Alicia Swift - Senior Vice President of Investor Relations Richard Smith - Chairman and Chief Executive Officer Anthony Hull - Chief Financial Officer Ryan Schneider - Chief Operating Officer.

David Ridley-Lane - Bank of America Merrill Lynch John Campbell - Stephens Jason Deleeuw - Piper Jaffray Stephen Kim - Evercore ISI Michael Dahl - Barclays Kevin McVeigh - Deutsche Bank Securities Bose George - KBW Brandon Dobell - William Blair Ryan McKeveny - Zelman & Associates Will Randow - Citi Group.

Good morning, and welcome to the Realogy Holdings Corporation Third Quarter 2017 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.

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, Annie. Good morning, and welcome to Realogy's third quarter 2017 earnings conference call. On the call with me today are Realogy's Chairman and CEO, Richard Smith; President and Chief Operating Officer, Ryan Schneider; 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 the 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'll listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, November 3, 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 our annual and quarterly SEC filings. Also, certain non-GAAP financial measures will be discussed on this call per SEC rules.

Important information regarding these non-GAAP financial measures is included in our earnings press release. Now, I will turn the call over to our Chairman and CEO, Richard Smith..

Thank you, Alicia, and good morning, everyone, and thank you for joining us this morning. Before I delve into the third quarter results, I would like to recap the news we announced two weeks ago regarding our leadership transition plan.

Following a comprehensive search, we're very pleased to announce that Ryan Schneider has joined us as President and Chief Operating Officer and upon my retirement effective December 31, Ryan will be appointed CEO. Ryan joins Realogy after nearly 15 years of senior leadership experience at Capital One.

He most recently served as President of the Card division, its largest business and drove his growth and success. He brings a wealth of experience in leveraging big data, rigorous analytics and new technology, all of which will bring a new perspective to our industry and company.

The transition of Ryan is well underway with the four primary business units now reporting directly to Ryan and the balance of the transition will occur by December 31, so let me turn it over to Ryan.

Ryan?.

Thank you, Richard. Let me start by saying that I'm both humbled and excited about joining Realogy. I see incredible potential to drive Realogy's growth with exciting new ways to use data, analytics and technology to enhance our primary strategy of serving agents. Realogy's scale and resources are unmatched in the industry.

That's a credit to Richard and the senior management team, who've built this company to be the industry leader for residential real estate services in the United States.

I'm incredibly excited to hit the ground running and work alongside a great team business leaders and talented employees, who're committed to serving Realogy's abilities to real estate agents, franchisees, customers and clients. Together, I know we will drive results..

Thank you, Ryan and now let's turn to the third quarter. I'd like to provide you with a summary of the items we're going to highlight on today's call. We faced a number of challenges in the quarter.

Our revenue growth of 2% was affected by the continuation of persistently low inventory and the hurricanes that constrained the level of transactions and our operating EBITDA was adversely affected by higher commission cost at NRT and lower employee relocation volume at Cartus.

Having said that, our combined homesale transaction volume was up 4% for the quarter, it's approximately 170 basis points higher than the statistics reported by the National Association of Realtors.

This improvement over NAR is a result of our progress on the strategic initiatives we discussed on investor day, which we believe will drive higher absolute revenue and profitability over the next several years. In particular, we've seen solid progress in agent recruiting and agent retention especially at the top two curtails of our company.

In contrary to what we experienced in the third quarter, in October we saw strong open client activity at both NRT and RFG, indicating the potential for improved transaction volume trends in the final quarter of this year. Now, let's address some of the puts and takes that we saw in the quarter.

Combined volume growth at NRT and RFG came in at the low end of guidance and NRT volume growth was a percentage point below the low end of our guidance.

The lower volumes attributed to the effects of the hurricanes, particularly as it relates to our large NRT operations in Houston and Florida and the persistently low inventory, which is limiting growth and transaction volume.

Commission splits in the quarter were higher than we anticipated for three reasons, relatively high growth in NRT volume and its higher split West Coast operations, NRTs successful recruiting and retention efforts and the incremental transaction volume from acquisitions.

With significant operations in Florida and Houston, TRG also felt the effects of the Hurricanes and Cartus continues to face the challenge of declining employee relocation activity as an increasing number of its largest corporate clients initiating fewer international and domestic employee relocation assignments.

Of the primary contributors, we're pleased demand has returned to pre-storm levels in the affected markets we serve for NRT and TRG. The overall increased commission splits were a result of intentional efforts by NRT to be more competitive with the best talent as we focused on gains in market share.

And greater than expected volume growth in NRTs West Coast operations was encouraging, although it pushed overall commission splits up slightly more than expected as West Coast agent splits are higher than the East Coast.

And the across the board slowdown in Cartus's core business will be addressed in 2018, as we expect to take steps to align Cartus's cost structure with a new level of relocation activity. If you recall from investor day, we made it clear that we're focused on strategies that increase company generated leads and that work is progressing nicely.

We also continue to work on strengthening our technology and marketing tools for agents and building a world class training program, all of which are designed to increase the long term productivity of our existing agents and attract new agents by strengthening the sales agent value proposition.

Over the last several quarters, we're committed to strategy of improving our share in key markets through targeted agent recruiting and we're delivering on that commitment. The success of our recruiting efforts can be measured in two key metrics, agent count and agent retention.

