Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Realogy Holdings Corp  (NYSE:RLGY)
Q1 2019 Earnings Call
May. 02, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Realogy Holdings Corp. First Quarter 2019 Earnings Conference Call via webcast. Today's call is being recorded and a written transcript will be made available in the Investor Information section of the company's website later today. A webcast replay will also be made available on the company's website.

At this time, I would like to turn the conference over to Realogy's Senior Vice President, Alicia Swift. Please go ahead Alicia.

Alicia Swift -- Senior Vice President

Thank you, Natalia. Good morning and welcome to Realogy's First Quarter 2019 Earnings Conference Call. On the call with me today are Realogy's CEO and President, Ryan Schneider; Chief Financial Officer, Charlotte Simonelli; and Chief Accounting Officer, Tim Gustavson.

As shown on Slide 3 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 for 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 May 2nd 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 SEC rules, important information regarding these non-GAAP financial measures is included in our earnings press release.

Now, I will turn it over to our CEO and President, Ryan Schneider.

Ryan Schneider -- CEO and President

Thank you, Alicia. Good morning everyone. We have a lot to cover today. The most important thing is to start with is that we are moving aggressively on our strategy execution and on streamlining our operations. I'd like to start by introducing Charlotte Simonelli, Realogy's New Chief Financial Officer. Charlotte joined us in late March from Johnson & Johnson and has been quickly getting up to speed. Now that Charlotte's here, let me take a minute and share with you what I was looking for in our next CFO.

Given the housing market and competitive challenges we face, my highest priority was to find a partner who will be world-class at driving operating performance with a special strength and track record around reimagining and reengineering the expense side of large businesses. Both are increasingly critical for us to unlock additional shareholder value. I'm excited Charlotte's here and I look forward to working closely with her.

Shifting to housing, we are encouraged by some of the recent things happening in the macro environment. Mortgage rates are down a bit. Inventory is up in some of the most constrained markets and both GDP and low unemployment bode well for the health of the economy. Anecdotally, we're hearing more positive feedback from our agents and franchisees than we have heard in a while. And it goes without saying, given how much the housing market impacts our P&L, we are excited for improvement. We have a strong company foundation, a market-leading position, great brands, technology and data scale, and the free cash flow to invest in the business.

We are driving substantial change in the company to better leverage those strengths to improve financial performance in the future. With that set up, let me cover some Q1 financial highlights. As we all experienced together, we entered 2019 coming off a very challenging Q4 2018 with industry transaction volume down 4% year-over-year in the quarter. In fact, 2018 overall was a pretty challenging year for the housing industry with no growth in home sale transaction volume and the number of industry housing transactions actually down compared to previous years.

Realogy's Q1 2019 operating EBITDA was negative $4 million in what was another tough quarter for the housing market. A 9% transaction volume decline drove our revenue decline in the quarter. In Q1, we made substantial progress and start to get the benefits from the expected $70 million in cost reductions for the year that we shared with you in the last call. We are not resting and continuing to look for more efficiencies. Our volume is lower than NAR's, which was down 4% year-over-year and our variance was driven primarily by two factors; first, geographic mix. Industry volume in California was down significantly more than the national average and we have a very high concentration in California. It makes up over 25% of NRT's volume. Second, an even greater increase in the competitive environment that began in late 2018 especially in a few specific markets. For the full year 2019, we still agree with forecasters that industry transaction volume will likely improve sequentially each quarter. We told you last quarter we expect the first half of 2019 for us to have negative transaction volume growth in each quarter with Q2 better than Q1 before shifting to positive transaction volume growth in the second half of the year.

We also expect the geographic mix pressure at NRT to persist in the near term. Given the environment, we must keep investing to improve our value proposition to create even more and even better offerings to attract and retain our agents and franchisees and we're doing this at a faster pace than ever. We continue to expand initiatives we previously told you about, such as our new commission plans are now live or in pilot in nearly all of our markets nationally. They're incredibly important for us to deliver greater recruiting success going forward to grow our business. Listing Concierge has now expanded to about half the country and we'll be fully national later this year.

This product is a good example of leveraging our scale to deliver a great marketing product to our agents. It continues to help our agents win listings and earn higher commission rates from customers than agents in the same market who are not using the product. Finally, we've told you about our emerging partnership with Facebook and Instagram and in Q1 of 2019, together we delivered a new product Social Ad Engine that lets agents do an automated marketing campaign on Instagram and Facebook in about three minutes that leverages Facebook's marketing best practices and Realogy's AI technology.

We launched it at our annual conference in March and already have close to 7,000 agents connected to the program. In terms of new products, nearly 11,000 of our agents and franchisees gathered in March for our annual conference. At that event, we shared new lead generation products and new technology offerings, delivering this volume of new products quickly demonstrates our commitment to moving faster on our value proposition to increasingly attract and retain agents and franchisees and to help them close more transactions.

