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Financial

Realogy Reports Third Quarter 2020 Financial Results

October 29, 2020

MADISON, N.J., Oct. 29, 2020 /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, 2020.

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"I am incredibly proud of Realogy's third quarter. We generated $309 million of Operating EBITDA, grew closed transaction volume 28%, gained market share, and materially reduced our debt," said Ryan Schneider, Realogy's chief executive officer and president. "Our strategic progress, agent and brand power, and technology initiatives, amplified by the very strong housing market, drove Realogy's results. And with very strong preliminary October volumes, we are excited as we look ahead."

"In the third quarter, Realogy continued to execute from a position of strength, delivering exceptional top-line and bottom-line growth," said Charlotte Simonelli, Realogy's executive vice president, chief financial officer and treasurer. "We improved operating margins, captured greater share of transaction economics with our mortgage joint venture and title operations, stayed laser focused on cost management and simplification, and strengthened our balance sheet. Overall, Realogy's financial profile is much stronger today, and I am optimistic for our future."

Third Quarter 2020 Highlights

  • Generated revenue of $1.9 billion, an increase of 20% or $307 million year-over-year.
  • Reported Net income of $145 million from continuing operations and Net income of $98 million including discontinued operations.
  • Generated Operating EBITDA from continuing operations of $309 million, an increase of $103 million year-over-year, driven by higher transaction volume and strong performance at the GRA mortgage JV (See Table 5a).
  • Title and mortgage continued to contribute meaningfully to our business results, generating approximately $95 million in third quarter Operating EBITDA.
  • Combined closed transaction volume increased 28% year-over-year in the third quarter with improving transaction volume through the quarter. Unit growth contributed 12% to this volume improvement across both Brokerage and Franchise businesses.
  • Generated Free Cash Flow from continuing operations of $344 million vs. $116 million for the corresponding quarter last year and $395 million including discontinued operations vs. $174 million for the corresponding quarter last year (See Table 7).
  • Strengthened the balance sheet reducing net debt by $276 million vs. third quarter 2019 with the Net Debt Leverage Ratio declining to 4.2x (See Table 8b).
  • Grew Brokerage agents 2% year-over-year with continued improving retention.

Third Quarter 2020 Financial Highlights

The following table sets forth Realogy's financial highlights for the periods presented (in millions, except per share data) (unaudited):


Three Months Ended September 30,


2020


2019


Change


% Change

Revenue

$

1,857



$

1,550



$

307



20

%

Operating EBITDA 1

309



206



103



50


Operating EBITDA including discontinued operations 1

313



223



90



40


Net income (loss) attributable to Realogy

98



(113)



211



187


Adjusted net income 2

159



64



95



148


Basic earnings (loss) per share

0.85



(0.99)



1.84



186


Adjusted earnings per share 2

1.38



0.56



0.82



146


Free Cash Flow 3

344



116



228



197


Free Cash Flow including discontinued operations 3

395



174



221



127


Net cash provided by operating activities

$

385



$

174



$

211



121

%









Select Key Drivers








Realogy Franchise Group 4 5








Closed homesale sides

336,737



299,937





12

%

Average homesale price

$

367,095



$

314,984





17

%

Realogy Brokerage Group 5








Closed homesale sides

101,890



92,399





10

%

Average homesale price

$

563,513



$

509,425





11

%

Realogy Title Group








Purchase title and closing units

45,788



41,619





10

%

Refinance title and closing units

18,387



8,014





129

%





Footnotes:

* not meaningful

1 See Tables 5a and 5b. Operating EBITDA is defined as net income (loss) before depreciation and amortization, interest expense, net, income taxes, and other items that are not core to the operating activities of the Company such as restructuring charges, former parent legacy items, gains or losses on the early extinguishment of debt, impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets. Operating EBITDA including discontinued operations is defined as Operating EBITDA, as defined above plus the Operating EBITDA contribution from discontinued operations on the same basis.

2 See Table 1a. Adjusted Net income (loss) is defined as net income (loss) before mark-to-market interest rate swap adjustments, former parent legacy items, restructuring charges, (gain) loss on the early extinguishment of debt, impairments, the tax effect of the foregoing adjustments and net income (loss) from discontinued operations. Adjusted earnings (loss) per share is Adjusted net income (loss) divided by the weighted average common and common equivalent shares outstanding.

3 See Table 7. 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, impairments, (gain) loss on the early extinguishment of debt and working capital adjustments. Free Cash Flow including discontinued operations is defined as Free Cash Flow, as defined above plus the Free Cash Flow contribution from discontinued operations on the same basis.

4 Includes all franchisees except for Realogy Brokerage Group.

5 The Company's combined homesale transaction volume growth (transaction sides multiplied by average sale price) increased 28% compared with the third quarter of 2019.

Cartus Relocation Services remained in discontinued operations for the third quarter of 2020 in accordance with GAAP.

Balance Sheet and Capital Allocation

The Company ended the third quarter 2020 with cash and cash equivalents of $379 million*. Total corporate debt, including the short-term portion, net of cash and cash equivalents (net corporate debt), totaled $3.0 billion at September 30, 2020. The Company's Net Debt Leverage Ratio was 4.2x at September 30, 2020 (see Table 8b).

On October 27, 2020, the Company repaid the remaining $140 million balance on its revolving credit facility.

The Company expects to continue to prioritize investing in its business and reducing leverage over other potential uses of cash.

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

______________

* excludes restricted cash

Investor Conference Call

Today, October 29, at 8:30 a.m. (ET), Realogy will hold a conference call via webcast to review its Q3 2020 results and provide a business update. The webcast will be hosted by Ryan Schneider, chief executive officer and president, and Charlotte Simonelli, chief financial officer, 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 (833) 646-0499 (toll free); international participants should dial (918) 922-3007. 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 U.S. residential real estate services, encompassing franchise, brokerage, relocation, and title and settlement businesses as well as a mortgage joint venture. Realogy's diverse brand portfolio includes some of the most recognized names in real estate: Better Homes and Gardens® Real Estate, CENTURY 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran®, ERA®, and Sotheby's International Realty®. Using innovative technology, data and marketing products, best-in-class learning and support services, and high-quality lead generation programs, Realogy fuels the productivity of independent sales agents, helping them build stronger businesses and best serve today's consumers. Realogy's affiliated brokerages operate around the world with approximately 189,000 independent sales agents in the United States and more than 129,000 independent sales agents in 114 other countries and territories. Recognized for nine consecutive years as one of the World's Most Ethical Companies, Realogy has also been designated a Great Place to Work three years in a row and one of Forbes' Best Employers for Diversity. Realogy is headquartered in Madison, New Jersey.

