Community icon Diversity icon Globe icon House in hand icon House sold icon House icon Keys icon Present icon Scale icon White Realogy site favicon Color Realogy site favicon Right pointing arrow icon Down pointing caret icon White Realogy logo Facebook icon LinkedIn icon Twitter icon Email icon Search magifying glass icon Video play button icon

Financial

Realogy Reports Financial Results For Third Quarter 2018

November 2, 2018

MADISON, N.J., Nov. 2, 2018 /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 third quarter ended September 30, 2018, including the following highlights:

DOWNLOAD PDF

  • Revenue was $1.68 billion, an increase of $2 million compared with the third quarter of 2017.
  • The Company's combined homesale transaction volume (transaction sides multiplied by average sale price) increased 1% compared with the third quarter of 2017, due to a 1% volume gain at RFG while volume at NRT was flat. For reference, the National Association of Realtors reported a homesale transaction volume increase of 1% in the third quarter of 2018.
  • Operating EBITDA was $242 million, a decrease of $16 million compared with the third quarter of 2017. The primary reason for the decline was the absence of the $12 million gain from exiting the PHH Home Loans JV in 2017. (See Table 4a)1
  • Net income was $103 million compared to $95 million in the third quarter of 2017. Basic earnings per share was $0.84 compared to $0.70 in the third quarter of 2017 due to share repurchases and a lower corporate tax rate.
  • Adjusted net income per share was $0.85 compared with adjusted net income per share of $0.71 in the third quarter of 2017. (See Table 1a)2
  • Free Cash Flow for the third quarter of 2018 was $194 million. (See Table 6)3
  • In the first nine months of 2018, Realogy returned $336 million of capital to stockholders through share repurchases and dividends.

"This quarter we generated substantial revenue, Operating EBITDA and Free Cash Flow, as well as maintained our market share, all despite the past few months of housing market softness," said Ryan Schneider, Realogy's chief executive officer and president. "We remain optimistic about the future and continue to invest to drive top and bottom line growth. We are launching two new franchise brands to grow our franchise revenue, enhancing our value to agents with new products and expanding our use of technology and data."

"With our size, scale and healthy balance sheet, we believe we are well-positioned to weather shifts in market conditions as we continue to invest in multiple avenues of growth," said Anthony E. Hull, Realogy's executive vice president, chief financial officer and treasurer. "We are on track with our cost reductions and continue to return capital to shareholders."

In the third quarter of 2018, RFG and NRT's 193,600 U.S.-based affiliated independent sales agents helped consumers with approximately 403,000 homesale transaction sides. In aggregate, Realogy achieved homesale transaction volume of approximately $143 billion, an increase of 1% compared with the third quarter of 2017. RFG average homesale price increased 5% and homesale transaction sides decreased 3%. NRT reported an average homesale price increase of 1% and homesale transaction sides decreased 1%.

In the title and settlement services sector, TRG closed 48,000 transactions in the third quarter of 2018 with lower refinance volume leading to an overall decline of 4%. Purchase units were flat compared to the third quarter of 2017. In the relocation segment, Cartus initiations were up 8% and referrals up 10%. 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 76,000 in-network homesale closings for Realogy and its brands in 2017.

Looking Ahead

For the fourth quarter of 2018, Realogy is overall modeling around flat homesale transaction volume compared to the fourth quarter of 2017. Based on this fourth quarter volume outlook and third quarter results, the Company now anticipates full year Operating EBITDA of $660-$670 million, subject to macro uncertainty and current market conditions.

This year, Realogy expects the Operating EBITDA to Free Cash Flow conversion rate to be in the mid-50% range.

Capital Allocation

Since the share repurchase program's inception in February 2016, the Company has repurchased approximately 29 million shares through September 30, 2018 at an average price of $26.74 for $776 million. As a result, Realogy had approximately 120 million shares of common stock outstanding as of September 30, 2018.

Balance Sheet

The Company ended the quarter with cash and cash equivalents of $226 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 September 30, 2018. The Company's net debt leverage ratio4 was 4.3 times at September 30, 2018.