Finally, our iBuying product cataLIST is part of our agent value proposition today in three cities in a capital-light way in partnership with the Home Partners of America. At our March event, we announced that in Q2, we will expand the cataLIST product to our franchisees in those three cities and we will expands cataLIST to new cities later in the year. We are moving faster than ever to bring more value to both our agents and our franchisees while we continue to drive efficiencies through the business.

So let me now turn the floor over to Charlotte to review our financial results.

Charlotte Simonelli -- CFO

Thank you, Ryan. Good morning everyone. I am excited to be here at Realogy and look forward to working with Ryan and the team to drive improved business performance. The competitive environment continues to evolve and we are further leveraging technology and data to win in the marketplace. I am energized by the challenges, the opportunities, and the great team we have in place to tackle both.

Let's get right into Q1 2019 operating performance, starting with our consolidated results on Slide 5. Total net revenue in the first quarter was $1.1 billion, a decline of $115 million or 9% below Q1 2018 primarily due to lower NRT revenue. Operating EBITDA was negative $4 million, a decline of $38 million from Q1 2018 and in line with our expectations for the quarter. Expenses decreased by $74 million due to the lower overall commissions and operating costs. Q1 2019 net loss was $99 million compared to a net loss of $67 million in Q1 2018 due predominantly to the decline in transaction volumes and an increase in interest expense of $30 million. The interest expense increase was driven by a $26 million swing in the mark-to-market on our interest rate swaps. In Q1 2019, we experienced a $14 million mark-to-market loss on our interest rate swaps versus a $12 million gain in Q1 2018. The Q1 2019 net loss was partially offset by lower expenses driven by commissions and the carryforward benefit from restructuring programs. Adjusted net loss per share was $0.67 compared to an adjusted net loss of $0.38 in Q1 2018.

Now, let's turn to cash flow and the balance sheet. Free cash flow was negative $172 million in the quarter, typical for Q1 due to the seasonal trough. During the quarter, we raised $550 million of 9.375% Senior Notes with an 8-year term. For the year with the new Senior Notes, we expect cash interest expense to be approximately $200 million. Our leverage increased to 5.2 times in Q1 2019 from 4.6 times at year-end 2018.

As you know, Q1 is always our smallest quarter with negative free cash flow. The second to fourth quarters are expected to generate positive free cash flow. Our balance sheet continues to provide us with financial flexibility and we will prioritize investing in the business and reducing leverage until we achieve leverage below 4 times.

Now let's move into our Q1 2019 year-over-year review of segment operating performance on Slide 6 and 7. RFG revenue declined $13 million largely due to a decrease in intercompany royalties from NRT and domestic royalties driven by lower volumes. RFG revenue includes intercompany royalties received from NRT of $53 million. RFG operating EBITDA was $90 million, a decrease of $15 million due predominantly to the reduction in revenue. NRT revenue decreased $101 million largely due to lower transaction volume.

Operating EBITDA was negative $62 million, a decrease of $17 million due to lower revenue and higher agent commission splits partially offset by lower employee costs. Q1 2019 agent commission splits were up 45 basis points year-over-year. On a like-for-like basis, splits were up 80 basis points, which is 31 basis points lower than the increase we saw in Q4 2018 due predominantly to geographic mix and improvement in our new development business. The 45 basis points year-over-year increase was affected by the increasing roll out of our new commission plans over the last six months.

Remember that these new commission plans are meant to have more aspirational pricing to incent higher productivity and include charging additional fees. Given our roll out progress, these fees are becoming a more meaningful part of our agent economics and are recorded as a contract commission expense. This explains the 35 basis point difference between the 80 basis points like-for-like and the actual results of 45 basis points. You should assume the impact of these fees will be less than 35 basis points in higher volume quarters, but this is expected to continue to be a part of our agent commission expense story.

Cartus revenue decreased $3 million primarily due to a decrease in referral revenue. Operating EBITDA was $2 million, an increase of $3 million year-over-year as cost savings more than offset the decline in revenue. TRG revenue decreased $6 million primarily due to lower resale revenue. Operating EBITDA for TRG was negative $9 million, down $3 million due to the decline in resale revenue partially offset by an increase of $3 million in GRA mortgage JV earnings. We continue to expect the GRA mortgage JV to modestly contribute to profitability for the remainder of 2019.

Turning to Slide 8. During the quarter, we incurred $12 million of restructuring costs associated with our cost savings initiatives. We expect approximately $53 million of restructuring costs through 2019 to contribute to approximately $70 million in cost savings in the year. We are aggressively pursuing even more cost efficiencies throughout the business.

