Good morning, and welcome to the Realogy Holdings Corp. Fourth Quarter and Full-year 2019 Earnings Conference Call and 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, Marcella. Good morning and welcome to Realogy’s fourth quarter and full-year 2019 earnings conference call. On the call with me today are Realogy’s CEO and President, Ryan Schneider; and Chief Financial Officer, Charlotte Simonelli.

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 listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today February 25 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, also certain non-GAAP financial measures will be discussed on this call and per SEC rules important information regarding these non-GAAP financial measures is included in our earnings press release.

Before turning the call to Ryan, you will have noticed in today’s earnings release as part of our continuing efforts our simplification and in legacy pending sale of the relocation business, we have renamed our operating segment.

The Realogy Franchise Group or Franchise, The Realogy Brokerage Group or Brokerage which is formally NRT, The Realogy Title Group or Title which was formally TRG and The Realogy Leads Group or Leads is the affinity in broker to broker business at Cartus that we will retain. The relocation business is now reported as discontinued operations.

For consistency, we have revised prior period financial discussions to reflect these changes. We expect that the Realogy Leads Group will be included within the Realogy Franchise Group upon transaction closing given that the majority of the Leads are distributed to our franchises.

The Realogy Brokerage Group will also continue to receive Leads as well. To better assist you, we have included a hierarchy of these changes in the presentation that accompanies today’s call. Now, I will turn the call over to our CEO and president, Ryan Schneider..

Good morning. As you may have seen in my public remarks in December and January, I have never been more excited about Realogy than I am right now. While the past few years have been pretty challenging for the industry and Realogy, as we stand here today, I feel very good about our leadership position in the sector and our potential for future growth.

And my excitement and optimism about Realogy, which is increasingly shared by people inside and outside of our industry is anchored in what happened in the fourth quarter that we are discussing today.

First, we accelerated our delivery of new products and partnerships to enhance our agent and franchisee value propositions, setting the stage for greater growth in the future. We are operating with agility of moving fast.

Second, we made a series of well-received capital allocation changes and business mix decisions such as the pending relocation sale to strengthen our balance sheet and simplify our company. Third, the better competitor environment we started to see in September and October has definitely continued.

Q4 and the start of 2020 are showing a more rational competitive environments, which is helping us drive better recruiting and retention results. Fourth and finally, we like our results delivery in Q4.

Our transaction volume was solidly positive and we are $20 million more in operating EBITDA including discontinued operations, than we did in 2018 even with cost headwinds from agent commission split and our investments for future growth. These positive trends have continued.

Our January transaction volume was up 13% as our retention and recruiting results and the housing market both continued to improve, and we delivered even more strategic initiatives like signing and launching our first Corcoran and franchisees in the quarter with more Corcoran franchisees planned to be announced later in the quarter.

So, pulling away up, even with all the challenges in the last few years, we remained the leading player in both franchise and owned brokerage with a strong brand portfolio. We have the technology and data scale to drive innovation in this industry and most importantly, we generate substantial operating EBITDA.

That foundation combined with our fourth quarter actions and results fuels my optimism for the future. So, let me turn to Q4 and the full-year. We had good volume growth in Q4, up 6% year-over-year with franchise brokerage up 7% and owned brokerage up 4%.

In Q4, we have $126 million of operating EBITDA including discontinued operations, $20 million above Q4 of 2018. For the full-year, we had minus 1% transaction volume.

Our transaction volume improved every quarter throughout the year, ending with a solidly positive Q4 and Q4 benefited from our increased recruiting and retention success in the more rational competitive environment. We delivered $590 million of full-year operating EBITDA and $226 million of free cash flow, both including discontinued operations.

Throughout the course of 2019, we aggressively delivered to enhance our value proposition for our agents and our franchisees. We organically grew the number of agents in our own brokerage business by 4%. We delivered differentiated marketing, technology and data products, while also launching multiple new high quality lead generation programs.

Product like Listing Concierge, Social Ad Engine are now national. We have new technology products available to both agents and franchisees nationally and in pilots. Our new Realogy Military Rewards Program is already driving good growth, and we are launching our AARP lead generation program this quarter.

We move closer to the consumer by providing our agents and franchisees with unique solutions that improve the customer experience.

Our RealVitalize Program in partnership with Home Adviser has expanded to over half the country and our RealSure iBuying alternative with Home Partners of America is driving thousands of cash offer requests in its 10 markets after only a few months.

Both consumer products helped agents win more listings and make Realogy a more attractive destination for agents and franchisees. And finally we demonstrated the willingness to change our business mix to optimize our capital deployment.

In November, we announced the $400 million sale of our relocation business, which generated $28 million in operating EBITDA in 2019. This positions Realogy for greater simplification and allows us to reduce our debt. The sale has received anti-trust clearance and we expect to close in the next couple of months.

The divestiture will also deliver a big simplification dividend. The relocation business has global operations, a large supplier network and carries approximately 10 million in annual in CapEx has its own securitization facilities and drive swings and working capital. So, as we look forward to 2020 with optimism, let me address a few strategic issues.

First, let’s talk about market share and growth. As we have discussed in previous calls, our market share declined in 2019, split equally across our brokerage and franchise businesses.

