Q3 2020 Realogy Holdings Corp Earnings Call

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Excuse me, ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.

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Now I will turn the call over to CEO and President range Snyder.

Good morning, and thank you for joining US today Q3 was a tremendous quarter for Realogy, the strategic and technology progress we've been driving.

Combined with the strong housing market came together to drive huge earnings delivery substantial transaction volume growth market share gain from the prior quarter and material debt Paydown.

Our growth continues to look good based on our preliminary volume data through most of October and we like our momentum.

Realogy delivered $309 million of operating EBITDA from continuing operations in the quarter, a $103 million above 2019 powered by substantial revenue growth and our cost actions.

And Excitingly, we are leading the strategic race to capture the integrated real estate transaction economics with nearly a third of the operating EBITDA, we delivered in the quarter from our title and mortgage businesses.

Revenue growth was driven by 28% closed transaction volume growth versus a year ago.

This volume growth momentum improved each month during the quarter.

July was plus 15% year over year August was plus 22% year over year and September was plus 50% year over year.

It was about equally driven by increased transaction units and by increased price.

Franchise was up 31% and brokerage was up 22% with the delta continuing to be driven by geographic differences like the brokerage headwinds in New York City.

Our volume results in the quarter demonstrated market share gain not just stabilization, but gain when compared to nars, plus 23% Q3 data.

Clothes more transactions and gain share.

Well many companies talk about digitizing the real estate transactions someday, we're living it and it's showing up in our financial results.

Finally, we remain very strong believers in the value of great agents and they are demonstrating it during this turbulent year.

We believe the combination of great agents and technology has accelerated our momentum and it's not lost enough that others have realized the need to partner with or higher agents, whereas we start with the industry, leading agent base across multiple great brands.

Shifting to our balance sheet, we made substantial progress on our leverage in Q3.

We generated 344 million in free cash flow from continuing operations.

Reduced our net debt by 276 million versus a year ago and ended the quarter with four two times net leverage.

In October we've already paid off all of our revolver revolver balanced borrowings. So a revolver balances now is zero and with our momentum going into Q4, we liked the trajectory of our deleveraging.

So looking ahead preliminary real itchy closed transaction volume data through most of October is up approximately 35%.

Versus 2019, and both franchise and brokerage with half or even more of that growth driven by more unit sales.

And <unk> open volume through most of October is even better it's up approximately 55% year over year.

With half or more of that growth also driven by more unit sales.

So based on that preliminary October data combined with our continued cost focus strategic progress and market share momentum. We believe we're on track for a very strong queue for subject to the macro covid and competitive uncertainties and we expect this momentum to continue as we enter 2021 with strong volume trends.

And positive consumer trends I will discuss later low mortgage rates and continued cough discipline having.

Having said that we also expect there will be headwinds in 2021 from the absence of the temporary cost savings.

And significant continued covid competitive and macro uncertainties, including how long you've housing and consumer trends will last but overall, we are very excited about our progress in position.

Finally, our capital allocation priorities remain unchanged, we plan to invest in the business and continue to deliver with that I'm going to turn the call over to Charlotte to review the third quarter financial performance in greater detail.

Thank you Ryan good morning, everyone, we ever to continue to execute from that position of strength in the third quarter, we demonstrated the power of our brand and delivering exceptional top line and bottom line breath, taking advantage of our strong foundation as virtual capability.

We drove market share gains in the third quarter relative synar improved operating margin and made significant progress on that pay down in deleveraging our business.

Turning to our outstanding third quarter highlights.

Q3 revenue was one 9 billion at 20% year over year, and our biggest Q3 by far on record.

Revenue growth was predominantly due to higher transaction volume growth across the brokerage franchise entitled businesses.

Operating EBITDA from continuing operations increased 103 million year over year to $309 million in the quarter.

We also significantly expanded margins in the third quarter at 335 basis points year over year on a continuing up spaces.

Strong volume growth and brokerage enfranchise robust earnings and mortgage entitle temporary cost actions and ongoing cost management, all contributed meaningfully to our profitability.

We realized an even greater share of real estate transaction economics, with our mortgage JV entitled businesses.

Our mortgage business continued it strong momentum and contributed $51 million and operating EBITDA in the quarter up 46 million versus last year.

Additionally, our title business contributed $44 million and operating EBITDA up 18 million versus last year.