Wrapping up, I am excited to be here at Realogy, an industry leader with unmatched scale and substantial cash flow generation in both good and tough housing markets. To reiterate, I look forward to working with the team to leverage the company's resources including technology and data analytics to drive improved business results going forward. I am moving quickly to explore further operational efficiencies and simplification to drive improved shareholder value.

Now let me turn it back to Ryan for some closing remarks.

Ryan Schneider -- CEO and President

Thank you, Charlotte. So let me step back for a minute and talk about strategy. It was about one year ago, when we began to share our current strategy with you. Our current strategy is focused on organic growth and is based on technology and data to enhance our value proposition for current and potential agents and franchisees. It also includes more aspirational commission plans to drive recruiting and productivity, making strides on cost and changing how we run the company to move much faster.

Shifting to execution. We've actually -- we've demonstrated substantial progress. We're excited about many of the things we're doing and we get good feedback on our pace of change. However, while we're working to change our financial trajectory, it has not had happened yet. The housing market being down the past few quarters hasn't helped and equally important, the competitive environment has gotten even tougher recently especially from a few companies who seem fine losing money.

Given all that, there's four things I wanted to share. First, we must stay incredibly focused on executing what we're doing strategically in the market could; improving our value proposition, driving more transactions, lowering our cost, and moving faster are all needed to compete today given the dynamics in the market. Second, we need to do more and we need to do it rapidly. So for example at our March conference, we shared with our agents a bold new effort we call Fast Track to reinvent the transaction process. Fast Track will leverage our industry-leading agent scale, national title business, mortgage expertise, and our partner, Home Partners of America's home buying capabilities to see if we can shorten the transaction process from months to something like a week. By doing the mortgage and title work, specific to the house in advance, the Home Partners of America's home buying as a backstop, we believe we can substantially shorten the closing time frame and increase the certainty of close. Many competitors talk about making money from ancillary services like title and mortgage. We actually do that today. Many competitors talk about reinventing the transaction process. We actually have the business components to do it. And so while it's early, if we can make Fast Track work, it would be really impactful for consumers, for agents, and for us. It would create a much better customer experience. It would help us capture more transactions and generate more ancillary services revenue and that is also the kind of unique product Realogy could provide its agents creating beneficial differentiation helping us recruit and retain. It's an opportunity to leverage Realogy's strengths to think bigger and drive more results.

Third, we're not only going to execute on the cost opportunities we shared in the last quarter, but with Charlotte's leadership, we are looking to be even more aggressive streamlining our operations. Finally, I am on the hunt for new and bigger ideas that can change our company and even the industry. I know we have to keep thinking bigger given the industry dynamics and our need to create more shareholder value.

With that, Charlotte and I will take your questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question is from the line of Jason Deleeuw with Piper Jaffray.

Jason Deleeuw -- Piper Jaffray -- Analyst

Good morning. Thanks for taking the question. Just looking for a little color on RFG, it seemed a little weaker than what we would have thought with the sides and just wondering if there's any franchisee switching around there? Or is there is any competitive environment impact on the RFG part of the business?

Ryan Schneider -- CEO and President

Great question. The biggest thing that we talked about was what was happening with California and then a few specific cities, which is a little more talking about what's concentrated in NRT. RFG being a little below NAR was a little bit more of a mixing cats and dogs. So we were actually overweight in California in RFG also, nowhere near as much as NRT, but we are overweight there. That had a bit of an impact. There were a couple other geographies that had some impact. It wasn't a switching or terminations or anything like that. It was more of a cats and dogs kind of thing and our franchisee health remains good. We're watching days of sales outstanding, which is kind of the delinquency metric we track. It's not really moving or anything. So that one was more of a cats and dogs thing though both the California thing and a little bit of the competitive thing swap RFG in, but neither one's extreme as on the NRT side.

Jason Deleeuw -- Piper Jaffray -- Analyst

Thanks for that color. And then, I'm just looking for additional color on the net agent growth last quarter, the piloted markets I believe you were seeing 5% net agent growth. And I'm just wondering as it continues to roll out what are you seeing the net agent growth? And are you comfortable with the strategy as is? Or have you made tweaks? Or how are you thinking about the strategy moving forward?

Ryan Schneider -- CEO and President

Yes. Look, we're always evolving both in like individual strategy is kind of at the market level as well as kind of some of the stuff I closed at in terms of trying to think bigger. The reality is our net agent growth, if you look year-over-year, is basically flat. We have some markets that are up very substantially that we're all excited about. But there have also been a few markets like four in particular that I kind of referenced in the -- when I talked about some of the -- what happened in the kind of Q4 competitively where the competitive intensity changed pretty dramatically when the housing market kind of had a bad patch.