We are very focused on preserving and growing our market share, but in 2019 for most of the year, our industry faced aggressive private capital pursuing market share without regard to profitability. And as I told you throughout the year, we are not making the choice to go negative on profitability just to retain market share.

But, with the recent return to quality across industries in the whole economy and the increased scrutiny of unprofitable companies, Q4 felt different because the competitive environment was more rational and our recruiting and retention results were better. We liked our Q4. We had 6% volume growth in Q4. We had better agent retention.

We had substantial recruiting success and we saw more agents returning to our brands. So as we enter 2020, I’m really excited about our potential growth of volume. We expect solid transaction volume growth across both our own brokerage and franchise business, with franchise a bit ahead of own brokerage, just like in Q4 of 2019.

Our January transaction volume is up substantially. Our recruiting and retention results continue to improve and we have delivered even more strategic growth initiatives like the Corcoran franchise business. But we don’t want you to run away too much with our excitement. We don’t expect 2020 volume growth or market share trends to be easy.

We still expect competitive intensity, even in a more rational competitive environment and when looking at share, we still have the headwinds from agent losses in earlier parts of 2019, when the competitive environment was less rational.

And there is also the loss of an important number of transactions from the discontinuation of our USA Affinity Program. But overall, we are optimistic about volume growth, but don’t want you to run away too much with our excitement including our January results. Second, let me discuss capital allocation and business mix.

Our capital allocation story is pretty simple. Our priorities remain investing in the business and paying down debt. As we demonstrated with our pending relocation sale, we will continue to opportunistically look at different business mix options to better utilize our capital.

Third, let me provide some detail on our remaining Cartus business, including implications of the discontinuation of the USA Affinity program. Our Cartus Affinity and broker-to-broker business made $53 million in operating EBITDA in 2019, while generating about 68,000 referrals.

We previously disclosed that, we will realize a material decline in 2020 operating EBITDA in this business due to the loss of the USA Affinity program. As USAA is our largest partner by a substantial margin.

We also previously disclosed we will have an equivalent operating EBITDA decline across our brokerage and franchise businesses driven by the downstream impact of the reduction in referrals. We will be investing in both new and existing lead generation programs to offset the USA loss overtime.

We will be making launch and marketing investments in new high quality lead generation programs including ARP and Realogy Military Rewards as well as investing in select existing affinity programs.

Finally, along with like in our outlook for 2020, delivery on our efforts to drive growth, more rational competitive environment, continued focus on our business mix, continued progress on debt paid down, and our volume and recruiting momentum for Q4 we also like the macro for 2020. We are seeing improving fundamentals across the housing market.

Mortgage rates remain at all time lows and are expected to remain a tailwind for the industry throughout 2020. We are seeing transaction volume improve in coastal markets that struggled in 2019. The West is exhibiting more strength and the Northeast is showing growth.

While inventory and affordability challenges remain large concerns and how tax changes affects select markets, especially in New York City still they are watching, overall 2020 looks to be the best of your other macro for housing since I joined Realogy.

So in closing I’m optimistic about our future given our leadership position in the industry, our Q4 delivery, the improved competitive environment and our early results in Q1. Let me turn it over to Charlotte to discuss the financials in more detail..

Thank you Ryan. Good morning everyone. The fourth quarter marked a strong close to the year driven by improved performance both financially and operationally across the business. We are benefiting from a more rational competitive environment, a better housing market and consistent execution on our strategy.

We remain thoughtful and deliberate in our approach to simplify, innovate, and leverage our scale and strong value proposition to drive profitable growth and an improving balance sheet. I want to briefly recap some highlights before diving into the details. In 2019, we achieved operating EBITDA of 590 million including discontinued operations.

We grew our agent base by 4% while showing ongoing split moderation in our owned brokerage business. We exited the year with Q4 transaction volume growth of 6%, we improved the cost structure of our business and realize 73 million of gross savings.

We increased operating margin in the fourth quarter at Realogy as well as within the owned brokerage group despite cost headwinds and Q4 commission split pressure of approximately 100 basis points on a like-for-like basis. We generated 226 million in free cash flow including discontinued operations and reduced net debt by 78 million.

We opportunistically repurchased 93 million of bonds at a $10 million discount and finally we announced a value creating divestiture of our relocation business for $400 million, enabling us to both de-lever and further simplify our business.

All-in, we exited 2019 on an improving financial and operating trajectory, and I’m pleased with the progress we made. Now let’s move into our consolidated financial results on Slide 6.

In the fourth quarter, net revenue was 1.3 billion up 45 million versus the prior year, primarily due to the positive transaction volume at both Realogy Brokerage and Realogy Franchise groups as well as strong revenue growth in Realogy Title We are pleased with the revenue increase and 6% transaction volume growth in the quarter.

Realogy’s Q4 operating EBITDA including discontinued operations was $126 million, up $20 million year-over-year.

Net loss attributable to Realogy was $45 million in the quarter versus the loss of $22 million last year, driven primarily by the fair value adjustments on the assets being sold, as well as tax expense associated with the taxable gain on the sale.

The tax impact of the pending relocation sale is reported as discontinued operations within our financial statements. Q4 earnings per share was negative $0.39 compared to negative $0.19 in the prior year.