As you know we have invested in these businesses over the past few years and our investment has clearly paid off in this current market environment.

We also continue to execute on our strategy to both Virtualized and more fully integrate these products to get more of the transaction economics.

Lastly are relocation business, which is reported and discontinued operations generated $4 million of operating EBITDA in the quarter.

We have kept a laser focus on lowering our cost base and simplifying the business. Despite the significant revenue growth in the quarter and remained focused on driving further efficiencies across the business.

Let me take a minute to recap what we have already accomplished on cost savings before moving on to what we expect to do in 2021.

In 2020, we expect to deliver approximately $80 million a permanent savings with approximately $60 million already delivered September year to date.

Additionally, we executed approximately $40 million in temporary savings into three.

Given the big rebound and transaction volume, we have pulled back the remainder of the temporary cost action and only expect permanent cost reductions to effect Q4.

We are working to action additional cost efficiencies for 2021, and currently expect to deliver permanent savings similar to what we delivered in 2020.

We now expect to reduce annual administratively expense by approximately $20 million in 2021 above the $10 million to $15 million previously communicated.

We expect to drive ongoing efficiencies and travel entertainment meetings and conferences and other operating expenses as we look to convert some portion of our temporary expense reductions to permanent reductions.

Commission splits increased 293 basis points year over year, largely due to the significant volume growth in the quarter. This.

This is higher than previous trends, what we believe this is a worthwhile trade as you can see in our third quarter results.

Also if you remember we have experienced a highly competitive environment over the past few years and we have been more aggressive on the recruiting and retention side.

We grew brokerage agents, 2% year over year in the quarter and our agent retention metrics have improved each quarter since Q3 last year.

We are excited to get the volume pay off now from our effort.

Lastly, we saw about a 50 basis point and head from the loss of affinity business, primarily USAA that we communicated a year ago.

While splits remain a critical issue, we like the overall piano P&L and growth and profit we delivered even with the pressure on this metric.

Moving on to capital structure.

We have shown we are willing to change our business mix and are working to optimize our capital structure.

In October we announced the sale of a rental property management business in an effort to further simplify and refocus capital deployment.

We will continue to remain proactive on this front as we explore incremental ways to extract greater value and simplify our business to drive continued improvements and operating performance and leverage.

Finally, I am excited by the improving strength of our balance sheet we.

We generated free cash flow of $344 million from continuing operations in the quarter and have reduced net debt by 276 million since Q3 last year.

We exited the quarter with $380 million in cash and cash equivalents, including restricted cash and only $140 million and revolver borrowings.

Our total net leverage ratio was four two times and the senior secured leverage ratio was 229 times as of September 30th 2020.

Also as of October 27th we have fully repaid the 140 million balance on the revolver, which is now at zero.

Lastly, as a reminder, with our refinancing last quarter, we have know maturity's until 2023, and our balance sheet and leverage ratio are clearly in a much stronger place than they were a year ago.

Wrapping up I am very pleased with the resiliency and performance of real itchy over the past several quarters.

We continue to execute on our strategy and have proven our ability to deliver growth profitability and free cash flow, while accelerating debt reduction and investing in the business or.

Our financial profile as much stronger today, and I remain increasingly optimistic for the future of our business now I will turn it back to Ryan.

I want to touch on a few strategic issues before we take your questions. Let me start with what we're seeing in the housing market.

Kim where you're you're tagging market has been stuck for several years with refill transactions hovering between five and five and a half million units per year change about 2013, even with population growth household formation and GDP increasing.

But in the last five monthly fee and the combination of very low mortgage rates and a number of social shapes increasingly unlocked bull hygiene Andrew.

And demand, putting the market Untasteful 6 million plus annualized housing unit sales.

One of the early last quarter, when we first discuss these consumer shapes.

Gain momentum in the past three months in particular, we are absolutely seen consumers migrate from urban disturbing markets.

We're seeing consumers rotating with in suburban markets to find housing get better meet their needs driven by work from home and we are seeing consumers accelerating Amir journey too attractive taxing whether geographies, including the continuation of more second home purchases.

We saw trims clearly in our Q3 results and they are definitely continuing on October as I told you preliminary rheology closed transaction volume data through most of October okay.

Rationally, 35% versus 2019 with half or more of the great driven by more unit sales and religion, Oakland volume through most of October is even better of approximately 55% year over year with half or more of the growth are also driven by more unit sales. Those are incredibly strong results for real G. As we continue our queue.