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", "potential" 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.

The following include some, but not all, of the factors that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements. Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the coronavirus disease (COVID-19) pandemic: the extent, duration and severity of the spread of the COVID-19 pandemic and economic consequences stemming from the COVID-19 crisis (including continued economic contraction and/or the failure of any recovery to be sustained) as well as related risks and the impact of any of the foregoing on our business, results of operations and liquidity; adverse developments or the absence of sustained improvement in general business, economic or political conditions or the U.S. residential real estate markets, either regionally or nationally, including but not limited to a decline in consumer confidence or spending, weak capital, credit and financial markets and/or the instability of financial institutions, intensifying or continued economic contraction in the U.S. economy, including the impact of recessions, slow economic growth, or a deterioration in other economic factors (including potential consumer, business or governmental defaults or delinquencies due to the COVID-19 crisis or otherwise), continued low or accelerated declines in home inventory levels, continuing high levels of unemployment and/or declining wages or stagnant wage growth in the U.S., the economic impact of the termination and/or substantial curtailment of, or failure to extend, one or more federal and/or state programs meant to assist businesses and individuals navigate COVID-19 related financial challenges, an increase in potential homebuyers with low credit ratings, inability to afford down payments, or other mortgage challenges due to disrupted earnings, including constraints on the availability of mortgage financing, an increase in foreclosure activity, a reduction in the affordability of housing, including in connection with rising home prices, a decline or lack of improvement in the number of homesales, stagnant or declining home prices, higher mortgage rates due to increases in long-term interest rates, a lack of improvement or deceleration in the building of new housing, the potential negative impact of certain provisions of the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") on home values over time in states with high property, sales and state and local income taxes or on homeownership rates, and/or geopolitical and economic instability (including uncertainty around the 2020 U.S. election); risks associated with our substantial indebtedness, interest obligations and the restrictions contained in our debt agreements as well as risks relating to our having to dedicate a significant portion of our cash flows from operations to service our debt and our ability to refinance or repay our indebtedness or incur additional indebtedness; the impact of increased competition in the industry for clients, for the affiliation of independent sales agents and for the affiliation of franchisees on our results of operations and market share; the impact of disruption in the residential real estate brokerage industry, and on our results of operations and financial condition, as a result of actions taken by listing aggregators to monetize their concentration and market power, including, among other things, expanding into the brokerage business, diluting the relationship between agents and brokers (and between agents and the consumer), and consolidating and leveraging data; continuing pressure on the share of gross commission income paid by our company owned brokerages and affiliated franchisees to affiliated independent sales agents and sales agent teams; our inability to develop products, technology and programs (including our company-directed affinity programs) that support our business strategy; our geographic and high-end market concentration; our inability to enter into franchise agreements with new franchisees or renew existing franchise agreements without reducing contractual royalty rates or increasing the amount and prevalence of sales incentives; the lack of revenue growth or declining profitability of our franchisees and company owned brokerage operations or declines in other revenue streams; increases in uncollectible accounts receivable and note reserves as a result of the adverse financial effects of the COVID-19 crisis on our franchisees and relocation clients; the potential impact of negative industry or business trends (including further declines in our market capitalization) on our valuation of goodwill and intangibles; the loss of our largest affinity client or multiple significant relocation clients; changes in corporate relocation practices (including in connection with the COVID-19 crisis) resulting in fewer employee relocations, reduced relocation benefits and/or increasing competition in corporate relocation; an increase in the experienced claims losses of our title underwriter; our failure or alleged failure to comply with laws, regulations and regulatory interpretations and any changes or stricter interpretations of any of the foregoing (whether through private litigation or governmental action), including but not limited to (i) state or federal employment laws or regulations that would require reclassification of independent contractor sales agents to employee status, (ii) privacy or data security laws and regulations, (iii) the Real Estate Settlement Procedures Act (RESPA) or other federal or state consumer protection or similar laws and (iv) antitrust laws and regulations; risks related to the impact on our operations and financial results that may be caused by any future meaningful changes in industry operations or structure as a result of governmental pressures (including pressures for lower brokerage commission rates), the actions of certain competitors, the introduction or growth of certain competitive models, changes to the rules of the multiple listing services, or otherwise; and risks and growing costs related to both cybersecurity threats to our data and customer, franchisee, employee and independent sales agent data, as well as those related to our compliance with the growing number of laws, regulations and other requirements related to the protection of personal information.

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, 2020 and June 30, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019, 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. 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 except as required 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, 8a and 9 for definitions of these non-GAAP financial measures and Tables 1a, 5a, 5b, 6a, 6b, 7, 8a and 8b for reconciliations of the historical non-GAAP financial measures to their most comparable GAAP terms.

Investor Contacts:

Media Contacts:

Alicia Swift

Trey Sarten

(973) 407-4669

(973) 407-2162

alicia.swift@realogy.com

trey.sarten@realogy.com



Danielle Kloeblen

Gabriella Chiera

(973) 407-2148

(973) 407-5236

danielle.kloeblen@realogy.com

Gabriella.Chiera@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,


2020


2019


2020


2019

Revenues








Gross commission income

$

1,458



$

1,201



$

3,227



$

3,310


Service revenue

230



191



553



503


Franchise fees

133



108



289



290


Other

36



50



111



165


Net revenues

1,857



1,550



4,180



4,268


Expenses








Commission and other agent-related costs

1,105



875



2,420



2,405


Operating

342



343



953



1,016


Marketing

56



63



155



200


General and administrative

97



69



230



217


Former parent legacy cost, net

1



1



1



1


Restructuring costs, net

13



11



38



29


Impairments

6



240



460



243


Depreciation and amortization

43



42



134



126


Interest expense, net

48



66



208



209


(Gain) loss on the early extinguishment of debt



(10)



8



(5)


Total expenses

1,711



1,700



4,607



4,441


Income (loss) from continuing operations before income taxes, equity in earnings and noncontrolling interests

146



(150)



(427)



(173)


Income tax expense (benefit) from continuing operations

54



(23)



(67)



(22)


Equity in earnings of unconsolidated entities

(53)



(7)



(98)



(15)


Net income (loss) from continuing operations

145



(120)



(262)



(136)










(Loss) income from discontinued operations, net of tax

(3)



8



(17)



(5)


Estimated loss on the sale of discontinued operations, net of tax

(43)





(97)




Net (loss) income from discontinued operations

(46)



8



(114)



(5)










Net income (loss)

99



(112)



(376)



(141)


Less: Net income attributable to noncontrolling interests

(1)



(1)



(2)



(2)


