or 7%.

During Q1 of 2016, NRT revenue increased to $45 million, which includes $32 million of revenue from acquisitions. The revenue increase was partially offset by a corresponding $28 million increase in commissions and a $2 million increase in royalties paid to RFG.

EBITDA declined $5 million compared to last year's operating expenses, increased $15 million, of which $10 million related to acquisitions completed since the first quarter of 2015. NRT EBITDA was also adversely impacted by a $2 million decrease in PHH home loan earnings, the JV earnings; and $2 million in restructuring costs.

Looking at results in another way, NRT's EBITDA decline of $5 million was impacted by $4 million of restructuring charges and lower mortgage joint venture earnings as well as reported loss at NRT for acquisitions of $2 million.

Taking into consideration, the royalties paid to RFG for those acquisitions, the acquisitions were breakeven in the first quarter. Cartus EBITDA decreased $2 million, as a result of lower revenue due to the absence of a large group move we recorded in the first quarter of 2015.

TRG EBITDA increased $3 million due to higher purchase and refinance volume as well as the inclusion of the results of its acquisition of Independence Title. Corporate expense increased $5 million year-over-year, primarily due to the restructuring-related consulting costs for the business optimization plan.

Corporate cash interest was significantly reduced to $28 million in the first quarter of 2016 versus $57 million in the first quarter of 2015, as a result of debt repayments the refinancing completed in 2015; however, book interest expense was $73 million in the quarter versus $68 million in the first quarter of 2015, as the non-cash mark-to-market on our interest rate swaps increased $17 million in the quarter.

Our second quarter guidance on slide 14, reflects the continuation of a softer high-end housing market. Our expectation is for volume growth of 3% to 7% in the second quarter with 3% to 5% coming from sides and average sales price flat to up 2%.

This guidance is generally in line with NARs and other forecasters' estimates for the second quarter, although we are slightly more optimistic on sides and a little more cautious on price. Because it is now May and the spring selling season is beginning to take shape, we are in a better position to provide guidance for full-year 2016 margins.

The five forecasters we referenced are currently each expecting a 7% increase in transaction volume for 2016. As indicated on slide 15, with the range of 6% to 8% materializes and our transaction volume increases at that level in 2016, our adjusted EBITDA margin should be in the range of 14.8% to 15.2% compared to the 14.8% reported in 2015.

In this margin guidance range, we expect that NRT transaction volume growth will slightly underperform RFG's growth in 2016, as a result of the softness we are seeing at the high-end of the market.

If NRT's high-end markets gain traction as the equity markets have in recent months such that its transaction volume growth is in line with RFG's for the full-year, we would expect that we will see margins on the more favorable side of the range. In August, we will update you on how the year is progressing.

On slide 16, we highlight cash flow items that are below EBITDA in 2016, the largest of which is cash interest of $170 million to $175 million down from $238 million in 2015.

Looking ahead, there are encouraging economic factors that support a continued rebound in the residential real estate market, including a better jobs picture, strong demographic trends and mortgage rates that are still at historically low levels.

On the other side of the coin, low inventory in certain price ranges is holding back overall activity levels. While these inventory constraints have certain moderating effect on our business, we are encouraged by the high demand that we are seeing. With that, I'll turn it over to the operator, who will open this call for Q&A..

Our first question comes from Stephen Kim with Barclays. Your line is open..

Yeah. Thanks very much, guys. And thanks for all the clarity. Very helpful. I guess, my first question related to the EBITDA margin guidance that you just talked about. I think you indicated that the 14.8% to 15.2% range assumes that NRT under performs RFG as a result of the mix shift effect.

But then you said something, I think that you said that if NRT were to actually match RFG's results, then you would come at the higher end of EBITDA margin range.

I guess, I'm curious, if your assumption, embedded in that 14.8% to 15.2%, assumes NRT under performs, if it actually didn't underperform, wouldn't that cause you to simply to increase the range? Just want to make sure I didn't misunderstand something?.

