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Realogy Reports Financial Results For Third Quarter 2017

MADISON, N.J., Nov. 3, 2017 /PRNewswire/ -- Realogy Holdings Corp. (NYSE: RLGY), the largest full-service residential real estate services company in the United States, today reported financial results for the quarter ended September 30, 2017, including the following highlights:

  • Revenue was $1.7 billion, an increase of 2% compared with the third quarter of 2016, driven by increases in homesale transaction volume (transaction sides multiplied by average sale price) at the Company-owned brokerage segment (NRT) and Realogy Franchise Group (RFG).
  • The Company's combined homesale transaction volume increased 4% year-over-year, consisting of a 5% volume gain at RFG and a 4% volume gain at NRT, both driven by increases in average sales price. Realogy outperformed national averages on sales volume and transaction sides.
  • Net income was $95 million for the period, compared to $106 million in the same period in the prior year. Basic earnings per share was $0.70 compared with basic earnings per share of $0.74 in the third quarter of 2016.
  • Adjusted net income per share was $0.71 compared with adjusted net income per share of $0.75 in the third quarter of 2016. (See Table 1a).1
  • Operating EBITDA was $258 million, compared with $279 million in the third quarter of 2016. (See Table 5).2 The decline was primarily attributable to higher commission splits due to the relative strength in NRT's West Coast operations and initiatives designed to attract and retain agents, as well as the impact of lower global relocation volume on Cartus results. The combined effects from hurricanes in Texas and Florida represented approximately $7 million of the decline, mostly at NRT and TRG.
  • Free Cash Flow for the third quarter was $249 million compared with $262 million in Q3 2016, a decrease of $13 million primarily due to lower net income. Year to date Free Cash Flow was $406 million, up from $358 million in the first nine months of 2016. (See Table 6).3
  • In the first nine months of 2017, Realogy returned $215 million of capital to stockholders through share repurchases and dividends.
  • NRT grew its agent count by 4.5% in the last 12 months to more than 50,000.

"While we experienced gains in both homesale transaction volume and revenue, Operating EBITDA was adversely affected by the higher commission splits, hurricanes, and weaker Cartus results," said Richard A. Smith, Realogy's chairman and chief executive officer. "However, we continued to make progress on our strategic initiatives, including on our agent recruiting efforts, as evidenced by our strong retention rate and growing agent count. We also added new senior leadership talent to the organization, headlined by our new president and chief operating officer, Ryan Schneider. Going forward, we are focused on driving sustainable organic growth across our enterprise by strengthening the services we provide to affiliated agents, which we believe will result in continued recruiting success and improved agent productivity."

Anthony E. Hull, Realogy's executive vice president, chief financial officer and treasurer, said, "We remain on track to deliver more than $500 million in free cash flow for full year 2017 as a result of the strength of our business model and balance sheet."

In the third quarter of 2017, despite softness in the overall national housing market, RFG and NRT achieved a combined homesale transaction volume of approximately $141 billion, an increase of 4% compared with the third quarter of 2016. NRT homesale transaction sides remained flat and average homesale price increased 4%, while RFG reported a homesale transaction sides decrease of 1% and an average homesale price increase of 6%. Homesale transaction sides were muted due to low inventory levels as well as severe weather in certain regions.

In the title and settlement services sector, TRG was involved in the closing of approximately 50,000 transactions in the third quarter of 2017, reflecting a 2% increase in purchase units compared with the third quarter of 2016, and a 57% decrease in refinance units, which is consistent with industry trends.

In the relocation segment, while Cartus' performance in the third quarter was below last year, Cartus continues to be an important part of the Company's value proposition, generating highly qualified leads for its network of affiliated agents and helping them to build their businesses. Cartus generated referral opportunities to agents that resulted in approximately 24,000 homesale closings in the third quarter.

Looking Ahead

For the fourth quarter of 2017, Realogy expects to achieve overall homesale transaction volume gains in the range of 4% to 6% year-over-year. Based on the Company's closed and open sales activity in October, Realogy expects fourth quarter homesale transaction sides to increase between flat to 1% year-over-year and average homesale price to increase in the 4% to 5% range year-over-year. On a year-over-year basis, RFG volume in the fourth quarter is anticipated to increase between 3% to 5%, while NRT transaction volume is expected to increase by 7% to 9%.

For the full year 2017, Realogy expects to generate revenue of between $6.1 billion and $6.150 billion, driven by combined transaction volume gains of between 6% to 7% year-over-year. Realogy expects full year 2017 Operating EBITDA of between $725 million and $735 million, which includes the expected impact of our recruiting and retention efforts, natural disasters and charges related to its senior leadership transition. Based on the Operating EBITDA range noted above, the Company expects to generate Free Cash Flow of between $505 million and $520 million in 2017.