Total net leverage ratio was unchanged at 5.2 times, as discontinued relocation earnings are now excluded from covenant EBITDA ahead of the receipt of sale proceeds. Including the 2019 relocation earnings in covenant EBITDA, the net leverage ratio would have declined to 5.0 times.

Now let’s move onto a year-over-year comparison of segment performance on Slides 7 and 8. In Q4, Realogy Franchise Group revenue was $190 million, up $4 million due to an increase in royalty revenue, driven by 7% transaction volume growth. Franchise revenue includes intercompany royalties and marketing fees from brokerage of 69 million in the quarter.

Operating EBITDA was 129 million also up four million, due predominantly to the increase in revenue as operating expenses were flat year-over-year. Realogy Brokerage Group revenue was one billion, up 26 million due to a 4% increase in transaction volume.

The transaction volume increase was aided by better retention and solid recruiting success in the back half of the year, which we expect will further drive volume growth in 2020. Operating EBITDA was negative 12 million, up three million versus prior year, driven by lower operating expenses associated with our costs savings program.

Realogy Title Group revenue was 152 million, up 16 million due to higher revenue across the business. Operating EBITDA was 14 million, up 10 million also due to higher revenue and the GRA mortgage JV.

For full-year 2019, the GRA mortgage JV performed well contributing approximately 15 million in operating EBITDA, an increase of approximately $20 million from full-year 2018.

Realogy Leads Group, the former non-relocation related Cartus business, which includes both Affinity and broker-to-broker delivered 17 million in Q4 revenue, 11 million in Q4 operating EBITDA, both relatively flat to the prior year. Now, I will address the relocation business specific items in the financials.

The relocation business that we are divesting, which generated 272 million of revenue, 28 million in operating EBITDA and 18 million of free cash flow in 2019 for Realogy are now reported in discontinued operations pending the sale.

The discontinued operations loss of 60 million is due to the fair value adjustment on the assets being sold as well as tax expense associated with the tax gain on the sale.

The tax adjustment will be trued-up when the sale is finalized, the majority of which will be offset by NOLs at the Realogy level, and will mitigate the majority of cash taxes at the time of sale. Ryan has talked about improving volumes in Q4. Let me highlight a few of the other positive impacts to the P&L.

Our 2019 cost savings program has been fully implemented with cumulative realized gross savings of $73 million. In the fourth quarter we realized approximately 30 million in savings driven primarily by both workforce and office optimization.

Royalty per side was $338 in Q4 and $327 in the full-year, an increase of $21 and $4 versus prior year respectively driven predominantly by higher price.

In full-year 2019 commission splits were up 49 basis points or 70 basis points on a like-for-like basis, which compares to an increase of 181 basis points in 2018 and 173 basis points in 2017, commission splits were up 81 basis points in the fourth quarter or 104 basis points on a like-for-like basis as we saw improving recruiting, retention and transaction volumes.

We are encouraged by the financial proof points we delivered in Q4. As we look forward to 2020 with optimism, let me address some of the bigger tailwinds and headwinds for the business and as a reminder, we operate in a seasonal business and we expect 2020 seasonality to be in-line with 2019.

We plan to deliver meaningful cost savings in 2020, we are on-track to achieve 70 million to 90 million in gross savings in 2020 and approximately 52 million of these 2020 cost savings have already been actioned.

These savings are lower than previously discussed on the Q3 earnings call as we have now adjusted for the Cartus relocation savings that will be part of that transaction. As in 2019 the majority of these savings will be driven by office optimization and simplification efforts across the enterprise.

Restructuring costs associated with these programs were $42 million in 2019 and I anticipate a modest decline in the run rate in 2020.

However, we do have some headwinds in 2020 while it might be obvious, the biggest financial resets for 2020 compared to 2019 will be the loss of the Cartus relocation earnings and the USAA impact, both of which Ryan discussed. We expect the upward trend on commission split to continue in 2020 similar to what we experienced in Q4.

The majority of which comes from continued competition to recruit and retain agents albeit more rational at the end of 2019 and the improving housing market. Remember, the more agents produce, the higher the split they can achieve.

We are investing marketing and G&A dollars to support strategic investments, including the launch of the Corcoran franchise. Launching the AARP program, growing our Religion Military Rewards program, and growing other select Affinity partners.

We are pushing for greater franchise growth through different strategic approaches, including transitioning additional BH&G companies to a capped fee model this year and providing capital to franchisees to support M&A conversion to our brands and other franchise growth efforts.

These strategic growth choices and the use of incentives combined with the competitive environment will put downward pressure on our royalty per side. We like these investments for growth and the early returns on the BH&G capped fee model are really exciting for us.

Now wrapping up, we executed steady progress across our financial priorities throughout 2019. We delivered volume growth and operating margin improvement in Q4. Realogy has an industry leading position driven by size, scale, brand equity and partnerships unlike our competitors.

We will continue to leverage these attributes in even more effective and compelling ways in 2020 as we build in stronger overall financial profile for our business. We are off to a solid start to the year. With that, I will turn the call back to Ryan for some closing remarks..

