Delaware | 001-35674 | 20-8050955 | ||||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
Delaware | 333-148153 | 20-4381990 | ||||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operations and Financial Condition. |
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits |
Exhibit No. | Description | |
99.1 | Press Release dated August 3, 2018. |
REALOGY HOLDINGS CORP. | ||
By: | /s/ Anthony E. Hull | |
Anthony E. Hull, Executive Vice President, Chief Financial Officer and Treasurer |
REALOGY GROUP LLC | ||
By: | /s/ Anthony E. Hull | |
Anthony E. Hull, Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit No. | Exhibit | |
99.1 |
• | Revenue was $1.82 billion, an increase of 2% compared with the second quarter in 2017, driven by increases in homesale transaction volume (transaction sides multiplied by average sale price). |
• | Consistent with our guidance, the Company's combined homesale transaction volume increased 3% compared with the second quarter of 2017, due to a 4% volume gain at RFG and a 1% volume gain at NRT. For reference, the National Association of Realtors reported a homesale transaction volume increase of 1% in the second quarter of 2018. |
• | Operating EBITDA was $276 million, an increase of $7 million compared with the second quarter of 2017. (See Table 4a)2 |
• | Net income was $123 million compared with net income of $109 million in the second quarter of 2017. Basic earnings per share was $0.97 compared with basic earnings per share of $0.79 in the second quarter of 2017. |
• | Adjusted net income per share was $1.00 compared with adjusted net income per share of $0.78 in the second quarter of 2017. (See Table 1a)1 |
• | Free Cash Flow for the second quarter of 2018 was $192 million compared with $229 million for the second quarter of 2017. (See Table 6)3 |
• | In the first half of 2018, Realogy returned $223 million of capital to stockholders through share repurchases and dividends. |
Investor Contacts: | Media Contact: | |
Alicia Swift | Nick Renda | |
(973) 407-4669 | (973) 407-7470 | |
alicia.swift@realogy.com | nick.renda@realogy.com | |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenues | |||||||||||||||
Gross commission income | $ | 1,388 | $ | 1,374 | $ | 2,290 | $ | 2,255 | |||||||
Service revenue | 263 | 255 | 460 | 449 | |||||||||||
Franchise fees | 114 | 110 | 193 | 185 | |||||||||||
Other | 55 | 54 | 106 | 107 | |||||||||||
Net revenues | 1,820 | 1,793 | 3,049 | 2,996 | |||||||||||
Expenses | |||||||||||||||
Commission and other agent-related costs | 1,009 | 970 | 1,654 | 1,575 | |||||||||||
Operating | 392 | 385 | 784 | 768 | |||||||||||
Marketing | 69 | 70 | 136 | 132 | |||||||||||
General and administrative | 75 | 98 | 164 | 187 | |||||||||||
Former parent legacy benefit, net | — | (11 | ) | — | (11 | ) | |||||||||
Restructuring costs, net | 6 | 2 | 36 | 7 | |||||||||||
Depreciation and amortization | 49 | 49 | 97 | 99 | |||||||||||
Interest expense, net | 46 | 47 | 79 | 86 | |||||||||||
Loss on the early extinguishment of debt | — | — | 7 | 4 | |||||||||||
Total expenses | 1,646 | 1,610 | 2,957 | 2,847 | |||||||||||
Income before income taxes, equity in (earnings) losses and noncontrolling interests | 174 | 183 | 92 | 149 | |||||||||||
Income tax expense | 52 | 73 | 33 | 64 | |||||||||||
Equity in (earnings) losses of unconsolidated entities | (2 | ) | — | 2 | 3 | ||||||||||
Net income | 124 | 110 | 57 | 82 | |||||||||||
Less: Net income attributable to noncontrolling interests | (1 | ) | (1 | ) | (1 | ) | (1 | ) | |||||||
Net income attributable to Realogy Holdings | $ | 123 | $ | 109 | $ | 56 | $ | 81 | |||||||
