Realogy Reports Financial Results For Full Year 2015

Reports Revenue of $5.7 billion, a 7% Increase Year-over-Year;

Announces $275 Million Share Repurchase Program

Feb 24, 2016, 07:25 ET from Realogy Holdings Corp.

MADISON, N.J., Feb. 24, 2016 /PRNewswire/ -- Realogy Holdings Corp. (NYSE: RLGY), the preeminent provider of residential real estate services in the United States, today reported financial results for the full year ended December 31, 2015, including the following highlights:

  • Revenue of $5.7 billion, which represents a 7% increase compared to 2014, was primarily driven by higher homesale transaction volume.
  • Net income was $184 million, a 29% increase from the prior year, and basic earnings per share was $1.26, up from $0.98 in 2014 (See Table 1).
  • Adjusted net income for the year was $219 million, and adjusted basic earnings per share was $1.49, increases of 27% and 26%, respectively, on a comparable basis to 2014 (See Table 1a).
  • Adjusted EBITDA was $845 million, compared to $779 million in 2014, a year-over-year increase of $66 million, or 8% (See Tables 5a and 5b).
  • The Company generated $437 million of free cash flow in full-year 2015, a 19% increase compared with $367 million during 2014 (See Table 7).

 

"We delivered solid results for the full year, reflecting the successful execution of our strategy to drive growth and innovation in our business, and we are optimistic about the long-term growth prospects in the housing market and confident in the strength of our platforms to capitalize on the opportunities ahead," said Richard A. Smith, Realogy's chairman, chief executive officer and president. "In particular, we are pleased to have reached the milestone of authorizing the return of capital to shareholders, which has been an important goal and underscores our confidence in the strength of our business model. Our financial strength enables us to implement this program earlier than we anticipated while maintaining the flexibility to invest in growth."

Share Repurchase Program

Realogy today announced that its Board of Directors has authorized a share repurchase program of up to $275 million of the Company's common stock. Repurchases may be made at management's discretion from time to time on the open market or through privately negotiated transactions. The size and timing of these repurchases will depend on price, market and economic conditions, legal and contractual requirements and other factors. The repurchase program has no time limit and may be suspended or discontinued at any time. The Company had approximately 146.7 million shares of common stock outstanding as of December 31, 2015.

Operational Results

In 2015, Realogy's franchise (RFG) and company-owned (NRT) business segments achieved a combined homesale transaction volume (transaction sides multiplied by average sale price) of approximately $456 billion, an 8% increase compared to 2014. RFG reported a homesale transaction increase of 3% and an average homesale price increase of 5%. NRT reported a homesale transaction increase of 9% and an average homesale price decrease of 2%. The increase in NRT's transaction sides was bolstered by the strategic acquisition of the Coldwell Banker United brokerage operations in Texas, the Carolinas and Florida, which had a lower average sales price relative to the remainder of NRT's markets.

In the fourth quarter of 2015, homesale transaction volume across the industry was adversely affected by the introduction of the new advance three-day closing disclosure regulations ("TRID"), which began impacting homesale transaction closings in mid-November. Specifically at NRT, where Realogy has the most visibility into transaction timing, TRID added approximately five days on average to the time necessary between the opening and closing of a homesale contract. While this change delayed closings into 2016 and impacted Realogy's revenue and Adjusted EBITDA in the fourth quarter of 2015, the Company believes that it is a timing issue, as the time needed to close a transaction has stabilized since the end of 2015. The Company also believes that TRID did not have any noticeable impact on NRT's contract cancellation rates or homebuyer demand in the fourth quarter.

In the title and settlement services sector, TRG was involved in the closing of approximately 169,000 transactions last year, reflecting a 15% increase in purchase units and a 40% increase in refinance units compared to the prior year. A portion of those gains was related to TRG's acquisition of Independence Title in 2015.

In the relocation segment, Cartus assisted in approximately 168,000 corporate and affinity relocations in nearly 150 countries in 2015, representing a 2% decline from 2014.

Looking Ahead

For the first quarter of 2016, Realogy expects to achieve homesale transaction volume gains in the range of 6% to 9% year-over-year for RFG and NRT combined. Based on the Company's closed and open sales activity in January and February, Realogy expects first quarter homesale transaction sides to be up 3% to 5% year-over-year and average homesale price to increase 3% to 4% on a company-wide basis.

"As we look to 2016, we are well positioned to build on the strong free cash flow we generated last year," said Anthony E. Hull, executive vice president, chief financial officer and treasurer. "We are focused on business optimization initiatives to enhance our value proposition and service levels while leveraging our scale and infrastructure to improve efficiency and maximize profitability."

Realogy expects its ongoing business optimization efforts to deliver approximately $40 million of annual run-rate cost savings at the start of 2017, after incurring approximately $37 million of total restructuring costs through the end of 2016. The Company expects to realize $25 million of savings in 2016.