Capital Allocation

The Company returned $215 million of capital to stockholders through share repurchases and dividends in the first nine months of 2017. During the first nine months of 2017, Realogy repurchased approximately 5.9 million shares of common stock in the open market at a weighted average market price of $30.40 per share for a total of $178 million and returned an additional $37 million through quarterly cash dividends paid to stockholders. The Company had approximately 135.2 million shares of common stock outstanding as of September 30, 2017. Since the inception of our share repurchase program in February 2016, we have repurchased a total of 13.5 million of our outstanding shares for $394 million in the aggregate.

Balance Sheet

The Company ended the quarter with cash and cash equivalents of $348 million. Total long-term corporate debt, including the short-term portion, net of cash and cash equivalents (net corporate debt), totaled $3.2 billion at September 30, 2017. The Company's net debt leverage ratio4 was 3.9 times at September 30, 2017.

A consolidated balance sheet is included as Table 2 of this press release.

Investor Conference Call

Today, November 3, at 8:30 a.m. (EDT), Realogy will hold a conference call via webcast to review its third quarter 2017 results. The webcast will be hosted by Richard A. Smith, chairman and chief executive officer, and Anthony E. Hull, executive vice president, chief financial officer and treasurer. Ryan Schneider, Realogy's newly announced president and chief operating officer will also be introduced during the presentation. The call with conclude with an investor Q&A period with management.

Investors may access the conference call live via webcast at ir.realogy.com or by dialing (888) 895-3527 (toll free); international participants should dial (706) 679-2250. Please dial in at least 5 to 10 minutes prior to start time. A webcast replay also will be available on the website.

About Realogy Holdings Corp.

Realogy Holdings Corp. (NYSE: RLGY) is a technology-enabled leading provider of residential real estate services that is focused on empowering independent sales agents to best serve today's consumers. Realogy delivers its services through its well-known industry brands including Better Homes and Gardens® Real Estate, CENTURY 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran Group®, ERA®, Sotheby's International Realty® as well as NRT, Cartus, Title Resource Group and ZapLabsSM, an in-house innovation and technology development lab. Realogy's fully integrated business model includes brokerage, franchising, relocation, mortgage and, title and settlement services. Realogy provides independent sales agents access to leading technology, best-in-class marketing and learning programs, and support services to help them become more productive and build stronger businesses. Realogy's affiliated brokerages operate around the world with approximately 192,600 independent sales agents in the United States and approximately 94,000 independent sales agents in more than 100 other countries and territories. Realogy is headquartered in Madison, New Jersey.

Footnotes:
1 Adjusted net income (loss) is defined as net income (loss) before mark-to-market interest rate adjustments, former parent legacy items, restructuring charges and loss on the early extinguishment of debt.
2 Operating EBITDA is defined as EBITDA before restructuring costs, loss on the early extinguishment of debt and former parent legacy items.
3 Free Cash Flow is defined as net income (loss) attributable to Realogy before income tax expense (benefit), net of payments, interest expense, net, depreciation and amortization, capital expenditures, restructuring costs and former parent legacy costs (benefits), net of payments, loss on the early extinguishment of debt, working capital adjustments and relocation assets, net of change in securitization obligations.
4 Net corporate debt divided by EBITDA, as defined by the Senior Secured Credit Facility, for the twelve-month period ended September 30, 2017.

Forward-Looking Statements

Certain statements in this press release constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Realogy Holdings Corp. to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "projects", "estimates" and "plans" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forward-looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements.

Various factors that could cause actual future results and other future events to differ materially from those estimated by management include, but are not limited to: adverse developments or the absence of sustained improvement in general business, economic and political conditions; adverse developments or the absence of improvement in the residential real estate markets including but not limited to continued low inventory levels, the lack of sustained improvement in the number of home sales and/or stagnant or declining home prices, low levels of consumer confidence, the impact of slow economic growth or future recessions and related high levels of unemployment in the U.S. and abroad, renewed high levels of foreclosures, seasonal fluctuations in the residential real estate brokerage business, and increasing mortgage rates and down payment requirements and/or constraints on the availability of mortgage financing; inability to achieve sales agent recruiting and retention goals and the inability to increase sales agent productivity; the Company's geographic and high-end market concentration, particularly with respect to its Company-owned brokerage operations; the Company's failure to enter into or renew franchise agreements or maintain its brands; risks relating to our outstanding debt and interest obligations; variable rate indebtedness which subjects the Company to interest rate risk; the Company's inability to access capital or refinance or repay existing indebtedness, or return capital to stockholders; the Company's inability to realize the benefits from acquisitions or the new mortgage origination joint venture that the Company has agreed to form with Guaranteed Rate, Inc.; any outbreak or escalation of hostilities on a national, regional or international basis; government regulation as well as legislative, tax or regulatory changes that would adversely impact the residential real estate market, including but not limited to potential reform of the financing of the U.S. housing and mortgage markets and/or the Internal Revenue Code and changes in state or federal employment laws or regulations that would require reclassification of independent contractor sales agents to employee status, and wage and hour regulations; the Company's inability to sustain improvements in its operating efficiency and to achieve anticipated cost savings from its business optimization initiatives; any adverse resolution of litigation, governmental or regulatory proceedings or arbitration awards; the final resolution or outcomes with respect to Cendant's (our former parent) remaining contingent liabilities; and the failure or disruption of our operations, or the compromise of our systems or data, as a result of various causes, including cybersecurity attacks.

Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings "Forward-Looking Statements" and "Risk Factors" in our filings with the Securities and Exchange Commission, including our Quarterly Report filed on Form 10-Q for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017, and our Annual Report on Form 10-K for the year ended December 31, 2016, and our other filings made from time to time, in connection with considering any forward-looking statements that may be made by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

Non-GAAP Financial Measures

This release includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, important information regarding such measures is contained in the Tables attached to this release. See Tables 1a, 7 and 8 for definitions of these non-GAAP financial measures and Tables 1a, 4a, 4b, 5, 6 and 7 for reconciliations of the historical non-GAAP financial measures to their most comparable GAAP terms.

Because of the forward-looking nature of the Company's forecasted non-GAAP financial measures, specific quantifications of the amounts that would be required to reconcile forecasted Operating EBITDA to forecasted net income and forecasted Free Cash Flow to forecasted net income are not readily determinable. The Company believes that there is a degree of volatility with respect to certain of the Company's GAAP measures which preclude the Company from providing accurate forecasted GAAP to non-GAAP reconciliations. Based on the above, the Company believes that providing estimates of the amounts that would be required to reconcile the range of the non-GAAP measures to forecasted GAAP measures would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above.

Investor Contacts:


Media Contact:

Alicia Swift


Mark Panus

(973) 407-4669


(973) 407-7215

alicia.swift@realogy.com


mark.panus@realogy.com




Jennifer Halchak



(973) 407-7487



jennifer.halchak@realogy.com




Table 1








REALOGY HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)














Three Months Ended
September 30,


Nine Months Ended
September 30,


2017


2016


2017


2016

Revenues








Gross commission income

$

1,250


$

1,211


$

3,505


$

3,288

Service revenue

261


273


710


715

Franchise fees

111


107


296


280

Other

52


53


159


157

Net revenues

1,674


1,644


4,670


4,440

Expenses







Commission and other agent-related costs

887


834


2,462


2,256

Operating

394


400


1,162


1,158

Marketing

63


58


195


181

General and administrative

82


78


269


234

Former parent legacy cost (benefit), net

1



(10)


1

Restructuring costs

2


9


9


30

Depreciation and amortization

50


53


149


149

Interest expense, net

41


37


127


169

Loss on the early extinguishment of debt

1



5


Other income, net


(1)



(1)

Total expenses

1,521


1,468


4,368


4,177

Income before income taxes, equity in earnings and
noncontrolling interests

153


176


302


263

Income tax expense

67


74


131


114

Equity in earnings of unconsolidated entities

(10)


(5)


(7)


(10)

Net income

96


107


178


159

Less: Net income attributable to noncontrolling interests

(1)


(1)


(2)


(3)

Net income attributable to Realogy Holdings

$

95


$

106


$

176


$

156









Earnings per share attributable to Realogy Holdings:








Basic earnings per share

$

0.70


$

0.74


$

1.28


$

1.07

Diluted earnings per share

$

0.69


$

0.73


$

1.26


$

1.06

Weighted average common and common equivalent shares of Realogy Holdings outstanding:






Basic

136.1


144.0


137.8


145.4

Diluted

138.1


145.1


139.4


146.6









Cash dividends declared per share (beginning in August 2016)

$

0.09


$

0.09


$

0.27


$

0.09

Table 1a

REALOGY HOLDINGS CORP.
NON-GAAP RECONCILIATION
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
(In millions, except per share data)

We present Adjusted net income and Adjusted earnings per share because we believe these measures are useful as supplemental measures in evaluating the performance of our operating businesses and provides greater transparency into our operating results.

Adjusted net income is defined by us as net income before: (a) mark-to-market interest rate swap adjustments, whose fair value is subject to movements in LIBOR and the forward yield curve and therefore are subject to significant fluctuations; (b) former parent legacy items, which pertain to liabilities of the former parent for matters prior to mid-2006 and are non-operational in nature; (c) restructuring charges as a result of the business optimization initiatives currently in progress; and (d) the loss on the early extinguishment of debt that results from refinancing and deleveraging debt initiatives. The gross amounts for these items as well as the adjustment for income taxes are shown in the table below.

Adjusted income per share is Adjusted net income divided by the weighted average common and common equivalent shares outstanding.