Earnings per share attributable to Realogy Holdings: | |||||||||||||||
Basic earnings per share | $ | 0.97 | $ | 0.79 | $ | 0.44 | $ | 0.58 | |||||||
Diluted earnings per share | $ | 0.96 | $ | 0.78 | $ | 0.43 | $ | 0.58 | |||||||
Weighted average common and common equivalent shares of Realogy Holdings outstanding: | |||||||||||||||
Basic | 126.5 | 137.6 | 128.4 | 138.6 | |||||||||||
Diluted | 127.6 | 138.9 | 129.7 | 139.9 | |||||||||||
Cash dividends declared per share | $ | 0.09 | $ | 0.09 | $ | 0.18 | $ | 0.18 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income attributable to Realogy Holdings | $ | 123 | $ | 109 | $ | 56 | $ | 81 | |||||||
Addback: | |||||||||||||||
Mark-to-market interest rate swap gains | — | 5 | (12 | ) | 4 | ||||||||||
Former parent legacy benefit, net | — | (11 | ) | — | (11 | ) | |||||||||
Restructuring costs, net | 6 | 2 | 36 | 7 | |||||||||||
Loss on the early extinguishment of debt | — | — | 7 | 4 | |||||||||||
Adjustments for tax effect (a) | (2 | ) | 2 | (8 | ) | (2 | ) | ||||||||
Adjusted net income attributable to Realogy Holdings | $ | 127 | $ | 107 | $ | 79 | $ | 83 | |||||||
Earnings per share | |||||||||||||||
Basic earnings per share: | $ | 0.97 | $ | 0.79 | $ | 0.44 | $ | 0.58 | |||||||
Diluted earnings per share: | $ | 0.96 | $ | 0.78 | $ | 0.43 | $ | 0.58 | |||||||
Adjusted earnings per share | |||||||||||||||
Adjusted basic earnings per share: | $ | 1.00 | $ | 0.78 | $ | 0.62 | $ | 0.60 | |||||||
Adjusted diluted earnings per share: | $ | 1.00 | $ | 0.77 | $ | 0.61 | $ | 0.59 | |||||||
Weighted average common and common equivalent shares outstanding: | |||||||||||||||
Basic: | 126.5 | 137.6 | 128.4 | 138.6 | |||||||||||
Diluted: | 127.6 | 138.9 | 129.7 | 139.9 |
(a) | Reflects tax effect of adjustments at the Company's blended state and federal statutory rate. |
June 30, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 230 | $ | 227 | |||
Restricted cash | 9 | 7 | |||||
Trade receivables (net of allowance for doubtful accounts of $9 and $11) | 198 | 153 | |||||
Relocation receivables | 336 | 223 | |||||
Other current assets | 156 | 179 | |||||
Total current assets | 929 | 789 | |||||
Property and equipment, net | 283 | 289 | |||||
Goodwill | 3,711 | 3,710 | |||||
Trademarks | 749 | 749 | |||||
Franchise agreements, net | 1,260 | 1,294 | |||||
Other intangibles, net | 269 | 284 | |||||
Other non-current assets | 290 | 222 | |||||
Total assets | $ | 7,491 | $ | 7,337 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 178 | $ | 156 | |||
Securitization obligations | 261 | 194 | |||||
Current portion of long-term debt | 788 | 127 | |||||
Accrued expenses and other current liabilities | 413 | 478 | |||||
Total current liabilities | 1,640 | 955 | |||||
Long-term debt | 2,812 | 3,221 | |||||
Deferred income taxes | 341 | 327 | |||||
Other non-current liabilities | 256 | 212 | |||||
Total liabilities | 5,049 | 4,715 | |||||
Commitments and contingencies | |||||||
Equity: | |||||||
Realogy Holdings preferred stock: $.01 par value; 50,000,000 shares authorized, none issued and outstanding at June 30, 2018 and December 31, 2017 | — | — | |||||
Realogy Holdings common stock: $.01 par value; 400,000,000 shares authorized, 124,647,343 shares issued and outstanding at June 30, 2018 and 131,636,870 shares issued and outstanding at December 31, 2017 | 1 | 1 | |||||
Additional paid-in capital | 5,073 | 5,285 | |||||
Accumulated deficit | (2,588 | ) | (2,631 | ) | |||
Accumulated other comprehensive loss | (47 | ) | (37 | ) | |||
Total stockholders' equity | 2,439 | 2,618 | |||||