Three momentum.

More broadly nor is currently forecasting growth in both units in price for 2021, while.

While the world clearly has more uncertainty than usual lately given the Q4 numbers. We are seen the long term low mortgage rates and the potential continuation of these above consumer claims I mentioned, we believe we stand to benefit substantially from a growing transaction market in 2021, especially given our market share improve.

And in the third quarter.

Second I'd like to expand on my opening remarks about what were strategically building in delivering across realogy, especially in relation to some of the big strategic issues would get substantial focused in our industry.

I've always believed the combined power really scale technology data potential great brands, an agent centered brokerage model and you saw those strengths at work and a result of this quarter.

And while there is a lot of industry noise from other players both older knew about what they're going to do and what economics. They are going to deliver in the future. We have the proven delivery and scale to really capitalize on how the world is actually moving toward us and let me give you three examples.

So much of the world is talking about someday, capturing the integrated real estate transaction economics, we're doing it at scale ended unprecedented levels, you're seeing this in the third quarter given $95 million of our operating EBITDA was driven by title and mortgage.

We're benefiting from strategic initiatives like our new mortgage joint venture and our technology successes digitizing, both title and mortgage closings.

We continue to invest and expand our efforts to capture an even greater share of real estate transaction economics in the future.

Second we've created greater integrated and digital slash virtual experiences for the consumer the agent with our technology and data innovations, we benefited substantially from the acceleration of digital adoption driven by Covid in the last six months and.

And we continue our work to reinvent the transaction taking the learnings from this year is both agent consumers became more comfortable using digital in virtual technology throughout the transaction process.

And finally, the future of the agent continues to be brighter than people have been saying we.

We expect the market data will show that agents are being used more than ever both during covid and during this recovery.

And we we are very excited to see the power of agents versus other models and Q3.

We remain focused on supporting the great agents, who continue to be central to this very personal very infrequent and very large financial transaction for the typical consumer.

Many of the disruptive models now realize the agent centrality in the transaction and for customers and increasingly are moving to partner with or higher agents and really clearly has a big advantage here given the size and scale of our great agent base across our branch.

Finally, I would be remiss, if I didn't discuss I buying given the substantial capital flowing into that business model.

Hi, buying simplifies the transaction experience, but.

But we don't believe it's actually a great for consumers since they pay substantially higher fees and get below market prices for their homes.

But the competition is here to stay and we believe we have actually a better way.

Are real sure program lists agents offer consumers a guaranteed cash offer to buy their house for 45 days.

While our agent works to sell their home to achieve an even higher sale price with all the upside go into the consumer.

And our reassure program provides our agents with a differentiated offering to help them win lifting.

Our goal is not to put our capital at risk buying and selling houses with the support our agents with products that help them stand out from the competition.

We liked what we have seen from reassure in our doesn't pilot markets and we have formalized a joint venture with home partners of America accompany with deep experienced buying and selling homes at scale in multiple geographies with over 15000 homes in their existing portfolio.

This joint venture is focused on growing are reassured program. Together, we are very excited to expand to a substantial number of new markets next year.

This approach Leverages, the home buying and capital markets expertise of home partners of America combined with the power of religions, great agent network and distribution capabilities and a capital Lightwave for religion.

So pulling way up and putting this all together with.

With three quarters of the year behind US, we've earned $518 million and operating EBITDA from continuing operations and substantially improved our leverage ratio all in the midst of a global health crisis, and well taken care of agent in customer safely.

And Q1 real itchy demonstrated both growth and bottom line performance improvement generating over 30 million greater EBITDA than 2019.

And to to really be confronted a huge drop in housing demand by moving aggressively on cost while continuing to invest in technology and accelerating our digital adoption to still deliver substantial economics in the quarter and.

Nine Q3 was a tremendous quarter for religion huge earnings delivery substantial transaction volume growth market share gain from the prior quarter and material that pay down.

R Q3 volume results got better each month during the quarter. Our growth continues to look good based on our preliminary October volume data and we like our momentum.

So in closing I'm incredibly proud of what our team is achieved so far in 2020 and I Hope you are as excited as I am about our progress our results in our future.

With that we'll take your questions.

At this time, ladies and gentlemen, if you would like to ask you a question print start any number one.