No, we think that we're seeing – if the high-end rebounds modestly at NRT, we would expect to be on the high-end of that range, if not we'd be more in the middle of that range..

Okay. And then, you had given some really interesting data about multiple purchase offers across the market. The low, intermediate, and high.

Was curious, if you could define what sort of characterizes low, what characterizes intermediate, and what characterizes high? And I think you had called out certain areas like Boston as being particularly seeing this effect.

Is there any other kind of geographic commentary you can make about this phenomenon?.

This is Richard. As you know, real estates is local. So it varies market-by-market literally suburb-by-suburb. But, these are sort of broad metrics that are indicative of trends, some markets more so than others. But generally speaking, these are just broad price ranges. So, we didn't break them out by county or market or state or geography.

These are just broad swaps, if you will, the markets we serve. I think also you should note that, what's interesting about it, multiple offers will mean two or more competing offers on the same house, which speaks to the; one, the strength of the market; two, the lack of inventory; so is telling us a trend..

Great. Yeah. Thanks very much, guys. Appreciate it..

You're welcome..

Our next question comes from Will Randow with Citigroup. Your line is open..

Hey, good morning, guys..

Good morning..

Good morning..

One of the push backs of the past quarter, based on what we've seen from competitors, has been EBITDA conversion relative to revenues.

Can you talk about how you think about your guidance with roughly mid-single-digit top line growth? Not dropping down to EBITDA? And your thoughts maybe on next year if you can hold that type of conversion level?.

Well, again our goal is to improve margins over time. I think our conversion is where we expect it to be and it's a little bit muted from where we were in the third quarter and fourth quarter of last year, because of the shift in the high-end; but we still think the conversion is strong.

I think, I'm not sure from a competitive standpoint, since we are the only public reporting residential real estate services company, I'm not sure what that is....

Yeah..

...but we're focused on profitable market share and that's a discipline we believe is in the best interest of our company. And we are confident in the strength of our business model and the long-term prospects for growth and value creation..

Yeah, I was discussing directly a sell-side competitor. But it sounds it's going to be north of 20% operating leverage for EBITDA drop down.

Is that fair?.

Again that was the number we were looking at last fall. I think with what's happening at the high-end, if the high-end stays muted, I think we'd be in the high-teens on that, if the high-end rebounds just like the stock market has rebounded over the year I think we'd be in the range we gave last fall..

In terms of buybacks, what type of capacity do you have given leverage covenants as well as some room in your restricted payments baskets?.

We have the capacity to do the buybacks that we've been authorized to do..

So, how much more is left for the second quarter?.

Well, we did $33 million out of the $275 million..

That was in the first quarter..

In the first quarter. So again, there's not a restriction on that..

Thanks, guys. And good luck for the next quarter..

Thank you..

Our next question comes from John Campbell with Stephens, Inc. Your line is open..

Hey, guys, good morning..

Good morning..

Morning..

It's pretty impressive to hear that ERA's entire base is on ZAP.

Just curious, what drove that to 100% adoption rate? I mean, was that a conscious decision by you guys to run somewhat of a pilot or was there something else driving that?.

We, by design, wanted to start with those in the greatest need. And there is some measure of simplicity there. It's just one of our smaller brands with a lot of upside, so we wanted to start there. The team was extremely effective in pulling that off, so we've learned a lot. Those learnings are being applied more broadly now.

So, we're very excited about it. It's was great transition with a lot of upside and we're already seeing great results as a byproduct of that acceleration of our ZAP installations. So, a good management team was able to pull it off faster than we anticipated..

Got it. And then I know you guys mentioned that the April trends were factored in 2Q guidance obviously. But I might've missed this during the prepared remarks.

But just curious about the exact pace of side and price? And then, just mainly looking whether you guys need a sharper reacceleration in May and June to exceed guidance?.