NRTs agent count grew 4.5% in the last 12 months to more than 50,000 agents. The retention rate of NRTs first and second curtail sales agent slightly exceeded 94% at the end of the third quarter, which is at our historical high water mark.

While we're successfully addressing the market share concerns, which we pointed out late last year, the cost of doing so, especially when compounded by the geographic mix is skewed toward the West Coast, the splits increased slightly more than anticipated.

For the year, we estimate NRTs commission splits will be in the range 70.25% to 70.5%, as NRTs field management balances tradeoff between market share and split rate.

In 2018 NRT management is tasked with the objective of slowing the rate of increasing commission splits and agent productivity gains, which are compensated at a much more favorable split to the company in the third and fourth curtail of our agent population.

On the franchise site of our business, we continue to use technology to enhance our value proportion, as that platform is at the fore front or our efforts to help our franchisees and agents improve their performance. Zap will be deployed to substantially all eligible franchisees by year end.

We continue to see an uplift in productivity from agents or actively engaged in using the Zap immigrated application suite and thus saw a shift from the deployment to training and engagement.

In franchise sales, our team continues to build our base of brokers and agents adding approximately 92 million in gross commission income in the third quarter and 265 million year-to-date from new franchisees sales and related agent recruitment initiatives.

In our Relocation and Affinity businesses the key contributor to our lead generation strategy, Cartus generated referral opportunities that resulted in approximately 24,000 homesale closings in the quarter.

In addition to welcoming, Ryan Schneider to our senior leadership team, we continued our focus on adding depth and strengths to our executive ranks. In August we appointed Nick Bailey as President and CEO of Century 21 Real Estate.

Nick most recently served as the Vice President of Broker Relations with the Zillow Group and has extensive real estate experience as a leader in franchising, brokerage, management and technology. Also, in August, Roger Favano was named NRTs Chief Financial Officer.

He brings more than 25 years of financial leadership experience mainly at General Electric Capital. And Cartus appointed Mark Sonders as a Senior Vice President of Global Sales and Marketing. He joins the company with over 20 years in B2B sales in strategic business development roles.

While operating EBITDA underperformed compared to the same period last year, we continue to invest in the growth of the company. We are making solid progress, in our strategic initiatives, and agent recruiting efforts as evidenced for strong retention and growing aging count.

We are steadfast in our focus on our strategic goals, namely to drive sustainable organic growth in each of our business units, by strengthening the services we provide to our affiliated agents which long term, we believe will result in improved agent productivity and higher volume and revenue growth across Realogy.

I'd like to highlight the tremendous cash flow characteristics of our business. Year-to-date we have generated $406 million of free cash flow of which we returned 215 million to stockholders in the form of share repurchases and dividends.

Since, the inception of our share repurchase program in February of 2016, we have repurchased a total of 13.5 million of our outstanding shares for 394 million in the aggregate, bringing our total share count to 134.6 million shares and that's as of November 1. Before we move on to Tony's report, permit me to comment on the GOP tax front.

The Tax Cuts and Jobs Act introduced yesterday by the House Ways and Means Committee is the first of many steps, expected in reaching agreement on tax reform that will create economic growth co-ordination. As written, the industry at large is opposed to the bills treatment of the mortgage interest reduction and state local taxes.

That said, we are optimistic that a compromised position can be reached that keeps the value of home ownerships strong, but also contributing to a stronger economy.

Although much work remains, we are pleased to see the House Ways and Means Committee's harder work on this important piece of legislation and we fully expect to be deeply engaged in the work that should result in legislation that both Realogy and the industry will support.

With that commentary on that GOP tax legislation, let me turn it over to Tony..

Thanks Richard. Before I discuss the Q3 results let me address the changes to our guidance for 2017.

Our 2017 operating EBITDA is now expected to be in the range of $725 million and $735 million, which reflects higher commission splits to the greater relative volume in NRT's West coast operations as well as anticipated initiatives designed to attract well trained agents in the impact of lower global relocation volume on Cartus.

An estimated $12 million reduction EBITDA is due to natural disasters in the third and fourth quarters. An estimated $8 million charge related to changes to our Senior Leadership.

This guidance incorporates the fourth quarter transaction volume on Slide 5, which shows Realogy's Q4 combined homesale transaction volume is expected to increase in the range of 46% year-over-year, with sites between flat and up 1% and 4% to 5% coming from price growth.

Broken down by business, we expect 3% to 5% transactions volume growth at RFG and 7% to 9% growth at NRT.

On Slide 9 for the full year, we currently expect that Realogy's combined home sale transaction volume will increase in the range of 6% to 7% year-over-year, and by business unit we expect RFG to have about 5% to 6% transaction volume growth and NRT will grow between 7% and 8% in 2017.

At those volume levels, full year revenue is expected to be between $6.1 billion and $6.15 billion and free cash flow is forecasted between $505 million and $520 million. Turning to Slide 7, I'll review our third quarter 2017 results in greater detail. Revenue of $1.7 billion is up 2% compared to the third quarter of 2016.

Operating EBITDA was 258 million. The combined effects from hurricanes in Texas and Florida impacted the results by approximately $7 million mostly at NRT and TRG. Net income for the quarter was $95 million compared to $106 million last year, due to lower operating EBITDA.