Question comes from the line is Stephen King Evercore Isi's.

C U fully participating here and the surgeon price and volume in the industry.

I wanted to ask you a question about your splits.

Knowing the splits road here because of the volume and that's obviously a very happy tradeoff.

That you'd be willing to take any time.

But I was curious if we had seen volumes flat if you sort of look deeply into your data.

Which puts have been down year over year, if the volume had been flat or would it have been.

Yeah. So what we still have impacting us is that agent mix that we told you about in the previous two quarters. So on average and splits overall the trends on mix. Our agent mix are still a similar to what we saw in the past and the main driver of what the increases is sort of affinity USAA and some of.

Their stuff. So yes, we still would've seen permission slips go up to the ancient mix with those higher producing agents deliver.

Delivering more of the transactions.

Yeah, and I think you said the affinity with 60, that's right from the USA.

Yeah, five zero, yes.

Okay got it sorry.

Then as we look ahead into next year.

I'm trying to figure out how.

How the current explosive growth that you're seeing in transaction volume.

Is going to are likely to influence negotiations for splits for next year.

In general is there it is it reasonable to think that in a period of time like this.

Where you see growth in the industry at exceptionally strong levels and likely anticipated the county. The next year that we would probably see split thresholds negotiated a bit higher year over year, what's kind of normal and and if you could talk to us a little bit about your thought process. There yeah. That's a great question.

We've got you know.

50000, plus agents in our in our owned brokerage business and we don't do 50000 negotiations a year.

There is there is going to be a bit of upward pressure on that.

Because the way most agreements are written is.

Most of these things just kind of rollover naturally but are you typically rollover based in some way off the volume you had the year before.

So so in a really really high volume year that lets people often started a little bit better position than maybe if it had been a low volume year, though the other side of that because I don't want your runaway too much with that from a from a negative standpoint is remember the mix things Charles is talking about we've seen a greater credit concentration.

Production, among our better agents and.

A lot of them will already be kind of at the top of their table. So there's not like a higher place to roll through in many cases so.

I think this is a place where there is a little bit of that kind of upward pressure from a market standpoint, we've been talking about there may be a little bit from the phenomenon, you're describing but you shouldn't think of it as like 50000 negotiations happening.

But again, we'll take that will take the tradeoff in our yard I remember also it does work the other way to write in a poor vault volumes go way down and then there's a little bit of reset going on in the world on these things too. So we'll totally takes a trade here.

We took the trade in the first quarter also when we grew our bottom line by 30 million the.

Second quarter, Bev normally, but that's a little bit more color color on it.

Hopefully it's helpful.

Yeah absolutely.

Last question I had related to the brokerage ISP lagging franchise, you obviously called out the presence in New York City and things like that.

Which makes a lot of sense, but I was just curious as to whether you also think maybe there was a geographical aspect even in the suburb portion of the business, where some of the reasons, where you have a big presence in the brokerage business, maybe they got hit for longer people kind of hunkered down for a little longer.

Maybe there's a lag effect that that you may be saw in the quarter that would suggest that the gap between the aspie growth between brokerage enfranchisement narrow despite the ongoing lingering effective in New York City business. So let me take actually to October stuff. The gap has narrowed the 35% closed trash.

Action volume it for October that we've seen so far it's the same in brokerage in franchise, they're both right around 35% plus or minus a point or two in the same on the opened the plus 55% is actually plus.

Plus or minus a point or two basically the same and owned in franchise. So.

Whatever was driving that gap.

Add a get half of that is sides or more than half of that size actually in October and the rest is price, but whatever was driving that gap, including like that New York City headwind has at least for October totally closed up your hypothesis may be one of the reasons. There when you look at the at the Q3 data itself.

New York's still being weaker as the biggest driver of it and that's the one we focus on probably the most but we were so excited to see this October data look effectively not just how strong the numbers were but to look the same across both of our businesses and to be more driven by units then price in October so far.

Okay, great. Thank you very much guidance.

Your next question will be from the lineup.

Right I'm, making a a knee was zellman and associates.

Okay. Thank you and good morning regulations on the quarter.

Right in Charlotte I wanted to ask on the mortgage entitled side of things.

Last quarter you you you also called out and about and obviously posted.