I mean well to exceed guidance. The guidance was based on what we're seeing today, so I think what we're encouraged by in the guidance and what we're seeing in our April results as well as our early May opens, is that we're seeing more robust unit increase and less price increase.

We think sides improvement is more important than price for a number of reasons. One is, if the price stays muted for a while that's going to help affordability, which will encourage sides. So, I think we like the way, it's shaping up in the second quarter..

Got it. And then I know some of your top three key geographies. Those markets, felt like they might have overheated a little bit with price.

Do you see those key markets kind of moderating a bit?.

Yeah, you're taking about New York, Florida and California?.

That's right..

So, California, both in L.A. and in San Francisco is characterized by inventory constraint, prices sort of holding, but we're seeing constrained inventory. Really that sellers aren't seeing a move-up, where to move-up, so they're reluctant to list.

Buyers are less – we're seeing less cash purchases and more using mortgages so that puts pressure on velocity. So, I think overall the West Coast is characterized by inventory constraints. I think Florida really started their recovery earlier than the rest of the markets. So, I think we are seeing a little bit of softness there.

As I mentioned, they were down I think 4% or 5% in volume in the first quarter and that seems to be continuing; but it's not inventory constraints, so I just think it's where the market is in the cycle. And then the New York is – certainly, in New England and New York tri-state area continues to be strong.

And where the inventory constraints are, are really at the very high-end there, but I think it's a move-up market and the entry level market continue to be strong, but there are some inventory constraints there. So, that's how we characterize those two markets..

Got it. Thanks for taking our questions guys..

Yeah..

Our next question comes from Ryan McKeveny with Zelman & Associates. Your line is open..

Hi, good morning. And thank you for all the disclosure. I think it's really helpful. With the covenant EBITDA guidance, it implies about flat to call it 40 bps of margin improvement in 2016.

If you think about this relative to the operating EBITDA disclosure, would that same magnitude roughly hold? Or any way to think about that?.

We'll get more into that in August, when we look at – give you more clarity on how the year is progressing..

Okay. Got it. And second, on the business optimization and the restructuring cost this quarter. There was about $6 million in the corporate segment. So, the corporate EBITDA was negative $15 million.

I guess, thinking about that line item going forward, is that a decent run rate to use going forward? And when we think about the restructuring efforts through the year, how that focuses on corporate versus the other segments?.

Most of those restructuring costs in corporate were consulting costs. And those are winding down pretty significantly, so you shouldn't – they won't even standout I don't think in the second quarter, maybe $1 million or something like that..

Okay. Got it. Thank you very much..

You're welcome..

Our next question comes from Brandon Dobell with William Blair. Your line is open..

Thanks. First question on ZAP. I know it's still a little early. But, how much effort are you guys putting behind marketing for – or selling to new franchisees, attracting new agents within RFG just using ZAP? I guess, I'm trying to figure out if it's been a real lever for you for attracting new talent? Or if it's still too early to tell..

There is anecdotal, in spite of that we measure those metrics on a monthly basis, so a couple of points. One, it's becoming an important value enhancement from a franchisees perspective, so the franchise sales team is using that quite effectively to attract and win new franchises, that's one point. We like what we see in the early stage of that.

From the brokerage perspective, brokers are beginning to see more success in recruiting and retaining agents. And in some ways very materially, so the early indications are that's proceeding as we anticipated.

And then third and most important, it is beginning to show evidence that the agent is more productive and better managing the relationships with their clients and prospective clients. So on all accounts, we are seeing early anecdotal data that strongly supports the value enhancements, so we're very encouraged by it..

Okay. And then Tony you said relatively flat for net royalty rate, commission rates, those kinds of things. Given the moving parts around the high-end and some other markets that are little more priced or inventory constrained.

Should we expect that relatively flat comment to have any seasonal variations we should worry about? Or anything that year-on-year comparison wise that we should be aware that looks little strange going through the balance of this year?.