Adjusted net income per share was $0.71 compared to $0.75 in the third quarter of 2016. Turning to Slide 8, for discussion on the drivers of our business, our overall homesales transaction volume growth was 4% year-over-year in the third quarter.

RFGs transaction volume increased by 5% with a 1 point decline in size being offset by 6 points of growth in average sales price. The hurricanes had about 0.5% impact to sites RFG. The third quarter also had one most business day than in the same period last year, which acquaints to 1% reduction size.

Excluding these two factor sites, growth would have been up 1% RFG during the quarter, which reflects continued inventory constraints across the most price points. On a geographic basis for RFG, volume gains in the West were the strongest at 8%, followed by the North East being up 6% to the price.

The volume in the site increased 2% and included a gain of 3% in Texas and 2% loss in Florida for the quarter. Volume in Mid West increased 1%. NRT finished the quarter up 4% transaction volume due to the increase in average sales price.

The hurricanes had a more noticeable impact of NRT during the quarter, accounting for a 1% impact to sites mostly in Florida markets, where NRT derives about 8% of its revenue during this time of the year. Excluding the hurricanes we estimate volume would have been up 5% at RFG.

The high-end recovered to the first half of the year and is stabilized in the third quarter, NRT's volume in the 2.5 million and above price segment grew 4% year-over-year, which consists of 12% increase in sites offset by an 8% decrease average sales price.

The strongest geographic market for NRT in terms of volume was the West with 11% growth, driven by strong California growth. Volume in the Middle West region increased 2%. The South region was flat on volume, which included a 2% decline in Houston. The North East region was down about 1% in volume.

Turning to other drivers, average broker commission rate or ABCR at RFG was down 1 basis point to 2.49% and ABCR at NRT was down 1 basis point to 2.45%.

Net effect of royalty rate for RFG was 4.42% down 8 basis points for the quarter and in line with our previous estimates, which continues to reflect the success of our top 250 franchisees with net royalty rates below 6%. For the full year 2017, we continue to expect the royalty rate to be approximately 4.40%.

NRT commission splits increased to approximately 209 basis points, year-over-year to 71.0%. The increase in Q3 split rate was a result of higher transaction volume, a geographic mix of business skewed towards markets like California which command higher splits and the impact of heightened retention and recruiting efforts.

Turning to Slide 9, let's talk about business unit operating performance in detail. At RFG, revenue increased 4%. The growth was from higher net domestic affiliated royalties, increased royalties from NRT and greater international revenues. RFGs operating EBITDA increased $5 million principally do with the higher revenues.

NRT revenue increased 3% to $36 million in Q3 of 2017, about half of which was due to the year-over-year impact of acquisitions. NRT operating EBITDA decreased $16 million to $64 million primarily due to $53 million of increased commission expense, which more than offset the increase in the revenue.

Breaking down the $53 million, higher split rates to the target recruiting and retention efforts resulted in $25 million of increase. Higher volume drove $16 million of the increase and acquisitions completed since the second quarter of 2016 added 12 million to the total.

Looking at commission expense change in another way, regionally the 11% increase in volume in the West was associated with 70% of the $53 million increase in commission expense. Cartus revenue decreased $5 million in Q3, primarily due to a decrease in International and other revenue.

Operating EBITDA decreased $12 million as a result of lower revenue partially offset by $1 million decrease in employee related costs. TRG's revenue decreased $10 million and operating EBITDA was lower by $3 million year-over-year.

The revenue decrease was driven by reduced re-finance activity, including the impact on its underwriter, partially offset by higher resell revenue. EBITDA includes, $2 million of costs associated with the start-up of operations of the Guaranteed Rate Affinity joint venture.

And, as a reminder the Guaranteed Rate venture will be included in TRG's EBITDA whereas the PHH joint venture numbers are reported in RFG.

Corporate expense before restructuring like you've seen in earlier extinguishment of debt in the third quarter was $3 million greater than the third quarter of last year, due to higher expenses relating to investments in technology development, professional fees supporting strategic initiatives and higher employee instead of conversation accruals relative to last year.

With regard to our joint venture, the company has completed the first three out of five phases, of the sale of PHH Home Loans assets to Guaranteed Rate Affinity. The remaining two phases are expected to be completed in the fourth quarter.

After, giving effect to the establishment of Guaranteed Rate Affinity and the liquidation of Realogy's interest in PHH Home Loans in early 2018, the company expects to realize net cash proceeds of approximately $29.

Slide 10 provides guidance for specific cash items below operating EBITDA, in particular, corporate cash interest expense for the year is expected to be approximately $165 million. Cash taxes are expected to be between $10 million and $15 million and full year capital expenditures between $95 million and $100 million.

Finally, working capital is expected to be a contributor of cash between $55 and $69, which includes dividends of approximately $30 million in the laying down of the PHH Home Loans joint venture in the third and fourth quarters.

Based on the expected operating EBITDA range for the year, we expect that the company will generate between $505 million and $520 million in 2017.

We intend to use the significant portion of our $0.5 billion of expected free cash flow this year to return capital to our shareholders, predominantly through share purchases because we believe Realogy remains a great investment and we have great confidence in our plan, opportunities in the market and our ability to execute.

Lastly, you should know, Richard will be retiring at the end of the year and this would be his last appearance on our quarterly calls. I want to take this opportunity to personally acknowledge Richard Smith for a strong and ethical leadership of our company for the last 20 plus years.