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

Investor Conference Call

Today, November 2, at 8:30 a.m. (EDT), Realogy will hold a conference call via webcast to review its Q3 2018 results. The webcast will be hosted by Ryan Schneider, 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 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 the leading and most integrated provider of residential real estate services in the U.S. 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®, Climb Real Estate®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran Group®, ERA®, Sotheby's International Realty® as well as NRT, Cartus®, Title Resource Group and ZapLabs®, 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 193,600 independent sales agents in the United States and approximately 106,400 independent sales agents in 112 other countries and territories. Realogy is headquartered in Madison, New Jersey.

Footnotes:
1 Operating EBITDA is defined as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations), income taxes, and other items that are not core to the operating activities of the Company such as restructuring charges, former parent legacy items, losses on the early extinguishment of debt, asset impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets.
2 Adjusted net income (loss) is defined as net income (loss) before mark-to-market interest rate swap adjustments, former parent legacy items, restructuring charges, the loss on the early extinguishment of debt, the tax effect of the foregoing adjustments and adjustments to the reserve for uncertain tax positions.
3 Free Cash Flow is defined as net income (loss) attributable to Realogy before income tax expense (benefit), net of payments, net interest expense, cash interest payments, 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 receivables (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, 2018.

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 or the residential real estate markets, either regionally or nationally, including but not limited to a decline or a lack of improvement in the number of homesales, stagnant or declining home prices or a reduction in the affordability of housing, increasing mortgage rates and/or constraints on the availability of mortgage financing, insufficient or excessive home inventory levels by market and price point, a lack of improvement or deceleration in the building of new housing and/or irregular timing or volume of new development closings, the potential negative impact of certain provisions of the Tax Cuts and Jobs Act on home values over time in states with high property, sales and state and local income taxes or on homeownership rates, and/or a deterioration in other economic factors that particularly impact the residential real estate market and the business segments in which we operate whether broadly or by geography and price segments; increased competition in the industry and for independent sales agents whether through traditional competitors, competitors with alternative business models or other industry participants otherwise competing for a portion of gross commission income; continuing pressure on the share of gross commission income paid by our company owned brokerages and our affiliated franchisees to their independent affiliated sales agents; our geographic and high-end market concentration; our inability to enter into franchise agreements with new franchisees or renew existing franchise agreements at current contractual royalty rates without increasing the amount and prevalence of sales incentives; the lack of revenue growth or declining profitability of our franchisees and company owned brokerage operations; changes in corporate relocation practices resulting in fewer employee relocations, reduced relocation benefits, increasing competition in corporate relocation or the loss of one or more significant affinity clients; an increase in the experienced claims losses of our title underwriter; our failure or alleged failure to comply with laws, regulations and regulatory interpretations; risks relating to our ability to return capital to stockholders pursuant to our stock repurchase program; risks and growing costs related to cybersecurity threats to our data and customer, franchisee, employee and independent sales agent data; and risks associated with our substantial indebtedness and interest obligations and restrictions contained in our debt agreements, including risks relating to having to dedicate a significant portion of our cash flows from operations to service our debt.

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 on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018, and our Annual Report on Form 10-K for the year ended December 31, 2017, 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, 5a, 5b, 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

Danielle Kloeblen

Trey Sarten

(973) 407-4669

(973) 407-2148

(973) 407-2162

alicia.swift@realogy.com

danielle.kloeblen@realogy.com

trey.sarten@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,


2018


2017


2018


2017

Revenues








Gross commission income

$

1,246



$

1,250



$

3,536



$

3,505


Service revenue

268



261



728



710


Franchise fees

109



111



302



296


Other

53



52



159



159


Net revenues

1,676



1,674



4,725



4,670


Expenses








Commission and other agent-related costs

902



887



2,556



2,462


Operating

387



394



1,171



1,162


Marketing

63



63



199



195


General and administrative

80



82



244



269


Former parent legacy cost (benefit), net



1





(10)


Restructuring costs, net

9



2



45



9


Depreciation and amortization

49



50



146



149


Interest expense, net

41



41



120



127


Loss on the early extinguishment of debt



1



7



5


Total expenses

1,531



1,521



4,488



4,368


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

145



153



237



302


Income tax expense

40



67



73



131


Equity in (earnings) losses of unconsolidated entities

1



(10)



3



(7)


Net income

104



96



161



178


Less: Net income attributable to noncontrolling interests

(1)



(1)



(2)



(2)


Net income attributable to Realogy Holdings

$

103



$

95



$

159



$

176










Earnings per share attributable to Realogy Holdings:








Basic earnings per share

$

0.84



$

0.70



$

1.26



$

1.28


Diluted earnings per share

$

0.83



$

0.69



$

1.25



$

1.26


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

Basic

122.7



136.1



126.5



137.8


Diluted

123.6



138.1



127.6



139.4










Cash dividends declared per share

$

0.09



$

0.09



$

0.27



$

0.27



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; (d) the loss on the early extinguishment of debt that results from refinancing and deleveraging debt initiatives; (e) the tax effect of the foregoing adjustments; and (f) adjustments to the reserve for uncertain tax positions. 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, 2018 and 2017:



Three Months Ended
September 30,


Nine Months Ended
September 30,


2018


2017


2018


2017

Net income attributable to Realogy Holdings

$

103



$

95



$

159



$

176


Addback:








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

(7)





(19)



4


Former parent legacy cost (benefit), net



1





(10)


Restructuring costs, net

9



2



45



9


Loss on the early extinguishment of debt



1



7



5


Adjustments for tax effect (a)

(1)



(2)



(9)



(3)


Adjusted net income attributable to Realogy Holdings

$

104



$

97



$

183



$

181










Earnings per share








Basic earnings per share:

$

0.84



$

0.70



$

1.26



$

1.28


Diluted earnings per share:

$

0.83



$

0.69



$

1.25



$

1.26










Adjusted earnings per share








Adjusted basic earnings per share:

$

0.85



$

0.71



$

1.45



$

1.31


Adjusted diluted earnings per share:

$

0.84



$

0.70



$

1.43



$

1.30










Weighted average common and common equivalent shares outstanding:















Basic:

122.7



136.1



126.5



137.8


Diluted:

123.6



138.1



127.6



139.4









(a)

Reflects tax effect of adjustments at the Company's blended state and federal statutory rate.


Table 2

REALOGY HOLDINGS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)



September 30,
2018


December 31,
2017

ASSETS




Current assets:




Cash and cash equivalents

$

226



$

227


Restricted cash

11



7


Trade receivables (net of allowance for doubtful accounts of $9 and $11)

180



153


Relocation receivables

334



223


Other current assets

154



179


Total current assets

905



789


Property and equipment, net

284



289


Goodwill

3,712



3,710


Trademarks

749



749


Franchise agreements, net

1,243



1,294


Other intangibles, net

261



284


Other non-current assets

284



222


Total assets

$

7,438



$

7,337






LIABILITIES AND EQUITY




Current liabilities:




Accounts payable

$

181



$

156


Securitization obligations

264



194


Current portion of long-term debt

727



127


Accrued expenses and other current liabilities

395



478


Total current liabilities

1,567



955


Long-term debt

2,806



3,221


Deferred income taxes

378



327


Other non-current liabilities

244



212


Total liabilities

4,995



4,715


Commitments and contingencies




Equity:




Realogy Holdings preferred stock: $.01 par value; 50,000,000 shares authorized, none
issued and outstanding at September 30, 2018 and December 31, 2017




Realogy Holdings common stock: $.01 par value; 400,000,000 shares authorized,
119,932,166 shares issued and outstanding at September 30, 2018 and 131,636,870
shares issued and outstanding at December 31, 2017

1



1


Additional paid-in capital

4,970



5,285


Accumulated deficit

(2,485)



(2,631)


Accumulated other comprehensive loss

(47)



(37)


Total stockholders' equity

2,439



2,618


Noncontrolling interests

4



4


Total equity

2,443



2,622


Total liabilities and equity

$

7,438



$

7,337


Table 3a

REALOGY HOLDINGS CORP.

2018 vs. 2017 KEY DRIVERS




Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


% Change


2018


2017


% Change

RFG (a)













Closed homesale sides


308,917



318,961



(3%)


846,185



866,956



(2%)

Average homesale price


$

305,398



$

292,000



5%


$

304,482



$

287,558



6%

Average homesale broker commission rate


2.47

%


2.49

%


(2) bps


2.48

%


2.50

%


(2) bps

Net royalty per side (b)


$

322



$

316



2%


$

324



$

311



4%

NRT













Closed homesale sides


94,241



95,236



(1%)


261,083



262,849



(1%)