Thank you. Charlotte. Let me close the call on a personal note. I have been very blessed to have held multiple senior operating roles over the years and by my count, I have been involved in preparing for around 60 earnings calls over that time.

And once in a while you realize something feels different, like there is a change in the air and that is how I feel today. For the past few years, it is felt like the headwinds for Realogy about number are tailwinds.

With our accomplishments throughout the year, especially in Q4 combined with the change in the competitive environment, we began to feel more positive energy. The excitement for the future is higher, the optimism is higher, and I feel that from our employees, from industry insiders and for many who watch our industry closely.

I’m not saying that the road ahead is easy, and I have shared some of the headwinds with you during the call, but it does feel different to me. As I said in my opening remarks, I have never been more excited about Realogy than I am right now.

Emerging from a couple of very challenging industry years, we entered 2020 with substantial momentum including accelerated product and partnership delivery, positive changes to our business mix and capital allocation, a better competitive environments and returned to volume growth.

All combined with our substantial operating EBITDA and our industry leadership position. Our first quarter is off to a good start and I’m excited about the year ahead. With that, I will turn it over to the operator..

[Operator Instructions]. Your first question comes from the line of Ryan McKeveny from Zelman & Associates. Your line is open..

Hi. Thanks very much, and good morning. So, a two part on the competitive environment and the value prop, really both at the agent level, but also the franchisee level.

So, you called out the more rational competitive environment, the press release and your comments said substantially enhancing your value proposition with new marketing, tech data, consumer products, lead gen, et cetera.

So, can you elaborate a bit more on what you are seeing in terms of the competitive environment beginning at the agent level, but then also we have obviously seen some of the headlines around some pretty sizable franchise renewal.

So, maybe also touch on the competitive environment with franchisees and with all of this, we would love to hear some elaboration just on how you feel you are doing in terms of the progress with your value proposition somewhat regardless of what others might be doing in the industry..

Yes. So, thank you Ryan. I appreciate it. So first off, look, we are pretty excited about what we saw in Q4 on both the agent and the franchise side. We saw better agent recruiting. We saw better retention. We saw a bunch of agents returning to our brands.

But, we also saw a lot of really positive franchise renewals that were very excited about it, and those trends have all continued into the early part of Q1. And I think a lot of that is the stuff that we are doing, right.

More partnerships, more products on the tech market or data side, both RealVitalize and RealSure are consumer focused products that we have launched within the last kind of four months that are really interesting, I think an innovative for our agents and our franchisees.

And so that, I think a lot of what we are doing is driving the success I’m talking about. But some of it also has come from the competitor environment, right? I talked to you on the last call that we saw kind of the early indications of a more rational environment in September and October, and that is definitely continued since then.

And we see that when we look at the agent of migration data and the offers out there in the market and how different companies are going to market, and that benefits us, it benefits our franchisees.

And so, the combination of a more rational competitive environment with a lot of delivery focused on agents and our value proposition is something that we are really excited about. And then finally this quarter we have already launched Corcoran with our first franchisees there we have some more of those planned.

Another example that is bringing something new to the market that we think are starting to resonate that can help drive future growth..

That is very helpful and thanks Ryan. And a second question on Cartus and some of the moving pieces. So within the release it calls out 28 million of earnings from the relocation business.

So is it fair to think of that it kind of relative to the 400 million sale price we are talking about that business being sold for something like a 14 times multiple and then a bit higher level on the Cartus business and, and the referral business underlying it.

I guess can you just talk about some of the moving pieces as far as we all know, kind of the USAA is coming out of things, but you have got AARP but there is always this question of kind of a downstream impact of how big USAA could be.

So maybe just talk about how, how you are feeling about whether it is your Military Rewards program, whether it is Navy federal or some of the other affinity channels somewhat capturing that business that might have otherwise gone through USAA.

I’m just a bit more on the puts and takes of how things could play out for 2020?.

Sure, absolutely. So first half yes the reallocation earned 28 million in 2019 and we did a $400 million sale for that. And you know look we really liked the multiple on that. In part of your look it kind of trying to be good stewards of capital we think it is a very good capital allocation decision.

Whether you look at kind of our trading multiple or our leverage ratio, we liked the 14 kind of relative to those numbers and think it is a value creating thing for our shareholders and obviously we are going to use the lion share of those proceeds to deliver as part of the Company. Going from there, right.

I talked about in Charlotte mentioned we are investing in new lead generation programs like AARP and Realogy Military rewards. That latter one actually is already off to a pretty good start. I’m pretty excited about it, but we are also going to invest in some of our existing ones and you called out a couple of those.

Because our goal is overtime to kind of replace the USA volume and capture some of that share overtime it is not going to be, you know, a one year phenomenon or anything like that because these are long programs that take time to build, but we are going to stay very focused on delivering that high quality lead generation.

And you know, and look at the USAA thing as we try to disclose that is going to be a material decline in that segment EBTDA on 2020 and there is going to be an equal decline downstream to go a little farther on that, you know, the leads from our Affinity business go about 80% to the franchise group at about 20% to our owned brokerage group.

But the economics of the downstream hit is kind of the opposite of that. Most of the downstream hit for your modeling is in the brokerage group just because of the how much money we make on an owned a transaction versus a franchise one.