<unk> within those businesses I'm curious if you can talk to some of the operational or strategic efforts you've put in there obviously the mortgage space is booming uhm for everybody. So just trying to think through kind of what you guys have been doing behind the scenes on the operations or strategic side of things.

<unk>, it's just the overall industry dynamic of this kind of mortgage boom never seen yeah. So I'll say, there's two things I've only hip mortgage entitled kind of together so the first.

Is.

The digital acceleration, we've been investing both entitle in with our mortgage partner.

And and digital virtual tools remote Notre is Asian.

Guaranteed rate affinity flash flows product things that are to make the transaction much easier for the consumer to close and much more digital in virtual and with what happened in the last six months. We think we've got a lot of acceleration of that stuff. We've seen a couple of mortgage competitors come out with press releases about stuff, they're doing an art.

Our team kind of does the self assessment says hey, we've actually already got that and more and that's why we're capturing more purchase an refis an easy experience and it shows up in much better net promoter scores that have that have gone up for both of our businesses during the last six months.

So our move to digitize, it and virtualized into transaction and both of these business that we think is really helped us during the six months.

The other thing is just the continued strategic expansion. So again, we set up a new mortgage Davy two years ago, We lost money answer first year and what we've been doing even in 2020 is.

Adding more loan officers still building some more direct to consumer kind of channels.

Increasing our coverage right instead of one loan officer, covering 50 agents, we want to get it to one lone a lobster covering 330 agent. So we're adding more loan offers officers.

And then there's even still from geographic expansion, where we're still trying to make sure. We've got every place covered and on the title side. We're doing some of the same we let our title business for awhile, but we just opened new title stuff in Utah, Idaho, we have one coming in another state that I'm not sure I'm supposed to say out loud, so I won't but.

Digital virtual acceleration is really helped out in the last six months and then just the continued investment to build these businesses as <unk>.

Japan expanding parts of our business is the other strategic thing we've been doing Ryan and again at the end of the day that combination gets you to this how do we create a more integrated transaction experience for consumers. We've got all the pieces to do what we've got the technology and we're actually Lincoln. These things together and we think that helped our agents and our customers and drove bunch of our volume.

Here in this in this in this good housing market in the last three months. So we're very excited about both of those and we're going to keep investing there we got the scale and size to do that and we think it's in a big competitive advantage and we loved the financial delivery too.

That is helpful. Ryan. Thank you and then one quick clarification or question. So you mentioned formalizing a joint venture with home partners of America can you can you talk about what exactly the joint venture entails I guess I'm just wondering are.

Are you is capital from yourselves gonna be going into this or does it remain tons of capital laid off balance sheets dynamic just just looking for a bit of clarification have been for the ladder, we're going to put.

We're going to put a bit of capital end of the JV as as home partners of America, but that's capital to fund the JV in its operation and its expenses.

The the actual purchase and sale of homes will stay off balance sheet. They won't be on our balance sheet and home part of America is very very savvy on the capital markets side of things. So you should view this as a capital light thing, but an example of us investing in the business and again the amount of capital where contributing not a huge number for.

They're ready to start but again, it's capital just to run the joint venture, it's not capital to buy home that will remain off balance sheet, Hence my capital light pieces will remain.

That makes sense. Thank you so much.

Our next question comes with my Name's, Tommy Mccoin, which K B W.

Good morning, guys I wanted to ask about the relocation business, it's actually seems to be holding ended up better than I had expected can you just talk about the outlook for what you Wanna do strategically with that and then you can outlet for the baking Swiss let's see my corporate relocation uhm.

You mean, you've been taken Hood doesn't next year or so.

Yeah.

The corporate relocation business made about 4 million of EBITDA.

Which is obviously a lot less than I did the year before but man, how how hard and good of our team done on the cost side and things like that to kind of stay profitable. So we're real excited about real excited about that.

And.

That's been a part of the company for a long time, we liked the business has been very valuable included on the lead generation date to agents and franchisees.

But but you're on to something at the end of the day the corporate relocation market has.

Not has the bounce back that the housing markets had or the mortgage markets had an obviously of Covid is kind of a big chunk of that but another thing. When you are a global player like we are the immigration restrictions that are in place right now are another headwind for that business. So what.

What I'm most interested there actually is how the industry shakes out.

We're the largest player in that industry.

And we.

We have a much broader business that can kind of support that business that integrates into our ecosystem. There is a lot of pure players out there and so if you get an industry that's kind of.