Net income (loss) attributable to Realogy Holdings

$

98



$

(113)



$

(378)



$

(143)










Basic earnings (loss) per share attributable to Realogy Holdings shareholders:





Basic earnings (loss) per share from continuing operations

$

1.25



$

(1.06)



$

(2.29)



$

(1.21)


Basic (loss) earnings per share from discontinued operations

(0.40)



0.07



(0.99)



(0.04)


Basic earnings (loss) per share

$

0.85



$

(0.99)



$

(3.28)



$

(1.25)


Diluted earnings (loss) per share attributable to Realogy Holdings shareholders:





Diluted earnings (loss) per share from continuing operations

$

1.23



$

(1.06)



$

(2.29)



$

(1.21)


Diluted (loss) earnings per share from discontinued operations

(0.39)



0.07



(0.99)



(0.04)


Diluted earnings (loss) per share

$

0.84



$

(0.99)



$

(3.28)



$

(1.25)


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

Basic

115.4



114.3



115.2



114.2


Diluted

116.7



114.3



115.2



114.2


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 (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.


Adjusted net income (loss) is defined by us as net income (loss) 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 initiatives currently in progress; (d) the (gain) loss on the early extinguishment of debt that results from refinancing and deleveraging debt initiatives; (e) impairments; (f) the tax effect of the foregoing adjustments and (g) net (income) loss from discontinued operations. The gross amounts for these items as well as the adjustment for income taxes are shown in the table below.


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


Set forth in the table below is a reconciliation of Net income (loss) to Adjusted net income for the three and nine months ended September 30, 2020 and 2019:



Three Months Ended
September 30,


Nine Months Ended
September 30,


2020


2019


2020


2019

Net income (loss) attributable to Realogy Holdings

$

98



$

(113)



$

(378)



$

(143)


Addback:








Mark-to-market interest rate swap losses



12



59



50


Former parent legacy cost, net

1



1



1



1


Restructuring costs, net

13



11



38



29


Impairments (a)

6



240



460



243


(Gain) loss on the early extinguishment of debt



(10)



8



(5)


Adjustments for tax effect (b)

(5)



(69)



(153)



(86)


Net loss (income) from discontinued operations

46



(8)



114



5


Adjusted net income attributable to Realogy Holdings

$

159



$

64



$

149



$

94










Earnings (loss) per share attributable to Realogy Holdings:








Basic earnings (loss) per share:

$

0.85



$

(0.99)



$

(3.28)



$

(1.25)


Diluted earnings (loss) per share:

$

0.84



$

(0.99)



$

(3.28)



$

(1.25)










Adjusted earnings per share attributable to Realogy Holdings:







Adjusted basic earnings per share:

$

1.38



$

0.56



$

1.29



$

0.82


Adjusted diluted earnings per share:

$

1.36



$

0.56



$

1.29



$

0.82










Weighted average common and common equivalent shares outstanding:



Basic:

115.4



114.3



115.2



114.2


Diluted:

116.7



114.3



115.2



114.2







(a)

Impairments for the three and nine months ended September 30, 2019 primarily include a goodwill impairment charge of $237 million, which reduced the net carrying value of Realogy Brokerage Group by $180 million after accounting for the related income tax benefit of $57 million.


Impairments for the nine months ended September 30, 2020 primarily include a goodwill impairment charge of $413 million, which reduced the net carrying value of Realogy Brokerage Group by $314 million after accounting for the related income tax benefit of $99 million, and an impairment charge of $30 million which reduced the carrying value of trademarks at Realogy Franchise Group.

(b)

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,
2020


December 31,
2019

ASSETS




Current assets:




Cash, cash equivalents and restricted cash

$

380



$

235


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

109



79


Other current assets

149



147


Current assets - held for sale

583



750


Total current assets

1,221



1,211


Property and equipment, net

288



308


Operating lease assets, net

477



515


Goodwill

2,887



3,300


Trademarks

643



673


Franchise agreements, net

1,109



1,160


Other intangibles, net

69



72


Other non-current assets

354



304


Total assets

$

7,048



$

7,543


LIABILITIES AND EQUITY




Current liabilities:




Accounts payable

$

87



$

84


Current portion of long-term debt

198



234


Current portion of operating lease liabilities

125



122


Accrued expenses and other current liabilities

439



350


Current liabilities - held for sale

297



356


Total current liabilities

1,146



1,146


Long-term debt

3,159



3,211


Long-term operating lease liabilities

441



467


Deferred income taxes

279



390


Other non-current liabilities

290



233


Total liabilities

5,315



5,447


Commitments and contingencies




Equity:




Realogy Holdings preferred stock: $0.01 par value; 50,000,000 shares authorized, none issued and outstanding at September 30, 2020 and December 31, 2019




Realogy Holdings common stock: $0.01 par value; 400,000,000 shares authorized, 115,440,569 shares issued and outstanding at September 30, 2020 and 114,355,519 shares issued and outstanding at December 31, 2019

1



1


Additional paid-in capital

4,856



4,842


Accumulated deficit

(3,073)



(2,695)


Accumulated other comprehensive loss

(55)



(56)


Total stockholders' equity

1,729



2,092


Noncontrolling interests

4



4


Total equity

1,733



2,096


Total liabilities and equity

$

7,048



$

7,543


Table 3


REALOGY HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Nine Months Ended
September 30,


2020


2019

Operating Activities




Net loss

$

(376)



$

(141)


Net loss from discontinued operations

114



5


Net loss from continuing operations

(262)



(136)


Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:

Depreciation and amortization

134



126


Deferred income taxes

(70)



(29)


Impairments

460



243


Amortization of deferred financing costs and debt discount

8



7


Loss (gain) on the early extinguishment of debt

8



(5)


Equity in earnings of unconsolidated entities

(98)



(15)


Stock-based compensation

18



22


Mark-to-market adjustments on derivatives

59



50


Other adjustments to net loss



(3)


Net change in assets and liabilities, excluding the impact of acquisitions and dispositions:




Trade receivables

(30)



(17)


Other assets

13



(6)


Accounts payable, accrued expenses and other liabilities

115



14


Dividends received from unconsolidated entities

59



2


Other, net

(16)



(3)


Net cash provided by operating activities from continuing operations

398



250


Net cash provided by (used in) operating activities from discontinued operations

20



(20)


Net cash provided by operating activities

418



230


Investing Activities




Property and equipment additions

(60)



(71)


Payments for acquisitions, net of cash acquired

(1)



(1)


Investment in unconsolidated entities

(2)



(10)


Other, net

(12)



3


Net cash used in investing activities from continuing operations

(75)



(79)