Average homesale price


$

513,403



$

506,418



1%


$

525,738



$

515,617



2%

Average homesale broker commission rate


2.44

%


2.45

%


(1) bps


2.44

%


2.45

%


(1) bps

Gross commission income per side


$

13,227



$

13,142



1%


$

13,545



$

13,358



1%

Cartus













Initiations


42,718




39,608



8%


133,901



126,921



5%

Referrals


26,226



23,905



10%


68,919



64,392



7%

TRG













Purchase title and closing units


43,836



43,764



—%


121,766



122,069



—%

Refinance title and closing units


4,264



6,513



(35%)


14,456



21,370



(32%)

Average fee per closing unit


$

2,229



$

2,115



5%


$

2,231



$

2,092



7%


































(a)

Includes all franchisees except for NRT.

(b)

Net royalty per side amounts include the effect of volume incentives and non-standard incentives granted to franchisees. For the three and nine months ended September 30, 2018 the net royalty per side increased 2% and 4%, respectively, while average homesale price increased 5% and 6% for the three and nine months ended September 30, 2018, respectively. The differential between growth in net royalty per side and average homesale price was due to an increase in sales incentives, a decrease in the average broker commission rate and a shift in mix to our top 250 franchisees.

Table 3b

REALOGY HOLDINGS CORP.

2017 KEY DRIVERS




Quarter Ended


Year Ended



March 31,
2017


June 30,
2017


September 30,
2017


December 31,
2017


December 31,
2017

RFG (a)











Closed homesale sides


225,250



322,745



318,961



277,261



1,144,217


Average homesale price


$

275,828



$

291,355



$

292,000



$

293,216



$

288,929


Average homesale broker commission rate


2.50

%


2.50

%


2.49

%


2.49

%


2.50

%

Net royalty per side (b)


$

298



$

316



$

316



$

316



$

313


NRT

Closed homesale sides


66,570



101,043



95,236



81,597



344,446


Average homesale price


$

509,197



$

528,518



$

506,418



$

511,683



$

514,685


Average homesale broker commission rate


2.45

%


2.44

%


2.45

%


2.44

%


2.44

%

Gross commission income per side


$

13,261



$

13,625



$

13,142



$

13,152



$

13,309


Cartus











Initiations


36,515




50,798



39,608



34,834



161,755


Referrals


15,203



25,284



23,905



19,286



83,678


TRG











Purchase title and closing units (c)


31,297



47,008



43,764



37,044



159,113


Refinance title and closing units (d)


8,533



6,324



6,513



7,194



28,564


Average fee per closing unit


$

2,001



$

2,139



$

2,115



$

2,092



$

2,092
































(a)

Includes all franchisees except for NRT.

(b)

Net royalty per side amounts include the effect of volume incentives and non-standard incentives granted to franchisees.

(c)

The amounts presented for the year ended December 31, 2017 include 8,351 purchase units as a result of acquisitions.

(d)

The amounts presented for the year ended December 31, 2017 include 1,858 refinance units as a result of acquisitions.

Table 4a

REALOGY HOLDINGS CORP.

NON-GAAP RECONCILIATION - OPERATING EBITDA

THREE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(In millions)


Set forth in the table below is a reconciliation of net income to Operating EBITDA for the three-month periods ended September 30, 2018 and 2017:



Three Months Ended


September 30, 2018


September 30, 2017

Net income attributable to Realogy Holdings

$

103



$

95


Income tax expense

40



67


Income before income taxes

143



162


Depreciation and amortization

49



51


Interest expense, net

41



41


Restructuring costs, net

9



2


Former parent legacy cost, net



1


Loss on the early extinguishment of debt



1


Operating EBITDA

$

242



$

258



Set forth in the table below is a reconciliation of Operating EBITDA by reportable segments to net income for the three months ended September 30, 2018 and 2017:



Revenues (a)


$
Change


%
Change


Operating
EBITDA


$
Change


%
Change


Operating
EBITDA Margin


Change


2018


2017




2018


2017




2018


2017


RFG

$

221



$

224



$

(3)



(1)%


$

161



$

159



$

2



1%


73

%


71

%


2

NRT (b)

1,268



1,267



1




43



64



(21)



(33)


3



5



(2)

Cartus

108



111



(3)



(3)


39



37



2



5


36



33



3

TRG

162



154



8



5


20



21



(1)



(5)


12



14



(2)

Corporate and Other

(83)



(82)



(1)



*

(21)



(23)



2



*







Total Company

$

1,676



$

1,674



$

2



—%


$

242



$

258



$

(16)



(6%)


14

%


15

%


(1)

Less: Depreciation and amortization (c)


49



51












Interest expense, net


41



41












Income tax expense


40



67












Restructuring costs, net (d)


9



2












Former parent legacy cost, net (e)




1












Loss on the early extinguishment of debt (e)




1












Net income attributable to Realogy Holdings


$

103



$

95





















*

not meaningful.

