Q4 2019 Earnings Call

Good morning, and welcome to the Realogy Holdings Corporation fourth quarter, and full year 20, Nike Inc. 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.

Webcast replay will also be made available on the company's website at this time I like to turn the conference over to the realities.

Senior Vice President Alisha Swiss Please go ahead Alicia.

Thank you Marcella good morning, welcome to really he's fourth quarter and full year 2019 earnings conference call on the call with me today are really <unk>, CEO and President range, Snyder and Chief Financial Officer Charlotte's Imminently.

As shown on slide three of the presentation. The company will be making statements about future results and other forward looking statements. During this call. These statements are based on the current expectations in 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 20, theft 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 and the forward looking statements are specified in our earnings release issued today as well as our annual and quarterly FTP filing.

Also certain non-GAAP financial measures will be discussed on this call encouraged Tc rule important information regarding these non-GAAP financial measures is included in our earnings press release.

Before turning the call over to Ryan.

We'll have noticed in todays earnings release as part of our continuing efforts at simplification and in light of the pending sale. The relocation business, we have renamed our operating segments.

Really de franchise group or franchise.

Really brokerage group or brokerage, which is formerly NRT really title group or title, which was formally TRG and the religious leads group or leads is the affinity in brokered a broker business at Curtis that we will retain.

The relocation business is now reported as discontinued operation.

For consistency, we have revised prior period financial discussions to reflect these changes we expect that the really tea leaves group will be included within the religious franchise group upon transaction closing given that the majority of the leads are distributed to our franchisees.

The really T. brokerage group will also continue to receive leads as well.

To better. It's just 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 Brian Schneider.

Good morning, as you move soon so my public remarks in December January I've never been more excited about we don't do that I am right now while the past few years been pretty television for the industry and religion as we stand here today I feel very good about a leadership position in the sector, but all potential future click and my excitement optimism about real ones.

Which is increasingly sure by people inside and outside of our industry is anchored in what happened in the fourth quarter. We are discussing today first we accelerated the delivery of new products and partnerships to enhance or eating franchisee valued problematic setting the stage with greater late in the future.

Operating with agility of moving fast second we made a series will receive capital allocation changes and business next decision such as the pending relocation sale strengthen our balance sheet and simplify okay.

Killed it better competitive environment, we started to see in September October has definitely continue.

For the show the 2020 are showing a more rational competitor environment, which is helping us drive better recruiting and retention legal.

Well get finally, we like the results delivery in Q4 or transaction volume was solidly positive and we don't 20 million more operating EBITDA, including discontinued operations. Then we did in 2018, even with cash headwind from agent Commission split and already gossiping for future.

These positive trends have continued or January transaction volume was up 13% as our retention in recruiting results and the housing market continued to improve and we delivered even more strategic initiatives like signing and watching all first corcoran franchisees in the quarter with more important franchisees play.

And can be announced later in the quarter.

He pulling way up even with all the challenges last two years, we remain a leading player in both franchising owned brokerage is strong brand portfolio, we have the technology and data skill to drive innovation in this industry. Nick importantly, we generate substantial operating EBITDA that foundation combined with our fourth quarter actions on results.

My optimism for the future.

Returned to Q4, the full year.

Hi, good volume growth in Q4 up 6% year over year with franchise brokerage up 7% and own brokerage up 4%.

Before we are 126 million of operating EBITDA, including discontinued operations 20 million above Q4 2018.

Full year, we had minus 1% transaction volumes.

Transaction volume include every quarter throughout the year ending with the solidly positive Q4, Q4 benefited from our increased recruiting and retention success and the more rational competitive environment.

We delivered 590 million of full year operating EBITDA in 226 million of free cash flow, both including discontinued operations.

Right of course are 2019, we aggressively deliver to enhance our body proposition for our agents in our franchisees. We organically grew the number of agents in our own brokerage business by 4%.

We deliver differentiated marketing technology and data products, well also launching multiple new high quality lead generation programs products like this in current year and social at engine are now national we have new technology products available to both agents and franchisees nationally and in pilots or new Realogy military.

Her words program is already driving good growth, we're launching our April hey, RP lead generation programs as core.

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

A real Vitalize program in partnership with home advisor has expanded to over half the country and our real sure I buy alternative with home purpose of America is driving thousands of cash offer requests and its 10 markets. After only a few months both consumer products help agents when more liftings and make real it.