Noncontrolling interests | 3 | 4 | |||||
Total equity | 2,442 | 2,622 | |||||
Total liabilities and equity | $ | 7,491 | $ | 7,337 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2018 | 2017 | % Change | 2018 | 2017 | % Change | ||||||||||||||||||
RFG (a) | |||||||||||||||||||||||
Closed homesale sides | 313,278 | 322,745 | (3 | %) | 537,268 | 547,995 | (2 | %) | |||||||||||||||
Average homesale price | $ | 312,087 | $ | 291,355 | 7 | % | $ | 303,955 | $ | 284,973 | 7 | % | |||||||||||
Average homesale broker commission rate | 2.48 | % | 2.50 | % | (2 | ) bps | 2.49 | % | 2.50 | % | (1 | ) bps | |||||||||||
Net royalty per side (b) | $ | 336 | $ | 316 | 6 | % | $ | 325 | $ | 309 | 5 | % | |||||||||||
NRT | |||||||||||||||||||||||
Closed homesale sides | 100,745 | 101,043 | — | % | 166,842 | 167,613 | — | % | |||||||||||||||
Average homesale price | $ | 537,748 | $ | 528,518 | 2 | % | $ | 532,706 | $ | 520,844 | 2 | % | |||||||||||
Average homesale broker commission rate | 2.43 | % | 2.44 | % | (1 | ) bps | 2.44 | % | 2.45 | % | (1 | ) bps | |||||||||||
Gross commission income per side | $ | 13,804 | $ | 13,625 | 1 | % | $ | 13,750 | $ | 13,480 | 2 | % | |||||||||||
Cartus | |||||||||||||||||||||||
Initiations | 53,230 | — | 50,798 | 5 | % | 91,183 | 87,313 | 4 | % | ||||||||||||||
Referrals | 26,662 | 25,284 | 5 | % | 42,693 | 40,487 | 5 | % | |||||||||||||||
TRG | |||||||||||||||||||||||
Purchase title and closing units | 46,189 | 47,008 | (2 | %) | 77,930 | 78,305 | — | % | |||||||||||||||
Refinance title and closing units | 4,782 | 6,324 | (24 | %) | 10,192 | 14,857 | (31 | %) | |||||||||||||||
Average fee per closing unit | $ | 2,282 | $ | 2,139 | 7 | % | $ | 2,231 | $ | 2,080 | 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 six months ended June 30, 2018 the net royalty per side increased 6% and 5%, respectively, while average homesale price increased 7% for both the three and six months ended June 30, 2018. 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. |
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. |
Three Months Ended | |||||||
June 30, 2018 | June 30, 2017 | ||||||
Net income attributable to Realogy Holdings | $ | 123 | $ | 109 | |||
Income tax expense | 52 | 73 | |||||
Income before income taxes | 175 | 182 | |||||
Depreciation and amortization | 49 | 49 | |||||
Interest expense, net | 46 | 47 | |||||
Restructuring costs, net | 6 | 2 | |||||
Former parent legacy benefit, net | — | (11 | ) | ||||
Operating EBITDA | $ | 276 | $ | 269 |
Revenues (a) | $ Change | % Change | Operating EBITDA (b) | $ Change | % Change | Operating EBITDA Margin | Change | |||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||
RFG | $ | 237 | $ | 237 | $ | — | — | % | $ | 173 | $ | 167 | $ | 6 | 4 | % | 73 | % | 70 | % | 3 | |||||||||||||||||
NRT | 1,408 | 1,392 | 16 | 1 | 61 | 78 | (17 | ) | (22 | ) | 4 | 6 | (2 | ) | ||||||||||||||||||||||||
Cartus | 105 | 102 | 3 | 3 | 34 | 27 | 7 | 26 | 32 | 26 | 6 | |||||||||||||||||||||||||||
TRG | 162 | 157 | 5 | 3 | 31 | 26 | 5 | 19 | 19 | 17 | 2 | |||||||||||||||||||||||||||
Corporate and Other | (92 | ) | (95 | ) | 3 | * | (23 | ) | (29 | ) | 6 | * | ||||||||||||||||||||||||||
Total Company | $ | 1,820 | $ | 1,793 | $ | 27 | 2 | % | $ | 276 | $ | 269 | $ | 7 | 3 | % | 15 | % | 15 | % | — | |||||||||||||||||
Less: Depreciation and amortization | 49 | 49 | ||||||||||||||||||||||||||||||||||||
Interest expense, net | 46 | 47 | ||||||||||||||||||||||||||||||||||||
Income tax expense | 52 | 73 | ||||||||||||||||||||||||||||||||||||
Restructuring costs, net (c) | 6 | 2 | ||||||||||||||||||||||||||||||||||||
