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Financial

Realogy Reports Financial Results For Second Quarter 2017

August 3, 2017

MADISON, N.J., Aug. 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 second quarter ended June 30, 2017, including the following highlights:

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  • Revenue was $1.8 billion, an increase of 8% as compared with the second quarter in 2016, driven by increases in homesale transaction volume at the Company-owned brokerage segment (NRT) and Realogy Franchise Group (RFG).
  • The Company's combined homesale transaction volume increased 9% year-over-year, consisting of a 12% volume gain at NRT and a 7% volume gain at RFG.
  • Net income increased 18% to $109 million for the period, compared to $92 million in the same period in the prior year. Basic earnings per share was $0.79 compared with basic earnings per share of $0.63 in the second quarter of 2016.
  • Adjusted net income per share was $0.78 compared with adjusted net income per share of $0.74 in the second quarter of 2016. (See Table 1a).1
  • Operating EBITDA was $269 million, compared with $275 million in the second quarter of 2016. (See Table 6).2 The $269 million includes an $8 million reserve to settle a pending legal matter. Excluding the reserve, Operating EBITDA would have been up $2 million year-over-year.
  • Free Cash Flow for the second quarter was $229 million compared with $209 million in Q2 2016, an increase of $20 million due to favorable working capital movements. Year to date Free Cash Flow was $157 million, up from $96 million in the first half of 2016. (See Table 7).3
  • In the first half of 2017, Realogy returned $145 million of capital to shareholders through share repurchases and dividends.

We delivered another quarter of strong results," said Richard A. Smith, Realogy's chairman, chief executive officer and president. "Our residential real estate business outperformed our expectations during the second quarter, driven by stronger average homesale price gains and the strengthening of high end markets across the nation. We are pleased with the progress we are making on our strategic initiatives, the most important of which are designed to strengthen the recruitment and retention of sales agents at NRT. We remain focused on maintaining our business momentum and continuing to generate sustainable organic growth."

In the second quarter of 2017, RFG and NRT achieved a combined homesale transaction volume (transaction sides multiplied by average sale price) of approximately $147 billion, an increase of 9% compared with the second quarter of 2016, which exceeded the Company's guidance range based on stronger than expected average sales price at both business units. NRT reported a homesale transaction sides increase of 3% and an average homesale price increase of 9%, while RFG reported a homesale transaction sides increase of 1% and an average homesale price increase of 6%.

In the title and settlement services sector, TRG was involved in the closing of approximately 53,000 transactions in the second quarter of 2017, reflecting a 7% increase in purchase units compared with the second quarter of 2016, and a 44% decrease in refinance units, which is consistent with industry trends.

In the relocation segment, while Cartus' performance in the second quarter was slightly below last year, Cartus continues to be an important part of our value proposition, generating highly qualified leads for our network of agents and helping them to build their businesses. Cartus generated referral opportunities to agents that resulted in over 25,000 homesale closings in the second quarter.

Looking Ahead

For the third quarter of 2017, Realogy expects to achieve overall homesale transaction volume gains in the range of 4% to 7% year-over-year. Based on the Company's closed and open sales activity in July, Realogy expects third quarter homesale transaction sides to increase between 0% to 2% 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 third quarter is anticipated to increase between 4% to 7%, while NRT transaction volume is expected to increase by 5% to 7%.

For the full year 2017, Realogy expects to generate revenue of between $6.1 billion and $6.2 billion, driven by transaction volume gains of between 5% to 7% year-over-year. Realogy expects full year 2017 Operating EBITDA of between $760 million and $770 million, net of the $8 million legal reserve for the litigation matter, and reflects management's current view on commission splits for the year, modest investment in growth initiatives and the transition to our new mortgage joint venture. Based on the expected Operating EBITDA range noted above, this is expected to result in the Company generating Free Cash Flow of between $500 million and $530 million in 2017.

Capital Allocation

The Company returned $145 million of capital to shareholders through share repurchases and dividends in the first half of 2017. During the first half of 2017, Realogy repurchased approximately 4.1 shares of common stock in the open market at a weighted average market price of $28.97 per share for a total of $120 million and returned an additional $25 million through quarterly cash dividends paid to stockholders. The Company had approximately 136.8 million shares of common stock outstanding as of June 30, 2017.