So we are going to keep being clear that there is going to be that equivalent downstream hit and but look we are really excited by the partnerships that we have got launched and including AARP and its 38 million members this quarter and the early growth we are getting from Realogy Military Rewards..

That is helpful and thank you..

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

Hey guys, this is Carter on for John.

Real quick, wanted to touch on split? How much of the growth in the quarter was driven by geographic mix and what kind of impact did California have on splits?.

Yes. So, California definitely had an impact as we saw some improving growth trends in California versus the prior year. There is a big chunk of the increase that is just due to a relatively low base last year on the commission splits.

There are other drivers as well, like the improved recruiting and retention, but geography was definitely a piece of it..

Got it. Thanks, Charlotte. And real quick on capital allocation, so you mentioned that a majority of the 400 million received from the Cartus sale would be used to pay down debt.

Is there a specific debt number that your targeting to where you will start to entertain paying out the dividend again or buying back shares?.

No. I think our focus remains investing in the business and delivering. So, we are going to focus on that. I would like to remind you that the 400 million initially we received 375 million, which will also be trued up versus some closing costs that we have. The remaining 25 million will happen at a later date. I just want to be clear about that as well.

But, we do remain focused on investing in the business and delivering right now..

And to be incredibly clear, until we got our levered ratio below four times, we are not even considering those other topics. And even then, we will have to decide what we want to do. But you should, you should assume we are going to focus on investing in the business and paying down debt until we are below four times leverage..

Okay. Got it. Thanks guys..

Thanks Crater..

Your next question comes from one of Stephen Kim from Realogy. Your line is open..

Well, not yet. But, guys good quarter, strong results in many ways. I mean, it is encouraging to hear what you were saying about the competitive environment. I just did want to start with the cost saves Charlotte.

You were good to sort of give us an idea of what we can expect next year, but it would be really helpful to have a quarterly cadence some sense of how that is going to flow through the year, that 90 million and then, - sorry, the 79 million, and how much of that would show up in NRT versus a RFG?.

Sure. So, what you can think about is the 52 that we have said is already auctioned, it is pretty relatively evenly split quarter-by-quarter. The remainder of that is probably going to be more heavily weighted to the back half.

There is a substantial piece of this that is going to show up through the Realogy Brokerage Group as it relates to - if you can even look into the fourth quarter, some of the things were already actioned in the fourth quarter and you can sort of kind of get a feel for the split there in.

It just comes down to whatever the remainder of the savings that haven’t been identified or actioned yet. That can be a little bit more variable between those two pieces as well as corporate. So, the 52 evenly split by quarters, the remainder so approximately 20 million to 30 million will be more heavily weighted towards the back half..

Got it. Yes. That is helpful. Okay. And then, I guess if we could talk a little bit about the transaction volume in January. Obviously, that is good to see, you did pretty well here in 4Q. The housing market certainly showing a lot of strength.

Can we talk a little bit though about the comparison a year ago, because obviously, the 1Q was a pretty easy comp, but within that quarter from a monthly cadence, is there any reason to think that the January figure faced a particularly easy comp relative to February and March for you?.

Yes. Look, you know when I talked about you shouldn’t run away with our excitement including the January results. I wouldn’t use January to forecast our year or our quarter, and some of it gets to the kind of thing of how January, February, March of last year looked versus before and then March is 40%, 45% of the quarters.

So, the reality is the quarters a lot more driven by March than by either January or February. So look, we think it is a really good start to the year, both for us and for the market, right. We like the delivery of products and things like our Corcoran franchise is powerful early on in the year, you know.

We liked the better competitive environment, we think it kind of paid off here in January with some really good results, we are excited about growth over the course of the year.

But for the reasons I said January wouldn’t be the - I wouldn’t extrapolate the whole year or the quarter from January, but we are having the good feelings that led us to start the call the way I did..

I guess I’m wondering whether or not if we look at the cadence within 1Q, if it would be reasonable to sort of look at the existing homes of the NAR type numbers or if you could provide us with maybe a more discreet Company specific sense of how that quarter look?.

Yes.

Are you are talking for 2020?.

Yes the 1Q, 2020, because you know, the January specific number and March matters so much more -..

We are not going to give quarterly guidance of the stuff.

You know NAR’s view of the first quarter is lower than our January number, but you know, I think nargy of January was in the same zip code or so of our January number So like again, you know, we are probably going a little bit far by just giving you January, but it is because we do this earnings call so late in the quarter cause of the K it is the one earnings call we actually have a full month’s data and so, you know, I think actually this was now two years in a row we have just kind of shared with you what happened in January.

So, we like the January, we like the trends, we like what we are seeing for Q1 and for the full-year. But you know, I went pretty far out of my way to tell you not to run away with the excitement including the January specific results. But, but don’t let that temper my optimism too much. .

Okay fair enough. Thank..

Your next question comes from the line of Anthony Paolone from JP Morgan. Your line is open..

Yes, thanks. Good morning. So on splits you mentioned order of magnitude in 2020 being comparable to 4Q. So if I just look at those numbers, it would suggest up about 80 bps year-over-year so that would put you up in I don’t know 73 and three quarters range for 2020.

I mean should we take that as being sort of a zip code of where you feel comfortable?.