You get 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 dollar sale of our relocation business, which generated 28 million in operating EBITDA in 2019 dispositions real jeep or greater simplification and allows us to reduce our debt the sale is risk.

The antitrust 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 well, there's approximately 10 million an annual capex has its own securitization fills facilities and drive swings in working capital.

Sure. We look forward to 2020 with optimism, let me address a few strategic issues first let's talk about market share and right as we've discussed in previous calls our market share declined in 2019 split equally across our brokerage and franchise businesses.

We're 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're not making a choice to go negative on profitability just to retain market share, but with the recent returned to quality across.

Industries in the whole economy, and the increased scrutiny of unprofitable companies Q4 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.

She is weird or 2020, I'm really excited about our potential growth in volume.

We expect solid transaction volume growth across both our own brokerage and franchise business with franchise a bit ahead of owned brokerage just like in Q4 2090 or January transaction volume was up substantially all recruiting and retention results continue to improve we've delivered even more strategic growth initiatives like the court that franchise business.

[music].

So we don't want you to run away too much with our excitement we don't expect 2020 volume growth your market share trends to be easy.

We still expect competitive intensity, even in a more rational competitor in parliament.

And when looking at sure we still have the headwinds from agent losses in earlier parts are 2019, when the competitive environment was less rational and there's also the loss of an important number of transactions from the discontinuation of our USA affinity program.

So overall, we're 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.

Sure let me provide some detail on our remaining cartus business, including implications of the discontinuation of the USA affinity program.

Our cordless affinity and brokered a broker business made 53 million an operating EBITDA in 2019, well generated about 68000 referrals. We previously disclosed that will realize the material decline in 2020 operating EBITDA in this business due to the loss of the USA affinity program as USA was our largest partner.

Hi, a substantial margin.

We also previously disclosed will have an equivalent operating EBITDA decline across our brokerage and franchise businesses driven by the downstream impact of the reduction referrals.

We will be investing in both new and existing lead generation programs to offset the USA loss over time, we'll be making launch in marketing investments in new high quality lead generation programs, including a RP and Realogy military awards as well as investing in select existing affinity programs.

Finally, along like in our outlook for 2020 delivery on her efforts to drive growth more rational competitor environment continued focus on our business mix continued progress on debt pay down and our volume and are pretty momentum for Q4. We also like the macro for 2020, we're 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're seeing transaction volume improved in coastal markets. The struggled in 2019, the west is exhibiting more strength and endorse D is showing growth.

Well inventory and affordability challenges remain large can search and how tax changes affect select markets, especially New York City still bear watching overall 2020 looks to be the best 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 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 were.

And 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.

And 29 team, we achieved operating EBITDA of 590 million, including discontinued operations.

We grew our agent based 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 realized 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 headwind 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 reduce net debt by 78 million.

We opportunistically repurchased 93 million of bonds at a 10 million dollar discounts.

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 am pleased with the progress we made.

Now, let's move into our consolidated financial results on slide deck.

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 really cheap brokerage and Realogy franchise scripts as well as strong revenue growth and Realogy title.

We are pleased with the revenue increased and 6% transaction volume growth in the quarter.

Religion, 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 a loss of 22 million last year, driven primarily by the fair value adjustment on the assets being sold as well as tax expense associated with the taxable gain on sale the tax impact of the pending relocation sale.

As reported as discontinued operations within our financial statements.

Q4 earnings per share was negative 39 cents compared to negative 19 cents and 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 and net leverage ratio would have declined to 5.0 times.

Now, let's move onto a year over year comparison of segment performance on slide seven and eight.

In Q4 religious 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 69 million in the quarter.

Operating EBITDA was 129 million also up 4 million due predominantly to the increase in revenue as operating expenses were flat year over year.

Really cheap brokerage group revenue was 1 billion up 26 million due to a 4% increase and 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 3 million versus prior year, driven by lower operating expenses associated with our cost savings program.

Really 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 G.R.A. mortgage JV.

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.

We would she leads through 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 and operating EBITDA and 18 million of free cash flow and 29 team for Realogy are now reported in discontinued operations pending the sale.

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 end of wells that the realogy level.

And we'll mitigate the majority of cash taxes at the time Upsale.

Ryan has talked about improving volumes in Q4, let me highlight a few of the other positive impacts to the piano.

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

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

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 to 2020 seasonality to be inline with 29 team.

