Q2 2019 Earnings Call
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.
The webcast replay will also be made available on the company's web sites.
At this time I would like to turn the conference over to religious senior Vice President Billy just Swift. Please go ahead Alicia.
Thank you Dan Good morning, and welcome to religion second quarter 2019 earnings conference call on the call with me today are really <unk>, CEO and President range Snyder, Chief Financial Officer Charlotte's Minnelli.
As shown on slide three of the presentation. The company will be making statements about its future results and other forward looking statements during this call.
These statements are based on the current expectations and the current economic environment.
Forward looking statements and projections are inherently subject to significant economic competitive and other uncertainties and contingencies many of which are beyond the control of management.
Actual results may differ materially from those expressed or implied in the forward looking statements for those who listen to the rebroadcast of this presentation. We remind you that the remarks made herein are as of today August eight and have not been updated subsequent to the initial earnings call.
Important assumptions and other important factors that could cause actual results to differ materially from those in the forward looking statements are specified in our earnings release issued today as well as our annual and quarterly SEC filings.
Also certain non-GAAP financial measures will be discussed on this call and per FCC rules important information regarding these non-GAAP financial measures.
These included in our earnings press release, now I will turn the call over to CEO and President range Snyder.
Thank you Alicia good morning, everyone I'm excited to share with you today, our financial results or outlook and a number put points on strategic initiatives that make us optimistic about the future even in this competitive environment, we continue to generate sustained profitability with substantial operating EBITDA and free cash flow.
We have by far the best combination of scale partnerships work to position agents brand products in profitability and you will hear today why we are and you should be optimistic about realogy future.
We earned 245 million in operating EBITDA in Q2, and generated 147 million in free cash flow.
Driven by improving volume sequentially.
Moderating agent Commission cost pressure and strong cost management, we now expect to earn 590 to 610 million and operating EBITDA in 2019 based on what we know today and subject to macro uncertainty.
Our transaction volume trajectory is improving.
Our Q2 transaction volume declined 3% year over year. This is a substantial improvement compared to the 9% year over year decline in Q1.
At the business unit level, our franchise business is down 2% in the quarter year over year improvement from an 8% decline in Q1.
Our own brokerage business was down 5% an improvement from 11% decline in Q1, we face similar pressures in Q2 as we shared in Q1, specifically the competitive environment and our geographic concentration in California. We are forecasting positive transaction volume in Q3 with sequential improvement in Q4.
Our 70 million or 2019 cost efforts are on track.
We have executed approximately 60% of the action so far required to generate these savings and a capture 22 million in the income statement year to date.
And on our next call.
Charlotte will share with you additional information on further cost efforts it will impact 2019 and beyond.
Finally, this quarter, we began to demonstrate results in areas that have been headwinds to top and bottom line growth.
First on agent Commission cost in the past year, we rolled out New commission plans across most of the U.S. remember the new local plan to leverage our unique data scale use our machine learning capabilities and includes select fees. The goal is to create attractive commission plans to grow our agent base, while better managing flash controlling commission costs.
We are seeing continued moderation in our agent Commission cost pressure, an increase of only 21 basis points year over year.
This is by far our best result in 12 quarters.
We now have two quarters in a row a much better results on this metric and we expect the upward pressure on commission splits to be less than we told you about earlier in the year.
We now expected in the range of 50 to 70 basis points for the full year of 2019.
Second, we're delivering new products partnerships and technology and data offerings to improve our value proposition.
While much of the discussion we have had is around how proving our value proposition will help us better recruit and retain agents I want to emphasize today I would also helps drive growth and in some cases improves margins in the business in Q2, we have a number of new proof points to share.
First our lifting costs your product, which provides a great integrated marketing package for agent listing is now live in about 60% of our markets to date agents using lifting cost here is get a higher commission rate on average.
We are very excited to help agents when more listings and drive growth as part product well demonstrating that we can actually add margin back into the business.
Good marketing product, we launched in partnership with Facebook and Instagram in Q1 name Social AD engine continues to get traction with thousands of marketing campaigns launched that have already delivered over 85000 leads for our agents. This product is only available through Realogy and is another innovative product for example, designed to drive greater volumes.