(a)

Includes the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by NRT of $83 million and $82 million during the three months ended September 30, 2018 and 2017, respectively.

(b)

NRT Operating EBITDA includes $12 million of equity earnings from PHH Home Loans 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) losses of unconsolidated entities" line on the Condensed Consolidated Statement of Operations.

(d)

Restructuring charges incurred for the three months ended September 30, 2018 include $1 million at RFG and $8 million at NRT. Restructuring charges incurred for the three months ended September 30, 2017 include $2 million at NRT.

(e)

Former parent legacy items and loss on the early extinguishment of debt are recorded in the Corporate and Other segment.


Table 4b

REALOGY HOLDINGS CORP.

NON-GAAP RECONCILIATION - OPERATING EBITDA

NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(In millions)


Set forth in the table below is a reconciliation of net income to Operating EBITDA for the nine-month periods ended September 30, 2018 and 2017:



Nine Months Ended


September 30, 2018


September 30, 2017

Net income attributable to Realogy Holdings

$

159



$

176


Income tax expense

73



131


Income before income taxes

232



307


Depreciation and amortization

148



150


Interest expense, net

120



127


Restructuring costs, net

45



9


Former parent legacy benefit, net



(10)


Loss on the early extinguishment of debt

7



5


Operating EBITDA

$

552



$

588



Set forth in the table below is a reconciliation of Operating EBITDA by reportable segments to net income for the nine months ended September 30, 2018 and 2017:



Revenues (a)


$
Change


%
Change


Operating
EBITDA (b)


$
Change


%
Change


Operating
EBITDA Margin


Change


2018


2017




2018


2017




2018


2017


RFG

$

634



$

631



$

3



%


$

439



$

428



$

11



3

%


69

%


68

%


1

NRT (c)

3,593



3,556



37



1



59



121



(62)



(51)



2



3



(1)

Cartus

292



290



2



1



72



65



7



11



25



22



3

TRG

444



431



13



3



45



49



(4)



(8)



10



11



(1)

Corporate and Other

(238)



(238)





*


(63)



(75)



12



*








Total Company

$

4,725



$

4,670



$

55



1

%


$

552



$

588



$

(36)



(6%)



12

%


13

%


(1)

Less: Depreciation and amortization (d)


148



150












Interest expense, net


120



127












Income tax expense


73



131












Restructuring costs, net (e)


45



9












Former parent legacy benefit, net (f)




(10)












Loss on the early extinguishment of debt (f)


7



5












Net income attributable to Realogy Holdings


$

159



$

176




















*

not meaningful.

(a)

Includes the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by NRT of $238 million during both the nine months ended September 30, 2018 and 2017.

(b)

Includes an $8 million expense related to the settlement of the Strader legal matter in the Corporate and Other segment for the nine months ended September 30, 2017.

(c)

NRT Operating EBITDA includes $8 million of equity earnings from PHH Home Loans for the nine months ended September 30, 2017.

(d)

Depreciation and amortization for the nine months ended September 30, 2018 and 2017 includes $2 million and $1 million, respectively, of amortization expense related to Guaranteed Rate Affinity's purchase accounting included in the "Equity in (earnings) losses of unconsolidated entities" line on the Condensed Consolidated Statement of Operations.

(e)

Restructuring charges incurred for the nine months ended September 30, 2018 include $3 million at RFG, $29 million at NRT, $9 million at Cartus, $2 million at TRG and $2 million at Corporate and Other. Restructuring charges incurred for the nine months ended September 30, 2017 include $1 million at RFG and $8 million at NRT.

(f)

Former parent legacy items and loss on the early extinguishment of debt are recorded in the Corporate and Other segment.


Table 5a

REALOGY HOLDINGS CORP.