Net cash used in investing activities from discontinued operations

(9)



(7)


Net cash used in investing activities

$

(84)



$

(86)


Financing Activities




Net change in Revolving Credit Facility

$

(50)



$

(5)


Proceeds from issuance of Senior Secured Second Lien Notes

550




Proceeds from issuance of Senior Notes



550


Redemption and repurchases of Senior Notes

(550)



(533)


Amortization payments on term loan facilities

(31)



(22)


Debt issuance costs

(14)



(9)


Cash paid for fees associated with early extinguishment of debt

(7)



(5)


Repurchase of common stock



(20)


Dividends paid on common stock



(31)


Taxes paid related to net share settlement for stock-based compensation

(5)



(6)


Payments of contingent consideration related to acquisitions

(1)



(3)


Other, net

(22)



(18)


Net cash used in financing activities from continuing operations

(130)



(102)


Net cash used in financing activities from discontinued operations

(73)



(2)


Net cash used in financing activities

(203)



(104)


Effect of changes in exchange rates on cash, cash equivalents and restricted cash




Net increase in cash, cash equivalents and restricted cash

131



40


Cash, cash equivalents and restricted cash, beginning of period

266



238


Cash, cash equivalents and restricted cash, end of period

397



278


Less cash, cash equivalents and restricted cash of discontinued operations, end of period

17



25


Cash, cash equivalents and restricted cash of continuing operations, end of period

$

380



$

253






Supplemental Disclosure of Cash Flow Information




Interest payments for continuing operations

$

128



$

124


Income tax (refunds) payments for continuing operations, net

(9)



7


Table 4a


REALOGY HOLDINGS CORP.

2020 vs. 2019 KEY DRIVERS



Three Months Ended September 30,


Nine Months Ended September 30,


2020


2019


% Change


2020


2019


% Change

Realogy Franchise Group (a)












Closed homesale sides

336,737



299,937



12

%


778,010



803,976



(3)

%

Average homesale price

$

367,095



$

314,984



17

%


$

341,427



$

312,224



9

%

Average homesale broker commission rate

2.48

%


2.47

%


1

bps


2.48

%


2.47

%


1

bps

Net royalty per side

$

367



$

329



12

%


$

341



$

323



6

%

Realogy Brokerage Group












Closed homesale sides

101,890



92,399



10

%


235,806



248,092



(5)

%

Average homesale price

$

563,513



$

509,425



11

%


$

537,602



$

522,050



3

%

Average homesale broker commission rate

2.44

%


2.41

%


3

bps


2.43

%


2.41

%


2

bps

Gross commission income per side

$

14,315



$

13,000



10

%


$

13,685



$

13,343



3

%

Realogy Title Group












Purchase title and closing units

45,788



41,619



10

%


106,540



111,865



(5)

%

Refinance title and closing units

18,387



8,014



129

%


44,834



17,295



159

%

Average fee per closing unit

$

2,239



$

2,288



(2)

%


$

2,189



$

2,308



(5)

%






(a)

Includes all franchisees except for Realogy Brokerage Group.

Table 4b


REALOGY HOLDINGS CORP.

2019 KEY DRIVERS




Quarter Ended


Year Ended



March 31,
2019


June 30,
2019


September 30,
2019


December 31,
2019


December 31,
2019

Realogy Franchise Group (a)











Closed homesale sides


202,662



301,377



299,937



257,524



1,061,500


Average homesale price


$

298,361



$

318,799



$

314,984



$

322,713



$

314,769


Average homesale broker commission rate


2.48

%


2.47

%


2.47

%


2.46

%


2.47

%

Net royalty per side


$

303



$

331



$

329



$

338



$

327


Realogy Brokerage Group











Closed homesale sides


60,442



95,251



92,399



77,560



325,652


Average homesale price


$

511,922



$

540,725



$

509,425



$

523,024



$

522,282


Average homesale broker commission rate


2.41

%


2.41

%


2.41

%


2.39

%


2.41

%

Gross commission income per side


$

13,212



$

13,758



$

13,000



$

13,147



$

13,296


Realogy Title Group











Purchase title and closing units


28,044



42,202



41,619



34,345



146,210


Refinance title and closing units


4,011



5,270



8,014



9,294



26,589


Average fee per closing unit


$

2,267



$

2,356



$

2,288



$

2,267



$

2,297







(a)

Includes all franchisees except for Realogy Brokerage Group.


Table 5a


REALOGY HOLDINGS CORP.

NON-GAAP RECONCILIATION - OPERATING EBITDA AND

OPERATING EBITDA INCLUDING DISCONTINUED OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In millions)

Set forth in the tables below is a reconciliation of Net income (loss) attributable to Realogy Holdings to Operating EBITDA and Operating EBITDA including discontinued operations for the three-month periods ended September 30, 2020 and 2019:



Three Months Ended September 30,


2020


2019

Net income (loss) attributable to Realogy Holdings

$

98



$

(113)


Less: Net (loss) income from discontinued operations

(46)



8


Add: Income tax expense (benefit) from continuing operations

54



(23)


Income (loss) from continuing operations attributable to Realogy Holdings before income taxes

198



(144)


Add: Depreciation and amortization

43



42


Interest expense, net

48



66


Restructuring costs, net (a)

13



11


Impairments (b)

6



240


Former parent legacy cost, net (c)

1



1


Gain on the early extinguishment of debt (c)



(10)


Operating EBITDA

309



206


Contribution to Operating EBITDA from discontinued operations

4



17


Operating EBITDA including discontinued operations

$

313



$

223


The following table reflects Revenue, Operating EBITDA and Operating EBITDA margin by reportable segments:


Revenues (d)


$
Change


%
Change


Operating
EBITDA


$
Change


%
Change


Operating
EBITDA Margin




2020


2019




2020


2019



2020


2019

Change

Realogy Franchise Group

$

262



$

240



$

22



9

%


$

196



$

170



$

26



15

%


75

%


71

%


4


Realogy Brokerage Group

1,479



1,222



257



21



61



31



30



97



4



3



1


Realogy Title Group

213



170



43



25



95



31



64



206



45



18



27


Corporate and Other

(97)



(82)



(15)



*



(43)



(26)



(17)



*








Total

$

1,857



$

1,550



$

307



20

%


$

309



$

206



$

103



50

%


17

%


13

%


4


Contribution from discontinued operations


4



17












Total including discontinued operations


$

313



$

223












The following table reflects Realogy Franchise and Brokerage Groups' results before the intercompany royalties and marketing fees, as well as on a combined basis to show the Operating EBITDA contribution of these business units to the overall Operating EBITDA of the Company:


Revenues


$
Change


%
Change


Operating
EBITDA


$
Change


%
Change


Operating
EBITDA Margin


Change


2020


2019




2020


2019




2020


2019


Realogy Franchise Group (e)

$

165



$

158



$

7



4

%


$

99



$

88



$

11



13

%


60

%


56

%


4


Realogy Brokerage Group (e)

1,479



1,222



257



21



158



113



45



40



11



9



2


Realogy Franchise and Brokerage Groups Combined

$

1,644



$

1,380



$

264



19

%


$

257



$

201



$

56



28

%


16

%


15

%


1






* not meaningful.