During the toughest times of the financial downturn, Richard was at his finest, working tirelessly to bring our company through the storm and back on solid footing to position us for IPO five years ago. It is largely, did his vision, execution the result of Realogy as grown to the great company that we are today.

Richard you've established a culture of accountability and respect and built a strong foundation, upon which we are well positioned for continued growth and success. On behalf of all the Realogy employees, we thank you for your leadership through the years and all the best in the future. Now we'll move to Q&A..

[Operator Instructions]Your first question comes from the line of David Ridley-Lane with Bank of America Merrill Lynch. David your line is open..

Sure, I appreciate the detail on NRT agent growth, wondering if it would be fair to think of the productivity of those net earns or closely overall average of NOC or could the revenue contribution be a bit higher if you're talking more productive agents? Thank you..

These are agents that are at the high end of the game, so they are very productive to begin with, so, we fully expect to play well, be more productive with us. So, you are correct in your assessment..

And then I know it's early in your planning, but any thoughts on the trend of commissions split in 2018?.

Sort of way to look at this, as you know, we played catch up, we were thinking on that regard, underperforming the market is where we are working very, very hard to keep the agent splits as favorable to us as possible for about three years, so, this year we've been planning catch up.

We fully expect that they start stabilizing and as you probably say, in 2018 and our team management as we go on objective of allowing the rate of growth and stabilizing the agents put. But, I think we are to do that, principally to increasing the productivity of the agents in the third and fourth quarter.

We have good experience in that regard and we have high degree confidence in our ability to make them more productive thus offsetting the increases per race..

Alright, thank you very much..

Your next question comes from the line of John Campbell. John your line is open..

Hi guys good morning, and first of all Richard it was great in getting to know you over the years and congrats on the long and strong career. And then Ryan welcome, I am looking forward to working with you.

Richard and maybe Tony, it sounds like the Cartus business, it sounds like it's facing a bit of a sustained headwind and you guys can be looking at right side in that business next year.

Am I driving the right conclusion form that commentary?.

No, you're only saying almost not exactly. The in and out of volume is just seasonal, but it's there. So, we are going to adjust the cost structure, one of the principle advantages we'll have, we are fully engaged in this is, we think technology is going to have a big impact on processes service delivery.

There is project under way to decrement to what extent can that technology smoothen up the expense reduce cost. So, big project for 18, management above Realogy and partners are fully engaged and we will all address just as we said we would..

You know, I'd also add to that, one of the very critical functions of credits within our business is delivering leads that will have a 70% plus chance of converting to the agents of our franchisees and our tease agents.

And, the goal is to increase that amount, those partially from corporate coins but most those leads come from our larger filmy coins. And, we think there's a great opportunity to increase that number substantially that come from our filmy coins. That really adds to the retention and recruiting of agents because those leads are highly sort after them.

They are obviously much more effective and profitable than leads you get through any net source on the Internet. So, that's really the reason for the immigration of that company and our business it's proved incredibly effective in that regard to gain franchisees and to track agents. And, we have great opportunities to increase that in the future..

Tony is absolutely right on that, let me just make one additional point. There is a credit call confirmed that of our two old assets. It helps us recruit agents, retain agents, and also helps us recruit and we know franchises. So, we are just going to resize the cost structure to be more flexible going forward and then that's going to be a compass.

But, tell me you should right down the core importance of Cartus as one of our key assets in our tool kit..

Okay and then I know it's pretty really on the assessment. But, if you ran the first nine months of quarter's revenue at the same margin of the first nine months last year, I think that acquaints about 7 million or so, of additional EBITDA this year. I guess EBITDA headwind that businesses ran close to 25% or so margins in the past.

It looks like it's probably closing in 22, 23 this year.

Do you think that just of the top of your head, that you get back to that kind of margin level, is that a good way to think about it next year?.

Yeah, now I think you are right in that assessment. It's been pretty predictable with past five years, mainly we've looked at the trends as reliable, predictable, it's been a solid contributor to both revenue and EBITDA in spite of the downturn.

So, we can definitely improve in the sessions, it's going to be through better technology and that's well underway..

Okay and then quickly on this Tony, there is a lot of moving pieces to the EBITDA this quarter and then I guess was include and imply 4Q guidance I am sure I can get to this conclusion eventually, but maybe you could help us just kind of short color and give us an idea about what is kind of truly one time it doesn't roll over next year and I know you have got the 8 million of the legal settlement last quarter you sound like this 8 million of TOR transition cost is the 12 million of hurricane activity.

Anything else I am missing there as we get into next year?.

You know I think there is some benefit from the wind down of PHH store in venture in the fourth quarter, but we feel very good about that's going to be replaced next year from earnings from our currency rate infinity joint venture.

So I think I guess that's not one time as result of that comment, but it maybe a little more squash into Q4 this year then and we will see more spread out next year, but again that's ramping up next year so probably the best results will be in the third and fourth quarter of 2018 for that joint venture.

So I think those two things are - I think you are right, those two things are the largest items of note in the fourth quarter in the forecast..

Okay thanks guys..

A in the 12, yeah..

Your next question comes from the line of Jason Deleeuw with Piper Jaffray. Jason, your line is open..