Not recovered the way the housing market has I am very interested what kind of shakeout happens so we'll be watching it strategically and kind of trying to keep working on it but.

We're.

We're still investing in that business in terms of technology and things like that and.

We'll see what the shape of that recovery is but it is different and thank you for asking that question.

Got it thanks and switching over as you guys did gain some some market share in the quarter.

Any sense of how much of that was purely organic or were there any acquisitions during the quantity would call out.

No acquisitions.

Now, our franchisees occasionally or buying somebody but.

There is nothing no acquisition drove that as I said, we've had some market share headwinds man, how great do we feel not just to stabilize market share but to gain some sure here.

And again, it's the combination of what we've done strategically that whole list I gave you and that kind of technology stuff that gets back a little bit to Orion Mcavan. These question that we think together kind of drove drove that gain and we're excited about it and.

Hope to read it.

Thanks, and then just last one after the the USA Saturday rolled off you guys announcing a few new I'm Sandy partnerships can you give an update on housing.

Programmes savings account to your yeah, we're happy with both of the ones, we mostly talked about our religion military rewards program is open to anybody related to the to the U S military and we liked the growth in that.

The USA thing was 30 years of building it up so it's not going to be replaced overnight, but we liked the growth of religion Military awards and then our AARP program is off to a really nice start we we did a soft launch in queue to effectively because.

The covid impact and kind of messed up our plans, but we started putting marketing dollars against it in June and July we like the early returns and.

We think there are a great partner to build something with long term and and we're excited to drive high quality leads to our agents and franchisees in a world. That's just a wash for so many low quality lead. So we're excited about both of them.

But but a lot of building to go because they are new.

Great. Thank you.

Our next question comes from the lines of Matthew blame with Barclays.

Good morning, Thank you for taking the questions.

So on the the topic of the agent Ryan you give some perspective at the end of your opening remarks, there around kind of the importance of the agent to home buyers and sellers and.

The depth of the brokerage is greatly exaggerated I guess, but I think what people zero in on it is not whether the agent goes away, but more so the structure of commission rates Uhm and whether they may change one day. So I mean my question is what's going on today, you mentioned I buyers taking market share and.

Obviously virtual offerings, gaining steam things like that to the extent there are structural changes coming out of this why would or would not there be any changes to that a b C. R and your bill. Thank you well, that's a great strategic topic and by the way I actually I don't I didn't mean to imply that I virus or gaining share I think they have.

Incredibly small sure out there and even some of the aspirations that people have talked about when you do the math on six plus million transactions is a very small share of the market.

And I suspect I don't have the data yet, but I'll bet. When the date is all written.

Agents will have done more business than ever in the last couple of quarters right. I mean, if you to take that example.

All the <unk> program shut down and Q2 agents kept going and we did hundreds of thousands of transactions. So we'll see what happens on that dimension look on a b C. R.

A star wars flat to up in the quarter right and I mean, yes, it's a risk sure, but it's been a risk for forever I'm old enough to remember when Bill Gates said, the internet was going to take the.

The brokerage commission from 6% of zero and that was a.

Very long time ago, So it's always a risk.

Absolutely but.

A lot of it if you just look at the actual data.

You have not seen.

The big fall off the people who have predicted.

And then you also see even models that are trying to disrupt that moving to agents as I cited so it's a great question. We watch it strategically all the time, but sometimes you got to look at the data and see what's actually happening out there in the world and what's actually happening out there in the world as agents are powering through.

And.

And earning that commission and Dakota, another famous person Warren Buffett's out there, making a very clear he thinks agents are really deserve their commission and they provide.

Provide ro value and I agree with them.

But anyway, so we'll keep watching it but.

For all the noise on on the topic occasionally I think people got to look at the data doesn't mean, we won't worry about the future, but the current data doesn't show the thing that that your question is worried about.

Got it okay I appreciate your thoughts there.

And then a second one I wanted to ask about just since you've had a lot of success clearly on the deleveraging side does that change the thoughts at all around M&A, which I know, it's something you would kind of essentially moved away from.

Or in general just where else might this show up in the growth investments side.

Oh listen, we we definitely remain focused on paying down debt and investing in our business.

We're excited with the progress that we made it was a really strong quarter for us we're going to continue on that path and if there's anything else changes will certainly let you know that we remain focus and we do feel like we have enough capital to invest in the business and do what we need to do so we don't feel limited by that.