Set forth in the table below is a reconciliation of Net income to Adjusted net income for the three and nine months ended September 30, 2017, and 2016:


Three Months Ended
September 30,


Nine Months Ended
September 30,


2017


2016


2017


2016

Net income attributable to Realogy Holdings

$

95


$

106


$

176


$

156

Addback:








Mark-to-market interest rate swap (gains) losses


(5)


4


40

Former parent legacy cost (benefit), net

1



(10)


1

Restructuring costs

2


9


9


30

Loss on the early extinguishment of debt

1



5


Adjustments for tax effect (a)

(2)


(2)


(3)


(28)

Adjusted net income attributable to Realogy Holdings

$

97


$

108


$

181


$

199









Earnings per share








Basic earnings per share:

$

0.70


$

0.74


$

1.28


$

1.07

Diluted earnings per share:

$

0.69


$

0.73


$

1.26


$

1.06










Adjusted earnings per share








Adjusted basic earnings per share:

$

0.71


$

0.75


$

1.31


$

1.37

Adjusted diluted earnings per share:

$

0.70


$

0.74


$

1.30


$

1.36











Weighted average common and common equivalent shares outstanding:



Basic:

136.1


144.0


137.8


145.4

Diluted:

138.1


145.1


139.4


146.6









(a) Reflects tax effect of adjustments at an assumed tax rate of 40%.





Table 2




REALOGY HOLDINGS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)






September 30,
2017


December 31,
2016



ASSETS




Current assets:




Cash and cash equivalents

$

348



$

274


Trade receivables (net of allowance for doubtful accounts of $10 and $13)

166



152


Relocation receivables

275



244


Other current assets

153



148


Total current assets

942



818


Property and equipment, net

272



267


Goodwill

3,704



3,690


Trademarks

748



748


Franchise agreements, net

1,311



1,361


Other intangibles, net

291



313


Other non-current assets

253



224


Total assets

$

7,521



$

7,421






LIABILITIES AND EQUITY




Current liabilities:




Accounts payable

$

152



$

140


Securitization obligations

234



205


Due to former parent

18



28


Current portion of long-term debt

242



242


Accrued expenses and other current liabilities

442



435


Total current liabilities

1,088



1,050


Long-term debt

3,234



3,265


Deferred income taxes

518



389


Other non-current liabilities

216



248


Total liabilities

5,056



4,952


Commitments and contingencies




Equity:




Realogy Holdings preferred stock: $.01 par value; 50,000,000 shares authorized,
none issued and outstanding at September 30, 2017 and December 31, 2016




Realogy Holdings common stock: $.01 par value; 400,000,000 shares authorized,
135,180,292 shares issued and outstanding at September 30, 2017 and
140,227,692 shares issued and outstanding at December 31, 2016

1



1


Additional paid-in capital

5,383



5,565


Accumulated deficit

(2,886)



(3,062)


Accumulated other comprehensive loss

(37)



(40)


Total stockholders' equity

2,461



2,464


Noncontrolling interests

4



5


Total equity

2,465



2,469


Total liabilities and equity

$

7,521



$

7,421



Table 3a




REALOGY HOLDINGS CORP.

2017 vs. 2016 KEY DRIVERS






Three Months Ended September 30,


Nine Months Ended September 30,


2017


2016


%
Change


2017


2016


%
Change

RFG (a)












Closed homesale sides

318,961



323,176



(1)

%


866,956



861,254



1

%

Average homesale price

$

292,000



$

275,325



6

%


$

287,558



$

270,669



6

%

Average homesale broker commission rate

2.49

%


2.50

%


(1)

bps


2.50

%


2.51

%


(1)

bps

Net effective royalty rate

4.42

%


4.50

%


(8)

bps


4.42

%


4.50

%


(8)

bps

Royalty per side

$

334



$

322



4

%


$

331



$

318



4

%

NRT












Closed homesale sides

95,236



95,605



%


262,849



258,163



2

%

Average homesale price

$

506,418



$

486,343



4

%


$

515,617



$

487,781



6

%

Average homesale broker commission rate

2.45

%


2.46

%


(1)

bps


2.45

%


2.47

%


(2)

bps

Gross commission income per side

$

13,142



$

12,681



4

%


$

13,358



$

12,750



5

%

Cartus












Initiations

39,608



40,556



(2)

%


126,921



129,290



(2)

%

Referrals

23,905



25,495



(6)

%


64,392



68,526



(6)

%

TRG












Purchase title and closing units (b)

43,764



42,932



2

%


122,069



116,082



5

%

Refinance title and closing units (c)

6,513



15,170



(57)

%


21,370



36,100



(41)

%

Average fee per closing unit

$

2,115



$

1,824



16

%


$

2,092



$

1,865



12

%

(a)

Includes all franchisees except for NRT.

(b)

The amounts presented for the three and nine months ended September 30, 2017 include 3,325 and 8,351 purchase units, respectively, as a result of the acquisitions completed prior to the third quarter of 2017.

(c)

The amounts presented for the three and nine months ended September 30, 2017 include 725 and 1,858 refinance units, respectively, as a result of the acquisitions completed prior to the third quarter of 2017.


Table 3b




REALOGY HOLDINGS CORP.