And in those markets, it's gone in the other direction. So overall, it's been about flat. We've got a lot of markets we like the results in, but we definitely have some where it's been more challenging. I think our agents are liking the new products that we're putting out there in the market having cataLIST in some cities, Listing Concierge, and our commission roll out is pretty much national now. So that's a little more color on that.

Jason Deleeuw -- Piper Jaffray -- Analyst

Thank you.

Operator

Our next question comes from the line of Jack Micenko with SIG.

Jack Micenko -- SIG -- Analyst

Hey. Good morning. Charlotte, welcome. I guess my first question for you. On the expense side, given Ryan's prepared comments, it may be an unfair question, but talking about the $70 million and remaining on track this year, clearly looking for more. If the revenue trends this year continue at a slower cliff, I mean how quickly can we expect to hear more on the expense side from you? And are you looking at it in the context of absolute dollars? Or are you looking at it more in terms of positive operating leverage or at least matching the leverage if revenue were to slow further? Just some thoughts on what you think we can expect from that in the next couple quarters.

Charlotte Simonelli -- CFO

Yes. Well, as you pointed out, it's still early days but what I can say is in the early days that I have been here, I do see opportunities to drive additional efficiencies in-year but also for future years to come. There's things that we're going to do that will impact this year and also set us up for the future. So I do feel very good about the $70 million that's already there and I'm definitely optimistic there's more that we're going to deliver this year.

Jack Micenko -- SIG -- Analyst

So do you think there's upside to $70 million in 2019?

Charlotte Simonelli -- CFO

I do.

Jack Micenko -- SIG -- Analyst

Okay. Okay. Great. And then Ryan on the cataLIST, I know you are in the three markets, sounds like you're moving and expanding into the franchisee side. Any plans to take that to other brands? And can you share with us the markets you think you're looking at to expand to from here?

Ryan Schneider -- CEO and President

Yes. So we're in Atlanta, Tampa, and Dallas and we're going to take it to our franchise brands in those geographies. We've announced that. We've told those franchisees that'll be something their agents can use as part of their toolkit to win more listings, something those franchises can use to recruit agents. We've announced to our whole network that we're going to go into more cities. We have not name the cities yet and we're going to name them later this quarter. But since we publicly told everybody we are going into more cities, I felt fine of sharing that with this group today but we'll announce additional cities later in the quarter.

Jack Micenko -- SIG -- Analyst

Okay. Look forward to that. Thanks.

Operator

Your next quarter is from the line of Anthony Paolone of JPMorgan.

Anthony Paolone -- JPMorgan -- Analyst

You mentioned the competitive landscape and some of the competitors willing to operate at losses. Can you talk a bit more about what you're seeing out there that doesn't either feel rational or what you're fighting against these days outside of say over the last year or two, it seemed to be very split-driven. Is there any competitors that competitors are doing that you're seeing that you have to match or that's on your mind?

Ryan Schneider -- CEO and President

Yes. It's -- when we talk about some of the competitive challenges and people willing to operate at a loss and basically operate at a loss, it effectively shows up in one place which is the agent commission area in terms of having real impact. A lot of people talk about attacking the average broker commission rate that customers pay, but there's been very little traction on that when you look at the numbers either regionally or nationally; whereas, there are people out there who will make offers that are literally underwater and we've seen that. And we actually -- part of the reason we saw what happened was the ramp-up in Q4, is in a few cities when the market's got really tough, we saw people making even more aggressive offers to agents. And so who knows if people have a path to make money in the future? Some have said they don't have a path even to that point, but that's a little bit of what we're dealing with. It is a geographic thing and I called out there were four cities Chicago, San Francisco, San Diego, and L.A. where the real violence was on that in the fourth quarter but there's other geographies where that's not anywhere near as big of an issue and those are some of the geographies to the first question I got where we see a lot more growth and we're a lot more excited. But we've got a -- we compete in all these places and we've got to deal with all of them. So that's a little bit more color.

Anthony Paolone -- JPMorgan -- Analyst

Okay. Thank you. And then, my second question just to better understand I think an earlier question on recruiting efforts and NRT. If I think about the goals you set for I think it was in last quarter was 2000-3000 I think it was something in that order of magnitude that you hope to add. Is that still something you think likely you'll hit by the end of this year?

Ryan Schneider -- CEO and President

I don't think we ever put out a specific number on that, but we're still positive on our progress. We have a lot of markets where we feel good and we have the kind of growth that you would want us to have. There have been in these few that have been pretty tough in the last kind of three to six months that showed up in some of the results here, but that's exactly what we're focused on working on and driving toward and continuing to enhance our value proposition, provide more things to recruit people with, listing Concierge, cataLIST, us and our franchisees is just an important thing. This is -- the value proposition that we offer is at the end of the day is what everyone is going to compete on out there in the industry and we have a lot of things that we can really enhance are on a relative basis we think it can pay off in a lot more of recruiting success over time and we've got to stay focused on it no matter what others are doing.