We recently launched turnkey a collaboration with Amazon to create a fantastic home buying and moving experience for the consumer.
The program has the potential to generate high quality leads and drive growth for Realogy owned brokerage agents and franchisees.
Turnkey transactions are expected to drive greater margins and is just beginning we launched in July and our only in 20% of the U.S. market today.
Our capital Light Eyeballing partnership continues in three cities. We've expanded our early efforts to now include select franchisees and we like our early learnings and look forward to moving to additional cities soon.
Finally, we have grown our owned brokerage agent base for the first time in a while.
This growth is a prudent accelerated in the past four months.
Because of the combination of our New Commission plans and our value proposition changes or NRT agent base is up about 2% from Q1, and we like our recruiting momentum.
So pulling way up we anticipate earning $590 million to $610 million of operating EBITDA for fiscal year 2009 full year 2019.
We anticipate moving to positive transaction volume growth in Q3, and we continue to expect sequential transaction volume improvement in Q4, and looking ahead. Our agent Commission pressure is moderating, we're creating products and partnerships designed to drive growth and to add margin back into the business. We are growing our own brokerage agent base and nor is now forecasting 8% transaction volume in 2020.
Putting all those things together you can see why we more we are more optimistic about our top and bottom line trajectory.
I will now turn the call over to Charlotte for a deep dive into the financial performance.
Thank you Ryan good morning, everyone before we get into the details let me start with a few comments about our financial results for the quarter.
We delivered a solid quarter of financial performance exhibiting sequential improvement across several key financial metrics.
We continue to execute upon our strategy, which includes new products and partnerships that leverage our leading market share to grow our business profitably, while improving the transaction process for the industry. Overall, we remain diligent and focused on expense management, both actioning and identifying incremental operational efficiencies across the business.
At the same time, we are implementing even more best practices and process automation, which we look to further scale across the enterprise.
The strong focus on cost management, it's starting to gain momentum and favorably impact the income statement year to date.
We reported slightly lower operating costs and already Actioned, approximately 60% of the 70 million cost savings program for full year 2019.
We also returned to positive free cash flow in the quarter and are committed to reducing our leverage until we achieve four times and below.
Now lets jump into Q2 2019 consolidated financial results on slide five.
Total net revenue in the second quarter was 1.7 billion a decline of 85 million versus prior year, primarily due to lower NRT revenue.
Operating EBITDA was 245 million a decline of 31 million from Q2 2018.
<unk> expenses decreased by approximately 50 million due to lower commissions and operating costs.
Operating costs improved slightly in the quarter, primarily due to office footprint optimization.
Q2, 2019, net income was 69 million compared to net income of 123 million in Q2 2018, due predominantly to an increase in interest expense of 35 million and the decline in transaction volume.
The interest expense increase was driven by a 24 million mark to market loss on our interest rate swaps versus no change to mark to market and Q2 2018.
Adjusted earnings per share was 83 cents compared to an adjusted earnings per share of a dollar in Q2 2018.
Now, let's turn to cash flow and the balance sheet.
Free cash flow was 147 million in the quarter as the business moves into the peak cash generating season, driven by higher cash from operations and we reduced net debt by 113 million in Q2.
We ended Q2 2019 with total liquidity of $1.4 billion, we continue to pay down the revolver borrowings, which were 265 million as of August six.
We remain committed to using our free cash flow to reduce leverage until we achieve net debt leverage below four times, while making prudent investments in the business with no near term debt maturities.
Now lets move into a Q2 2019 year over year review of segment operating performance on slide six and seven.
Our energy revenue of 234 million decreased slightly due primarily to lower intercompany royalties from NRT.
Excluding intercompany royalties from NRT RF GE revenue was up slightly.
RMG operating EBITDA was 163 million a decline of 10 million.
NRT revenue of 1.3 billion was down 77 million from two to 2018 due predominately to lower transaction volume, especially in California, where NRT is geographically concentrated and faces intense competition.
Operating EBITDA was 47 million a decrease of 14 million due to lower revenues, partially offset by lower agent commissions and lower intercompany royalties to RF G.
Q2, 2019 agent Commission splits were up 21 basis points year over year, the lowest year over year increase in 12 quarters on a like for like basis, let's were up 40 basis points.