2016 KEY DRIVERS






Quarter Ended


Year Ended


March 31,
2016


June 30,
2016


September 30,
2016


December 31,
2016


December 31,
2016

RFG (a)










Closed homesale sides

218,330



319,748



323,176



274,090



1,135,344


Average homesale price

$

259,044



$

273,900



$

275,325



$

277,037



$

272,206


Average homesale broker commission rate

2.51

%


2.51

%


2.50

%


2.49

%


2.50

%

Net effective royalty rate

4.51

%


4.49

%


4.50

%


4.34

%


4.46

%

Royalty per side

$

309



$

319



$

322



$

313



$

317


NRT




















Closed homesale sides

64,244



98,314



95,605



77,536



335,699


Average homesale price

$

493,125



$

485,688



$

486,343



$

495,242



$

489,504


Average homesale broker commission rate

2.46

%


2.49

%


2.46

%


2.44

%


2.46

%

Gross commission income per side

$

12,878



$

12,732



$

12,681



$

12,760



$

12,752


Cartus










Initiations

37,174



51,560



40,556



33,773



163,063


Referrals

16,893



26,138



25,495



18,751



87,277


TRG










Purchase title and closing units (b)

29,236



43,914



42,932



36,915



152,997


Refinance title and closing units (c)

9,703



11,227



15,170



14,819



50,919


Average fee per closing unit

$

1,848



$

1,919



$

1,824



$

1,907



$

1,875


(a)

Includes all franchisees except for NRT.

(b)

The amounts presented for the year ended December 31, 2016 include 18,930 purchase units as a result of acquisitions.

(c)

The amounts presented for the year ended December 31, 2016 include 4,469 refinance units as a result of acquisitions.


Table 4a


REALOGY HOLDINGS CORP.

SELECTED 2017 FINANCIAL DATA

(In millions)




Three Months Ended


March 31,
2017


June 30,
2017


September 30,
2017

Net revenues (a)






Real Estate Franchise Services

$

170



$

237



$

224


Company Owned Real Estate Brokerage Services

897



1,392



1,267


Relocation Services

77



102



111


Title and Settlement Services

120



157



154


Corporate and Other

(61)



(95)



(82)


Total Company

$

1,203



$

1,793



$

1,674








EBITDA (b)






Real Estate Franchise Services

$

102



$

166



$

159


Company Owned Real Estate Brokerage Services

(26)



77



62


Relocation Services

1



27



37


Title and Settlement Services

2



26



21


Corporate and Other

(27)



(18)



(25)


Total Company

$

52



$

278



$

254








Non-GAAP Reconciliation - EBITDA






Total Company EBITDA

$

52



$

278



$

254








Less: Depreciation and amortization (c)

50



49



51


Interest expense, net

39



47



41


Income tax expense (benefit)

(9)



73



67


Net income (loss) attributable to Realogy Holdings

$

(28)



$

109



$

95


(a)

Transactions between segments are eliminated in consolidation. Revenues for the Real Estate Franchise Services segment include intercompany royalties and marketing fees paid by the Company Owned Real Estate Brokerage Services segment of $61 million, $95 million and $82 million for the three months ended March 31, 2017, June 30, 2017, and September 30, 2017, respectively. Such amounts are eliminated through the Corporate and Other line.


Revenues for the Relocation Services segment include $8 million, $12 million and $11 million of intercompany referral commissions paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, 2017, June 30, 2017, and September 30, 2017, respectively. Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment.

(b)

Includes restructuring charges of $5 million in the Company Owned Real Estate Brokerage Services segment and $4 million related to the loss on the early extinguishment of debt in Corporate and Other for the three months ended March 31, 2017.


Includes a net benefit of $11 million of former parent legacy items and an $8 million expense related to the settlement of the Strader legal matter in Corporate and Other, and $2 million of restructuring charges as follows: $1 million in the Company Owned Real Estate Brokerage Services segment and $1 million in the Real Estate Franchise Services segment for the three months ended June 30, 2017.


Includes a net cost of $1 million of former parent legacy items and $1 million related to the loss on the early extinguishment of debt in Corporate and Other, and restructuring charges of $2 million in the Company Owned Real Estate Brokerage Services segment for the three months ended September 30, 2017.

(c)

Depreciation and amortization for the three months ended September 30, 2017 includes $1 million of amortization expense related to Guaranteed Rate Affinity's purchase accounting included in the "Equity in earnings of unconsolidated entities" line on the Condensed Consolidated Statement of Operations.


Table 4b




REALOGY HOLDINGS CORP.