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

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 and 29 team and I anticipate a modest decline in the run rate and 2020.

However, we do have some headwinds in 2020.

Well it might be obvious the biggest financial resets for 2020 compared to 2019 will be the loss of the Cartus relocation earnings and the U.S.A. impact both of which Ryan discussed.

We expect the upward trend on commission splits you continue in 2020 similar to what we experienced in Q4.

Maturity of which comes from continued competition to recruit and retain agents, albeit more rational at the end of 2019 and the improving housing markets remember the more agents produced the higher the split they can achieve.

We are investing marketing and gen $8 to support strategic investments, including the launch of the Corcoran franchise.

Switching to a our people program growing our religious military rewards program and growing other select affinity partners.

We are pushing for greater franchise growth through different strategic approaches, including transitioning additional b H and GE 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.

The strategic growth choices and the use of incentives combined with the competitive environment, we'll put downward pressure on our royalty per side. We liked these investments for growth and the early returns on the B H and GE 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 and even more effective and compelling ways and 2020, as we build and stronger overall financial profile for our business, we're off to a solid start.

To the year with that I'll turn the call back to Ryan for some closing remarks. Thank you Charlie let me close the call it a personal.

I've been very blessed to have held multiple senior operating rolls over the years and by my Count I've been involved in preparing for around 60 earnings calls are over that time.

And once in a while you realized something feels different like there's a change in there and that's how I feel today you know for the past few years its felt like the headwinds for Realty about number the tailwinds with our accomplishments throughout the year, especially in Q4 combined with the change the competitive environment, we began to feel more positive energy.

Good for the future is higher the optimism is higher and I feel that from our employees from industry insiders and for many to watch our industry closely I'm not saying on the road ahead as easy and I'm sure. Some of the headwinds with you during the call, but it does feel different to me.

As I said in my opening remarks, I've never been more excited I realize you that I am right now emerging from a couple of very challenging industry years, we enter 2020 with substantial momentum, including accelerated product and partnership delivery positive changes to our business mix and capital allocation, a better competitive environment and return to volume growth all combined.

Our substantial operating EBITDA in our industry leadership position or first quarter is off to a good stark and I'm excited about the you're ahead [noise].

With that I'll turn it over to the operator.

At this time I'd like to remind everyone in order to ask a question. Please press star and the number one under telephone keypad.

First question comes from a line of Ryan Mcareavey from Zelman and Associates. Your line is open.

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

So you called out to more rational competitive environment. The press release and your comments you 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're seeing in terms of the competitive environment beginning at the agent level. But then also we've obviously seen some of the headlines around some pretty sizeable.

Franchise renewals. So maybe also touch on the competitive environment with franchisees and with all of this 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, what others might be doing an industry.

Yeah. So thank you Ryan I appreciate it Supersoft look work, we're pretty excited about what we saw in Q4 and multi agency franchise side. You know we saw we saw better agent recruiting we start better agent retention as we saw a bunch of agents returning to our brands, but we also saw you know a lot of a really positive franchise renewals that we're very excited about it and there was.

First of all continued into the early part of Q1.

And you know I think a lot of that is the stuff that we're doing right more partnerships more products on the tech working or data side, you know, both real vitalize and real sure our consumer focused products that we've launched within the last kind of four months that are really interesting I think in innovative for our agents in our franchisees and so.

That I think a lot of what we're doing is driving the success I'm talking about but so that also has come from the competitive environment right. Yeah. You know I talk to you in the last call that we saw kind of the early indications of a more rational environment in September and October and that's definitely continue or do you know sense, then and we see that when we look at the age of migration data and the offers out.

They are 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 in our value proposition is something that we're really excited about you know and then finally this quarter, we've already launched Corcoran.

With our first franchisees there we have some more of those plan. Another example of us bringing something new to the market that we think is starting to resonate that can help drive future growth.

That's very helpful. Thank you Ryan and second question on on Cartus and some of the moving pieces.

So so within the release you called out 28 million of earnings from the relocation business. So is it fair to think of that kind of relative to the 400 million sale price. We're talking about you know that business being sold for something like a 14 times multiple and then a bit higher higher level on the hardest business and the referral.

Business underlying it I guess can you can you just talked about some of the moving pieces as far as we all know kind of the USA is coming out of things, but you've got a RP, but there's always this question of kind of the downstream impact of how big USAA could be so maybe just talk about how you're feeling about whether it's your military rewards program, whether it's you know Navy federal.