I think you know there are some seasonal movements in those factors, but I don't think they're going to be a much different than we've seen in the past..

Okay. Thanks..

So again, I think those factors are most valuable on an annual basis, those metrics. And again, we think they're all going to be flat this year. We expect that they will be flat this year..

Okay. Great. Thanks, guys..

Our next question comes from Anthony Paolone with JPMorgan. Your line is open..

Thank you, and good morning. On the inventory matter, it's been a topic for a while now, and yet we've had good job growth and some expansion of credit. And so, I'm wondering, if you can kind of help us think through what happens if the jobs start to go from $200,000 a month to $150,000 or $100,000 or something like that.

Can we realistically expect inventory to pick up and fix that issue?.

Personally, we don't anticipate that the inventory fix is a short-term issue. This will take a while for this to correct, it's a byproduct of builders not building for a considerable period of time, so they have to catch up on an annual basis, which they clearly are doing. You need to see a number of other issues.

A first time seller cannot sell to move-up, because there's limited inventory in the move-up cycle. So, that's sort of creating a bottleneck. So, we know there's substantial demand and interest in moving up, just lack of inventory. So, there's no single factor that's going to fix inventory overnight.

It's a variety of different issues, stronger market, some price appreciation in some markets, builders have to build more aggressively, they've got to start building new first-time buyer product. All those things are happening, they're just happening slowly and they'll correct over time.

So, none of our forecasts or beliefs suggests a quick fix, because there's not going to be one. It's going to take time, but we like what we see and it's encouraging and we think we're on the right track to better inventory levels over the next several years..

Okay. Thanks. And then in New York, you gave us some data on Corcoran, it was up pretty nicely.

Like, how much of that, if you think just even, just New York in general in your system is benefiting from the sell through of condos and representation there versus just the market, in general?.

We are through a subsidiary of Corcoran, as you know we market a lot of new product. We think we're the dominant player in New York City in that regard. And we are definitely getting the benefit of that, but the traditional corporate brokerage is also performing quite well.

So, it's a combination of both; but given that we're the largest from a new construction marketing perspective, we're doing quite well. So, it's contributing in a meaningful way..

Okay. And then on my last question, I know we've talked about this in the past on the share item and it's tough to tie perfectly. But I think the NAR volume growth was like 9.5% in the first quarter and you guys were at about 6%. And you talked about adding PCI and RFG, and it seemed like NRT did well in some key markets.

So just wonder, if you can talk to that disconnect a bit or why that's still persisting?.

We are more high-end focused in NAR, I guess would be one thing. And that's again as we talked about that's in a cycle, we don't think it's a permanent issue, it's really just a pause. We think the high-end is being a little more cautious, but they're looking for value, but they are there.

And I think over the long-term, being in cities like New York, Miami, Chicago, San Francisco, L.A., those are the markets you want us to be in and we're in them. So, I think, again it's partially because of that shift; but over the long-term, we are in the right markets.

And again, our market share overall in terms of volume has been in sort of the mid-16% for the last three years and we don't see any change to that. So, I think we're doing fine on market share and obviously it's a very competitive market out there. And we think we're doing well, keeping our metrics like splits steady.

And we're not about market share necessarily, but we think we're holding our own and we're in good shape, but we're obviously always looking to do better. So, and we will..

In NRT; is agent count year-over-year up, down, sideways, anyway to think about it that way?.

It's about flat..

Okay. Thank you, guys..

You're welcome..

Our next question comes from Brad Burke with Goldman Sachs. Your line is open..

Hey, good morning guys. Your comments indicate that demand remains very healthy. But there's not nearly enough supply. And that credit availability continues to improve. So good demand, not enough supply. Bigger picture question.

Why wouldn't that translate into more than the 0% to 2% home price appreciation that you're expecting in the second quarter?.