SELECTED 2016 FINANCIAL DATA

(In millions)






Three Months Ended


Year Ended


March 31,


June 30,


September 30,


December 31,


December 31,


2016


2016


2016


2016


2016

Net revenues (a)










Real Estate Franchise Services

$

157



$

221



$

215



$

188



$

781


Company Owned Real Estate Brokerage Services

841



1,268



1,231



1,004



4,344


Relocation Services

83



109



116



97



405


Title and Settlement Services

111



149



164



149



573


Corporate and Other

(58)



(85)



(82)



(68)



(293)


Total Company

$

1,134



$

1,662



$

1,644



$

1,370



$

5,810












EBITDA (b)










Real Estate Franchise Services

$

92



$

149



$

153



$

122



$

516


Company Owned Real Estate Brokerage Services

(21)



78



74



6



137


Relocation Services

5



29



40



22



96


Title and Settlement Services



26



23



13



62


Corporate and Other

(21)



(19)



(20)



(18)



(78)


Total Company

$

55



$

263



$

270



$

145



$

733












Non-GAAP Reconciliation - EBITDA










Total Company EBITDA

55



263



270



145



733












Less: Depreciation and amortization (c)

48



48



53



53



202


Interest expense, net

73



59



37



5



174


Income tax expense (benefit)

(24)



64



74



30



144


Net income (loss) attributable to Realogy Holdings

$

(42)



$

92



$

106



$

57



$

213


(a)

Transactions between segments are eliminated in consolidation. Revenues for the Real Estate Franchise Services segment include intercompany royalties and marketing fees paid by the Company Owned Real Estate Brokerage Services segment of $58 million, $85 million, $82 million and $68 million for the three months ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016, respectively. Such amounts are eliminated through the Corporate and Other line.


Revenues for the Relocation Services segment include $8 million, $13 million, $12 million and $10 million of intercompany referral commissions paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016, respectively. Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment.

(b)

Includes a net cost of $1 million and a net benefit of $3 million of former parent legacy items for the three months ended March 31, 2016 and December 31, 2016, respectively.


Includes $9 million, $12 million, $9 million and $9 million of restructuring charges for the three months ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016, respectively.


The year ended December 31, 2016 includes a net benefit of $2 million of former parent legacy items and restructuring charges of $39 million.


The amounts broken down by business unit are as follows:



Three Months Ended


Year Ended


March 31,


June 30,


September 30,


December 31,


December 31,


2016


2016


2016


2016


2016

Real Estate Franchise Services

$



$

3



$

1



$



$

4


Company Owned Real Estate Brokerage Services

2



7



6



7



22


Relocation Services

2



1



1





4


Title and Settlement Services





1





1


Corporate and Other

6



1





(1)



6


Total Company

$

10



$

12



$

9



$

6



$

37


Table 5

REALOGY HOLDINGS CORP.

NON-GAAP RECONCILIATION - EBITDA AND OPERATING EBITDA

THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(In millions)


Set forth in the table below is a reconciliation of net income to EBITDA and Operating EBITDA for the three-month
periods ended September 30, 2017 and 2016:



Three Months Ended


September 30, 2017


September 30, 2016

Net income attributable to Realogy

$

95



$

106


Income tax expense

67



74


Income before income taxes

162



180


Interest expense, net

41



37


Depreciation and amortization (a)

51



53


EBITDA

254



270


EBITDA adjustments:




Restructuring costs

2



9


Former parent legacy cost, net

1




Loss on the early extinguishment of debt

1




Operating EBITDA

$

258



$

279










(a) Depreciation and amortization for the three months ended September 30, 2017 includes $1 million of
amortization expense related to Guaranteed Rate Affinity's purchase accounting included in the "Equity in
earnings of unconsolidated entities" line on the Condensed Consolidated Statement of Operations.

Set forth in the table below is a reconciliation of Operating EBITDA by reportable segments to the net income for the three months ended September 30, 2017 and 2016:




Revenues






Operating EBITDA






Operating EBITDA Margin




2017


2016


Change


%
Change


2017


2016


Change


% Change


2017


2016


Change

RFG

$

224


$

215


$

9


4

%


$

159


$

154



$

5



3

%


71

%


72

%


(1)

NRT

1,267


1,231


36


3



64


80



(16)



(20)



5



6



(1)

Cartus

111


116


(5)


(4)



37


41



(4)



(10)



33



35



(2)

TRG

154


164


(10)


(6)



21


24



(3)



(13)



14



15



(1)

Corporate and Other

(82)


(82)



*



(23)


(20)



(3)



*








Total Company

$

1,674


$

1,644


$

30


2

%


$

258


$

279



$

(21)



(8)

%


15

%


17

%


(2)

Less: Restructuring costs


2


9












Former parent legacy cost, net


1













Loss on the early extinguishment of debt


1













Depreciation and amortization (a)


51


53












Interest expense, net


41


37












Income tax expense


67


74












Net income attributable to Realogy Holdings


$

95


$

106











































* not meaningful.





























(a) Depreciation and amortization for the three months ended September 30, 2017 includes $1 million of amortization expense related to Guaranteed Rate Affinity's purchase accounting included in the "Equity in earnings of unconsolidated entities" line on the Condensed Consolidated Statement of Operations.


Table 6




REALOGY HOLDINGS CORP.