Anthony Paolone -- JPMorgan -- Analyst

Okay. Thank you.

Operator

Your next question is from the line of John Campbell with Stephens Inc.

John Campbell -- Stephens Inc -- Analyst

Hey, guys. Good morning. Nice work against pretty tough backdrop. It seems like you guys are ahead of schedule on the cost saves and seems you have a better grip on splits. But if you guys can -- I'm just wondering just kind of high level if you can keep both of these on schedule and it sounds like there's even upside to the $70 million in cost saves you've kind of outlined and then you get back to kind of positive transaction volume growth by, I don't know call it, 4Q. Would that be enough of a formula to get you back to kind of the year-over-year EBITDA growth by the end of the year?

Ryan Schneider -- CEO and President

Look, we're -- given how crazy the housing market's been and this the big shift at the end of last year and the start of this year, we're out of the annual kind of EBITDA guidance business just because how it is. But look I go one notch further than what you did which is we still think we get the positive transaction volume growth in Q3 and Q4 not just waiting until kind of Q4. And so it kind of depends on how much positive growth we get, the market gets etc., but that is what we're still kind of anchored to that it'll be positive transaction volume growth in the second half of the year cost plus additional stuff. We like some of the emerging macro trends. Our April numbers so far are better than the first quarter, our opens are better and opens today are things that closed in the second half of the year. So we're probably more optimistic on that than waiting until the fourth quarter, but it's a pretty volatile housing market, so we'll see.

John Campbell -- Stephens Inc -- Analyst

Yes understood. It seems like you guys are on track. And then lastly on the RGX conference, just given all the brands and then hosting that in Vegas, I'm guessing that was definitely a step-up in cost. Can you just talk about how much of a headwind that was in the quarter and whether that's pulling forward any maybe the conference-related expense for the remainder of the year?

Ryan Schneider -- CEO and President

Yes. So it was a -- I view it as a timing thing. We spent about as much for this conference, as we would have spent for the five conferences that we didn't do that we brought together all at once. Now it all happened now in one quarter, instead of being spread out. But we did instead of doing an ERA Better Homes and Gardens, Coldwell Banker, Century 21, and Cartus Broker Network individually, we did it all as one. And going into it and coming out of it, the net expenses of it were what it would have been on the five. So a little bit of timing of it all happened in one quarter. But on an annual basis, it's a lush.

John Campbell -- Stephens Inc -- Analyst

Okay. And is that -- just order of magnitude, is that $1 million swing? Is that a handful of million? Just any kind of sense for that?

Charlotte Simonelli -- CFO

Somewhere in between.

John Campbell -- Stephens Inc -- Analyst

Okay. Fair enough. Thanks guys.

Operator

Your next question is from the line of Chris Gamaitoni with Compass Point.

Chris Gamaitoni -- Compass Point -- Analyst

Good morning. Could you give us some clarity on the decline in the net royalty per side at RFG year-over-year? Your average price was up, it seemed like a pretty big effective percentage decline.

Charlotte Simonelli -- CFO

Hi, Chris. Thanks for the question. Yes. So the net effective -- the royalty per side is a little bit of two factors. There's less price appreciation, it's less than it's been historically and there's a bit of amortization of the incentives, they're fixed and the units in the quarter are pretty low. So it's a bit of those two factors.

Chris Gamaitoni -- Compass Point -- Analyst

Okay. I mean it was the lowest that I can calculate on a whole price basis in a long time. Did you have an impact on the amortization delta year-over-year?

Charlotte Simonelli -- CFO

So the pricing was definitely the bigger factor.

Chris Gamaitoni -- Compass Point -- Analyst

Right. Pricing was up 2% year-over-year though.

Charlotte Simonelli -- CFO

But versus 6% last year.

Chris Gamaitoni -- Compass Point -- Analyst

Okay.

Charlotte Simonelli -- CFO

It was up 6% last year.

Chris Gamaitoni -- Compass Point -- Analyst

All right.

Charlotte Simonelli -- CFO

The incentive -- the impact of the incentives -- excuse me -- the impact of the incentives did increase year-over-year but the pricing was definitely the more material factor.

Chris Gamaitoni -- Compass Point -- Analyst

Okay. Charlotte, I have a question for you on finding additional cost saves. Could you give us a sense of like the categories of what you're looking at? Is it real estate efficiencies? Is it back office? Is it consolidating vendors? Just anything high level that tangible that we can kind of sink our teeth into?