Yes, that is, that is the right zip code. I mean there is a lot of variability and that depends on our ability to recruit and retain agents. The volume growth is very big. Two things I want to point out.

There is some volatility in our new development business and it is episodic and there is a much lower split on that so depending on how the new development business falls will also have an impact on splits and also USAA. Just keep in mind, you know, the downstream impact from that, there is a much lower split on those transactions.

So that is part of why we are giving the guidance as sort of like in the 80 ballpark because all of those things play a role in why the number would be higher than it was in 2019..

Okay.

And on USA, I mean, you guys showed $53 million of EBITDA from leads, I mean, how much of that was from USAA?.

Well, we didn’t disclose that specifically. I mean, we have said it is a substantial piece of it. So, and I think there is other guidance we have given overtime that enables people to sort of get in the right ballpark. And it is important to recognize the downstream transactions as well..

Yes, look on that, Anthony to be honest. Look we have never given data on individual partners. We have never given data on individual franchisees no matter how large they are and we have never given data on how much we earn in a specific geography. For example, in the own brokerage side.

So, in the USA case, we tried to be clear from the start that this is our largest partner kind of in that Group, and with this call, we are now giving a lot more information about that business, it is margin, it is referrals. And I just tried to give you some more information earlier about where the Leads go and where the economics of them are.

So, I know everybody is going to want a number. I don’t think you are going to get a number on that as much as kind of everything that we have given you up to this point plus the additional stuff we are trying to give you here.

And we have tried to be pretty clear from day one, there is a material hit both in that part of the P&L and on that downstream, and then like I said the downstream hit will be bigger on the brokerage side versus franchise just given how the economics of those leads with bluntly the split issue Charlotte talked about being a piece of that.

So, that is a little bit more on it. And I think, some people have done a really good job of modeling it already and we are going to be focused on investing in the new program won’t lead to offset that volume overtime and get some of those economics back..

Okay. And just if I sneak one more, and you may not want to give a number on this.

But, I’m just interested in New York, how big of a drag have the variety of regulatory changes and perspective regulatory changes have had on your business here?.

Yes. It is a great question. So, let me take it in two parts. So, look, the Mansion Tax clearly that came in at kind of the end of Q2, clearly was a headwind in New York for Q3 and Q4, and we saw that in our results, and I think we have talked about that on the last call a little bit.

Now, New York in January has been off to a much better start, and that is anecdotal because we don’t have the MLS data there, but when you look at our business, I have to some top agents at other brokerages in New York here in the first quarter and they were very bullish on kind of what’s happening in New York is at the start of the year.

So, maybe there is a little bit of that coming back, but it was definitely an issue for Q3 and Q4 when it looked like New York may have been like negative on those two quarters from a volume basis is kind of my view of the market. But again, there is less data there.

And then, look, the Department of State kind of coming out with the rental fee ban kind of nine months or whatever after the law was passed. That was a surprise to everybody, including us. Obviously, there is an injunction in place and we got to see how that and any more interpretation plays out.

I bet on New York for the long-term as a market, but New York has been tough on the Mansion Tax, that rent thing while it is not a big thing for us, it is not zero. So we are got to watch it.

And then, Charlotte talked about new development, for those of you who live in New York, there is a lot of new development happening in New York City and when it comes to market makes a big difference in the P&L of that business for us.

So, of all the geographies, it is probably the one with the most volatility around it from kind of those types of outside forces, Anthony. And so, we are watching it pretty closely and even my tax comment, I called out in New York and my script just because stuff like the Mansion Tax has had an impact..

Okay. Thank you..

Your next question comes from the line of Jack Micenko from SIG. Your line is open..

Hey good morning everybody. Ryan wanted to square some of the commentary around competition you have obviously been pretty constructive on it going back a few months both on these calls and in some, you know, industry presentations, that sort of thing.

You know but the split numbers, looking at the split numbers by quarter, year-to-year, it looks like fourth quarter was actually the high water mark on split pressure for the year. And I’m trying to understand timing as the year progresses and you also talked about agent count and agent is up 4%.

I’m wondering if you could give us that number that your growth number by quarter as well to kind of just talk about what the trends you are seeing as the year went on relative to some of the comments you made?.

Yes, so let me start with your last question, because it is easier. So look we effectively started pivoting to positive agent growth in about the middle of the year and if you kind of go back to our calls, we called that our agent growth.

I think in like two of the calls that we did in 2019 and we kind of got some momentum and then felt like in Q4 accelerated so that was a good thing.

The second thing you didn’t ask about it, but as we talked about all the market share stuff and retention, you know, our retention numbers were getting worse throughout the year because of the competitive environment. And in the quarter, our retention numbers got better, right.

Because again, part of the competitive environment parts of I think of what we are now delivering out there and we saw that on the agent side and then as one of your competitors talked about, you know, we have had a bunch of big franchise renewal so we are seeing it there too. So that feels pretty good, right.

Both our delivery but also the environment and it shows up in recruiting, retention, and even the point I made you can see both in our data, even in some of the press, there is a lot more agents actually returning to our brands in the fourth quarter.

And here at the start of the year, which is just kind of correlated with our recruiting success and our retention success. On agent commission splits, we absolutely had a higher Q4.