Cartus revenue of 97 million decreased 8 million, primarily due to decreases in international revenue and lower referral revenue, including lapping a large groups moved from Q2 2018.
Operating EBITDA was 27 million a decline of 7 million as the revenue decline was only partially offset by favorable operating expenses.
She our GE revenue of 160 million was down 2 million, primarily due to lower resale revenue.
Operating EBITDA was 32 million an increase of 1 million as the decline in resale revenue was more than offset by an increase of 5 million and GRA mortgage JV earnings. We now expect to generate to generate approximately 10 million and operating EBITDA for TRG and full year 2019.
Before I discuss our efficiency efforts, let me stop for a minute as I believe everyone would benefit from more clarity on the net royalty per side driver in our franchise financials.
As you know we moved to net royalty per side as a key driver for our franchise business. In 2017. This metric has the benefit of showing the impact of all incentives, including those designed to help our franchisees grow.
In Q2 2019, no royalty per side was $331 compared to $336 in Q2 2018.
The five dollar year over year decline in net royalty per side was primarily driven by three factors.
First in 2018, we introduced a royalty fee cap in one of our brands to drive more franchise growth.
Just different pricing structure allows us to compete more broadly across the market.
Second we continue to use incentives to help franchisees grow through acquisitions mergers recruiting and also to extend franchise agreements and convert new franchisees to our brands.
And third our top 250 franchisees continue to grow at a faster pace and our larger rebates.
Our top 250 represent approximately 70% of RF GC I in Q2, which is up from Q2 2018.
Turning to slide eight.
We continue to make progress on our 70 million cost savings initiatives previously identified for the year.
To date these savings have largely come from workforce and office optimization.
Through Q2 2019, 60% of our actions have been completed and 22 million has already been realized through the income statement.
We are on track to deliver our full year target.
Making realogy much more efficient is and will remain a very strong priority for me.
Since my arrival in late March I have launched new efforts that will drive additional savings both in 2019, and 2020 and I intend to share more details with you on our next call.
During the quarter, we incurred 9 million of restructuring costs associated with these cost savings initiatives and we now expect 54 million of restructuring costs through 2019.
Wrapping up I am pleased with our second quarter performance, which I believe highlights that we are on track with our plan and are executing the necessary steps to improve our financial performance.
We are approaching our business decisions with even greater financial rigor and speed that will allow us to drive improved performance across the business in the near term, we will remain balanced with our use of free cash flow to both drive better business performance and lower our overall leverage with that I'll turn the call back to Ryan for some closing remarks.
Thanks, Charlotte in closing, let me step back and make it more competitive.
First even in the current competitive environment and a pretty tough housing market, we generated 245 million in operating EBITDA.
47 million in free cash flow in the quarter.
These are massive absolute dollar amount in an industry, where there is a large amount of capital deployed GAAP profitability.
I couldn't really 20 months ago, there were three to four quota.
Disruptor companies, we've got a huge number of questions about.
Today, one of those companies are gone.
Proving how easy it is to make a big splash as a disruptor extend a lot of money, but how hard it is to build a sustainable business.
There are still multiple competitors in our industry are investing a ton of capital to compete with us, which first and foremost we think is strong evidence of the fundamental attractiveness of our business.
We are by far the best combination of scale partnerships market position agents brand products and profitability.
We have significant financial resources for a more substantial internally generated free cash flow, which allows us to invest in the business to de lever and to compete successfully we're here to stay we fully intend to strengthen our position in this attractive market.
We believe our trajectory will improve and we like a number of our results. This quarter's performance looking ahead, our agent Commission pressures moderating, we're creating products and partnerships designed to drive growth and to add margin back into the business, we're growing our own brokerage agent base and nor is now forecasting 8% transaction volume growth in 2020.
Putting all that together you can see why we are more optimistic about our top and bottom line trajectory with that Sean and I will take your questions.
[noise] if he would like to ask a question simply press Star then the number one on your telephone keypad.
We ask that you please limit yourself to one question and one follow up question.
And your first question is from the line of Stephen Kim with Evercore ISI. Please go ahead.
Please go ahead.
Steven Your line is open.
Hello, Stephen Kim Your line is open. Please go ahead with your question.
Okay, we'll move onto the next question from the line of Ryan Mckeveny with.