Former parent legacy benefit, net (d) | — | (11 | ) | |||||||||||||||||||||||||||||||||||
Net income attributable to Realogy Holdings | $ | 123 | $ | 109 |
* | not meaningful. |
(a) | Includes the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by NRT of $92 million and $95 million during the three months ended June 30, 2018 and 2017, respectively. |
(b) | Includes an $8 million expense related to the settlement of the Strader legal matter in the Corporate and Other segment for the three months ended June 30, 2017. |
(c) | Restructuring charges incurred for the three months ended June 30, 2018 include $4 million at NRT, $1 million at Cartus and $1 million at TRG. Restructuring charges incurred for the three months ended June 30, 2017 include $1 million at RFG and $1 million at NRT. |
(d) | Former parent legacy items are recorded in the Corporate and Other segment. |
Six Months Ended | |||||||
June 30, 2018 | June 30, 2017 | ||||||
Net income attributable to Realogy Holdings | $ | 56 | $ | 81 | |||
Income tax expense | 33 | 64 | |||||
Income before income taxes | 89 | 145 | |||||
Depreciation and amortization | 99 | 99 | |||||
Interest expense, net | 79 | 86 | |||||
Restructuring costs, net | 36 | 7 | |||||
Former parent legacy benefit, net | — | (11 | ) | ||||
Loss on the early extinguishment of debt | 7 | 4 | |||||
Operating EBITDA | $ | 310 | $ | 330 |
Revenues (a) | $ Change | % Change | Operating EBITDA (b) | $ Change | % Change | Operating EBITDA Margin | Change | |||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||
RFG | $ | 413 | $ | 407 | $ | 6 | 1 | % | $ | 278 | $ | 269 | $ | 9 | 3 | % | 67 | % | 66 | % | 1 | |||||||||||||||||
NRT | 2,325 | 2,289 | 36 | 2 | 16 | 57 | (41 | ) | (72 | ) | 1 | 2 | (1 | ) | ||||||||||||||||||||||||
Cartus | 184 | 179 | 5 | 3 | 33 | 28 | 5 | 18 | 18 | 16 | 2 | |||||||||||||||||||||||||||
TRG | 282 | 277 | 5 | 2 | 25 | 28 | (3 | ) | (11) | 9 | 10 | (1 | ) | |||||||||||||||||||||||||
Corporate and Other | (155 | ) | (156 | ) | 1 | * | (42 | ) | (52 | ) | 10 | * | ||||||||||||||||||||||||||
Total Company | $ | 3,049 | $ | 2,996 | $ | 53 | 2 | % | $ | 310 | $ | 330 | $ | (20 | ) | (6 | %) | 10 | % | 11 | % | (1 | ) | |||||||||||||||
Less: Depreciation and amortization (c) | 99 | 99 | ||||||||||||||||||||||||||||||||||||
Interest expense, net | 79 | 86 | ||||||||||||||||||||||||||||||||||||
Income tax expense | 33 | 64 | ||||||||||||||||||||||||||||||||||||
Restructuring costs, net (d) | 36 | 7 | ||||||||||||||||||||||||||||||||||||
Former parent legacy benefit, net (e) | — | (11 | ) | |||||||||||||||||||||||||||||||||||
Loss on the early extinguishment of debt (e) | 7 | 4 | ||||||||||||||||||||||||||||||||||||
Net income attributable to Realogy Holdings | $ | 56 | $ | 81 |
* | not meaningful. |
(a) | Includes the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by NRT of $155 million and $156 million during the six months ended June 30, 2018 and 2017, respectively. |
(b) | Includes an $8 million expense related to the settlement of the Strader legal matter in the Corporate and Other segment for the six months ended June 30, 2017. |
(c) | Depreciation and amortization for the six months ended June 30, 2018 includes $2 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 six months ended June 30, 2018 include $2 million at RFG, $21 million at NRT, $9 million at Cartus, $2 million at TRG and $2 million at Corporate and Other. Restructuring charges incurred for the six months ended June 30, 2017 include $1 million at RFG and $6 million at NRT. |