NON-GAAP RECONCILIATION - FREE CASH FLOW

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(In millions)





A reconciliation of net income attributable to Realogy Holdings to Free Cash Flow is set forth in the following table:






Three Months Ended


Nine Months Ended


September 30,
2017


September 30,
2016


September 30,
2017


September 30,
2016

Net income attributable to Realogy Holdings

$

95



$

106



$

176



$

156


Income tax expense, net of payments

65



68



121



101


Interest expense, net

41



37



127



169


Cash interest payments

(25)



(31)



(111)



(117)


Depreciation and amortization

50



53



149



149


Capital expenditures

(21)



(21)



(69)



(61)


Restructuring costs and former parent legacy items, net of payments

(1)



(1)



(19)



4


Loss on the early extinguishment of debt

1





5




Working capital adjustments

16



11



28



(38)


Relocation receivables (assets), net of securitization obligations

28



40



(1)



(5)


Free Cash Flow

$

249



$

262



$

406



$

358


















A reconciliation of net cash provided by operating activities to Free Cash Flow is set forth in the following table:


















Three Months Ended


Nine Months Ended


September 30,
2017


September 30,
2016


September 30,
2017


September 30,
2016

Net cash provided by operating activities

$

258



$

308



$

444



$

411


Property and equipment additions

(21)



(21)



(69)



(61)


Net change in securitization

11



(25)



29



9


Effect of exchange rates on cash and cash equivalents

1





2



(1)


Free Cash Flow

$

249



$

262



$

406



$

358










Net cash used in investing activities

$

(40)



$

(105)



$

(96)



$

(163)


Net cash used in financing activities

$

(90)



$

(402)



$

(276)



$

(438)


Table 7

NON-GAAP RECONCILIATION - SENIOR SECURED LEVERAGE RATIO
TWELVE MONTHS ENDED SEPTEMBER 30, 2017
(In millions)

The senior secured leverage ratio is tested quarterly and may not exceed 4.75 to 1.00. The senior secured leverage ratio is measured by dividing Realogy's Group total senior secured net debt by the trailing twelve month EBITDA calculated on a Pro Forma Basis, as those terms are defined in the senior secured credit facilities. Total senior secured net debt does not include unsecured indebtedness, including the Unsecured Notes, or the securitization obligations. EBITDA calculated on a Pro Forma Basis, as defined in the senior secured credit facilities, includes adjustments to EBITDA for restructuring costs, former parent legacy cost (benefit) items, net, loss on the early extinguishment of debt, non-cash charges and incremental securitization interest costs, as well as pro forma cost savings for restructuring initiatives, the pro forma effect of business optimization initiatives and the pro forma effect of acquisitions and new franchisees, in each case calculated as of the beginning of the twelve-month period. The Company was in compliance with the senior secured leverage ratio covenant at September 30, 2017 with a ratio of 2.17 to 1.00.

A reconciliation of net income attributable to Realogy Group to EBITDA, Operating EBITDA and EBITDA as defined by the Senior Secured Credit Facility for the twelve months ended September 30, 2017 are set forth in the following table:




Less


Equals


Plus


Equals


Year Ended


Nine Months
Ended


Three Months
Ended


Nine Months
Ended


Twelve Months
Ended


December 31,
2016

September 30,
2016

December 31,
2016

September 30,
2017

September 30,
2017

Net income attributable to Realogy Group (a)

$

213



$

156



$

57



$

176



$

233


Income tax expense

144



114



30



131



161


Income before income taxes

357



270



87



307



394


Interest expense, net

174



169



5



127



132


Depreciation and amortization (b)

202



149



53



150



203


EBITDA (c)

733



588



145



584



729


EBITDA adjustments:



Restructuring costs


18


Former parent legacy benefit, net


(13)


Loss on the early extinguishment of debt


5


Operating EBITDA


739


Bank covenant adjustments:



Pro forma effect of business optimization initiatives (d)


25


Non-cash charges (e)


43


Pro forma effect of acquisitions and new franchisees (f)


7


Incremental securitization interest costs (g)


3


EBITDA as defined by the Senior Secured Credit Facility


$

817


Total senior secured net debt (h)


$

1,773


Senior secured leverage ratio


2.17

x

(a)

Net income attributable to Realogy consists of: (i) income of $57 million for the fourth quarter of 2016, (ii) a loss of $28 million for the first quarter of 2017, (iii) income of $109 million for the second quarter of 2017, and (iv) income of $95 million for the third quarter of 2017.

(b)

Depreciation and amortization for the nine months ended September 30, 2017 includes $1 million of amortization expense related to Guaranteed Rate Affinity's purchase accounting included in the "Equity in earnings of unconsolidated entities" line on the Condensed Consolidated Statement of Operations.

(c)

EBITDA consists of: (i) $145 million for the fourth quarter of 2016, (ii) $52 million for the first quarter of 2017, (iii) $278 million for the second quarter of 2017 and (iv) $254 million for the third quarter of 2017.

(d)

Represents the twelve-month pro forma effect of business optimization initiatives.