"We are encouraged by the success of NRT's strategic initiatives and the strengthening we are seeing at the high end of the market, combined with the benefits of our earlier business optimization initiatives," said Anthony E. Hull, Realogy's executive vice president, chief financial officer and treasurer. "We believe this positions the Company to generate strong free cash flow and higher absolute revenue and EBITDA levels in the future."

Balance Sheet

The Company ended the quarter with cash and cash equivalents of $219 million. Total long-term corporate debt, including the short-term portion, net of cash and cash equivalents (net corporate debt), totaled $3.3 billion at June 30, 2017. The Company's net debt leverage ratio4 was 3.9 times at June 30, 2017.

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

Investor Conference Call

Today, August 3, at 8:30 a.m. (EDT), Realogy will hold a conference call via webcast to review its second quarter 2017 results. The call will be hosted by Richard A. Smith, chairman, chief executive officer and president, and Anthony E. Hull, executive vice president, chief financial officer and treasurer, and will conclude with an investor Q&A period with management.

Investors may access the conference call live via webcast at www.realogy.com under "Investors" 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 global leader in residential real estate franchising and brokerage with many of the best-known industry brands including Better Homes and Gardens® Real Estate, CENTURY 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran®, ERA®, Sotheby's International Realty® and ZipRealty®. Collectively, Realogy's franchise system members operate approximately 14,250 offices with approximately 281,000 independent sales agents conducting business in 114 countries and territories around the world. NRT LLC, Realogy's company-owned real estate brokerage, is the largest residential brokerage company in the United States, operates under several of Realogy's brands and also provides related residential real estate services. Realogy also owns Cartus, a prominent worldwide provider of relocation services to corporate and affinity clients, Title Resource Group (TRG), a leading provider of title, settlement and underwriting services, and ZapLabs LLC, its innovation and technology development subsidiary. 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 June 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 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, continued low inventory levels, 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; and the final resolution or outcomes with respect to Cendant's (our former parent) remaining contingent liabilities.

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 and June 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, 8 and 9 for definitions of these non-GAAP financial measures and Tables 1a, 4a, 4b, 5, 6, 7 and 8 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:

Alicia Swift

(973) 407-4669

alicia.swift@realogy.com

Jennifer Halchak

(973) 407-7487

jennifer.halchak@realogy.com

Media Contact:

Mark Panus

(973) 407-7215

mark.panus@realogy.com

Table 1

REALOGY HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)



Three Months Ended
June 30,


Six Months Ended

June 30,


2017


2016


2017


2016

Revenues








Gross commission income

$

1,374



$

1,251



$

2,255



$

2,077


Service revenue

255



252



449



442


Franchise fees

110



104



185



173


Other

54



55



107



104


Net revenues

1,793



1,662



2,996



2,796


Expenses








Commission and other agent-related costs

970



864



1,575



1,422


Operating

385



391



768



758


Marketing

70



65



132



123


General and administrative

98



70



187



156


Former parent legacy (benefit) cost, net

(11)





(11)



1


Restructuring costs

2



12



7



21


Depreciation and amortization

49



48



99



96


Interest expense, net

47



59



86



132


Loss on the early extinguishment of debt





4




Total expenses

1,610



1,509



2,847



2,709


Income before income taxes, equity in (earnings) losses and noncontrolling interests

183



153



149



87


Income tax expense

73



64



64



40


Equity in (earnings) losses of unconsolidated entities



(5)



3



(5)


Net income

110



94



82



52


Less: Net income attributable to noncontrolling interests

(1)



(2)



(1)



(2)


Net income attributable to Realogy Holdings

$

109



$

92



$

81



$

50










Earnings per share attributable to Realogy Holdings:








Basic earnings per share

$

0.79



$

0.63



$

0.58



$

0.34


Diluted earnings per share

$

0.78



$

0.63



$

0.58



$

0.34


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





Basic

137.6



145.5



138.6



146.0


Diluted

138.9



146.7



139.9



147.2










Cash dividends declared per share (beginning in August 2016)

$

0.09



$



$

0.18



$



Table 1a




REALOGY HOLDINGS CORP.
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 six months ended June 30, 2017, and 2016:






Three Months Ended
June 30,


Six Months Ended
June 30,


2017


2016


2017


2016

Net income attributable to Realogy Holdings

$

109



$

92



$

81



$

50


Addback:








Mark-to-market interest rate swap adjustments

5



14



4



45


Former parent legacy (benefit) cost, net

(11)





(11)



1


Restructuring costs

2



12



7



21


Loss on the early extinguishment of debt





4




Adjustments for tax effect (a)

2



(10)



(2)



(27)


Adjusted net income attributable to Realogy Holdings

$

107



$

108



$

83



$

90










Earnings per share








Basic earnings per share:

$

0.79



$

0.63



$

0.58



$

0.34


Diluted earnings per share:

$

0.78



$

0.63



$

0.58



$

0.34










Adjusted earnings per share








Adjusted basic earnings per share:

$

0.78



$

0.74



$

0.60



$

0.62


Adjusted diluted earnings per share:

$

0.77



$

0.74



$

0.59



$

0.61










Weighted average common and common equivalent shares outstanding:





Basic:

137.6



145.5



138.6



146.0


Diluted:

138.9



146.7



139.9



147.2














(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)



June 30,
2017


December 31,
2016



ASSETS




Current assets:




Cash and cash equivalents

$

219



$

274


Trade receivables (net of allowance for doubtful accounts of $11 and $13)

178



152


Relocation receivables

292



244


Other current assets

172



148


Total current assets

861



818


Property and equipment, net

267



267


Goodwill

3,694



3,690


Trademarks

748



748


Franchise agreements, net

1,327



1,361


Other intangibles, net

297



313


Other non-current assets

232



224


Total assets

$

7,426



$

7,421






LIABILITIES AND EQUITY




Current liabilities:




Accounts payable

$

170



$

140


Securitization obligations

223



205


Due to former parent

17



28


Current portion of long-term debt

237



242


Accrued expenses and other current liabilities

423



435


Total current liabilities

1,070



1,050


Long-term debt

3,246



3,265


Deferred income taxes

446



389


Other non-current liabilities

241



248


Total liabilities

5,003



4,952


Commitments and contingencies




Equity:




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




Realogy Holdings common stock: $.01 par value; 400,000,000 shares authorized, 136,779,155 shares issued and outstanding at June 30, 2017 and 140,227,692 shares issued and outstanding at December 31, 2016

1



1


Additional paid-in capital

5,438



5,565


Accumulated deficit

(2,981)



(3,062)


Accumulated other comprehensive loss

(38)



(40)


Total stockholders' equity

2,420



2,464


Noncontrolling interests

3



5


Total equity

2,423



2,469


Total liabilities and equity

$

7,426



$

7,421



Table 3a

REALOGY HOLDINGS CORP.

2017 vs. 2016 KEY DRIVERS




Three Months Ended June 30,


Six Months Ended June 30,



2017


2016


% Change


2017


2016


% Change

RFG (a)













Closed homesale sides


322,745



319,748



1

%


547,995



538,078



2

%

Average homesale price


$

291,355



$

273,900



6

%


$

284,973



$

267,872



6

%

Average homesale broker commission rate


2.50

%


2.51

%


(1)

bps


2.50

%


2.51

%


(1)

bps

Net effective royalty rate


4.41

%


4.49

%


(8)

bps


4.42

%


4.50

%


(8)

bps

Royalty per side


$

333



$

319



4

%


$

329



$

315



4

%

NRT













Closed homesale sides


101,043



98,314



3

%


167,613



162,558



3

%

Average homesale price


$

528,518



$

485,688



9

%


$

520,844



$

488,627



7

%

Average homesale broker commission rate


2.44

%


2.49

%


(5)

bps


2.45

%


2.47

%


(2)

bps

Gross commission income per side


$

13,625



$

12,732



7

%


$

13,480



$

12,790



5

%

Cartus













Initiations


50,798



51,560



(1%)



87,313



88,734



(2%)


Referrals


25,284



26,138



(3%)



40,487



43,031



(6%)


TRG













Purchase title and closing units (b)


47,008



43,914



7

%


78,305



73,150



7

%

Refinance title and closing units (c)


6,324



11,227



(44%)



14,857



20,930



(29%)


Average fee per closing unit


$

2,139



$

1,919



11

%


$

2,080



$

1,890



10

%
























(a) Includes all franchisees except for NRT.