(e) | Former parent legacy items and loss on the early extinguishment of debt are recorded in the Corporate and Other segment. |
Three Months Ended | |||||||
March 31, 2018 | June 30, 2018 | ||||||
Net revenues (a) | |||||||
Real Estate Franchise Services | $ | 176 | $ | 237 | |||
Company Owned Real Estate Brokerage Services | 917 | 1,408 | |||||
Relocation Services | 79 | 105 | |||||
Title and Settlement Services | 120 | 162 | |||||
Corporate and Other | (63 | ) | (92 | ) | |||
Total Company | $ | 1,229 | $ | 1,820 | |||
Operating EBITDA | |||||||
Real Estate Franchise Services | $ | 105 | $ | 173 | |||
Company Owned Real Estate Brokerage Services | (45 | ) | 61 | ||||
Relocation Services | (1 | ) | 34 | ||||
Title and Settlement Services | (6 | ) | 31 | ||||
Corporate and Other | (19 | ) | (23 | ) | |||
Total Company | $ | 34 | $ | 276 | |||
Non-GAAP Reconciliation - Operating EBITDA | |||||||
Total Company Operating EBITDA | $ | 34 | $ | 276 | |||
Less: Depreciation and amortization (b) | 50 | 49 | |||||
Interest expense, net | 33 | 46 | |||||
Income tax (benefit) expense | (19 | ) | 52 | ||||
Restructuring costs, net (c) | 30 | 6 | |||||
Loss on the early extinguishment of debt (d) | 7 | — | |||||
Net income (loss) attributable to Realogy Holdings | $ | (67 | ) | $ | 123 |
(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 and $92 million for the three months ended March 31, 2018 and June 30, 2018, respectively. Such amounts are eliminated through the Corporate and Other line. |
(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. |
Three Months Ended | |||||||
March 31, | June 30, | ||||||
2018 | 2018 | ||||||
Real Estate Franchise Services | $ | 2 | $ | — | |||
Company Owned Real Estate Brokerage Services | 17 | 4 | |||||
Relocation Services | 8 | 1 | |||||
Title and Settlement Services | 1 | 1 | |||||
Corporate and Other | 2 | — | |||||
Total Company | $ | 30 | $ | 6 |
(d) | Loss on the early extinguishment of debt is recorded in the Corporate and Other segment. |
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. |
(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. |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, 2018 | June 30, 2017 | June 30, 2018 | June 30, 2017 | ||||||||||||
Net income attributable to Realogy Holdings | $ | 123 | $ | 109 | $ | 56 | $ | 81 | |||||||
Income tax expense, net of payments | 48 | 67 | 25 | 56 | |||||||||||
Interest expense, net | 46 | 47 | 79 | 86 | |||||||||||
Cash interest payments | (66 | ) | (62 | ) | (87 | ) | (86 | ) | |||||||
Depreciation and amortization | 49 | 49 | 97 | 99 | |||||||||||
Capital expenditures | (24 | ) | (20 | ) | (49 | ) | (48 | ) | |||||||
Restructuring costs and former parent legacy items, net of payments | (3 | ) | (15 | ) | 16 | (18 | ) | ||||||||
Loss on the early extinguishment of debt | — | — | 7 | 4 | |||||||||||
Working capital adjustments | 28 | 72 | (71 | ) | 12 | ||||||||||
Relocation receivables (assets), net of securitization obligations | (9 | ) | (18 | ) | (47 | ) | (29 | ) | |||||||
Free Cash Flow | $ | 192 | $ | 229 | $ | 26 | $ | 157 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, 2018 | June 30, 2017 | June 30, 2018 | June 30, 2017 | ||||||||||||
Net cash provided by operating activities | $ | 139 | $ | 198 | $ | 9 | $ | 186 | |||||||
Property and equipment additions | (24 | ) | (20 | ) | (49 | ) | (48 | ) | |||||||
Net change in securitization | 78 | 51 | 67 | 18 | |||||||||||
Effect of exchange rates on cash and cash equivalents | (1 | ) | — | (1 | ) | 1 | |||||||||
Free Cash Flow | $ | 192 | $ | 229 | $ | 26 | $ | 157 | |||||||
Net cash used in investing activities | $ | (36 | ) | $ | (23 | ) | $ | (45 | ) | $ | (56 | ) | |||