There are some of the other affinity channels somewhat capturing that business that might have otherwise country USA I'm, just a bit more on the puts and takes of how things could play out for 2020.

Sure absolutely. So first talk yeah. They are the the relocation business earned earned 28 million a in ER in 2019, and we did a a $400 million sale, though.

Sale for that and you look we really like the multiple on that.

You know in part if you looked at kind of trying to be good stewards of capital. We think it's very good capital allocation decision you know whether you look at kind of our trading multiple or our Ah Ah or our leverage ratio, we'd like to 14 kind of relative to those numbers and think it's a value creating thing for our shareholders and obviously, we're going to use the lion share those proceeds.

As to de lever or as a as part of the company you know going from there right I talked about in Charlotte mentioned, your we're investing in new lead generation programs like a RP and Realogy military rewards that latter one actually is already off to a pretty good start up pretty excited about it but we're also going to investments.

Of our existing ones and you called out a couple of those because our goal is over time to kind of replace the U.S.A. volume and capture some of that share overtime is not going to be you know a one year phenomenon or anything like that because these are long you know programs will take time to build but you know we're going to stay very focused on delivering that high quality.

Regeneration and you know and look at the USA thing is we've tried to disclose you know that you know that's gonna be a a material decline in that segment EBITDA on 2020, and there's got to being equal declined downstream you know to go a little farther on that you know the the leads from our affinity business go about 80%.

To the franchise group at about 20% to our own to brokerage group, but the economics of the downstream hit is kind of the opposite of that most of the downstream ahead for your modeling is in the brokerage group just because of the you know how much money, we make on an owned a transaction versus a franchise one.

And so Ah so we're going to keep being clear that there's going to be that equivalent downstream hit ER and.

But you know, but look we're we're really excited by the partnerships that we've got launching including a RPM is 38 million members this quarter and the early growth, we're getting from real GE military rewards.

That's helpful. Thank you.

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

Hey, guys 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 impacted California have on split.

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's 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, Charlie and work on capital allocation. So you mentioned that a majority of the 400 million received from the core to sale would be used to pay down debt or is there a specific number that you're targeting tour, you'll start to entertain paying out the dividend again or buy back shares.

No I think were focus remains investing in the business and de levering. So we're going to focus on that I would like to remind you that of the 400 million. Initially we received 375, which will also be trued up versus some closing costs that we have the remaining 25 will happen you know at a later date I just want to be clear about that as well, but we do remain focused on invest.

Staying in the business and de levering right now and to be incredibly Claire you know until we get our leverage ratio below 4% four times, we're not even considering those other topics and even then we'll have to decide what we want to do but you know you should you should assume we're going to focus on investing the business and paying down debt until were below.

Four times leverage.

Okay got it thanks guys.

Nice quarter.

Your next question comes from the line of Stephen Kim from religious your line is open.

Well not yet, but [laughter] guys. Good good quarter strong results a in many ways and it's encouraging to hear what you were saying about the a the competitive environment I did want to start with the cost saves Charlotte.

You know you were good to just 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 some sense of how it's going to flow through the year.

That 90 million and then Oh, sorry, the 79 million and how much of that would show up in NRT versus a RMG sure. So once you can think about as the 52 that we've said is already action is pretty relatively evenly split corridor by corridor. 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 you know if you can even look into the fourth quarter. Some of the things were already action during the fourth quarter and you can sort of trying to 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 action, yet that can be a little bit more.

Variable between the those two pieces as well as corporate.

Okay.

So the 52 evenly split by quarter. The remainder so approximately 20 to 30 million will be more heavily weighted towards the back half.

Got it yeah. That's helpful. Okay, and then I guess, if we could talk a little bit about the a transaction volume in January obviously going back to see you did pretty well here in Fourq you the housing market certainly showing a lot of strength.

If you could you talk a little bit, though about the comparison a year ago. Because obviously you know the one Q was a pretty easy comp.

But within that quarter from a monthly a cadence is there any reason to think that the January figure faced a particularly easy comp relative to February and March for you.

Yeah look you know what I talked about you shouldn't run away with our excitement, including the general resolved I wouldn't use January to forecast, our year or quarter and some of it gets to the kind of thing as you know how January February March of last year looked versus before you know and then you know March is you know marches 40, 45% of the quarter. So.