Good morning and Ryan, I want to offer my congrats and looking forward to working with and Richard, it's been nice working with and I just want to wish you all the best. The first question is on the I guess the when I look at the NRT, RFG combined results, the operating EBITDA declined 5% year-over-year this quarter.

So it had been growing even with the ramp up in commissions but so I guess what's kind of the thinking on kind of looking at segments combined I mean can we expect to give that to EBITDA growth as we kind of recalibrate the commission splits just kind of your thoughts like are those two segments combined.

Is that still how we should kind of be looking at the business in kind of accessing the strategy here for the requirement..

Yes, it is I think I know what happened in the third quarter is we are success in recruiting happened to benefit the West Coast more than anywhere else. We were up a 11% on the West Coast this year and the rest of the markets, I mean forgetting this afterwards I think because there are some hurricane impact.

The Mid West was flat, New England was flat. We actually in terms of size at NRT we actually outperformed in our numbers in both of those, but we are talking about they reported minus 1 to 2%. You know NRT was up 1or 2% on those markets. So we definitely, we out performed, but we did substantially better in the West Coast than we had anticipated.

so again of that $53 million increase in splits 37 million or 70% was due to the West Coast being up, the West Coast being up a 11% and kind of flattish for the rest of the country.

So another way of looking at it is if the West Coast been in 6% which will be nice still and the rest of the - in the rest of country in the North 6% you wouldn't have seen - you would have seen a much more attractive kind of combined EBITDA growth on the revenue growth and we saw it's just at the West Coast really out performed which is a great new story.

I think going forward I like it continue to 11%, but I think in the future we'd probably see growth in other areas that have more favorable splits.

So to catching up to the West Coast and that would be something that could potentially take pressure often splits going forward, but for the quarter it was very the West Coast driving really kind of skewed the results which again I know is a high class problem but it's great to see that we are really making huge drives on the West Coast and we expect to try catch up of elsewhere and that will be great for the combined growth..

Got it, thanks for that and then on just thinking about the split strategy is there going to be recalibration in terms of the split levels being offered or any change in kind of which geographies of parts of the county you want to target?.

It's a good question, we think we've accomplished what we intend to do accomplish and firstly a remark of reserve, so the balance in between market share gains and splits to the most part being accomplished now will be very selective as to which markets we want to grow.

We would like all the above but the focus clearly will be on the most profitable markets from a split perspective. So you will have to monitor our performance during and 2018, but I assure you we are focused on the most profitable components so in those markets..

Great, thank you..

You are welcome..

Your next question is from [indiscernible] Evercore ISI. Your line is open..

It's Stephen Kim, over at Evercore ISI. Hi, thanks very much guys and let me also add my congratulations and also an offer a lot to you Richard. My first question relates to the splits and I wanted to make sure I got this right.

We know that is naturally a bit of seasonality for example your splits have never gone down sequentially in the fourth Q at least as far as I can tell.

I think some of that relates to the timing of the year when your splits are sort of when the clock starts so to speak on the commissions and so forth, but was wondering if you could just help me understand is there anything in the hiring process that you recently underwent with these very productive agents that is going to make the split trajectory as will see on P&L perhaps more stable through the year or is it going to continue to be seasonally weighted to the back?.

Again we expect splits to be 70.25% to 70.5% for the year and that's reflecting our latest forecast.

I think some of the back end increases that you note back half increases that you note are due to the impact of certain agents get split improvements as they do more volume during the year so you sort of see that we don't try to project and smooth help that effect so you see that in - that's why you see this trend of increases but again the full year based on what we see today, we expect the commissions what's to be 70.25% to 70.5% for the year..

Got it. Okay so that sounds like those dynamics are going to continue next and that's what I was just trying to clarify.

Second question relates to some numbers I apologize if didn't quite catch all of this quick, but the change in your EBITDA guidance from where it was last quarter, I believe is roughly $35 million, I think you - correct me if I am wrong, but I think you indicated a 12 million was due to natural disasters, 8 million management transition costs and now will leave about $15 million I assume from sort of the recruitment efforts in the higher splits and that sort of thing and then passing that 15 million I think you would indicate with a higher - just naturally higher volumes I guess and you expected last quarter, your recruitments efforts in the western markets that you said was 70% of the commission cost so I just want to make sure that I got those pieces right, 12 million for natural disasters, 8 million for managing transition, 15 for higher split and within the 15, 70% of that was due to the Western markets.

Do I have that right?.

Yeah, so the 15 was mainly due to the shift in - that we saw in the third quarter to more west Coast volume and so you are exactly right on that and then the other factor was some of the activity we are seeing - the reduced activity we are seeing from Cartus clients pretty much across the board especially on the international front.

They just seem to be on pause, for this year to see how things shake out in Washington and for whatever reasons but I think I believe it's temporary and I think that was the other thing that contributed to that decline..

Excellent. Thanks very much guys..

Thanks..

Your next question comes from the line of Michael Dahl with Barclays. Your line is open..

Hi, thanks for taking my questions and Richard, all of my congrats as well..

Thank you..

Tony.

Sorry but yes, I will keep beating harsh a little bit here on the splits in the west coast, I think what am still struggling to understand is you know if you think the shift to the west clearly it's a higher split rate, but the compensation is higher average price and so I guess my perception And EBITDA positive transaction in terms of the dollar value that goes that to you even if its lower margin percentage so is this truly something where you are now losing money on these West Coast transactions or you are saying this is relative you to where you thought the volume would come from that this is - that's the change because I think that's what is not really adding up, why it would actually be a negative in absolute terms..