(a)

Restructuring charges incurred for the three months ended September 30, 2020 include $11 million at Realogy Brokerage Group and $2 million at Corporate and Other. Restructuring charges incurred for the three months ended September 30, 2019 include $2 million at Realogy Franchise Group, $8 million at Realogy Brokerage Group and $1 million at Corporate and Other.

(b)

Impairments for the three months ended September 30, 2020 relate to lease asset impairments. Impairments for the three months ended September 30, 2019 include a goodwill impairment charge of $237 million (which reduced the net carrying value of Realogy Brokerage Group by $180 million after accounting for the related income tax benefit of $57 million) and $3 million related to lease asset impairments.

(c)

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

(d)

Includes the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by Realogy Brokerage Group of $97 million and $82 million during the three months ended September 30, 2020 and 2019, respectively.

(e)

The segment numbers noted above do not reflect the impact of intercompany royalties and marketing fees paid by Realogy Brokerage Group to Realogy Franchise Group of $97 million and $82 million during the three months ended September 30, 2020 and 2019, respectively.

Table 5b


REALOGY HOLDINGS CORP.

NON-GAAP RECONCILIATION - OPERATING EBITDA AND

OPERATING EBITDA INCLUDING DISCONTINUED OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In millions)

Set forth in the tables below is a reconciliation of Net loss attributable to Realogy Holdings to Operating EBITDA and Operating EBITDA including discontinued operations for the nine-month periods ended September 30, 2020 and 2019:



Nine Months Ended September 30,


2020


2019

Net loss attributable to Realogy Holdings

$

(378)



$

(143)


Less: Net loss from discontinued operations

(114)



(5)


Add: Income tax benefit from continuing operations

(67)



(22)


Loss from continuing operations attributable to Realogy Holdings before income taxes

(331)



(160)


Add: Depreciation and amortization

134



126


Interest expense, net

208



209


Restructuring costs, net (a)

38



29


Impairments (b)

460



243


Former parent legacy cost, net (c)

1



1


Loss (gain) on the early extinguishment of debt (c)

8



(5)


Operating EBITDA

518



443


Contribution to Operating EBITDA from discontinued operations

2



21


Operating EBITDA including discontinued operations

$

520



$

464


The following table reflects Revenue, Operating EBITDA and Operating EBITDA margin by reportable segments:


Revenues (d)


$
Change


%
Change


Operating
EBITDA


$
Change


%
Change


Operating
EBITDA Margin


Change


2020


2019




2020


2019




2020


2019


Realogy Franchise Group

$

609



$

679



$

(70)



(10)

%


$

419



$

448



$

(29)



(6)

%


69

%


66

%


3


Realogy Brokerage Group

3,281



3,369



(88)



(3)



25



16



9



56



1





1


Realogy Title Group

510



444



66



15



168



54



114



211



33



12



21


Corporate and Other

(220)



(224)



4



*



(94)



(75)



(19)



*








Total

$

4,180



$

4,268



$

(88)



(2)

%


$

518



$

443



$

75



17

%


12

%


10

%


2


Contribution from discontinued operations


2



21












Total including discontinued operations


$

520



$

464












The following table reflects Realogy Franchise and Brokerage Groups' results before the intercompany royalties and marketing fees, as well as on a combined basis to show the Operating EBITDA contribution of these business units to the overall Operating EBITDA of the Company:


Revenues


$
Change


%
Change


Operating
EBITDA


$
Change


%
Change


Operating
EBITDA Margin


Change


2020


2019




2020


2019




2020


2019


Realogy Franchise Group (e)

$

389



$

455



$

(66)



(15)

%


$

199



$

224



$

(25)



(11)

%


51

%


49

%


2


Realogy Brokerage Group (e)

3,281



3,369



(88)



(3)



245




240



5



2



7



7




Realogy Franchise and Brokerage Groups Combined

$

3,670



$

3,824



$

(154)



(4)

%


$

444



$

464



$

(20)



(4)

%


12

%


12

%








*

not meaningful.

(a)

Restructuring charges incurred for the nine months ended September 30, 2020 include $1 million at Realogy Franchise Group, $32 million at Realogy Brokerage Group, $3 million at Realogy Title Group and $2 million at Corporate and Other. Restructuring charges incurred for the nine months ended September 30, 2019 include $3 million at Realogy Franchise Group, $18 million at Realogy Brokerage Group, $2 million at Realogy Title Group and $6 million at Corporate and Other.

(b)

Impairments for the nine months ended September 30, 2020 include a goodwill impairment charge of $413 million (which reduced the net carrying value of Realogy Brokerage Group by $314 million after accounting for the related income tax benefit of $99 million), an impairment charge of $30 million (which reduced the carrying value of trademarks at Realogy Franchise Group) and $17 million related to lease asset impairments. Impairments for the nine months ended September 30, 2019 include a goodwill impairment charge of $237 million (which reduced the net carrying value of Realogy Brokerage Group by $180 million after accounting for the related income tax benefit of $57 million) and $6 million related to lease asset impairments.

(c)

Former parent legacy items and Loss (gain) on the early extinguishment of debt are recorded in Corporate and Other.

(d)

Includes the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by Realogy Brokerage Group of $220 million and $224 million during the nine months ended September 30, 2020 and 2019, respectively.

(e)

The segment numbers noted above do not reflect the impact of intercompany royalties and marketing fees paid by Realogy Brokerage Group to Realogy Franchise Group of $220 million and $224 million during the nine months ended September 30, 2020 and 2019, respectively.


Table 6a


REALOGY HOLDINGS CORP.