Charlotte Simonelli -- CFO

Yes, yes, and yes. It's a little bit of all of those. I think also we really have a great opportunity on the data and the tech side to be a lot more efficient, but also to use the data in a better way. So it's a little bit of all of those things.

Chris Gamaitoni -- Compass Point -- Analyst

All right. Do you have an outlook that you can provide, I don't know if you can, for CapEx for the year?

Charlotte Simonelli -- CFO

Yes. So we're still revisiting the CapEx number. It will have a bit of a swing because of some of the restructuring that we're doing but that's still being fine tuned.

Chris Gamaitoni -- Compass Point -- Analyst

Okay. Thank you.

Operator

Your next question is from the line of Bose George with KBW.

Analyst -- -- Analyst

Hey guys. This is Tommy on for Bose. I just wanted to clarify your comments on the commission split. So it increased 46 basis points year-over-year and can you just clarify is that a good run rate base? Or was there something unique this quarter?

Charlotte Simonelli -- CFO

So the unique thing that we called out earlier in the call was there was a bit of a roll out of our commission plans, which it impacted how we record the expenses. So they're now a contract commission expense. So on a like-for-like basis that's really 80 basis points versus what we saw in the fourth quarter, which was 111 basis points. So yes it did improve from 111 in the fourth quarter to 80 on a like-for-like basis. But to get to the 45, there's a bit of a reclass of some of the new ways that we're rolling out our commission plans and it's really -- geography drives a lot of that. The difference between the 111 and the 80, there's a bit -- the geography is driving a lot of that.

Analyst -- -- Analyst

Got it. Thank you for clarifying. And just with a whole new roll out of the commission framework, how are agents responding? Are you seeing some agents leaving? Is anything kind of -- has anything changed as those plans have rolled out?

Ryan Schneider -- CEO and President

Look, in a bunch of geographies that have actually been helpful to both attract new agents, which is the lion's share of the focus of it. We're not forcing agents to move to the new plans. So it's not like we're creating breakage just driving people away if they don't like it. But the goal is to recruit. We've had a bunch of markets with some success on that, but on a net basis, we are flat on agent count as there have been a few challenging markets that I highlighted on the call.

Analyst -- -- Analyst

Do you say that you're not requiring agents to change? Can you like say like what percentage? Or how much like adoption has been?

Ryan Schneider -- CEO and President

It's hard to give one number because we've been rolling this out kind of across the country so every page is a different stage. The two things I'd give you is one the new things are all focused on recruiting more than the current and if the current people want to move, we let them from our history of a few kind of natural experiments on this, it takes about three years for the most people to want to move to the new thing, when we try just kind of more aspirational plan and we're kind of in the year one of that so that gives you a sense of my guess of what will happen but we don't have, everything is in too much of a different stage to give you just a single number.

Analyst -- -- Analyst

Okay. That makes sense. Thanks guys.

Operator

Your next question is from the line of Matthew Bouley with Barclays.

Matthew Bouley -- Barclays -- Analyst

Good morning. Thank you for taking my questions. I wanted to ask about the performance versus the market on transaction volumes, but focusing on NRT because obviously you saw some of the progress on commission splits this quarter. So I mean just going forward, is it as simple as thinking about splits versus market share, I don't know offsetting for the next couple of quarters at least? But how do you think about that balance this year? And I guess how long do you expect this performance versus the market or I guess underperformance like this to persist? Thank you.

Ryan Schneider -- CEO and President

Yes. Thanks Matt. Good question. I'm not sure it's splits versus market share. I mean if you look at -- we like what happened with splits this quarter for a couple of reasons. One -- and this was our strategy along with rolling out kind of more aspirational higher approach to the commission plan, we told you multiple quarters ago that we were going to start having more fees as part of our proposition which is a benefit to us on the split thing and you saw that kind of for the first time as we kind of got the things to a certain scale show up in our numbers. So we like that and then we had a little bit better quarter on splits. Some of that was just geographic mix and some was the comeback of our new development business which we like. So the trade-off for us is not typically market share versus splits, it's market share versus bottom line. We could keep market share. We matched or exceeded some offers that were negative economics for us, either the people make it our agents so that we would have to make it to other people. We typically have chosen not to do that. In fact, not typically, we don't do that effectively. But we're going to -- we feel like there will be some upward pressure on the splits, but we're going to keep watching it, I mean the biggest thing and it's what I led with is just the geographic mix, right? I mean, California last year in Q1 was up or the West was up like double digits and it was down double digits this year in Q1. And we are pretty heavily weighted out there, especially California in NRT and even in RFG a little bit. And so I'm more thinking about the market share versus profit trade-off than market share versus split. So anyway, that's a lot of thoughts and I should just probably stop there.