It's a ladder I mean it's a combination, it's really the geographic mix at the same shift at the same time as we put in place retention in recruiting efforts.

So it's a combination of those kind of have the overall effect of sort of not having the desired results but again the positive news is that we have completely and maybe it's completely too strong or but the issue that we were concerned about last year which was market share attrition has is largely behind us an so I think we have got the plan stable highest and ready to start gaining altitude and this is going to be bumps along the road in that effort, but I think we are well on our way to our ultimate goal of increasing overall revenue and profitability of the company.

So I don't think - didn't vision we just had a double two impacts at once and the one we didn't expect is that the West Coast would grow a 11% and the rest of the country, because of inventory constraints would be sort as - the rest of the country forget hurricanes was soft.

Look at the national statics it was just this inventory constraint thing finally we think adopt to us in the third quarter.

So again if we had seen a different picture in the Mid West and the East, in the North East, the results would have very different for the quarter, but we didn't and it happened when we have been successfully improving by leaps and bounds.

Our market position and our retention of agents, so to me it's like a onetime glitch and its, but we are heading in the absolute right direction to increase revenue and the EBITDA levels..

Let me add one, Tony is very exceptionally correct in his assumption with one additional comment I would make in this sort of a holistic view we have of the West Coast operations.

You got to remember in absolute there are paying substantial contribution to the franchise side of our business to royalty payments and that also happens to be one of our most profitable title on closing as far as services markets and the higher cost agents from the West Coast are material contributors to that as well.

So take all of that in your account, that California is a very profitable market for us, but Tony is right to point out that the mix of business was much stronger to the West Coast than we anticipated..

Right, got it. And that's what I thought regarding California being profitable, its why to understand the change in the guide related to that part, but I think that is helpful.

It also weeds to my next question, when you talk about kind of stabilizing the plan and setting it again altitude here and to the extent that you have been successful on some of these recruiting initiatives, what are you seeing in terms of competitive response because clearly and we have talked about this you are responding to what some competitors were doing over the past couple of years.

You have been successful, now what are you seeing from those same competitors?.

From what I have heard from NRT management - the selective and spotty reaction to us doing this and there is nothing large scale that any of our competitors are doing or honestly can do we have again this is all about using data to attract - to go after the best agents and it's not just and then giving a very small, relatively small transition payment to get them to the pain of going from their old brokerages to NRT, but it's really head of nerve and was incredibly successfully doubled - we more than doubled our recruiting in, in this past 12 months versus the year earlier.

So we have gone from like our normal recruiting of $250 million a year GCI we are going to be almost $600 million of GCI in recruiting this year. So with very minimal outlays relative to our overall - capital structure our abilities and we get the agents, we have an agreement with the agents to stay with us for three years.

So it's very sticky and it's been just very successful, again it's - the numbers are it's a one year pay back on the investment we obviously amortize it over three years, during the life of their contract, but this recruiting this sort of targeted recruiting effort has been just very, very successful and it really has shown that the NRT management can - we reversed the problem in and we plan to get some credit for it.

We took a problem that was very severe a year ago and it's, we turned it around NRT management turned it around in one year.

And I think that to me gives me a lot of confidence and when we need to tune things and fine tune things and as Richard mentioned, focus on things that takes some pressure off splits for 2018 and beyond, they are the team to do it. And they prove themselves able to do it and to turn on the dime.

So I think it's been really impressed of the effort by the management in NRT..

Okay, thank you..

Your next question comes from the line of Kevin McVeigh from Deutsche Bank Securities. Kevin, your line is open. .

Great, want to - can you give us a sense of what would cause EBITDA to come in at the low versus a high end of the range, what the factors here are?.

What would cause the low end is - if NRT transaction volume for the fourth quarter is forecast the between 7 and 9% and I think if we came and at the low end of that 7% to 9% that would probably be the most impact flow in terms of hitting low end.

Right now, we don't see that we see not - we feel pretty confident about them hit for the end of the head and the opens we saw on October was to me was almost lights on my job looking at the opens between kind of sleepy third quarter and all those are in October, in terms of the opens we see was a lights on situation so just a big shift in NRT I mean RFG saw a lot of the same trends in terms of things really it's kind of raving up in the third quarter.

So I mean in October, so I don't know how that's going to play out in November and December and what's going to close and what's not going to close - we our cancelation rates are extremely well. So again I think it's that balance range of guidance..

Would you and obviously billing issue would you expect this hike in activity given the uncertain Euro and any changes in tax law to the instant they would take effect in '18 or is that not affected into this guidance..

Listen, we have no idea what's going to happen as result of the tax law except to what's been proposed is not going to get passed in the law. The industry as not supportive and I think it's going to be almost impossible to get the board how the house would be supportive with legislation as is written.

So let's assume for a moment that it becomes far more favorable to the industry and also to the national economy. I don't think the markets got to suddenly spike, I don't think anything is waiting on this.

I think some - they have hit pause button so we need to wait and see I think the markets can clearly over react to propose legislation and we will see how placed out, but we spend a lot of time and you see we fully appreciate the process and I don't see spite of one way or the other in response to this until, till something becomes law..