So the reality is the quarter's a lot more driven by March then by either January or February. So look we think it's a really good start to the year, both for us and for the market right. We like the delivery of products and and you know things like our Corkran franchise is powerful early on in the year you know we liked it better competitive environment, we think.

I would kind of paid off your in January with some really good results were excited about growth over the course of year, but you know for the reasons I said January wouldn't be the I wouldn't extrapolate the whole year or the quarter from January but you know, we're we're having the.

Good feeling that the let us to you know you know a start the call the way I do.

I guess, I'm wondering whether or not as if we look at the cadence within one Q. If it would be reasonably just sort of look at the you know the existing homesale DNA, our type numbers or if you could provide us with maybe a more discrete company specific a sense of how bad quarter book.

Yeah, I'm sure you're talking for 2020.

Yeah. The one Q2 thousand 20, because you know if you haven't january's to big number in my outlook. So we're not going to give we're not going to give core quarterly guidance of the stuck you know maybe on your own ours.

You were the first quarter is lower than our January number, but you know it ignores view of January was in the same Zip code or some of our January number.

So like I got I, you know, we're probably going a little bit Barb I just given your January but it's because we do this earnings call. So late in the quarter because of the K. It's the one earnings call. We actually have a full month data you know and so you know I think actually this is now two years in a row. We've just kinda shared with you what happened in January.

So but are we like the January we like the trends, we like what we're seeing for Q1 and for the full year, but you know I went pretty part of my way to tell you not to run away with the excitement you know, including the January specific results, but but don't want that tempur my optimism tumor [laughter].

[laughter], Okay fair enough. Thanks.

Your next question comes from line of Anthony follow on from JP Morgan. Your line is open.

Yeah. Thanks, Good morning, Sean on splits you mentioned order of magnitude and 2020 being comparable for Q. So for just look at those numbers. It would suggest you know up about 80 bips year over year says that would put you up in.

I don't know 73, and three quarters range for 2020 does that I mean should we take that as being sort of the ZIP code of where you feel comfortable.

Yeah. That's that's the right ZIP code I mean, there's a lot of variability and that depends on our ability to recruit and retain agents. The volume growth is very big we do have some two things I want to point out you know, there's some volatility in our new development business and its episodic and there's a much lower split on that so depending on how the new business that new development business.

Falls well also have an impact on split.

And also U.S.A. just keep in mind, you know the downstream impact from that there's a much lower split on those transactions. So that's part of why we're giving the guidance of sort of like in the 80 ballpark because all those things play a role and and why the number would be higher than it wasn't 29 team.

Okay and on U.S.J., I mean, you guys should $53 million of EBITDA from from leads I mean.

How much of that was from U.S. or.

Well, we didn't disclose that specifically I mean, we have said, it's a you know a substantial piece of it so and I think there's other guidance. We've given over time that enables people to sort of getting the right ballpark, a and it's important to recognize the downstream transactions as well.

Yeah look on that Anthony to be honest I I think what we've never given data on on individual partners. We've never given data on you know you know individual franchisees no matter how large they are and we've never given data on you know how much we earn in a specific geography for example on your own brokerage side. So you know.

I say 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're now giving a lot more information about you know that business its margin it's referrals.

And I just tried to give you. Some you know more information earlier about where the leads go and where the economics of Amar.

So you know you know I'm I know everybody is going to want to number I don't think you're you're not going to get a number on that as much as kind of everything that we've given you up to this point plus the additional stuff. We're trying to give you here and you know we've tried to be pretty clear from day, one and it's material hit a ball in that part of the piano and on that downstream and then like.

I said you know the downstream it'll be bigger on the brokerage side versus franchise, just given how the economics of those leads with what lead to split issue Charlie talked about being a piece of that.

So that's that's a little bit more on it and I think you know some people have done a really good job modeling it already and and you know we're gonna be focused on a invested in the new programs bluntly to offset that volume over time and get some of those economics back.

Okay, and just nice people are more in and May not want to give a number on this but I'm just interested in new York or how big of a drag have the variety of.

You know regulatory changes and prospective regulatory changes.

Has had on on your business here Yeah, you know, it's it's a great. It's a great question. So let me take it in two parts. So look the mansion tax clearly you know the came in at that kind of the end of Q2, you know clearly was a headwinds in New York for Q3 into for and you know we saw that and in our reserve.

Well, so we you, but I think we talked about that on the last call little bit.