Zelman and associates. Please go ahead.
Hey, good morning, and nice job on the quarter.
So I have a two parter related to turnkey so the Amazon part of that kind of the consumer touch point, obviously got a lot of the focus in the headlines I guess can you give some color on the infrastructure that you've built at Realogy.
With with turnkey maybe to kind of the technology that you're leveraging what's going on back office Wise also would love to hear about.
Oh, Joe Labs, and how that's being integrated on the AI side, and just bigger picture picture integration with.
Cartus. So that's kind of the first big picture one on just the infrastructure that you guys actually have and then the second part.
Just with kind of online lead generation in general there's always this trade off out there over quantity versus quality.
So I guess in the decision to embark on turnkey.
What do you think about as far as how the leads that you can generate compared with other sources in terms of potentially.
Better quality better converting do you think thats the case and if so why.
Thank you.
So let me start with your second question.
Look the world is awash in incredibly low quality low conversion online leach that the lead tends to be nothing but an email address effectively.
And so we're really excited by turnkey because we think it will be an incredibly high quality lead because its bolt.
A live customer ready to talk to an agent incubated by our Odierno labs partnership.
If they are not ready at the moment, but it's also a customer who is excited about the value proposition of Amazon home services, both on the smart home and the move in support and help kind of thing and so in the spectrum of the quality of leads out there. We think this will be a really high quality lead that to be incredibly valued and very differentiated from the low quality.
Lead to that you know are just out there in in kind of in mass. So we're really excited about that you know from an infrastructure standpoint. This is kind of one of the examples where I think this the scale and uniqueness of real if you really helps so Ryan if you think about any national partnership whether it is in this case, what we're doing with Amazon or something else.
Right.
We're the one player in the market, who has national coverage across all geographies between our owned in our franchise business. We've got multiple brands for consumers and partners to choose from and we already have an infrastructure through our cartus.
Broker network.
Of very high quality proven agents kind of a subset of our overall agents on a national basis that can support already the existing national kind of lead or things that we do on the affinity in the Relo side that our agents are franchisees really value. So you know we had Amazon together built some technology you know for the consumer experience apart through Amazon Dot Com Flash turnkey, we built some interaction with owed Joe as an incubator for people who aren't ready for the human conversation, yet, but want to be a b in the program and for when the time is right, but the lion's share of what we have we built this on it.
Was already part of our company and was an example of leveraging both the technology scale and the geographic scale of our company, which we feel is.
Almost uniquely possible to do with us, but with no one else in this industry.
Given those things that we have the the rest of the folks don't which is why in my comments I tried to remind everybody how much in this very attractive industry. We have the best combination of market position scale agents brands et cetera partnerships that can get leverage for national things like this so that's how I'd answer both parts of your question Ryan.
Thank you very much that's very helpful.
Your next question is from the line of John Campbell with Stephens, Inc. Please go ahead.
Hey, guys. Good morning, Congrats on a great quarter.
Good morning, John .
I just want to go back one more time to the Amazon partnership that seems like a pretty interesting opportunity for you guys just.
The highest of levels, how do you define success. There I mean is there a certain level of transactions. We see hey. This is this is working better than we originally expected.
Look we've got you know you know big dreams for the thing and we want it to be as big as possible.
We we while we do a little bit of investment to get the thing going from a technology standpoint, as Ryan's question talked about.
The economics of this basically are a function of closed transactions. So when we close the transaction through turnkey than you know then we deliver the the Amazon Smart home services and the Amazon home services as part of it. So the economics are are very kind of marginal cost here not fixed cost and a lot of ways, but we think it could be very large obviously, we've got a partner who does things very large on this and we wanted to be as big as possible.
And so we're only were only just getting started right. We're only in 20% of the U.S. right. Now you know were in our early days and.
Bluntly, we you know we launched in July which is kind of late in the year to launch and so if you think about the momentum I'm, even more excited about what it could look like in 2020 as we have our learning we haven't even really started marketing yet, but imagine going into a the prime housing season next year with.
Six months or marketing behind it all the learnings you get from kind of your shakedown cruise and you're growing pains of doing this stuff you know and we wanted to be as big as big as it can be.
Yeah that makes sense. Thank you.