(b) The amounts presented for the three and six months ended June 30, 2017 include 3,054 and 5,026 purchase units, respectively, as a result of the acquisitions completed prior to the second quarter of 2017.

(c) The amounts presented for the three and six months ended June 30, 2017 include 610 and 1,133 refinance units, respectively, as a result of the acquisitions completed prior to the second 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 the acquisitions.

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


Table 4a

REALOGY HOLDINGS CORP.

SELECTED 2017 FINANCIAL DATA

(In millions)



Three Months Ended


March 31,
2017


June 30,
2017

Net revenues (a)




Real Estate Franchise Services

$

170



$

237


Company Owned Real Estate Brokerage Services

897



1,392


Relocation Services

77



102


Title and Settlement Services

120



157


Corporate and Other

(61)



(95)


Total Company

$

1,203



$

1,793






EBITDA (b)




Real Estate Franchise Services

$

102



$

166


Company Owned Real Estate Brokerage Services

(26)



77


Relocation Services

1



27


Title and Settlement Services

2



26


Corporate and Other

(27)



(18)


Total Company

$

52



$

278


Less:




Depreciation and amortization

50



49


Interest expense, net

39



47


Income tax expense (benefit)

(9)



73


Net income (loss) attributable to Realogy Holdings

$

(28)



$

109










(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 and $95 million for the three months ended March 31, 2017 and June 30, 2017, respectively. Such amounts are eliminated through the Corporate and Other line.

Revenues for the Relocation Services segment include $8 million and $12 million of intercompany referral commissions paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, 2017 and June 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.


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


Less:










Depreciation and amortization

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.

2016 EBITDA AND OPERATING EBITDA

(In millions)

Set forth in the table below is a reconciliation of net income to EBITDA and Operating EBITDA for the year ended December 31, 2016:



Year Ended


December 31, 2016

Net income attributable to Realogy Holdings

$

213


Income tax expense

144


Income before income taxes

357


Interest expense, net

174


Depreciation and amortization

202


EBITDA

733


EBITDA adjustments:


Restructuring costs

39


Former parent legacy benefit, net

(2)


Operating EBITDA

$

770



Table 6

REALOGY HOLDINGS CORP.

EBITDA AND OPERATING EBITDA

THREE MONTHS ENDED JUNE 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 June 30, 2017 and 2016:




Three Months Ended


June 30, 2017


June 30, 2016

Net income attributable to Realogy

$

109



$

92


Income tax expense

73



64


Income before income taxes

182



156


Interest expense, net

47



59


Depreciation and amortization

49



48


EBITDA

278



263


EBITDA adjustments:




Restructuring costs

2



12


Former parent legacy benefit, net

(11)




Operating EBITDA

$

269



$

275


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






Revenues






Operating EBITDA






Operating EBITDA Margin




2017


2016


Change


%
Change


2017


2016


Change


% Change


2017


2016


Change

RFG

$

237



$

221



$

16



7

%


$

167



$

152



$

15



10

%


70

%


69

%


1


NRT

1,392



1,268



124



10



78



85



(7)



(8)



6



7



(1)


Cartus

102



109



(7)



(6)



27



30



(3)



(10)



26



28



(2)


TRG

157



149



8



5



26



26







17



17




Corporate and Other

(95)



(85)



(10)



*


(29)



(18)



(11)



*







Total Company

$

1,793



$

1,662



$

131



8

%


$

269



$

275



$

(6)



(2%)



15

%


17

%


(2)


Less: Restructuring costs


2



12












Former parent legacy benefit, net


(11)














Depreciation and amortization


49



48












Interest expense, net


47



59












Income tax expense


73



64












Net income attributable to Realogy Holdings


$

109



$

92































* not meaningful





















Table 7

REALOGY HOLDINGS CORP.