No New York in January is going off to a much better started that that's anecdotal because we don't have you MLS data there, but when you look at our business, but <unk> I've talked to some top agents at other brokerages in New York You know here in the Corps first quarter and David or they were very bullish on kind of whats happened New York stock.

Part of the or so so maybe there's a little bit of that coming back but it was definitely an issue for Q3 in Q4, you know when 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's less data there and then look you know the department of state or kind of coming out with the rental fee back on kind of you know nine months or whatever after the law was passed that was surprised everybody, including US obviously, there's an injunction in place and we got to see how that anymore interpretation plays out, but you know New York is a it.

It's it's a it's I bet on New York for the long term as a market, but New York Scott you know.

It's been tough on the mats intact, you know that that rent thing, while it's not a big thing for us it's not zero. So we got to watch it and then you know Charlotte talked about new development, though do you live in New York You know, there's theres a lot of new development happening in in New York City, and and when it comes to market makes a big difference in the piano.

That business for us so of all the geography, that's probably the one with the most.

You know volatility around it from kind of those type of outside forces Anthony and Ah.

And so we're watching pretty closely and even might you know my tax comment Oh I called out in New York in my script, just because stuff like that mansion tax has has had an impact.

Okay. Thank you.

Your next question comes on line of Jack Machine go from Sig. Your line is open.

Hi, good morning, everybody.

Right once where some of the commentary around competition, you've obviously been pretty constructive on it so I'm going back a few months both on these calls and 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 watermark on split pressure for the year and I'm trying to understand.

Timing as the year progressed. As then you also talk about agent count and he is up 4% I'm wondering if you could give us that number that you are your growth over by quarter as well to kind of just talk about what the trends.

We're seeing as the year went on relative to some of the comments you made yes, let me let me start with the with your last question goods easier. So you know look we effectively started pivoting to positive agent growth and about the middle of the year.

And if you kind of go back to our calls you know we called that our agent growth I think a in like two of the calls that we did in 2019.

And you know, we kind of got some momentum and I felt like in Q4. It accelerated so that was that was it that was a good thing. The second thing you didn't ask about it but you know a as we've talked about all the markets. Your stuff in retention you know, we you know our retention numbers weren't getting worse throughout the year, because the competitor and by.

Permit and in the fourth quarter or retention numbers got better right because again part of the competitive environment in part because I think of what we're now delivering out there and we saw that on the on the agent side and then you know is one of your colleague what are your Ah competitors talked about you know we've got a bunch of big franchise renewals. So we're seeing it there too so that.

That kind of felt that kind of felt.

So that feels pretty good right, both our delivery, but also the environment and it shows up in recruiting retention or even the point I made a you know you can see both in our data even if some of the press there's a lot more agents actually returning to our brands in the fourth quarter and here at the start of the year, which is just kinda correlated with our recruiting success in our.

And our retention success you know on on Ah you know on agent Commission splits you know we absolutely you know were had a higher Q4 I'm not the troubled by it isn't a sensitive we got that we got a lot more growth in the quarter, which is part of it.

But also remember Oh, the higher volume you get from people you know them, though higher they move up the split tables. So that's a piece of it but the other thing if you look compared to 2018 right. You know the Q4 last year was our smallest increase year over year. So it was a little bit of a lower compare.

Harrison than some of the 200 ish basis points year over year comparisons earlier in the air but the original especially if we step back bluntly, we came into the year and I think I told you should expect about 100 basis points of split increase for the year right and you know it turned out the number was was on a like for like basis turned out to be 70, you know it was for.

49 on the face of the financials, which includes the fees that we're now getting in which is a real thing and so I actually think to 49 has a real number we should all be excited about but you know the more we the more we have haven't drive some growth. The more there is a little bit of inflation in this thing and so.

So that's that's something to keep in mind, you everything 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 you know the first two quarters say of 19, when the competitive environment was with a lot crazier and so so anyway. So we were not as trouble.

Probably by the uptick given the volume that kind of came with it a with all those different pieces, but again just step back you know we used to be in the 200, plus kind of increase or 100 couple of 200, plus kind of increase we came into this you're thinking we were back into the hundred or below ZIP code, we did better than that you know and then next year at all.

Kind of be a volume thing, but we feel better about the place we're at but you know I I can't tell you that we're at a steady state, which I want to be able to do someday, but that's a lot and hopefully it kinda got to your question in there somewhere.