SELECTED 2020 FINANCIAL DATA

(In millions)



Three Months Ended


March 31,


June 30,


September 30,


2020


2020


2020

Net revenues (a)






Realogy Franchise Group

$

168



$

179



$

262


Realogy Brokerage Group

869



933



1,479


Realogy Title Group

137



160



213


Corporate and Other

(58)



(65)



(97)


Total

$

1,116



$

1,207



$

1,857








Operating EBITDA






Realogy Franchise Group

$

101



$

122



$

196


Realogy Brokerage Group

(51)



15



61


Realogy Title Group

12



61



95


Corporate and Other

(25)



(26)



(43)


Total

$

37



$

172



$

309








Non-GAAP Reconciliation - Operating EBITDA






Operating EBITDA

$

37



$

172



$

309


Contribution from discontinued operations

(5)



3



4


Operating EBITDA including discontinued operations

32



175



313








Less: Depreciation and amortization

45



46



43


Interest expense, net

101



59



48


Income tax (benefit) expense

(132)



11



54


Restructuring costs, net (b)

11



14



13


Impairments (c)

447



7



6


Former parent legacy cost, net (d)





1


Loss on the early extinguishment of debt (d)



8




Adjustments attributable to discontinued operations (e)

22



44



50


Net (loss) income attributable to Realogy Holdings

$

(462)



$

(14)



$

98







(a)

Transactions between segments are eliminated in consolidation. Revenues for Realogy Franchise Group include intercompany royalties and marketing fees paid by Realogy Brokerage Group of $58 million, $65 million and $97 million for the three months ended March 31, 2020, June 30, 2020 and September 30, 2020, respectively. Such amounts are eliminated through Corporate and Other.


Revenues for Realogy Franchise Group include $2 million, $3 million and $3 million of intercompany referral commissions related to Realogy Advantage Broker Network paid by Realogy Brokerage Group during the three months ended March 31, 2020, June 30, 2020 and September 30, 2020, respectively. Such amounts are recorded as contra-revenues by Realogy Brokerage Group.

(b)

Includes restructuring charges broken down by business unit as follows:




Three Months Ended


March 31,


June 30,


September 30,


2020


2020


2020

Realogy Franchise Group

$

1



$



$


Realogy Brokerage Group

9



12



11


Realogy Title Group

1



2




Corporate and Other

$



$



$

2


Total Company

$

11



$

14



$

13




(c)

Impairments for the three months ended March 31, 2020 include a goodwill impairment charge of $413 million (which reduced the net carrying value of Realogy Brokerage Group by $314 million after accounting for the related income tax benefit of $99 million) and an impairment charge of $30 million (which reduced the carrying value of trademarks at Realogy Franchise Group). In addition, the three months ended March 31, 2020, June 30, 2020 and September 30, 2020 include charges primarily related to lease asset impairments of $4 million, $7 million and $6 million, respectively.

(d)

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

(e)

Includes depreciation and amortization, interest expense, income tax and restructuring charges related to discontinued operations. In addition, includes the adjustment to record assets and liabilities held for sale at the lower of carrying value or fair value less any costs to sell based on a market price that is reasonable in relation to fair value.

Table 6b


REALOGY HOLDINGS CORP.

SELECTED 2019 FINANCIAL DATA

(In millions)



Three Months Ended


Year Ended


March 31,


June 30,


September 30,


December 31,


December 31,


2019


2019


2019


2019


2019

Net revenues (a)










Realogy Franchise Group

$

179



$

260



$

240



$

207



$

886


Realogy Brokerage Group

816



1,331



1,222



1,040



4,409


Realogy Title Group

114



160



170



152



596


Corporate and Other

(55)



(87)



(82)



(69)



(293)


Total

$

1,054



$

1,664



$

1,550



$

1,330



$

5,598












Operating EBITDA










Realogy Franchise Group

$

98



$

180



$

170



$

140



$

588


Realogy Brokerage Group

(62)



47



31



(12)



4


Realogy Title Group

(9)



32



31



14



68


Corporate and Other

(25)



(24)



(26)



(23)



(98)


Total

$

2



$

235



$

206



$

119



$

562












Non-GAAP Reconciliation - Operating EBITDA










Operating EBITDA

$

2



$

235



$

206



$

119



$

562


Contribution from discontinued operations

(6)



10



17



7



28


Operating EBITDA including discontinued operations

(4)



245



223



126



590












Less: Depreciation and amortization

41



43



42



43



169


Interest expense, net

63



80



66



40



249


Income tax (benefit) expense

(32)



33



(23)





(22)


Restructuring costs, net (b)

9



9



11



13



42


Impairments (c)

1



2



240



6



249


Former parent legacy cost, net (d)





1





1


Loss (gain) on the early extinguishment of debt (d)

5





(10)





(5)


Adjustments attributable to discontinued operations (e)

8



9



9



69



95


Net (loss) income attributable to Realogy Holdings

$

(99)



$

69



$

(113)



$

(45)



$

(188)







(a)

Transactions between segments are eliminated in consolidation. Revenues for Realogy Franchise Group include intercompany royalties and marketing fees paid by Realogy Brokerage Group of $55 million, $87 million, $82 million and $69 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019, respectively. Such amounts are eliminated through Corporate and Other.


Revenues for Realogy Franchise Group include $3 million, $5 million, $6 million and $4 million of intercompany referral commissions related to Realogy Advantage Broker Network paid by Realogy Brokerage Group during the three months ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019, respectively. Such amounts are recorded as contra-revenues by Realogy Brokerage Group.

(b)

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,


2019


2019


2019


2019


2019

Realogy Franchise Group

$



$

1



$

2



$

1



$

4


Realogy Brokerage Group

4



6



8



7



25


Realogy Title Group

1



1





1



3


Corporate and Other

4



1



1



4



10


Total Company

$

9



$

9



$

11



$

13



$

42




(c)

Impairments for the three months ended September 30, 2019 and the year ended December 31, 2019 include a goodwill impairment charge of $237 million (which reduced the net carrying value of Realogy Brokerage Group by $180 million after accounting for the related income tax benefit of $57 million). In addition, the three months ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 include charges primarily related to lease asset impairments of $1 million, $2 million, $3 million and $6 million, respectively.

(d)

Former parent legacy items and Loss (gain) on the early extinguishment of debt are recorded in Corporate and Other.

(e)

Includes depreciation and amortization, interest expense, income tax and restructuring charges related to discontinued operations. In addition, the three months and year ended December 31, 2019 includes the estimated loss on the sale of discontinued operations of $22 million and the related tax expense of $38 million.


Table 6c


REALOGY HOLDINGS CORP.