On the 2% growth in NRT agents that was really good I felt that.
You see some others in the space I think see more of a challenging ratably. So if you could just maybe talk to I guess is that mostly U.S. agents and whether that growth is driven by better retention or maybe faster gross adds and then secondly, how does that 2% growth look versus the last few quarters. It sounds like that you've you slid a bit there, but maybe that's a good bit better just kind of looking for the degree of improvement there. Yeah. So first off it's a 100% U.S. based for NRT its a U.S. thing.
So it's a 100% you asked.
[laughter] and Lou and we think it's kind of the combination of bringing bringing.
Bringing some of those new commission plans that make it more attractive I would say most of the growth is.
The combination of kind of new agents, joining at a higher rate and then kind of kind of keep in about the same level of retention as we had in the quarter before.
But with different things like turnkey or listening control et cetera, We're now delivering better leads and you know more high quality leads for agents were doing things I think are enhancing the value proposition.
I think that helps a lot and then you know it's funny.
So the 2% is 2% compared to a year ago, it's 2% compared to the start of the year and it's 2% compared to the start of Q2. So we gave the 2%.
And and so we kind of been going down for a while then we were flat for a while and now we actually have a data point going in the direction that we're all rooting for.
Great to hear.
Thank you.
Your next question is from the line of Stephen Kim with Evercore ISI. Please go ahead.
Yeah. Thanks, sorry.
Earlier.
The technical issues.
I had a couple of questions on splits if I could I'm, obviously, a you know encouraging what we've seen here and I just wanted to clarify you said that you're looking for splits to be up 50 to 70 basis points on a year over year basis.
For the full year, Ryan or was that just in the back half of the year.
That'd be that's for the that's for the full year, we had talked to you about kind of 90 to 110 or early at the start of the year, obviously, we've been doing better than that and we were thinking 50 to 70 for the back half of the year, that's still a little higher in the back half than the first half, but because we're getting some momentum on recruiting and we see that the sequential growth happening.
We do think we're one of the things that will happen is you know our agents are going to be working their way more up their productivity tables, and so they'll be a little bit of higher splits for from that in the back half of the year.
So, but we've had two quarters in a row of better than we than than probably we thought and we like that we'd love to keep that trajectory, but we don't want to go too far with that yet and so we thought we should.
Tell you kind of where we've recalibrated in our heads on that and we're excited to stay very focused on it you know we've had 12 quarters of results that look a heck of a lot worse than that massively in so we're pretty excited to see those kind of numbers.
Now for two quarters in a row, both because of our New Commission plans influence them and help pay off it but also just the we're seeing it actually we're seeing some of our actions kind of.
Deliver a different number that bluntly has been the number one question you and others have asked us and now we have two quarters in a row of delivering something that looks very very different than the past 12 quarters before that.
Yeah, absolutely I mean, you know as you pointed out when you took charge you know splits or keeping splits lowi alone is not the goal. The goal was to improve the productivity and the revenue. So that seems that's important in that vein, we did notice that once again.
You know in both NRT and in our GI both on the price and on the volume side, the numbers seem to be a little lower than what.
Nor was it was indicating.
I know you gave a good for nor give a good forecast for 2020, but relative to normal relative to what the industry is doing do you see the potential to get that to your relative performance a year over year to close the gap with the industry or maybe even to gain some share back and then just one other housekeeping item on the mark to market on the interest expense can you remind me how much of your floating exposure you have hedged.
[noise].
I can take the mark to market thing real quick just to put that up to that is we have a 70 30 ratio so 70% is hedged.
Thanks.
Yeah. So on the on those shortfalls in our great. Great question look and so two things first off we close the gap this quarter right last quarter, we had a 500 basis point gap to know our.
This quarter, we had a 300 basis point gap to NR and some of that is the fact, how overweighted, we are in California, and even in Q2, California.
Performed worse than the rest of the rest of the of the of the U.S., but also you know we talked about some competition stuff last year. So the forces are kind of the same but you can see we close the gap from 500 to 300, obviously as we move to positive transaction volume in Q3 and Q4, we hope that we continue to close that gap, we'd love to get past the gap and be on the positive side of that.
But.
And that's why we're so focused on all of your efforts on things like turn key things like our social AD engine product.