SELECTED 2018 FINANCIAL DATA

(In millions)



Three Months Ended


March 31,
2018


June 30,
2018


September 30,
2018

Net revenues (a)






Real Estate Franchise Services

$

176



$

237



$

221


Company Owned Real Estate Brokerage Services

917



1,408



1,268


Relocation Services

79



105



108


Title and Settlement Services

120



162



162


Corporate and Other

(63)



(92)



(83)


Total Company

$

1,229



$

1,820



$

1,676








Operating EBITDA






Real Estate Franchise Services

$

105



$

173



$

161


Company Owned Real Estate Brokerage Services

(45)



61



43


Relocation Services

(1)



34



39


Title and Settlement Services

(6)



31



20


Corporate and Other

(19)



(23)



(21)


Total Company

$

34



$

276



$

242








Non-GAAP Reconciliation - Operating EBITDA






Total Company Operating EBITDA

$

34



$

276



$

242








Less: Depreciation and amortization (b)

50



49



49


Interest expense, net

33



46



41


Income tax (benefit) expense

(19)



52



40


Restructuring costs, net (c)

30



6



9


Loss on the early extinguishment of debt (d)

7






Net income (loss) attributable to Realogy Holdings

$

(67)



$

123



$

103









(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 $63 million, $92 million and $83 million for the three months ended March 31, 2018, June 30, 2018 and September 30, 2018, respectively. Such amounts are eliminated through the Corporate and Other line.


Revenues for the Relocation Services segment include $8 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, 2018, June 30, 2018 and September 30, 2018, respectively. Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment.

(b)

Depreciation and amortization for the three months ended March 31, 2018 includes $2 million of amortization expense related to our mortgage origination joint venture Guaranteed Rate Affinity's purchase accounting included in the "Equity in (earnings) losses of unconsolidated entities" line on the Condensed Consolidated Statement of Operations.

(c)

Includes restructuring charges broken down by business unit as follows:


Three Months Ended


March 31,


June 30,


September 30,


2018


2018


2018

Real Estate Franchise Services

$

2



$



$

1


Company Owned Real Estate Brokerage Services

17



4



8


Relocation Services

8



1




Title and Settlement Services

1



1




Corporate and Other

2






Total Company

$

30



$

6



$

9




(d)

Loss on the early extinguishment of debt is recorded in the Corporate and Other segment.


Table 5b

REALOGY HOLDINGS CORP.

SELECTED 2017 FINANCIAL DATA

(In millions)



Three Months Ended


Year Ended


March 31,


June 30,


September 30,


December 31,


December 31,


2017


2017


2017


2017


2017

Net revenues (a)










Real Estate Franchise Services

$

170



$

237



$

224



$

199



$

830


Company Owned Real Estate Brokerage Services

897



1,392



1,267



1,087



4,643


Relocation Services

77



102



111



92



382


Title and Settlement Services

120



157



154



139



570


Corporate and Other

(61)



(95)



(82)



(73)



(311)


Total Company

$

1,203



$

1,793



$

1,674



$

1,444



$

6,114












Operating EBITDA (b)










Real Estate Franchise Services

$

102



$

167



$

159



$

132



$

560


Company Owned Real Estate Brokerage Services

(21)



78



64



14



135


Relocation Services

1



27



37



20



85


Title and Settlement Services

2



26



21



10



59


Corporate and Other

(23)



(29)



(23)



(32)



(107)


Total Company

$

61



$

269



$

258



$

144



$

732












Non-GAAP Reconciliation - Operating EBITDA










Total Company Operating EBITDA

61



269



258



144



732












Less: Depreciation and amortization (c)

50



49



51



51



201


Interest expense, net

39



47



41



31



158


Income tax (benefit) expense

(9)



73



67



(196)



(65)


Restructuring costs, net (d)

5



2



2



3



12


Former parent legacy (benefit) cost, net (e)



(11)



1





(10)


Loss on the early extinguishment of debt (e)

4





1





5


Net income (loss) attributable to Realogy Holdings

$

(28)



$

109



$

95



$

255



$

431










(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, $82 million and $73 million for the three months ended March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017, respectively. Such amounts are eliminated through the Corporate and Other line.


Revenues for the Relocation Services segment include $8 million, $12 million, $11 million and $9 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, September 30, 2017 and December 31, 2017, respectively. Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment.