Net cash provided by (used in) financing activities | $ | (51 | ) | $ | (159 | ) | $ | 42 | $ | (186 | ) |
Less | Equals | Plus | Equals | ||||||||||||||||
Year Ended | Six Months Ended | Six Months Ended | Six Months Ended | Twelve Months Ended | |||||||||||||||
December 31, 2017 | June 30, 2017 | December 31, 2017 | June 30, 2018 | June 30, 2018 | |||||||||||||||
Net income attributable to Realogy Group (a) | $ | 431 | $ | 81 | $ | 350 | $ | 56 | $ | 406 | |||||||||
Income tax (benefit) expense | (65 | ) | 64 | (129 | ) | 33 | (96 | ) | |||||||||||
Income before income taxes | 366 | 145 | 221 | 89 | 310 | ||||||||||||||
Depreciation and amortization (b) | 201 | 99 | 102 | 99 | 201 | ||||||||||||||
Interest expense, net | 158 | 86 | 72 | 79 | 151 | ||||||||||||||
Restructuring costs, net | 12 | 7 | 5 | 36 | 41 | ||||||||||||||
Former parent legacy (benefit) cost, net | (10 | ) | (11 | ) | 1 | — | 1 | ||||||||||||
Loss on the early extinguishment of debt | 5 | 4 | 1 | 7 | 8 | ||||||||||||||
Operating EBITDA (c) | $ | 732 | $ | 330 | $ | 402 | $ | 310 | 712 | ||||||||||
Bank covenant adjustments: | |||||||||||||||||||
Pro forma effect of business optimization initiatives (d) | 31 | ||||||||||||||||||
Non-cash charges (e) | 40 | ||||||||||||||||||
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 | $ | 791 | |||||||||||||||||
Total senior secured net debt (h) | $ | 2,001 | |||||||||||||||||
Senior secured leverage ratio | 2.53 | x |
(a) | Net income attributable to Realogy consists of: (i) income of $95 million for the third quarter of 2017, (ii) income of $255 million for the fourth quarter of 2017, (iii) loss of $67 million for the first quarter of 2018 and (iv) income of $123 million for the second quarter of 2018. |
(b) | Depreciation and amortization includes: (i) $1 million for the third quarter of 2017, (ii) $2 million for the fourth quarter of 2017 and (iii) $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) $258 million for the third quarter of 2017, (ii) $144 million for the fourth quarter of 2017, (iii) $34 million for the first quarter of 2018 and (iv) $276 million for the second quarter of 2018. |
(d) | Represents the twelve-month pro forma effect of business optimization initiatives. |
(e) | Represents the elimination of non-cash expenses, including $48 million of stock-based compensation expense and $1 million of foreign exchange benefit less $9 million for the change in the allowance for doubtful accounts and notes reserves for the twelve months ended June 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 July 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 July 1, 2017. |
(g) | Incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended June 30, 2018. |
(h) | Represents total borrowings under the senior secured credit facilities and borrowings secured by a first priority lien on our assets of $2,132 million plus $29 million of capital lease obligations less $160 million of readily available cash as of June 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. |
As of June 30, 2018 | ||||
Revolver | $ | 312 | ||
Term Loan A | 745 | |||
Term Loan B | 1,075 | |||
Senior Notes | 450 | |||
Senior Notes | 550 | |||
Senior Notes | 500 | |||
Total Debt (excluding securitizations) | $ | 3,632 | ||
Less: Cash and Cash Equivalents | 230 | |||
Net Corporate Debt | $ | 3,402 | ||
EBITDA as defined by the Senior Secured Credit Facility | $ | 791 | ||
Net Debt Leverage Ratio | 4.3 | x |
• | 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. |
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