Okay, Great and then I'm on the model on the cost saves I mean can throw then we can talk about cost inflation.

Some of the costs that are going to go into you know growing military awards and some of these other avenues.

I think there's some spending going on at the franchise level and then.

70 to 90, what what percent of that you think ends up factoring all that and what what percent.

Piece of that drops to the bottom line is not savings for 2020, Yeah. That's a great question I can tell you. This the things that you mentioned R&D sort of offsets to the cost saves and and the cost saves shouldn't be enough to combat those I think where we have a lot of variability isn't the commission split pressure and so it's very hard for me I'd love to give you on that number today.

But I don't feel comfortable doing not just yet because I want to see how a few of the months play out on the commission splits that's the that's the biggest bogey for us but in total loved the cost saves that we have you know 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 then the posh if you have given one Q guide on the Fourq you call and you talked about the reasons why not as we get through the transaction.

And get more clarity on what USA is I mean do you expect we'll be rolling in the next call that we're 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 know look historically before I joined the company the length of the practices kind of wait till about the middle to your to give EBITDA guidance and Ah just partly because of the volatility of the housing markets splits and all the other kind of stuff.

You know for the last couple of years, we've given a little bit at guidance in part because of you know kind of bluntly how Q1.

Was degrading compared to previous years, and you know you can infer or whatever you want from that but the but but we don't think thats. The right thing to give any right now and we're definitely not a position to give full year guidance.

So so what I would say is we're probably going to take the guidance thing kind of quarter to quarter right. You know, it's at all of our interest for us to to all the kind of feel the same about are about the company you know.

And so I'm. So I think we're probably going to take it kind of quarter to quarter and so we haven't even you know made a decision about that yet, but you know we've tried to give you with USAA a lot of information to do some good modeling, which you've got a lot of people I think have already done a very good job on that thing and you know with the splits up today in a few of the other pieces were hope.

And there you know one of the piece of advice I got from.

Kind of the person who you know I worked for for a long time is founded a his own company and incredibly successful was in order to never let the perception of your company you get too far away from the reality. So you should know it's in all of our interest for us to kind of be in the same you know ZIP code, but like you know there's also a lot of downside in a fair.

Very volatile cyclical business given to you information that we then cat either guarantee we can deliver on but look but I'm I'm excited about the momentum we've got to entering the year Jack both on the volume side on the value prop side, the cap allocation side of the transaction and so you know so we'll play.

Guidance kind of quarter to quarter and go from there.

Hi, Thanks for taking my question.

Your next question comes from line of Tommy Jain from KBW. Your line is open.

Hey, guys. Thanks for taking my question I wanted to ask about the kind of relative underperformance relative to now our it seemed like that gap narrowed a bit this quarter relative to last quarter, you get a sense that that was more geographically driven or do you feel like there were some market share gains just any comments there.

Look we think we had her we really like our quarter, a and our January and you know so you know we put more of it on the things that we've been doing it on their competitive environment. You know, it's really when we've looked the geographic mix there maybe a little bit in there, but it's not it's not very much Wally So we're pretty excited us.

Got it you know we don't think NRE is the be all end all because we do have a few different geographic mix and you know they use surveys and we tend to you always have are we just kind of print our actual type of stuff, but it's a good benchmark to look at but we don't over obsess about it and so what we get excited about as you know that shifted positive volume that we had in Q4.

Good start to the year in January on volume, you know Corcoran franchise turn into reality to generate more earnings for US and you know sort of things I talked on product partnership and you know better agent recruiting better agent retention agents are turning to our brand and so the fact that the gap to NRE is less you know.

That's great, but but we're 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 you know using the word rational described the marketplace. I mean is that is that more applying to I guess the financial incentives that you know competitors are offering to like new recruits in this space or trying to you know poach.

Agents from from Realogy or other your competitors just kind of how do you. How do you how do you find I guess the improvement in becoming more rational so I look at it in two ways. One is I'm looking at kind of you know agent migration reports across you know 240 MLS is kind of every single month.

And kind of seeing you know.

Who's doing what recruiting and and et cetera, but there were also looking at the offers right. What are the offers that are out there for agents.

You know how they're structured you know we saw we saw some offers agents change from being you know upfront cash bonus to will pay you Act every week for two years and that's the little more of a cash flow positive offer than the first one and so the fact is someone would make that changes like <unk>, that's a little more of a rational kind of thing out there.