We think the high-end of the market is becoming particularly value conscious with respect to price. The demand is there, but they're going to pay what they believe is fair value. And they don't like what they see, so the moderation of price is actually a good thing. We think it impacts affordability. Listen, the run-up in price makes it possible.

We've got some leeway there to sort of slow down the appreciation in price, if not even decline a little bit, while sides increased, so that's a better outcome long-term. And we believe that's probably what shaping up. It's hard to tell at this point.

We will know more later on the year, but it looks like the moderation price is going to be a healthy contributor to stronger unit volume..

Okay. And actually then a follow-up to your margin guidance. Two part question. The first, the third-party forecasts are obviously for the broader market. But you indicated that your margin range is based upon Realogy realizing a 6% to 8% growth in transactions.

So, is your expectation that Realogy would realize transaction growth in line with the broader market for the year? And second, that 6% to 8% range would imply some acceleration from the first half of the year based on your guide for the second quarter.

So, hoping for your view on whether that's a reasonable assumption for the back half of the year?.

Sure. So, on the quarter guidance specifically, we mentioned that we expect the volume growth at NRT to trail slightly behind the RFG growth, because of what's happening to high-end. So, you know, so I guess, that means if RFG hit the market growth then NRT would be slightly below that.

And we said, if that's not the case and the high-end rebounds we think they'd both be in lock step. And that would get us to the higher end of that margin guidance.

On the second question or the second part of your question, you know we have and if you look at all the forecast, you can see this, we have, you know, we're lapping the TRID impact in the fourth quarter, so we think that's going to sort of – the back half is going to bring up to full-year.

So to your point, you're right, the first half is closer to 6% to 8%; but I think when we get to the back half of the year, we're lapping TRID, fourth quarter should show some benefits from that..

Okay. But just so I'm clear.

The 14.8% to 15.2%, that's contingent upon Realogy getting the 6% to 8% growth in transaction volumes?.

Correct. That's right..

Got it. Okay. Thank you..

Yeah..

Our next question comes from Bose George with KBW. Your line is open..

Hey, guys. Good morning. This is actually Chas Tyson on for Bose. I think you said Florida is down 5% on transaction volume, and California is down 4%.

Do you have that same breakout on a price versus sides basis?.

Well, California without looking, I can tell you is all sides, price was flat. And it was a mix for Florida, sides and price..

Okay.

And are you expecting similar trends? Is that kind of built into your guidance and 2Q that would have similar trends there? And New York would continue to be up?.

I think in the second quarter, we're seeing the California situation we expect to continue. And Florida, we're starting to see some stabilization there. And we think the development in New York City won't be as strong in the second quarter as the first quarter. So, the 12% probably is not repeatable in the second quarter..

Okay. And then in Florida, in particular.

How are you seeing the, if you have any color, the health of the international buyer there, given that it's a fair amount of the market? And also, do you have a breakout of what percentage your NRT volume there is? Is condo based as opposed to single family detached?.

I don't have that. We saw both. Certainly in Miami, we've seen some of the softness can be attributed to lower international activity, but that doesn't really affect the markets outside of Miami. And I guess on the West Coast of Florida, it's a little bit of softness due to less Canadian activity.

But, they're definitely feeling it in those two markets; but I'd say in the rest of the state it's not a big factor..

Okay. And then last question. I think last quarter you had given a revenue impact of TRID.

Do you have a similar figure this year? And are you building into your guidance that we continue to see the kind of narrowing of the gap in opening and closing homes as we see in kind of (47:31) a little bit?.

We don't. TRID was – it was baked into our numbers. So, the reason we highlighted it in the fourth quarter, because we didn't see it when we gave guidance and then sort of two weeks after we gave guidance, it really started to affect the fourth quarter and we had that sort of – we had baked into our first quarter.

In terms of, for the rest of the year, I guess we've seen – as I mentioned in my comments we've seen some improvement in TRID, but what we're still cautious about is we're going to get into the significant volume periods over the next several months, so whether those gains that were made in March hold is something we're cautious about; but if we think for the full-year, we're going to stay at this four day to five day.