Okay. Thank you Charlotte Thank you rent.

Oh, Yeah next question comes from the line John Campbell with Stephens, Inc.

Hey, guys. Good morning, Congrats on a great corner.

John Hi.

Back to the title and mortgage operations, obviously really really good results there Ryan talked and I think you need some pretty good points about how you guys are gonna already living now much what others are dreaming as far as kind of country economics normally it sounds like you've also obviously put some things in motion as helping drive that outperformance, but you know at one point a couple of years.

And let's see you guys talk to some attached <unk>. He he might maybe just kind of refreshes will not be talked to let the mortgage with countries are since you picked up the the guaranteed read T V. And then maybe have that's looking on the cable side as well.

Yeah, so that analysts they kind of predates my time and I don't even know what was said on that topic.

Look we don't give out our capture rates.

There but.

What you should know we like our capture rates, we're always trying to increase them and.

The two partly because it's newer it's the mortgage side, where we've actually had the most success.

Creating a step change or a change and kind of where we are on that on that stuff. So.

And it is these digital and kind of more integrated things that I believe is by far the key to even even greater increasing of those capture right. So it's a huge strategic thing and in some ways everything does come back to that but we're not going to give give the numbers out here and I'm sorry for not knowing.

What you were given back in 16 or 17.

No. That's fine that was many many years ago, and then Ryan you talked a little bit out there and I've been asked this question, but are you prepared remarks, you talked about.

You know the Zillow. It sounds like you were kind of hinting at the Zillow announcement, but I'm curious about zillow, adding in house agents.

What's your initial reaction that is you know how religious viewing that you guys do that.

A threat to the brown or industry is it kind of just a harmless kind of costume and play within their I bind business. He he kind of smelled Sir.

None of my comments were meant to be able to anyone in particular, including Zillow I. Just think if you look a lot of the folks who are trying to disrupt the business or change the business have realized they need to partner with agents are higher agents or whatever which back to the previous question I got gets gets a little bit of academic thesis of okay agents actually have a real long term role here.

Deliver value et cetera.

And so.

And so.

As I said in my remarks are just are really excited about.

Our agent base in the future of that business you Gotta remember very infrequent very high dollar transaction this is different than.

Buying something at Amazon or whatever and there's a lot of businesses in the world that are very infrequent high dollar transactions, we're having a human kind of.

Shepherds in you through it and adding real value is work people paying for people do pay for I think thats held up very well in this industry. We've got to watch all the risks around it we got to make sure our agents have.

Great products to differentiate themselves like real sure we got to do the kind of greater integration for the consumer like we showed in the title mortgage business.

But we're we like our focus we're going to stay focused on us, but we watch all those competitors closely but.

None that no one else out there has the size and scale that we've got the agent based the brand and kind of some of the tech data bold infrastructure ability to invest in it so.

We just are more optimistic about our ability to do to do some of the things that people are talking about doing and we actually think with the digital acceleration from Covid. We have now demonstrated more of us doing those and it shows up and things like the market share gain in the quarter and the.

The kind of title mortgage acceleration in our bottom line.

Yeah, absolutely great work thanks, guys.

Thank you.

Our final question comes from the line of Jack missing go with S. I G.

Hi, good morning, Coupla for Charlotte on the expense side cheating picked up and I'm guessing.

Some of that sequential increase was due to the temporary sort of coming off and the permanent if that's the case on the marketing expense.

We had a new run right.

On marketing and then on the operating side easy thanks for the color to 80 million permanent.

Singly 80 million permanently something closer to 90 mixture because of that lease.

Expensive outperformance or my over Germany.

Okay, I'll I'll take them in order yeah. So in the quarter part of it is due to the drop off of the temporary there is some volume related expense some employee related expense that various quarterback quarter and so that's a bit of what's happening in the general expenses as well.

As far as marketing.

I wouldn't say, it's a new run right, but we always are working to optimize and be most efficient with our marketing spend so there's probably more that I'll share with you in coming quarters. After we've firmed up what the plans for next year on the marketing side.

As far as next year, no I didn't really mean to imply an exact number for next year, but.

The fact that the administrative least expense is going to be better than we thought wouldn't changed the number so you shouldn't be interpreting something higher.

On that level.

Okay, well that's helpful. Thank you and then you know Ryan talking through.