I’m not this troubled by it in the sense that we got the, we got a lot more growth in the quarter, which is part of it, but also remember the higher volume you get from people, the higher they move up the split table. So that is a piece of it.

But the other thing, if you look compared to 2018, right, the Q4 of last year was our smallest increase year-over-year. So it is a little bit of a lower comparison than some of the 200 basis points year over year comparisons earlier in the year.

But if we stepped back ultimately we came into the year and I think I told you, you should expect about a 100 basis points of split increase for the year. Right.

And you know as it turned out, the number was on a like-to-like basis, turned out to be 70, it was 49 on the phase of the financials, which includes the fees that we are now getting, which is a real thing and so I actually think the 49 is a real number we should all be excited about.

But you know, the more we have and drive some growth, the more there is a little bit of inflation in this thing. And so that is something to keep in mind.

The other thing I would keep in mind is when you do a year-over-year comparison, you are capturing the things that happened in multiple other quarters, including the first two quarters say of 2019 when the competitive environment was a lot crazier.

And so anyway, so we were not as troubled probably by the uptick given the volume that kind of came with it with all those different pieces.

But again, just step back we used to be in the 200 plus kind of increase or a 100 - 200 plus kind of increase, we came into this year thinking we were back into the a 100 or below zip code, we did better than that. And then next year it will kind of be a volume thing, but we feel better about the place we are at.

But, I can’t tell you that, we are at a steady state, which I want to be able to do someday, but that is a lot and hopefully it kind of got to your question in there somewhere..

Okay, great. And then, on the model on the cost saves. I mean, Charlotte, maybe you can you talk about cost inflation, some of the costs that are going to go into growing military awards and some of these other avenues. I think there are some spending going on at the franchise level.

And then all of that 70 to 90, what percent of that you think ends up factoring all that in? What percent are piece of that drops to the bottom-line as net savings for 2020?.

Yes. It is a great question. I can tell you this. The things that you mentioned are these sort of offsets to the cost saves and the cost save should be enough to combat those. I think where we have a lot of variability is in the commission split pressure. And so, it is very hard for me.

I would love to give you a net number today, but I don’t feel comfortable doing that just yet, because I want to see how a few of the months play out on a commission splits. That is the biggest bogie for us.

But, in total of the cost saves that we have, those should be enough to more than offset the things that you talked about, the strategic investments, the inflation, et cetera that we have in the business..

Okay. And in the past, you have given 1Q guide on 4Q call and you talked about the reasons why not.

As we get through the transaction, and get more clarity on what USAA is, I mean, do you expect when we roll into the next call that we are going to be talking about some 2020 EBITDA targets or are you just sort of backing off of guidance all together at this point?.

Well, you look, historically before I joined the Company, I think the practice was kind of wait until about the middle of the year to give EBITDA guidance. And, just partly because of the volatility of the housing market splits and all the other kind of stuff.

For the last couple of years, we have given a little bit of guidance in part because of kind of bluntly how Q1 was degrading, compared to previous years. And, you can infer whatever you want from that, but we don’t think that is the right thing to give any right now, and we are definitely not in a position to give full-year guidance.

So, what I would say is, we are probably going to take the guidance thing kind of quarter-to-quarter right. It is in all of our interests for us to all kind of feel the same about the Company. And so, I think we are probably going to take it kind of quarter-to-quarter and so we haven’t even made a decision about that yet.

But you know, we tried to give you at USAA a lot of information to do some good modeling, which again a lot of people I think have already done a very good job on that thing, and with the splits up today and a few of the other pieces we are open there.

One of the pieces of advice I got from kind of the person who I worked for a long time he founded his own company and incredibly successful was to never let the perception of your company get too far away from the reality. So, you should know, it is in all of our interests for us to kind of be in the same zip code.

But like, there is also a lot of downside in a very volatile cyclical business to giving you information that we then can’t either guarantee, we can deliver on. But look, I’m excited about the momentum we have got to enter in the year, Jack, both on the volume side and the value prop side, the capital allocation side of the transaction.

And so, we will play the guidance kind of quarter-to-quarter and go from there..

Alright. Thanks for taking my questions..

Your next question comes from the line of Tom McJoynt from KBW. Your line is open..

Hey guys, thanks for taking my question. I wanted to ask about the kind of relative under-performance relative to NAR, it seem like that gaps narrowed a bit this quarter relative to last quarter.

Do you get the sense that that was more geographically driven or do you feel like there were some market share gains or just any comment there?.

Look, we think we really liked our quarter in our January and so we put more of it on the things that we have been doing and the competitive environment, it is really when we have looked at the geographic mix, there maybe it is a little bit in there, but it is not, it is not very much bluntly. So we are pretty excited about it.

We don’t think NAR is the be all, end all cause we do have a big different geographic mix and they use surveys and we tend to - we just kind of print our actual type of stuff, but it is a good benchmark to look at, but we don’t over obsess about it, and so what we get excited about is that shift to positive volume that we had in Q4, it is a good start to the year in January on volume.

Corcoran franchise turn into reality to generate more earnings for us and sort of things I talked on product partnership and better agent recruiting, better agent retention, agents turning to our brand. and so the fact that the gap to NAR is less that is great, but we are more excited about the things behind it that drove that..