Matthew Bouley -- Barclays -- Analyst

Okay. I appreciate that. And then, secondly maybe at a higher level obviously Ryan you've enacted multiple different kind of strategic changes here -- changes to product etc. So, it'd be great to hear kind of what you think has worked? And honestly like it'd be interesting to hear what you think has perhaps not worked? And I just asked because there have been a lot of different areas you've attacked and it would be great to kind of hear where among all of these changes you're making, where you're seeing the greatest promise and where you can, I don't know, perhaps step up on the gas so to speak. Thank you.

Ryan Schneider -- CEO and President

Yes. That's a great question. So look we like a lot of the things we've done and we've gotten good feedback on them, especially if you want to compare it to hypothetical universe of us not doing a bunch of this stuff, which is a little hypothetical in general. But look, the new products I think help a lot, changing our commission approach to be more competitive in the market for recruiting helps a lot and we've paid this off either by some regional results we feel good about or by kind of more call it flat agent results in the world, where before we were on a negative trajectory kind of thing. So that's great but as I acknowledged, we haven't changed the financial trajectory of the company.

So we've got to move fast. I think we've got to do more on the cost side than I articulated a year ago. Hopefully you heard a little bit of that in the February call and even more today and frankly what I was looking for when I went through the process to find Charlotte. So that's something where I think we got to step on the gas more. And the industry dynamics here are driving pretty fast pace of change and the kind of three or so kind of not so good housing market quarters kind of haven't helped. So those are a few thoughts. I think if we don't stay focused on improving our value proposition, I think we're in the lot of risk or regression. So we've got to do that, but I am also still in the hunt for the bigger ideas that we could potentially do that would change our trajectory change the industry and reimagine our company a little bit in some different ways. So those are a few things I feel good about, a few things that we should put a little more effort into especially the cost and some of the hunt for bigger basically given the industry dynamics both housing market and competitive.

Matthew Bouley -- Barclays -- Analyst

Okay. I appreciate the thoughts. Thank you.

Operator

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

Ryan McKeveny -- Zelman & Associates -- Analyst

Hi. Thank you and good morning and welcome, Charlotte. So I have a two-fold question about consolidation; one from an industry perspective and one from kind of company's specific perspective. So on the industry side, so it's obviously a challenging business for most brokers. Margins are pressured. That's a pretty common theme across the industry. There's a need to invest in the value proposition, technology, etc. A lot of the things where you at Realogy can invest. And I'm just curious if your view around M&A opportunities has shifted at all. We've obviously all seen Compass gaining a lot of share through acquiring and I know that's kind of (inaudible) and you've shifted away from that. But I'm curious with the challenges out there if there is a competitive or a compelling company that you are looking at, are you simply trying to maybe make that person become a franchise? Or is there just -- any update on just the M&A thought process that you guys go through in this environment?

Ryan Schneider -- CEO and President

Sure. Great question, Ryan. Let me just give you my current thoughts. So one of the reasons about one year ago we wanted to make more of our investments on organic growth as opposed to M&A was two things that we saw happening, right? One was when you looked at the M&A that had been happening in our industry and this is true for Realogy and it's true for a few of our competitors if you look. Even if they're not public, there's a few, you can see some of their numbers.

There's a lot of M&A happening that increase people's top line, but did not change the bottom line, right? And that happened for us. That happened for others -- and that happened for others and that's still happening for others in a few companies that you can again see some of the numbers at and that's not a great outcome.

The other thing that has happened kind of when I first got here was that the multiples for M&A before the housing market kind of went south here in the last few quarters had actually gotten much higher than the historical multiples that Realogy was kind of used to paying whether on a pre-synergy or a post-synergy basis. So if you look at two things you see where the organic opportunities are and then we articulate.

Let me tell you the two things that have changed a little bit in my view and when we said we were not going to do M&A, I said you never say never, but it was not going to be our core strategy. I think there's two things that have changed but could change our view on that at some point. We're not there today, but it could change our view. One is if in the tough housing market, if people's expectations on the actual prices at which these things trade drop a lot, that's an interesting thing. The other is I'm still very, very skeptical on buying other brokerages for their revenue because again whether, it's our experience or what's happening even in 2018 with some of our competitors, you can just see that they actually don't translate to the bottom line.

But there could be a more -- it could be more interesting especially if the multiples are different where it's not about the revenue side, but it's about the cost takeout side. And in that scenario, it's not expanding into new geographies through acquisition, it's -- what are companies that you have 100% overlap on your footprint with and if the economics align and the price aligns could you do it more for a cost takeout reason? So that's higher on my radar than it's been. We're not -- I got nothing to announce. I got no deals that we're going to be talking about anytime soon, we did no M&A in the last quarter but that is the thing that's going on there. Our priority is to invest in the business and that could be one version of that. And then, we go to deleveraging in terms of free cash flow. But for now, you should assume or sticking with the organic growth staying in our investment in the business is more around our value proposition, our technology, and our data. But those are my thoughts and if that ever does -- if the world changes that way, I'd come back and talk in more detail. But that is what could be different than what it was one year or so ago.