So for and then just - Tony can you mind just when can you back in the market from a buy back perspective?.

In a week..

Thank you..

Your next question comes from the line of Bose George with KBW. Bose, your line open..

Hi, good morning if you can you give us any update or thoughts on how you think the market overall is positioned for next year I mean you noted positive trends in October, and any view on how that continues?.

Whether we have put on page 17, for our earnings deck we put in the five forecasted view as of October of what next year looks like the average was 7% growth in volume.

So, that's pretty much sort of same a s we saw, this year obviously we would expect strongly that we are going to outperform because we are continuing to do the target of recruiting which was very favorable to NRT this year, in terms of their volume increases and RFG is, our franchisees, we've lost a program with them, to sort of mimic of that program.

So, we'd expect to see some of the benefits of that in terms of aging growth and obviously everything we are doing value proposition in terms of learning.

And, technology is rolling up both NRT into our franchisees, so we'd expect that also to help us exceed whatever happens in the market, just like we exceeded in the third quarter by 170 basis points..

Oaky great, if you in terms of the inventory constraints that you noted, which has been limiting the activity in '17 over '16, do you feel like some of these forecasts might be positive in terms of overcoming that.

Because, it does seem like '18 over '17 expectations are in the forecast of you know pretty strong?.

Yeah, I would say from our discussions with some of these economists that with base C for next year and again not smart enough their economists. So I will take, this is what they are thinking about.

They view that there is still a significant lot of pent up demand, they view that with the wealth in the stock market, the consumer confidence at all time high levels.

And, you know we are starting to see some weight growth, across the board, I think that makes them positive on a little bit of more upside on the unit started equation next year than this year. And price, because the supply demand dynamic is so steep towards, the soar I guess in most of the markets.

There is lot of demand and I'm not surprised that they'll obviously look up continue price to go up next year. So, I think that's kind of their outlook, obviously they understand the amatory constraints, but it's just a, they get positive about next year..

Okay thanks and then just one company, one specific one, in terms of your excess use of excess cash, how does the debt side, paying down debt or playing to that give a target for leverage?.

Yes, our target for leverage is to get down to three times, we are currently at 3.9 times net debt to upending EBITDA, because I suggested EBITDA over NOLEX, we don't use that anymore. It's EBITDA as calculated under our credit agreement, so, we are 3.9times and we are targeting to go down 3 times.

So, to the extent, for this year we are going to generate more than a $0.5 billion of free cash flow. About 300 million of that is going to go towards sharing purchases and dividends. And about 50 for M&A at this point, and then we're re-investing in the new joint venture, so that's going to require about a $545 million investment.

But, everything leftover which is over $100 million will be used to pay down debts..

Okay great thanks..

Your next question comes from the line of Brandon Dobell with William Blair. Brandon your line is open. .

Thanks. And my congratulations and well wishes as well. I guess first question relative to the net reality rate, you talked a lot about factors that you think can change commission's puts.

But, how do we think about the puts and takes on that royalty right now? Given how the market's progressing and the concentration of market share, is there any other tactics or opportunities to reverse that trend in the near term or if it is so high we think about the magnitude of what you can do there?.

This is Richard and thanks for your comment. You get a look in that effective relative rate inside the different trash. Remember that's how we incentivize our franchisees to help perform, the strong performance, the lower the royalty rate which we think is a positive not a negative.

So, that's a, what would steer that one way or the other, is the top 250 or top 300 franchisees if they outperform everything in the market and from much faster than we anticipate, then you are going to seed own the pressure on the low effective rate, but you've got absolute growth at the top gun. So, we wouldn't do that as a negative.

And now another offset, as you add franchises and smaller franchisees become more productive then you see the next change a little bit. Those are the two variables we think about, when we think about another effective royalty rate..

Another point is that we raise kind of threshold every year, in terms of what qualifies for a rebate. So, that sort of annual kind of reset so, that ups..

Okay got it. And then I guess final one, if you think about all these dynamics going on with Commission splits in Geographic's, exposure etcetera, does it change, not change your strategy but may be within that what kinds of companies you are more apt to take a look at.

May be at a particular geographic region or a price point or something like that, just maybe offset from the trends that are going on. Or maybe it amplifies some of the efforts that you're making to drive these puts in your direction..

So, as you know we're well versed in tacking acquisitions, so we'll continue doing that. We announced a couple this week, the very synergistic, we have a very high threshold for return on invest capital, we can do that in our sleep.

We continue to focus on those tuck-ins, I don't think you'll see us rather we look at everything, you don't see us doing any material way that will not be synergistic. So, as long as we continue to stay the course on tuck-ins that are very attractive, lot of leverage, they look great, they operate great, you'll see us continuing that in 2018..

Okay thanks a lot..

Your next question comes from the line of Ryan McKeveny with Zelman & Associates. Ryan your line is open. .

Hi, thank you and good morning and congratulations, this is Ryan. Two questions on the commissions split I guess, screening a bit differently.

Tony you mentioned this year you're likely to add about 600 million of incremental TCI from the targeted recruitment and when I weigh that against the commentary on the goal, slowing the rate of increase and split next year.

Do you anticipate the recruitment efforts continuing at the same pace? Saying that 600 million that will be added this year, can you give any sense if you think that something that continues into next year or if you slightly pull back on the recruitment efforts to mitigate the split increasing further?.