Got it. Thanks. And then just touching back again on the competitive landscape, kind of your comments about using the word rational, describe the marketplace.

I mean, is that more applying to I guess the financial incentives that competitors are offering to like new recruits in this space or to try and to poach agents from Realogy or other your competitors? Just to kind of, how do you define, I guess the improvement in becoming more rational?.

So I look at it in two ways. So one is I’m looking at kind of agent migration reports across 240 MLS is kind of every single month and kind of seeing who is doing what recruiting and et cetera. But then we are also looking at the offers, right.

What are the offers that are out there for agents? How they are structured? We saw some offers to agents change from being upfront cash bonus to we will pay you X every week for two years. And that is a little more of a cash flow positive offer than the first one.

And so the fact that someone would make that change, like that is a little more of a rational kind of thing out there. So look more rational doesn’t mean it is not still intense, to be blunt it is an intense business.

But as an industry we have been competing against private capital that is been going after market share at all costs without regard to profitability for a couple of years.

And to see that the scrutiny of those kinds of companies be stronger has definitely helped on the competitive environment and three of the six biggest players in our owned brokerage industry lose money.

So the fact that it is people are more focused on companies that make profitability kind of a return to quality and that our agents care about that too, that is all helpful to us, we have seen lower sign on bonuses out there and things like that. But it overall it looks a lot more rational.

It doesn’t mean it is not still intense, but there is a big difference between rational and what we have been felt like it was dealing with in the first parts of 2019..

Got it. Thank you..

[Operator Instructions]. Your next question comes from line of Matthew Bouley from Barclays. Your line is open..

Good morning. Thank you for taking my questions. I really just had a couple of follow-ups to some of the earlier questions. So, on the improved competitive environment, I guess my follow-up would be just be curious to hear how it applies across markets and kind of how broad based it is. It sounds like you are seeing it relatively broad based.

I guess what are you seeing and hearing in those certain markets, where you had referred to the competition being a little more acute, I guess versus the wider range of markets where that competitor may still be looking to scale? Thank you..

Yes. And look, there is always more than one competitor that we talked but definitely one or two has been the bigger challenge. Look, I think it is been more of a broad based kind of thing. And again, it doesn’t mean the competition has gone away or is zero or is difficult.

There is a big difference between what feels rational versus irrational on a profitability side. But it felt more broad based, and then there is a lot of geographies, especially that our franchisees play in where the competitor environment didn’t get as intense as it did in Chicago or Northern or Southern California kind of thing.

But, it is more of a broad base kind of thing, but it is not zero for anybody and we are an intense competitor and it will continue to be an intense industry. But, we really liked them more rational environment and it just showed up in our Q4 numbers, right.

Again, some of it what we are doing with product and partnership and delivery of the value proposition, but some of the environment and together it led to positive transaction volume and we had better agent recruiting and better agent retention, more agents returning to the brand, bunch of franchise renewals as one of folks mentioned and then receptivity to our new franchise out there in the market.

So we are pretty excited..

Okay. I appreciate that. And then, I also wanted to follow up on I guess specifically RFG versus the NAR data, but just focusing more about going forward and you just mentioned some of the successful renewals and you have got the strategy to continue investing in volume incentives, et cetera.

So, I guess I would like to hear kind of your thoughts on what it is actually going to take to kind of bring that performance more in-line with the market? I understand you are saying it is not necessarily always going to be apples-to-apples, but is the goal to bring those volumes sort of back in-line with market growth? Do you actually want to grow share or should we think as we think about 2020 is kind of more of a measured improvement in RFG volumes, but maybe not quite where the market growth is? Thank you..

Yes, look, we are excited to grow RFG as much as we can, right. And, we have got the Corcoran launch is kind of a new vector of doing that.

We talked about our investment in the Better Homes and Gardens, CAFD model to give us something to compete with the cat fee companies and better homes and gardens at a couple of - in 2019 had a really good year on both agent and franchise sales growth because of that CAFD model. So, we are excited about that.

And then look, some of the competitive dynamic, we talked about hits our franchisees especially, Sotherby’s is a prime recruiting target for people and so, the better competitive environment will help on that. But, we are excited to get as much growth as we can there.

And some of the value proposition things are driving that, some of the new franchise things. And again, we are always going to be focused on profitable share, right. This business doesn’t have the stickiness that some others do that would make you want to be unprofitable just the whole share. So we are going to be focused on profitable share AARP.

We really like the margins in the business is why we are investing in Corcoran, investing in Better Homes and Gardens, investing in Sotheby’s International Realty on the franchise side.

And we think we are doing more with our size and scale to bring benefits to them that others can’t, whether it is the new high quality lead generation partnerships are RealSure iBuying alternative is not just for our own business, it is also for franchisees in those markets. And that is something that most of our competitors can’t replicate.

So we are excited to drive more growth there. And the same factors that bluntly make us more optimistic on the competitive environment in our owned brokerage business that we spend most of our time talking about on these calls, it doesn’t apply in that world too..

Okay. I appreciate all that color. Thank you, Ryan..

Alright. Thank you, Matt..

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