Ryan McKeveny -- Zelman & Associates -- Analyst

Got it. Thank you. That's very helpful. And then the second part of that is within NRT, we've heard some chatter that in some markets, there's been some kind of office consolidation, some changes in just the office space dynamic. And then I saw this quarter there was that $1 million lease asset impairment. I wonder if that relates to that. And is this maybe a broader strategy happening within NRT to kind of reconfigure the office side to get efficiencies. Anything you can share there?

Charlotte Simonelli -- CFO

Yes. That is part of the restructuring program and we're constantly evaluating our space. There's places where we have overlap and offices are very closely located. I think in today's environment, people like to work more remotely and more mobile. There's different offerings that we're giving our agents in that regard. So yes, it is definitely part of the restructuring program and it's intentional but it's not designed to do anything other than create like an office of today. But there will be savings. And on a -- as a square footage ratio per agent, that will definitely go down in the future.

Ryan McKeveny -- Zelman & Associates -- Analyst

Okay. Got it. And very last one and I apologize if I missed this. Are you giving any guidance on either transaction volume EBITDA for the second quarter at least directionally? And I apologize if I missed that.

Ryan Schneider -- CEO and President

No. We want to stay with the statement we used before. We think Q2 will be negative transaction volume. That's what we said last quarter, but we think it will be better than Q1 and I just gave you a little bit of April. And then shifting to positive transaction volume in the second half of the year, and so we're staying consistent with what we said last time we talked.

Ryan McKeveny -- Zelman & Associates -- Analyst

Okay. Thank you.

Operator

Your final question is from the line of Stephen Kim with Evercore ISI.

Analyst -- -- Analyst

Hi. Good morning. This is actually Chris on for Steve. So with your cataLIST program with HPA, have you disclosed how many homes you've bid on or bought so far? And then also what are your conversion rates look like compared to other iBuyers?

Ryan Schneider -- CEO and President

So two things we haven't disclosed and we're not planning to. It's not a huge number. We're in this for the learning more than when you've got $6 billion of revenue, starting something like this isn't going to change our company in the near term. And then, our conversion rates have been a little bit higher than our competitors. Part of that is, by the way, is because our partner, Home Partners of America -- we're not in the business -- they're not in the business of buying houses just to flip them like iBuyers are.

Home Partners of America has a business around buying houses to rent or lease them back. So we actually may want to buy a few more houses here than some of the competitors, who frankly often bid incredibly low and kind of look for desperation and have massively -- kind of massive decline rates. But most of this is about what we can do for our agent value proposition. This can be a unique thing we can offer, most brokerages don't have something like this and it also helps our agents win more listings. Even if people don't want the cataLIST offer right, we get the listing the lion's share of the time.

And when we don't get the listing, it's usually because people choose not to list their house, not that they get it from someone else so keeping the agent at the center of this thing and learning on this is a big part of what we're doing here and it's a small thing but meaningful in terms of our agent value proposition and we're excited to expand it.

Analyst -- -- Analyst

All right. Thanks. And then, I guess turning to the balance sheet. Have you put out I guess a time frame for your deleveraging process?

Charlotte Simonelli -- CFO

No.

Ryan Schneider -- CEO and President

No. We have not put a time frame but we're trying to be consistent in both written and verbal statements. Priority one is invest in the business in different ways and then put our free cash flow toward deleveraging. And the time frame in many ways will be driven by the market, the housing market and how that impacts our business as much as any of our individual actions. So we'll keep you posted.

Analyst -- -- Analyst

Great. Thanks very much.

Operator

There are no further questions. Are there any closing remarks?

Alicia Swift -- Senior Vice President

No. We thank you for joining us on the call today and we look forward to talking to you over the coming quarter. Thank you.

Operator

This concludes today's First Quarter 2019 Earnings Conference Call. Thank you for your participation. You may now disconnect.

Duration: 49 minutes

Call participants:

Alicia Swift -- Senior Vice President

Ryan Schneider -- CEO and President

Charlotte Simonelli -- CFO

Jason Deleeuw -- Piper Jaffray -- Analyst

Jack Micenko -- SIG -- Analyst

Anthony Paolone -- JPMorgan -- Analyst

John Campbell -- Stephens Inc -- Analyst

Chris Gamaitoni -- Compass Point -- Analyst

Analyst -- -- Analyst

Matthew Bouley -- Barclays -- Analyst

Ryan McKeveny -- Zelman & Associates -- Analyst

More RLGY analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.