We don't expect any improvement in the four day to five day delay for the full-year. We haven't baked that into any of our numbers..

Okay. Makes sense. Thanks, guys..

Our next question comes from Mike Dahl with Credit Suisse. Your line is open..

Hi, thanks for taking my questions. Tony, just wanted to follow-up on the couple comments relating to the 2Q guidance. And again, NRT specifically. Because I think, just listening to some of those comments around the markets. It sounds like, net a lot of things and NRT markets stay relatively similar, but then maybe New York City not quite as strong.

Just given the development pipeline issues near-term. And so, if you did a 2% organic in NRT in 1Q, is there any color as far as like should we expect similar growth within this 3% to 7% guide for NRT in terms of just still seeing 2% organic.

Is it going to slow a little bit, given the New York City issue? Or are there other offsets that would put it back in more the middle of the pack?.

Yeah. We're seeing a unit pick up and one of the challenges with first quarter is everything kind of stands out like a sore thumb. That's not the case in the second quarter because we're exceeding our more overall volume; but overall, we're seeing good sign – we expect to see good signs of improvement at NRT as well as RFG in the second quarter.

And there won't be the CB United discussion, because we owned that for all but about four days of the second quarter last year..

Right.

So, you would think that 2% could still pick up a little and actually be within the range of the overall transaction?.

Yeah, (50:32)..

And then, appreciate the comments both Richard and Tony around some of the NRT issues as it relates to share. But I think Richard, you did mention in the opening remarks that it sounds like you're choosing to give up a little bit of share. And seeing some pressure just in favor of improving the profitability on the remaining portfolio of offices.

And so, I guess what's changed on the competitive front? Or are you seeing any differences in terms of who is driving some of the incremental competitive pressures?.

I think, it's most – and as you know, it's cottage industry. So our competition is the person across the street, who decides to go into business the day before. So, we compete against every one. We're disciplined in our approach to the market. We don't focus on market share, we focus on profitability.

We've always done that and we're going to continue doing that. We've seen no seismic change in that regard, it's literally local competitors who discount their services and provides very limited services to the consumer, that's not our business.

There's no apples-to-apples comparison on either market share, or method of operation, or the economics of those methods of operation. So we know our model, we know it well and we're focused on that. We think it is the model that delivers the best upside to shareholders and generates the most cash and most important our model is sustainable.

Many, we compete against are not sustainable models, so we know what we know and we focus on what we do well and this shows in the results..

Thanks. And one last question, Tony. Just going back to the full-year and some of the covenant adjustments. Because it seems like there are certainly some parts of it that evolve over the year in terms of some of these pro forma optimization or acquisition parts.

But as far as some of the things that are a little more defined within the guide like the stock comp expenses.

Is there anything you can just give us as far as just magnitude of what some of these adjustments as currently in the 14.8% to 15.2% guide are?.

We're moving to operating EBITDA. So, we're trying to shift people's focus of some of those things, they're not there; but having said that, I understand. I'm just sort of thinking back, I think they're pretty comparable to last year. I don't think they are big. I think business optimization is going to be, would be about the same.

I think the pro forma M&A may be a little less, because we did couple large transactions last year. And the stock comp, we're probably within $5 million on the stock comp..

Okay.

Since you're shifting that focus, should we expect that you'll start giving guidance based on the operating EBITDA and operating EBITDA margin in the future?.

Yeah, we'd expect to. We expect to look at that in August as well..

Okay. Thank you..

Our next question comes from David Ridley-Lane with Bank of America Merrill Lynch. Your line is open..

Sure.

So, within the 4% to 6% full-year transaction volume guidance, would you anticipate pricing being pretty consistent with first quarter results and your second quarter guidance in that call it 0% to 2% range?.

Yeah. We expect price to be flat to up 2%. And sides to be up 3% to 5%..