Like the recruiting focus et cetera, and anything we can do to create products and partnerships to drive growth for agents driver recruiting that's going to translate to both better top line and better bottom line.
And some of the proof points this quarter Steven is why we're more optimistic.
But we should be I want to be really clear we did the GAAP did close this quarter and we view that as a very good thing even if some of the gap is still driven by just geographic difference between us and our especially vis-a-vis, California.
Great. Thanks, very much guys.
Your next question is from the line of Chris Gamaitoni with Compass point. Please go ahead.
Hi, good morning, good morning, everyone.
Hello, Chris Good morning.
I wanted to ask first question on turn key so the success of it really be about consumer engagement.
Who controls the marketing approach to it and who pays for that.
Ah So we'll be funding the marketing primarily.
And our the marketing there's both marketing we can do outside of Amazon channels. There's marketing we can do inside of Amazon channels, obviously anything we do inside and Amazon channels needs to be something that we're both supportive and excited about but we're primarily funding the marketing for the for the thing. We have you know we'll access people out there in the world in General will also access it through Amazon.
Amazon kind of.
Within Amazon kind of marketing channels.
Do you envision marketing being.
Internet based approach TV ads, just trying to understand how to get the message I I. This is an industry, where I think TV is not a winter I mean I come from a financial services company, where I had like $300 million annually at a massive TV spend in the last company that I that I worked out and I feel like I understand that pretty well.
I don't think this is in an industry, where where TV is necessarily the way to go I predict it will be much more internet based obviously our partner in as Amazon's whole model is internet based and so the fact that we can market through their channels and on our own through Internet things is likely aware, we're going to invest our marketing dollars alright.
And then on the new agents, joining you mentioned same level of retention in more new agents are these the profile. These agents coming from other brokerages are the new agents entering the industry.
You know were large enough we have ever we have every profile like every single year, we have a ton of new agents, who join US you know across the country, both in our own business and our franchise businesses.
You know, we have but when we have agents across the whole spectrum to join US every year I would say like the growth. We're having is kind of across the whole spectrum and you know our sweet spot is probably the the the the sweet spots probably the in terms of recruiting into as what we're trying to do is recruit people, who we think have the most potential. So we are recruiting a lot of people in their three to five years as an agent.
Kind of criteria you know I've talked before on calls that the first machine learning model, we build kind of scans all the public agent data and our private data and tries to figure out who we're going to target that we think has the most growth potential independent all most of their current production and so that's probably where we're targeting the most but because of our size, we kind of get it across the whole spectrum.
And you know the growth we've had in the last quarter.
There is no one group that stands out as disproportionate.
It's a little bit of just broader success across the spectrum for us.
All right. Thank you so much.
Your next question is from the line of.
Jason dilutive with Piper Jaffrey. Please go ahead.
Good morning, Thanks for taking the question. It's good to see some of the key fundamental drivers improving here and I was wondering if we could get a little color on the agent competition trends any change there have the competitors lightened up a bit or.
Or not and then also just kind of the agent recruiting conversation has that changed at all is it still just know splits or some of these lead generation opportunities and things that you can bring to the table are those having a bigger influence.
Yeah on the Asian competition side, I would say no change it remains very very intense right. There are geographic variations I talked on our last call about how you know, especially in some of the California cities in Chicago. For example, the competition intensity is is you know you know spinal tap 11 kind of thing ER and I don't think Theres really been a change between last quarter and this quarter on that so that's that's the answer to your first question on the conversation I mean I. There are there are certain markets and certain agents for where.
It is nothing but about you know the money and as I've told you guys before the end of the day, if it's a choice between losing money and letting someone go. We're we're we're we're not going to lose money just or retain.
You know people.
But you know even with this competition you know you saw our NRT agent growth here in Q2 and per the earlier question kind of first time in a long time, and you know versus versus even a down trajectory in the past, but we have the conversation really on on multiple dimensions right. I mean, we are a full serve attritional brokerage our value proposition isn't just the money.
Because if you want the highest possible you can go to re Max and you're going to have a higher split then you're going to have at here or any other traditional brokerage. So we really you know we've got to be competitive on that but we're also tried to emphasize.