So you know and so look more rational doesn't mean, it's not still and tends to be blind. It's an intensive business, but you know as an industry. We've been competing against you know private capital that's been going after market share at all cost without regard to profitability for a couple of years and to see that you know this.

Neither of those kinda companies be stronger.

It's definitely helped on the competitive environment, you know and and you know three of the six bigger players in our owned brokerage industry you know lose lose money. So so you know so the fact that at some people are more focused on companies make profitability kind of a return to quality and that our agents care about that too you know that.

That's all helpful to us we've seen lower sign on bonuses you know out there are things like that but it. It overall the it looks a lot more rational doesn't mean, it's not still intense but there's a big difference between rational ER and and you know what we've been felt like it was dealing with in the first parts of a 20.

The 19.

Got it thank you.

Again, if you like to ask your question. Please press star and number one on your telephone keypad. Your next question comes from line have Matthew Bouley from Barclays. Your line is open.

Good morning. Thank you for taking my questions. A I really just had a couple of follow ups to somebody earlier question. So.

On the improved competitive environments I I guess my follow up would be just be curious to hear how it applies across markets and you know kind of how broad based it is and it sounds it sounds like you're seeing it relatively broad base I guess, what are you seeing and hearing in those certain markets you know where you had referred to the comedy.

Competition being a little more acute I guess versus the wider range of markets, where where that competitor may still be looking to scale. Thank you.

Yeah, and look and there's you know there's there's always you know more than one competitor, we that we talked about but but definitely you know one or two it's been the bigger bigger trout look I think it's been more of a broad based kind of thing and it got it doesn't mean the competition has gone away or is zero or ism still you know difficult. It just there's a but theres a big difference between what feels.

You know rational versus irrational lot of profitability side, but it felt more broad based you know and then there's a lot of geography is you know, especially that our franchisees plan, where you know the competitor environment, you know didnt. It didnt get as intensive did in Chicago, or you know northern or southern California kind of thing, but it's more of a broad based.

On a thing, but it's not zero for anybody and you know word intense competitor and and it'll continue to be a a 10th industry, but but we really like the more rational environment and just showed up in our Q4 numbers right and again some of it's what we're doing with product in partnership and delivery of the value proposition, but so you know, but so.

As the environment and together it led to you know positive transaction volume and we had better agent recruiting and better agent retention more agents return to the brand you know you know bunch of franchise renewals as one at one of the folks mentioned and and then you know receptivity to our new franchise out there in the market. So we're Uh huh.

Very excited.

Okay. I appreciate that and then I also wanted to follow up on I guess, specifically RMG versus the dennard data, but just focusing more about going forward and you know you just mentioned some of the successful renewals and you've got the strategy to continue investing in volume incentives et cetera. So I guess I'd like to here kind of your thoughts.

And when it's actually going to take to kind of bring that performance more in line with the market I understand you're saying, it's not necessarily always going to be apples to apples, but is the goals to bring those volumes sort of back in line with market growth do you actually want to grow share or should we think you know as we think about 2020, it's kind of more of a measured improvement.

And RFP volumes, but maybe not quite where the market growth is second yeah look well, where it look we're excited to grow our up to you as much as we can right and you know the you know we've got the Corcoran launches kind of a new factor of doing that we've talked about our investment into better homes and gardens a copy.

Modeled to give us something to compete with the Kathy companies and better homes and gardens had a couple of now it has 19 had a really good year on both Asian or franchise sales growth because of that cannot be model. So we're excited about that and then look some of the competitive dynamic we talked about hits, our franchisees, especially you know Sotheby's is a prime.

Recruiting target you know for people and you know and and so so you know the better competitive environment will help on that but we're excited to we're excited to get you know 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 you know.

We're always going to be focused on profitable share right. This business doesn't have the sticking as that some other to do that would make you want to be unprofitable just to hold share. So we're going to be focused on profitable shared our gee, we really like the margins in the business. That's why we're investing in court granted investment better over the garden investing in Sotheby's International Realty a on the franchise.

And you know, we think we're doing more with our size and scale to bring benefits to them that others cannot whether it's you know the new high quality lead generation partnerships are real sure I buying alternative is not just for our own business is also for franchisees in those markets and that's something that you know most of our competitors count replica.

Okay. So you know we're 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 spent most of our time talking about on these calls you know does 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.

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