(e)

Represents the elimination of non-cash expenses, including $56 million of stock-based compensation expense less $12 million for the change in the allowance for doubtful accounts and notes reserves and $1 million of other items from October 1, 2016 through September 30, 2017.

(f)

Represents the estimated impact of acquisitions and franchise sales activity, net of brokerages that exited our franchise system as if these changes had occurred on October 1, 2016. Franchisee sales activity is comprised of new franchise agreements as well as growth through acquisitions and independent sales associate recruitment by existing franchisees with our assistance. We have made a number of assumptions in calculating such estimates and there can be no assurance that we would have generated the projected levels of EBITDA had we owned the acquired entities or entered into the franchise contracts as of October 1, 2016.

(g)

Incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended September 30, 2017.

(h)

Represents total borrowings under the Senior Secured Credit Facility and borrowings secured by a first priority lien on our assets of $2,017 million plus $28 million of capital lease obligations less $272 million of readily available cash as of September 30, 2017. Pursuant to the terms of our Senior Secured Credit Facility and Term Loan A Facility, total senior secured net debt does not include our securitization obligations or unsecured indebtedness, including the Unsecured Notes.

NON-GAAP RECONCILIATION - NET DEBT LEVERAGE RATIO

TWELVE MONTHS ENDED SEPTEMBER 30, 2017

(In millions)




Net corporate debt divided by EBITDA, as defined by the Senior Secured Credit Facility, for the twelve-month
period ended September 30, 2017 (referred to as net debt leverage ratio) is set forth in the following table:






As of

September 30, 2017

Revolver


190


Term Loan A


397


Term Loan A-1


344


Term Loan B


1,086


Senior Notes


450


Senior Notes


550


Senior Notes


500


Total Debt (excluding securitizations)


$

3,517


Less: Cash and Cash Equivalents


$

348


Net Corporate Debt


$

3,169


EBITDA as defined by the Senior Secured Credit Facility


$

817


Net Debt Leverage Ratio


3.9

x






Table 8

Non-GAAP Definitions

Adjusted net income (loss) is defined by us as net income (loss) before mark-to-market interest rate adjustments, former parent legacy items, restructuring charges and loss on the early extinguishment of debt. The gross amounts for these items as well as the adjustment for income taxes are presented. Adjusted income (loss) per share is Adjusted net income (loss) divided by the weighted average common and common equivalent shares outstanding. We present Adjusted net income (loss) and Adjusted earnings (loss) per share because we believe these measures are useful as supplemental measures in evaluating the performance of our operating businesses and provides greater transparency into our operating results.

EBITDA is defined by us as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations) and income taxes and is our primary non-GAAP measure. Operating EBITDA is defined by us as EBITDA before restructuring, loss on the early extinguishment of debt and former parent legacy items and is used as a supplementary financial measure.

We present EBITDA and Operating EBITDA because we believe they are useful as supplemental measures in evaluating the performance of our operating businesses and provide greater transparency into our results of operations. Our management, including our chief operating decision maker, uses EBITDA as a factor in evaluating the performance of our business. EBITDA and Operating EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations data prepared in accordance with GAAP.

We believe EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expense), taxation, the age and book depreciation of facilities (affecting relative depreciation expense) and the amortization of intangibles, which may vary for different companies for reasons unrelated to operating performance. We further believe that EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an EBITDA measure when reporting their results.

EBITDA and Operating EBITDA have limitations as analytical tools, and you should not consider EBITDA and Operating EBITDA either in isolation or as substitutes for analyzing our results as reported under GAAP. Some of these limitations are:

  • these measures do not reflect changes in, or cash required for, our working capital needs;
  • these measures do not reflect our interest expense (except for interest related to our securitization obligations), or the cash requirements necessary to service interest or principal payments on our debt;
  • these measures do not reflect our income tax expense or the cash requirements to pay our taxes;
  • these measures do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements; and
  • other companies may calculate these measures differently so they may not be comparable.

Free Cash Flow is defined as net income (loss) attributable to Realogy before income tax expense (benefit), net of payments, interest expense, net, depreciation and amortization, capital expenditures, restructuring costs and former parent legacy costs (benefits), net of payments, loss on the early extinguishment of debt, working capital adjustments and relocation assets, net of change in securitization obligations. We use Free Cash Flow in our internal evaluation of operating effectiveness and decisions regarding the allocation of resources, as well as measuring the Company's ability to generate cash. Since Free Cash Flow can be viewed as both a performance measure and a cash flow measure, the Company has provided a reconciliation to both net income attributable to Realogy Holdings and net cash provided by operating activities. Free Cash Flow is not defined by GAAP and should not be considered in isolation or as an alternative to net income (loss), net cash provided by (used in) operating, investing and financing activities or other financial data prepared in accordance with GAAP or as an indicator of the Company's operating performance or liquidity. Free Cash Flow may differ from similarly titled measures presented by other companies.

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SOURCE Realogy Holdings Corp.