Okay. And then a little bit of a longer term question around the U.S. housing market.

The lack of entry-level inventory, does this potentially pressure rebound that we're all expecting in homeownership rates in the U.S.?.

I didn't quite get that....

Sure..

...is that the impact on homeownership?.

Yeah. So, if the inventory constraint is being felt more at the low end through that first-time home buyer home.

Is that a potential risk for when new households do form over the next few years, and they can't find that entry-level home to move into, does that put pressure on homeownership mix homeownership rates?.

I got it. No, I think inventory issues are across all price points. There is a lot of inventory at the very high-end of the market. It's inadequate inventory at the entry level and also the move-up markets, so I don't see that in particular impacting homeownership rates.

A variety of issues were impacting the homeownership rates, that's just probably one of many. The good news on inventory is that it's an across the board issue. Quite frankly, if there were only one segment of the U.S. market, we could probably address it a lot faster, that's not the case. So listen, it's improving a little bit.

There has been three sequential months of slight increases in inventory.

We anticipate that, that will increase somewhat in the second quarter and third quarter as people decide they can get what they want for their home and they're going to put on the market and just try to move-up, but we're still well off the normal six months to seven months of inventory. We're at 4.5% to 4.6% right now, but we're encouraged.

We're starting to see slight improvements, that in and of itself is not going to be the big impact in homeownership rates. I think there are a number of issues there..

Got it. All right. Thank you very much..

You're welcome..

Our last question comes from Jason Deleeuw with Piper Jaffray. Your line is open..

Yeah. Thank you, and good morning. So, just a question on the move-up buyer.

What do you think is holding up the move-up buyer right now? Is it still negative equity? Or are there other issues? What are your thoughts there?.

No, we don't think it's negative equity, although that's a minor, less of an issue today than it was several years ago. It's literally inventory. Not only is there not sufficient inventory for the first-time buyer, there is inadequate inventory for the move-up buyer.

If I'm a first-time seller and I want to move-up and there is no inventory or less inventory then I am going to wait and that's exactly what we see in certain markets. There are not many markets where there is an exception to that rule. It's just created this little bottleneck.

The way we view that and I think most housing experts do it, is demand is strong. I'd much rather see strong demand and inadequate supply versus the opposite. So, where this will work itself out and fix itself over time.

And it's slowly doing that, it's just a matter of time; but, we expect that inventory levels will improve and inventory supply will meet demand and we'll see much stronger results over the next several years..

Thanks for that. And then, going back to the full-year guidance. The 6% to 8% volume growth. Can you help us think about, or at least put us in the ballpark on the revenue growth expectations? We're thinking probably lower than the volume growth.

But, can you help us a little bit on the magnitude of revenue versus the volume growth?.

We give guidance on volume expectations. We don't give guidance on any other metric..

And then in terms of the margin expansion. I believe historically the algorithm has been like 3% revenue growth would start to drive margin expansion as you would cover your inflation in the cost.

Is that still the right way to think about the margin expansion for the business?.

With the business optimization, we've been trying to get it down from sort of 5%, 6% to sort of 3%, 4%, yeah..

Okay. Thank you very much..

You're welcome..

All right, that concludes our call. But, I want to make a comment before we drop off today. In summary, our first quarter financial results were in line with our expectations.

We're working very hard to bolster our market presence in a profitable manner and we remain confident with the investments and technology we have made and other actions we are taking will strengthen the resiliency of our integrated business model and its long-term ability to enhance shareholder value.

Like everyone in the industry, we're challenged by low inventory; but we are encouraged by the level of demand being demonstrated in the market. Our focus on enhancing profitability, reducing cost, de-levering our balance sheet and returning capital to shareholders will continue to be our top priorities.

We will deploy our strong free cash flow in a manner that will drive growth and shareholder value. Thank you very much for joining on our call. Have a good day..

This concludes today's conference call. You may now disconnect..