The benefits that we bring with the kind of partnerships and products that I described in the call.
You know with the power of kind of some of our scale referrals things like that and again you know, it's a tough market out there we're going to keep fighting on it but in a world where we'd been losing agents and then per the earlier question kind of flat for.
I why you're so to actually get some some.
Meaningful growth felt good and since we disclose those numbers every quarter, we obviously want to talk about him here.
Great and then just on the outlook the positive transaction volume growth in the third quarter and better in the fourth quarter is that.
Both our Gi in NRT or is that just on a combined basis and what's the visibility on and I know you can see the opens for the third quarter for most of the third quarter here, but just help us think about kind of the visibility you have on that outlook.
Yeah, we've got it we look we think they're both going to keep improving and but the positives on a combined basis, we'll see how it plays out just based on some of the competition of market forces you talked about you know we feel good so far after after July we we've seen our July numbers, we haven't seen the market numbers and we feel good that we are on that trajectory keep in mind last year July was it was a pretty good month right last year in July I think the market was up like five or 6%.
And then August was like a flat month in September was down like 10% and then Q4 was down about 5%. So we are actually transitioning you know in this quarter from what had been kind of a normal type of growth year in terms of volume growth to the time period last year, when kind of things fell off a cliff and so you know we feel good about our guidance and our trajectory.
The details of the decimal point numbers kind of by different parts of the business.
There's still a little bit of volatility around those based off the market, but we like the overall trajectory and are optimistic about it.
Thank you.
Your next question is from the line of Bose George with KBW. Please go ahead.
Hey, good morning.
Can you give us an update on trends you're seeing in the eye buyer market and competition in markets, where buyers are very active.
Sure Yeah.
You know, it's a there's a lot of capital has been poured into I buying it's a big it's a big phenomenon you know it's.
Phoenix is kind of the biggest area, where I think the ipi and market share is something like four or 5% of the market don't don't hold me too much to that but that's a month or two David but we look at that market pretty closely and so you know and in a lot of the eye buyers now are using agents, including some of the eye buyers using our franchise agents. For example, we use agents in our pilot so the the model shifted a little bit where there's the the the idea that commission.
Economics or are disappearing is less violent than people had predicted.
The other thing that I will say is it is changing in a few of those markets. The consumer conversation you find a lot of people shopping.
We'll get an i. buyer offer at the same time that they are talking to Asian about selling their house.
And as some of the I buy and people have talked about in the vast majority of cases people turn those offers down because bluntly part of that I believe is a lot of the offers are our bid at a pretty good discount above and beyond the service fee. So.
It's a little bit of a change in the consumer conversation I think agents not just at our brands and others are adjusting both.
In the few cases by being part of it but more importantly by continuing to win the vast majority of listings with the value proposition of frankly, helping people get the best price.
Which is the real thing I mean, you can you can sell your house through an I. buyer base, you're often if you look at the market data you are taking a.
15, plus percent hit on price.
And so.
So so that's a little bit of what's out there what were tested in three cities, we're going to expand a soon to some other cities to keep doing some more testing on it we've expanded to our franchisees to let their agents have access to it and some of those cities we liked the learnings.
The path to profitability I think is very.
Unclear probably for everybody at this point.
But we like our capital light way of participated in that and and learning a learning learning a lot.
Okay. That's helpful. Thanks, and then just switching to the earnings the TRG segment.
The margin was up despite lower volumes is that just the cost cutting side paying off.
It's a little bit of cost cutting, but it's also the GRA, so and as I called out that we are now making money on our GRA joint venture and then we're feeling really good about the progress there.
Okay got it that makes sense. Thanks, and then actually one just last one on capital management.
Any is there any thought there to cutting the dividend and using that to de leverage or is that just not meaningful relative to your free cash flow.
So look our focus is investing in the business and paying down debt and obviously, we're pretty excited about the quarter you know the 245 million operating EBITDA.
147 million free cash flow, we paid down debt by about 113 million.
And you could hear in Charlotte's remark, we paid down the revolver, even further since the end of the quarter and we like the cash generating capacity of the company.
You know look we keep evaluating the dividend in the context of our capital allocation, but are the biggest thing we've been focused on is making sure. We're investing in the business and what we're doing on on on paying down debt. So we'll keep you posted on that.