FREE CASH FLOW

THREE AND SIX MONTHS ENDED JUNE 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


Six Months Ended


June 30, 2017


June 30, 2016


June 30, 2017


June 30, 2016

Net income attributable to Realogy Holdings

$

109



$

92



$

81



$

50


Income tax expense, net of payments

67



59



56



33


Interest expense, net

47



59



86



132


Cash interest payments

(62)



(58)



(86)



(86)


Depreciation and amortization

49



48



99



96


Capital expenditures

(20)



(18)



(48)



(40)


Restructuring costs and former parent legacy items, net of payments

(15)



3



(18)



5


Loss on the early extinguishment of debt





4




Working capital adjustments

72



33



12



(49)


Relocation receivables (assets), net of securitization obligations

(18)



(9)



(29)



(45)


Free Cash Flow

$

229



$

209



$

157



$

96


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


Three Months Ended


Six Months Ended


June 30, 2017


June 30, 2016


June 30, 2017


June 30, 2016

Net cash provided by operating activities

$

198



$

167



$

186



$

103


Property and equipment additions

(20)



(18)



(48)



(40)


Net change in securitization

51



61



18



34


Effect of exchange rates on cash and cash equivalents

$



(1)



1



(1)


Free Cash Flow

$

229



$

209



$

157



$

96










Net cash used in investing activities

$

(25)



$

(24)



$

(56)



$

(58)


Net cash used in financing activities

$

(159)



$

(2)



$

(186)



$

(36)



Table 8

SENIOR SECURED LEVERAGE RATIO

TWELVE MONTHS ENDED JUNE 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 June 30, 2017 with a ratio of 2.22 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 June 30, 2017 are set forth in the following table:














Less


Equals


Plus


Equals


Year Ended


Six Months
Ended


Six Months
Ended


Six Months
Ended


Twelve Months
Ended


December 31,
2016

June 30,
2016

December 31,
2016

June 30,
2017

June 30,
2017

Net income attributable to Realogy Group (a)

$

213



$

50



$

163



$

81



$

244


Income tax expense

144



40



104



64



168


Income before income taxes

357



90



267



145



412


Interest expense, net

174



132



42



86



128


Depreciation and amortization

202



96



106



99



205


EBITDA (b)

733



318



415



330



745


EBITDA adjustments:



Restructuring costs


25


Former parent legacy benefit, net


(14)


Loss on the early extinguishment of debt


4


Operating EBITDA


760


Bank covenant adjustments:



Pro forma effect of business optimization initiatives (c)


28


Non-cash charges (d)


51


Pro forma effect of acquisitions and new franchisees (e)


10


Incremental securitization interest costs (f)


4


EBITDA as defined by the Senior Secured Credit Facility


$

853


Total senior secured net debt (g)


$

1,894


Senior secured leverage ratio


2.22

x




















(a) Net income attributable to Realogy consists of: (i) income of $106 million for the third quarter of 2016, (ii) income of $57 million for the fourth quarter of 2016, (iii) a loss of $28 million for the first quarter of 2017 and (iv) income of $109 million for the second quarter of 2017.

(b) EBITDA consists of: (i) $270 million for the third quarter of 2016, (ii) $145 million for the fourth quarter of 2016, (iii) $52 million for the first quarter of 2017 and (iv) $278 million for the second quarter of 2017.

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




(d) Represents the elimination of non-cash expenses, including $58 million of stock-based compensation expense less $5 million for the change in the allowance for doubtful accounts and notes reserves, $1 million of foreign exchange benefit and $1 million of other items from July 1, 2016 through June 30, 2017.

(e) 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 July 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 July 1, 2016.

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




(g) Represents total borrowings under the Senior Secured Credit Facility and borrowings secured by a first priority lien on our assets of $2,027 million plus $27 million of capital lease obligations less $160 million of readily available cash as of June 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.

***

NET DEBT LEVERAGE RATIO

TWELVE MONTHS ENDED JUNE 30, 2017

(In millions)


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



As of

June 30, 2017

Revolver


190


Term Loan A


402


Term Loan A-1


346


Term Loan B


1,089


Senior Notes


450


Senior Notes


550


Senior Notes


500


Total Debt (excluding Securitizations)


$3,527





Less: Cash and Cash Equivalents


$219





Net Corporate Debt


$3,308





EBITDA as defined by the Senior Secured Credit Facility


$

853





Net Debt Leverage Ratio


3.9

x


Table 9

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, early extinguishment of debt and 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.