(b)

Operating EBITDA includes an $8 million expense related to the settlement of the Strader legal matter for the three months ended June 30, 2017 and an $8 million expense related to the transition of the Company's CEO for the three months ended December 31, 2017. In addition, the Company believes that 2017 Operating EBITDA was also negatively impacted by an estimated $8 million due to natural disasters in the third and fourth quarters.

(c)

Depreciation and amortization includes $1 million and $2 million for the three months ended September 30, 2017 and December 31, 2017, respectively, of amortization expense related to our mortgage origination joint venture Guaranteed Rate Affinity's purchase accounting included in the "Equity in earnings of unconsolidated entities" line on the Consolidated Statement of Operations in our Annual Report on Form 10-K for the year ended December 31, 2017.

(d)

Includes restructuring charges broken down by business unit as follows:




Three Months Ended


Year Ended


March 31,


June 30,


September 30,


December 31,


December 31,


2017


2017


2017


2017


2017

Real Estate Franchise Services

$



$

1



$



$



$

1


Company Owned Real Estate Brokerage Services

5



1



2



1



9


Relocation Services










Title and Settlement Services







1



1


Corporate and Other







1



1


Total Company

$

5



$

2



$

2



$

3



$

12




(e)

Former parent legacy items and losses on the early extinguishment of debt are recorded in the Corporate and Other segment.

Table 6

REALOGY HOLDINGS CORP.

NON-GAAP RECONCILIATION - FREE CASH FLOW

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(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,
2018


September 30,
2017


September 30,
2018


September 30,
2017

Net income attributable to Realogy Holdings

$

103



$

95



$

159



$

176


Income tax expense, net of payments

38



65



63



121


Interest expense, net

41



41



120



127


Cash interest payments

(31)



(25)



(118)



(111)


Depreciation and amortization

49



50



146



149


Capital expenditures

(24)



(21)



(73)



(69)


Restructuring costs and former parent legacy items, net of payments

4



(1)



20



(19)


Loss on the early extinguishment of debt



1



7



5


Working capital adjustments

9



17



(62)



29


Relocation receivables (assets), net of securitization obligations

5



28



(42)



(1)


Free Cash Flow

$

194



$

250



$

220



$

407



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,
2018


September 30,
2017


September 30,
2018


September 30,
2017

Net cash provided by operating activities

$

215



$

259



$

224



$

445


Property and equipment additions

(24)



(21)



(73)



(69)


Net change in securitization

3



11



70



29


Effect of exchange rates on cash and cash equivalents



1



(1)



2


Free Cash Flow

$

194



$

250



$

220



$

407










Net cash used in investing activities

$

(15)



$

(43)



$

(60)



$

(99)


Net cash used in financing activities

$

(202)



$

(91)



$

(160)



$

(277)



Table 7

NON-GAAP RECONCILIATION - SENIOR SECURED LEVERAGE RATIO

FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2018

(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 Group LLC's 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 Operating EBITDA for 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, 2018 with a ratio of 2.54 to 1.00.


A reconciliation of net income attributable to Realogy Group to Operating EBITDA and EBITDA as defined by the senior secured credit facilities for the twelve months ended September 30, 2018 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,
2017

September 30,
2017

December 31,
2017

September 30,
2018

September 30,
2018

Net income attributable to Realogy Group (a)

$

431



$

176



$

255



$

159



$

414


Income tax (benefit) expense

(65)



131



(196)



73



(123)


Income before income taxes

366



307



59



232



291


Depreciation and amortization (b)

201



150



51



148



199


Interest expense, net

158



127



31



120



151


Restructuring costs, net

12



9



3



45



48


Former parent legacy benefit, net

(10)



(10)








Loss on the early extinguishment of debt

5



5





7



7


Operating EBITDA (c)

$

732



$

588



$

144



$

552



696


Bank covenant adjustments:



Pro forma effect of business optimization initiatives (d)


23


Non-cash charges (e)


45


Pro forma effect of acquisitions and new franchisees (f)


5


Incremental securitization interest costs (g)


3


EBITDA as defined by the Senior Secured Credit Facilities


$

772


Total senior secured net debt (h)


$

1,959


Senior secured leverage ratio


2.54

x









(a)

Net income attributable to Realogy consists of: (i) income of $255 million for the fourth quarter of 2017, (ii) loss of $67 million for the first quarter of 2018, (iii) income of $123 million for the second quarter of 2018 and (iv) income of $103 million for the third quarter of 2018.