Okay, great. Thank you.
And today's final question will come from the line of Jack listening do with ESI Ji. Please go ahead.
Hi, good morning.
Right following up on the prior question looking at the free cash flow you got a better outlook.
For the year.
And you mentioned that obviously, that's a big priority for you.
How should we think about debt pay down through the balance of the year given that your outlook I know you've got some severance charges coming through and that sort of thing and how do we think about the pecking order for that.
So I'm, sorry, Jack could you repeat that and possibly either speak up a little bit or get closer the might I add a challenging time hearing you with that might be.
My hearing going.
And just better.
It's a little better okay.
Just.
Free cash flow through the balance of the year with a better look and how much debt pay down between now and year end.
The guidance range kind of holds.
Yes, so we're not really giving guidance on where we are going to be at this from a leverage perspective that the balance of the year a lot of it does depend on the housing market and that can make it a lot better and and so we feel comfortable that the trend will be very consistent with what we had last year, we always de lever as we go throughout the year, because we generate free cash flow and that won't be any different this year.
Okay. Okay.
And then bigger picture on tech spend.
Yeah. It seems as though the pivot is maybe more to partnerships vessels book Instagram Amazon now.
Does that mean over time that maybe to expand.
This is the spend go down can you can you maybe.
Some more of that so debt pay down or does the mix.
To expand internal versus partnerships to shift.
I think it's probably a little more of the latter you know our tech spend we don't expect has got to go up in any sort of material way.
I still think even after 18 months worked with the team, we still have opportunities to reallocate and spend our tech differently and better to be even more on the forefront of product development, but you know we're going to do some tech development deliver our own products were going to do some integration with third parties, whether it's partnerships or third party product providers, because we're kind of more focused on trying to deliver an open architecture. So that our agents and franchisees can access the best products out there, but I think you know we're going to want to keep and.
Keep investing but probably more at the same rate than than any sort of a different rate on the on the tech side and you know we like some of the products and that we're both we're providing and others are providing because again, we think they can drive growth and add some hopefully add some margin back into the.
Into the business and ER and then again, we're going to keep rotating our spend you know we're getting out of the datacenter business some into the cloud business and and you know on a net basis the costs, probably will be a little bit cheaper on that jack, but but but but not in a not in some sort of a transformative way, but the benefits of being faster and quicker speed to market and more real time data for our agents and franchisees.
We again hope those benefits translate on to the onto the top line most of the places where we're going to drive efficiency to Charlotte talked about are more in the in the in the in the office optimization and some of the redesign stuff, we're doing they're kind of opposite the future type of work as well as in kind of the.
A few three or four different ways. It will talk more on the next call about this.
Just getting a little more efficient a in some of the more classic places.
As we kind of take our got a sprawling holding company and try to run more as a single company.
Overtime and just to build on that too we've just gone through that process as like rationalizing the products, we offer our agents and so we rationalize almost 90% of that products that we offer to them to give them a better product and that's another example of how we drive efficiency because there is a lot of AD hoc products that maybe only a few asians would use here or there and we're redirecting that spend to have more bang for the back.
Sure let to the point and just a quick follow up.
You know it looks like maybe call. It two thirds of what you've realized so far is dropping to the bottom line I'm just thinking about like 22 million also 35 or 40 is that the right.
Way to think about the net savings on the rest of the 70 as well as whatever's coming in the third quarter is that can that go up or down.
Yeah, so basically the whole bit of the savings is dropping to the bottom line. It's just other investments that we're making in the business that are offsetting it I mean, I think from a ratio perspective, we don't expect any wild swings in our investments versus how the savings are coming through as you know more of the savings will come through in the back half of the year just due to the fact that we wait for the big season to sort of wind down before we implement some of these changes. So it's really more of a timing thing that may all drop to the bottom line is just what we choose to invest corridor by corridor and that offsets that.
Okay. Thanks for fitting that.
Thank you.
And at this time there are no further questions. Please continue with any closing remarks.
Great. Thank you for joining the call today, we look forward to speaking with you over the coming quarter. Thank you.
Ladies and gentlemen, thank you again for joining the Realogy Holdings Corp. second quarter 2009 earnings Conference call you may now disconnect.