2019 CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)



Three Months Ended


Year Ended


March 31,


June 30,


September 30,


December 31,


December 31,


2019


2019


2019


2019


2019

Revenues










Gross commission income

$

799



$

1,310



$

1,201



$

1,020



$

4,330


Service revenue

129



183



191



170



673


Franchise fees

70



112



108



96



386


Other

56



59



50



44



209


Net revenues

1,054



1,664



1,550



1,330



5,598


Expenses










Commission and other agent-related costs

575



955



875



751



3,156


Operating

330



343



343



329



1,345


Marketing

68



69



63



62



262


General and administrative

80



68



69



71



288


Former parent legacy cost, net





1





1


Restructuring costs, net

9



9



11



13



42


Impairments

1



2



240



6



249


Depreciation and amortization

41



43



42



43



169


Interest expense, net

63



80



66



40



249


Loss (gain) on the early extinguishment of debt

5





(10)





(5)


Total expenses

1,172



1,569



1,700



1,315



5,756


(Loss) income from continuing operations before income taxes, equity in earnings and noncontrolling interests

(118)



95



(150)



15



(158)


Income tax (benefit) expense from continuing operations

(32)



33



(23)





(22)


Equity in earnings of unconsolidated entities

(1)



(7)



(7)



(3)



(18)


Net (loss) income from continuing operations

(85)



69



(120)



18



(118)












(Loss) income from discontinued operations, net of tax

(14)



1



8



(2)



(7)


Estimated loss on the sale of discontinued operations, net of tax







(60)



(60)


Net (loss) income from discontinued operations

(14)



1



8



(62)



(67)












Net (loss) income

(99)



70



(112)



(44)



(185)


Less: Net income attributable to noncontrolling interests



(1)



(1)



(1)



(3)


Net (loss) income attributable to Realogy Holdings

$

(99)



$

69



$

(113)



$

(45)



$

(188)












Basic (loss) earnings per share attributable to Realogy Holdings shareholders:



Basic (loss) earnings per share from continuing operations

$

(0.75)



$

0.59



$

(1.06)



$

0.15



$

(1.06)


Basic (loss) earnings per share from discontinued operations

(0.12)



0.01



0.07



(0.54)



(0.59)


Basic (loss) earnings per share

$

(0.87)



$

0.60



(0.99)



(0.39)



(1.65)


Diluted (loss) earnings per share attributable to Realogy Holdings shareholders:



Diluted (loss) earnings per share from continuing operations

$

(0.75)



$

0.59



$

(1.06)



$

0.15



$

(1.06)


Diluted (loss) earnings per share from discontinued operations

(0.12)



0.01



0.07



(0.54)



(0.59)


Diluted (loss) earnings per share

$

(0.87)



$

0.60



$

(0.99)



$

(0.39)



$

(1.65)


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







Basic

114.0



114.3



114.3



114.3



114.2


Diluted

114.0



114.9



114.3



114.3



114.2



Table 7


REALOGY HOLDINGS CORP.

NON-GAAP RECONCILIATION - FREE CASH FLOW AND

FREE CASH FLOW INCLUDING DISCONTINUED OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In millions)


A reconciliation of net income (loss) attributable to Realogy Holdings to Free Cash Flow and Free Cash Flow including discontinued operations is set forth in the following table:



Three Months Ended
September 30,


Nine Months Ended
September 30,


2020


2019


2020


2019

Net income (loss) attributable to Realogy Holdings

$

98



$

(113)



$

(378)



$

(143)


Less: Net (loss) income from discontinued operations

(46)



8



(114)



(5)


Net income (loss) from continuing operations attributable to Realogy Holdings

144



(121)



(264)



(138)


Income tax expense (benefit), net of payments

63



(24)



(58)



(29)


Interest expense, net

48



66



208



209


Cash interest payments

(26)



(29)



(128)



(124)


Depreciation and amortization

43



42



134



126


Capital expenditures

(19)



(21)



(60)



(71)


Restructuring costs and former parent legacy items, net of payments

7



2



12



1


Impairments

6



240



460



243


(Gain) loss on the early extinguishment of debt



(10)



8



(5)


Working capital adjustments

78



(29)



26



(33)


Free Cash Flow

344



116



338



179


Contribution from discontinued operations

51



58



(51)



(30)


Free Cash Flow including discontinued operations

$

395



$

174



$

287



$

149


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


Three Months Ended
September 30,


Nine Months Ended
September 30,


2020


2019


2020


2019

Net cash provided by operating activities

$

385



$

174



$

418



$

230


Less: Net cash provided by (used in) operating activities from discontinued operations

22



37



20



(20)


Net cash provided by operating activities from continuing operations

363



137



398



250


Property and equipment additions

(19)



(21)



(60)



(71)


Effect of exchange rates on cash and cash equivalents








Free Cash Flow

344



116



338



179


Contribution from discontinued operations

51



58



(51)



(30)


Free Cash Flow including discontinued operations

$

395



$

174



$

287



$

149










Net cash used in investing activities

$

(21)



$

(24)



$

(84)



$

(86)


Net cash used in financing activities

$

(671)



$

(150)



$

(203)



$

(104)


Table 8a


NON-GAAP RECONCILIATION - SENIOR SECURED LEVERAGE RATIO

FOR THE FOUR-QUARTER PERIOD ENDED SEPTEMBER 30, 2020

(In millions)


The senior secured leverage ratio is tested quarterly pursuant to the terms of the senior secured credit facilities*. For the four-quarter period ended September 30, 2020, Realogy Group LLC was required to maintain a senior secured leverage ratio not exceed 6.50 to 1.00. The senior secured leverage ratio is measured by dividing Realogy Group LLC's total senior secured net debt by the trailing four quarters EBITDA calculated on a Pro Forma Basis, as those terms are defined in the Senior Secured Credit Agreement. Total senior secured net debt does not include the 7.625% Senior Secured Second Lien Notes, our unsecured indebtedness, including the Unsecured Notes, or the securitization obligations. EBITDA calculated on a Pro Forma Basis, as defined in the Senior Secured Credit Agreement, includes adjustments to Operating EBITDA for retention and disposition costs, 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 trailing four-quarter period. The Company was in compliance with the senior secured leverage ratio covenant at September 30, 2020 with a ratio of 2.29 to 1.00.