(b)

Depreciation and amortization includes: (i) $2 million for the fourth quarter of 2017 and (ii) $2 million for the first quarter of 2018 of amortization expense related to Guaranteed Rate Affinity's purchase accounting included in the "Equity in (earnings) losses of unconsolidated entities" line on the Condensed Consolidated Statement of Operations.

(c)

Operating EBITDA consists of: (i) $144 million for the fourth quarter of 2017, (ii) $34 million for the first quarter of 2018, (iii) $276 million for the second quarter of 2018 and (iv) $242 million for the third quarter of 2018.

(d)

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

(e)

Represents the elimination of non-cash expenses, including $45 million of stock-based compensation expense and $1 million of other items less $1 million for the change in the allowance for doubtful accounts and notes reserves for the twelve months ended September 30, 2018.

(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, 2017. Franchisee sales activity is comprised of new franchise agreements as well as growth through acquisitions and independent sales agent 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 Operating EBITDA had we owned the acquired entities or entered into the franchise contracts as of October 1, 2017.

(g)

Incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended September 30, 2018.

(h)

Represents total borrowings under the senior secured credit facilities and borrowings secured by a first priority lien on our assets of $2,063 million plus $29 million of capital lease obligations less $133 million of readily available cash as of September 30, 2018. Pursuant to the terms of our senior secured credit facilities, total senior secured net debt does not include our securitization obligations or unsecured indebtedness, including the Unsecured Notes.

*

Our senior secured credit facilities include the Amended and Restated Credit Agreement dated as of March 5, 2013, as amended from time to time, and the Term Loan A Agreement dated as of October 23, 2015, as amended from time to time. Our Unsecured Notes include our 4.50% Senior Notes due 2019, our 5.25% Senior Notes due 2021 and our 4.875% Senior Notes due 2023.

***

NON-GAAP RECONCILIATION - NET DEBT LEVERAGE RATIO

FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2018

(In millions)


Net corporate debt divided by EBITDA, as defined by the senior secured credit facilities, for the twelve-month period ended September 30, 2018 (referred to as net debt leverage ratio) is set forth in the following table:




As of

September 30, 2018

Revolver


$

250


Term Loan A


741


Term Loan B


1,072


4.50% Senior Notes


450


5.25% Senior Notes


550


4.875% Senior Notes


500


Total Debt (excluding securitizations)


$

3,563


Less: Cash and Cash Equivalents


226


Net Corporate Debt


$

3,337


EBITDA as defined by the Senior Secured Credit Facility


$

772


Net Debt Leverage Ratio


4.3

x


Table 8


Non-GAAP Definitions

Adjusted net income (loss) is defined by us as net income (loss) before mark-to-market interest rate swap adjustments, former parent legacy items, restructuring charges, the loss on the early extinguishment of debt, the tax effect of the foregoing adjustments and adjustments to the reserve for uncertain tax positions. The gross amounts for these items as well as the adjustment for income taxes are presented. Adjusted earnings (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.

Operating 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), income taxes, and other items that are not core to the operating activities of the Company such as restructuring charges, former parent legacy items, losses on the early extinguishment of debt, asset impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets. Operating EBITDA is our primary non-GAAP measure.

We present Operating EBITDA because we believe it is useful as a supplemental measure in evaluating the performance of our operating businesses and provides greater transparency into our results of operations. Our management, including our chief operating decision maker, uses Operating EBITDA as a factor in evaluating the performance of our business. 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 Operating 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, as well as other items that are not core to the operating activities of the Company such as restructuring charges, losses on the early extinguishment of debt, former parent legacy items, asset impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets, which may vary for different companies for reasons unrelated to operating performance. We further believe that Operating EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an Operating EBITDA measure when reporting their results.

Operating EBITDA has limitations as an analytical tool, and you should not consider Operating EBITDA either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:

  • this measure does not reflect changes in, or cash required for, our working capital needs;
  • this measure does 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;
  • this measure does not reflect our income tax expense or the cash requirements to pay our taxes;
  • this measure does 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 this measure does not reflect any cash requirements for such replacements; and
  • other companies may calculate this measure 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, cash interest payments, 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 receivables (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.

SOURCE Realogy Holdings Corp.