No, I think we have a program that is highly successful and we are going to continue doing it, there's a very large pool of agents, we would love to have join our rank and we are going to continue to attempt to attract them. .

Got it, and one more on the West, I know it's been asked a lot, but may be another way to frame it.

On California, I am obviously revolving gains or encouraging but at the same time we know it's a very competitive market with many other competitors expanding there, doing acquisitions things of that nature, so, curious if you can give a sense of how the actual split within California this year compares to last year to tread apart South the mix verses the absolute split actually moving up in that market.

Thank you..

Yeah, we don't break it out that way; obviously we are very focused on it, but we don't break it up, publicly for competitive reasons exactly..

I guess would it be fair to say that its directionally similar higher lower, is there any sense that way verses the company total split?.

Well hide in the company overall split and you know in terms of the impact of the recruiting and retention efforts, the increase in commission's split on the West coast was pretty much dead on with the increase in every other market.

So, it didn't require any more increase to have the 11% growth in the West coast verses what we are providing in other regions. .

Got it. Okay, thank you..

Your final question comes from the line of Will Randow with Citi Group. Will your line is open..

Hi, good morning, thanks for taking me in. and, let me stop by saying Richard you'll be very missed while working with Ryan..

I appreciate that..

I guess I'll join everyone else in beating a dead horse. You guys have taken a 15 million hit apparently on split for California at least nationally speaking. It didn't grossly outperform.

I guess the real question is, is that 15 million going to hit you next year too when the same thing happens, because inventories are loosening up? And if you take the other side of that, what gives you the confidence?.

Well, again we are - I guess your question is why do you think the rate of increase will decrease next year versus this year, is that your question?.

Yeah, I mean that 15 million hit that you didn't expect incrementally either that's driven by your spending more on retaining and gaining, if you will, agents?.

Yeah, okay..

And the question is if it's a three-year amortization, why doesn't it hit next year? In addition, I mean tight inventories are tight inventories. We've been talking about this for years now..

Yeah, I mean part of it is this year as we've introduced the target of recruiting effort is that we start amortizing the transition payment that we make to agents before the revenue starts to kick in.

So, I think it sort of made it a little more impactful this year than you'll see next year when we're just running on, so we're just sort of building on an existing program. And also, again to the extent that there's a more balanced growth in the various geographic regions that would sort of automatically take pressure off of splits.

And then the efforts that are in terms of the strategic initiatives, in terms of getting the third and fourth quartile agents across the country to be more productive, it's kind of the first big program that we're looking at.

And also the overall value proposition refinement and focus and improvement that we're offering to all of our agents should make - I think should make the economics less of a factor and really kind of be more productive.

If I can do - if I'm paying a slightly higher split or I'm getting a slightly lower split, but I can do two or three more transactions then I would have - working for the guy down the street without any of these tools and any of this coaching and any of that.

I think the agent is going to see very quickly that being part of NRT is much more profitable for them than they would otherwise earn..

So, well, think about this. NRT management turned around the market share issue that had been building for several years in the context of one-year, 12 calendar months, so it's remarkable by any definition. That same sort of energy has been shifted to now making the third and fourth quartiles far more productive than they are now.

That's a fairly significant offset to paying higher splits to the first and second quartile. So, we're very encouraged. We think the model works quite well and they'll execute against our strategy next year and we have a high degree of confidence in our ability to do that..

Thanks for that. And, Ryan, if they'll allow me, I'm sure one of the questions Richard asked you when you guys were talking about taking the seat, what your strategic vision was. Now, you highlighted on the call very briefly in analytics to drive growth.

Can you get any more specific and how long you think it'll take you to ramp in the new role? And again congratulations..

Well, thank you. Look, first off, Richard has just been incredibly instrumental in growing and leading this company and making Realogy the foremost platform for residential real estate in the U.S., and so I echo all Tony's comments and all of you and other analysts' comments here. Look, I'm on my second week here. I'm credibly excited to be here.

I put the ground running diving in on strategy, technology, and all of our businesses. And as I said in my opening, I really think there are opportunities to use data, technology, and analytics to build on what's been done here to really drive growth.

And so, I'm incredibly focused on all of those areas, as well as most importantly meeting and engaging the great talent of Realogy. And so, I look forward to sharing more strategic thoughts with you and others in 2018 and I'm incredibly excited to be here..

So, he doesn't get the last word on my last earnings call and that's going to be left up to me unless you have another question, but let me say this, this company is uniquely positioned to capitalize on an enormous store of data in a way that other people haven't even contemplated, because in part they don't have the data.

They don't have the sophistication. They don't have the reach. They didn't spend billions of dollars building the largest real estate company in the world. We've been able to use all that to attract someone of the caliber of Ryan. So, this is critically important. It's transformative event for our industry and for our company.

So, in his hands we're putting a company with a new approach to data, a new approach to technology and just a different thought process and we think the upside to us is substantial. So, we welcome Ryan and his secretaries to the company. Again I believe it's going to change how this industry thinks of itself and will be at the lead of that..

Well, thanks again guys and particularly to you, Richard who spent over two decades building this business..

Thank you very much..

This concludes our question-and-answer session. I will now turn the call back over to Alicia Swift for closing remarks..

Great. Thank you for joining the call today and we look forward to talking to you over the coming quarter. Thank you..

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