A reconciliation of net loss attributable to Realogy Group to Operating EBITDA including discontinued operations, Operating EBITDA and EBITDA calculated on a Pro Forma Basis, as those terms are defined in the Senior Secured Credit Agreement, for the four-quarter period ended September 30, 2020 is 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,
2019


September 30,
2019


December 31,
2019


September 30,
2020


September 30,
2020

Net loss attributable to Realogy Group (a)

$

(188)



$

(143)



$

(45)



$

(378)



$

(423)


Income tax benefit

(22)



(22)





(67)



(67)


Loss before income taxes

(210)



(165)



(45)



(445)



(490)


Depreciation and amortization

169



126



43



134



177


Interest expense, net

249



209



40



208



248


Restructuring costs, net

42



29



13



38



51


Impairments

249



243



6



460



466


Former parent legacy cost, net

1



1





1



1


(Gain) loss on the early extinguishment of debt

(5)



(5)





8



8


Adjustments attributable to discontinued operations (b)

95



26



69



116



185


Operating EBITDA including discontinued operations (c)

590



464



126



520



646


Less: Contribution to Operating EBITDA from discontinued operations


9


Operating EBITDA


637


Bank covenant adjustments:



Pro forma effect of business optimization initiatives (d)

49


Non-cash charges (e)


29


Pro forma effect of acquisitions and new franchisees (f)


6


EBITDA as defined by the Senior Secured Credit Agreement*


$

721


Total senior secured net debt (g)


$

1,654


Senior secured leverage ratio*


2.29

x






(a)

Net loss attributable to Realogy consists of: (i) loss of $45 million for the fourth quarter of 2019, (ii) loss of $462 million for the first quarter of 2020, (iii) loss of $14 million for the second quarter of 2020 and (iv) income of $98 million for the third quarter of 2020.

(b)

Includes depreciation and amortization, interest expense, income tax and restructuring charges related to discontinued operations. In addition, includes the adjustment to record assets and liabilities held for sale at the lower of carrying value or fair value less any costs to sell based on a market price that is reasonable in relation to fair value.

(c)

Consists of Operating EBITDA including discontinued operations of: (i) $126 million for the fourth quarter of 2019, (ii) $32 million for the first quarter of 2020, (iii) $175 million for the second quarter of 2020 and (iv) $313 million for the third quarter of 2020.

(d)

Represents the four-quarter pro forma effect of business optimization initiatives.

(e)

Represents the elimination of non-cash expenses including $24 million of stock-based compensation expense, $4 million for the change in the allowance for doubtful accounts and notes reserves and $1 million of other items for the four-quarter period ended September 30, 2020.

(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, 2019. 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, 2019.

(g)

Represents total borrowings under the senior secured credit facilities (including the Revolving Credit Facility and Term Loan B Facility) and Term Loan A Facility and borrowings secured by a first priority lien on our assets of $1,884 million plus $33 million of finance lease obligations less $263 million of readily available cash as of September 30, 2020. Pursuant to the terms of our senior secured credit facilities, total senior secured net debt does not include our securitization obligations, 7.625% Senior Secured Second Lien Notes or unsecured indebtedness, including the Unsecured Notes.



*

Our senior secured credit facilities include the facilities under our Amended and Restated Credit Agreement dated as of March 5, 2013, as amended from time to time (the "Senior Secured Credit Agreement"), and the Term Loan A Agreement dated as of October 23, 2015 (the "Term Loan A Agreement"), as amended from time to time. Our Senior Secured Second Lien Notes include our 7.625% Senior Secured Second Lien Notes due 2025.


On July 24, 2020, Realogy Group LLC entered into amendments to the Senior Secured Credit Agreement and Term Loan A Agreement (referred to collectively herein as the "Amendments"), pursuant to which the senior secured leverage ratio (the financial covenant under such agreements) has been temporarily eased and certain other covenants have been temporarily tightened during the covenant period. See the Company's Current Report on Form 8-K filed on July 30, 2020 for additional information.


Pursuant to the Amendments, the definition of "Consolidated Net Income" (as defined in the Senior Secured Credit Agreement) should be adjusted for discontinued operations (pending divestiture) solely for purposes of calculating compliance with the senior secured leverage ratio. Such adjustment is not reflected in the calculation above for consistency with the presentation of Consolidated Leverage Ratio under the 9.375% Senior Notes and 7.625% Senior Secured Second Lien Notes. Had discontinued operations been included for the four-quarter period ended September 30, 2020, the senior secured leverage ratio for the four-quarter period ended September 30, 2020 would have been 2.24x.

Table 8b


NET DEBT LEVERAGE RATIO

FOR THE FOUR-QUARTER PERIOD ENDED SEPTEMBER 30, 2020

(In millions)


Net corporate debt (excluding securitizations) divided by EBITDA calculated on a Pro Forma Basis, as those terms are defined in the senior secured credit facilities, for the four-quarter period ended September 30, 2020 (referred to as net debt leverage ratio) is set forth in the following table:




As of September 30, 2020

Revolver


$

140


Term Loan A


694


Term Loan B


1,050


7.625% Senior Secured Second Lien Notes


550


4.875% Senior Notes


407


9.375% Senior Notes


550


Finance lease obligations


33


Corporate Debt (excluding securitizations)


3,424


Less: Cash and cash equivalents


379


Net Corporate Debt (excluding securitizations)


$

3,045





EBITDA as defined by the Senior Secured Credit Agreement (a)


$

721





Net Debt Leverage Ratio(b)


4.2

x






(a)

See Table 8a for a reconciliation of Net loss attributable to Realogy Group to EBITDA as defined by the Senior Secured Credit Agreement.

(b)

Net Debt Leverage Ratio is substantially similar to Consolidated Leverage Ratio (as defined under the indentures governing the 9.375% Notes and 7.625% Senior Secured Second Lien Notes), except that when the Consolidated Leverage Ratio is measured at March 31 of any given year, the calculation includes a positive $200 million seasonality adjustment to cash and cash equivalents. In addition, the indentures do not allow for the adjustment to Consolidated Net Income (as defined in the indentures) described in the asterisk footnote to Table 8a.

Table 9

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 (gain) loss on the early extinguishment of debt, impairments, the tax effect of the foregoing adjustments and net income (loss) from discontinued operations. The gross amounts for these items as well as the adjustment for income taxes are presented.

Operating EBITDA is defined by us as net income (loss) before depreciation and amortization, interest expense, net, income taxes, and other items that are not core to the operating activities of the Company such as restructuring charges, former parent legacy items, gains or losses on the early extinguishment of debt, 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, gains or losses on the early extinguishment of debt, former parent legacy items, 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.

Operating EBITDA including discontinued operations includes Operating EBITDA, as defined above plus the Operating EBITDA contribution from discontinued operations on the same basis.

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, impairments, (gain) loss on the early extinguishment of debt and working capital adjustments. Free Cash Flow including discontinued operations includes Free Cash Flow, as defined above plus the Free Cash Flow contribution from discontinued operations on the same basis. 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.

We present Operating EBITDA including discontinued operations and Free Cash Flow including discontinued operations to facilitate period over period results, however, these non-GAAP terms are subject to the same limitations noted above for Operating EBITDA and Free Cash Flow and, in addition, include the add-back of earnings and cash from discontinued operations, which is not indicative of the results of our continuing operations.

SOURCE Realogy Holdings Corp.