You know the supply issue keeps coming up you know.

Think we're down 25, or 30% nationally year to year and.

We obviously thing.

In an environment, where you've got unlimited supply in a lot of multiple bids that traditional agent. It's got a lot more you.

Utility in value vs, maybe a more discounted option for sure.

When do you think about the business how do you solve the supply issue and is a more sanguine view splits today would it seems like from your perspective.

Is that really just like look we just gotta go we're gonna get to the split issue because we're going to take more share the better agents are gonna do better in a tougher environment and that's just sort of you know maybe splits aren't the right focus and the kind of market, where it just curious as to high level thoughts on that whole sort of supply dynamic everything else well, let me let me do two things so I.

Overall.

The.

The.

Not just for US the company, but agents every I think everybody focuses on the bottom line.

And.

And when we when we have like even in the first quarter substantial bottomline improvement, even with splits going up because we drove some growth or what we did this quarter with a bit of share gain in and.

The increase in years and stuff I think.

Again.

I think the the split thing is one of a number of drivers is going to affect our P&L, but kind of a little more focus on the integrated bottom line I think would be probably good for everybody.

But so that's that's kind of a just a general comment on the supply thing, let me just say something and I think I'm I think I'm right about this but it's a little bit different I think people are confusing inventory and supply and I think there are two different things to supply is clearly up more houses are getting sold now than they were a year ago by a.

Full amount and ours numbers plus 23%.

Volume, we were plus 28 and like half of ours is is more units and in our October number more than half of our both closed and open does more units but.

But inventories looks even worse right now right days on market has gone down.

For us.

A 40% drop it how long houses or stand on market Bernard numbers like 34%, so inventory looks even tighter than ever but the reality is there are more housing transactions being done. So there is more supply coming onto the market. It's just moving very quickly and not piling up an inventory and and again.

<unk> again, it's not all price volume growth, it's a lot of unit growth in our book and and and then the world. So.

I made the points I made for a reason which is.

People have been asking me for three years, what's going to Unstick, the housing market and get us from five to five 5 million transactions to like six plus.

Which we used to be in for a long time, just like on the builder side.

People keep asking all winter, we're going to build the same number of homes. We built 20 years ago kind of thing and that's been unlocked a bit and I like it and.

And what I think happened bluntly is that these.

Low rates helps for sure, but I think these social shifts that are happening driven by the terrible.

Health crisis in the last six months is unlocking both supply and demand and you just see it in the numbers.

Even if inventory looks really tight which it is it's just because houses are moving much more quickly. They are not just sitting in inventory and so there is more supply coming to market and.

I wasn't sure what the thing was going to be it it was going to unlock housing I, we didn't predict this for sure but.

It's a it's a silver lining in a terrible year for the globe that that it has it has unlocked more people moving but but for every buyer, there's a seller and it has unlocked more supply.

And and the momentum for it seems to be continuing frankly.

When we look at the data we're seeing so I think people confuse inventory and supply and I think we have a very low inventories situation, but I think the reality is there is a lot more supply out there. It's just supply is moving very quickly when it comes to market. It never really hits, the quote inventory number and so.

And that's in if we run it is six.

A million dollars housing right, which is bluntly, probably where the countries should be running given GDP growth household formation population growth et cetera, that's really good for us in part because of our size and scale, especially.

Having kind of stabilized or even grown our market share a bit this quarter. So that's part of the reason, we're we're optimistic but it's I think it's supply and demand in Bolton unlocked and I was talking to someone from D. C and the suburbs in D. C that were dead for housing are now doing great.

I was talking to somebody in Portland, Maine, who said hey, the market here is crazy.

And again, it's not just the price side is the supply and demand and the number of transactions and I'm hearing this from so many geographies that.

It has me very excited for the future and what how.

How we generate economics, and just even a bigger market so supply and demand I think is actually both being unlocked inventory is not supply related but it's not supply and the increase in units that we saw in Q3 and we're seeing is more of our growth in October is a pretty positive.

Thing for us and for the supply demand dynamic that you're asking about so that's probably too much I'm going to wrap up there Jack.

But thank you for the question no. Thank you for that and that's a really good delineation actually we do tend to use them too much interchangeably. That's a great point you made thank you.

Ladies and gentlemen, thank you for participating in today's webcast you may disconnect at this time.

Okay.

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