Balance Sheet

The Company ended the year with cash and cash equivalents of $415 million and $200 million of outstanding borrowings under its revolving credit facility.  Total long-term corporate debt, including the short-term portion, net of cash and cash equivalents, totaled $3,337 million at December 31, 2015.  The ratio of total corporate debt, net of cash and cash equivalents, to Adjusted EBITDA for the 12 months ended December 31, 2015 was 3.9x times. In May 2016, the Company expects to use cash on hand and/or borrowings under its revolving credit facility or other financing to retire the $500 million of 3.375% Senior Notes that mature at that time.

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

Investor Conference Call

Today, February 24, at 8:30 a.m. (EST), Realogy will hold a conference call via webcast to review its full year 2015 results. The call will be hosted by Richard A. Smith, chairman, chief executive officer and president, and Anthony E. Hull, executive vice president, chief financial officer and treasurer, and will conclude with an investor Q&A period with management.

Investors may access the conference call live via webcast at www.realogy.com under "Investors" or by dialing (888) 895-3527 (toll free); international participants should dial (706) 679-2250. Please dial in at least 5 to 10 minutes prior to start time. A webcast replay also will be available from February 24 through March 10, 2016.

About Realogy Holdings Corp.

Realogy Holdings Corp. (NYSE: RLGY) is a global leader in residential real estate franchising and brokerage with many of the best-known industry brands including Better Homes and Gardens® Real Estate, CENTURY 21®, Coldwell Banker®, Coldwell Banker Commercial®, The Corcoran Group®, ERA®, Sotheby's International Realty® and ZipRealty®.  Collectively, Realogy's franchise system members operate approximately 13,600 offices with more than 256,800 independent sales associates conducting business in 110 countries and territories around the world.  NRT LLC, Realogy's company-owned real estate brokerage, is the largest residential brokerage company in the United States, operates under several of Realogy's brands and also provides related residential real estate services. The Company also owns Cartus, a prominent worldwide provider of relocation services to corporate and affinity clients, and Title Resource Group (TRG), a leading provider of title, settlement and underwriting services.  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" and "plans" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forward-looking in nature and not historical facts.  Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements.

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

Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings "Forward-Looking Statements" and "Risk Factors" in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2015, and our other filings made from time to time, in connection with considering any forward-looking statements that may be made by us and our businesses generally.  Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

Non-GAAP Financial Measures

This release includes certain non-GAAP financial measures as defined under SEC rules. See Table 8 for definitions of these non-GAAP financial measures and Tables 1a, 5a, 5b, 6, and 7 for reconciliations of the historical non-GAAP financial measures to their most comparable GAAP terms.

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

Investor Contacts:

Media Contact:

Alicia Swift

Mark Panus

(973) 407-4669

(973) 407-7215

alicia.swift@realogy.com

mark.panus@realogy.com

Jennifer Halchak

(973) 407-7487

jennifer.halchak@realogy.com

 

 

Table 1

REALOGY HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

Year Ended December 31,

2015

2014

2013

Revenues

Gross commission income

$

4,288

$

4,028

$

3,946

Service revenue

882

802

867

Franchise fees

353

333

322

Other

183

165

154

Net revenues

5,706

5,328

5,289

Expenses

Commission and other agent-related costs

2,931

2,755

2,691

Operating

1,458

1,350

1,371

Marketing

226

214

199

General and administrative

337

293

327

Former parent legacy benefit, net

(15)

(10)

(4)

Restructuring costs, net

10

(1)

4

Depreciation and amortization

201

190

176

Interest expense, net

231

267

281

Loss on the early extinguishment of debt

48

47

68

Other (income)/expense, net

(3)

(2)

1

Total expenses

5,424

5,103

5,114

Income before income taxes, equity in earnings and noncontrolling interests

282

225

175

Income tax expense (benefit)

110

87

(242)

Equity in earnings of unconsolidated entities

(16)

(9)

(26)

Net income

188

147

443

Less: Net income attributable to noncontrolling interests

(4)

(4)

(5)

Net income attributable to Realogy Holdings

$

184

$

143

$

438

Earnings per share attributable to Realogy Holdings:

Basic earnings per share

$

1.26

$

0.98

$

3.01

Diluted earnings per share

$

1.24

$

0.97

$

2.99

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

Basic

146.5

146.0

145.4

Diluted

148.1

147.2

146.6

 

 

Table 1a

REALOGY HOLDINGS CORP.

Adjusted Net Income and Adjusted Earnings Per Share

(In millions, except per share data)

Set forth in the table below is a reconciliation of Net income to Adjusted net income for the years ended December 31, 2015, 2014 and 2013:

Year Ended December 31,

2015

2014

2013

Net income attributable to Realogy Holdings

$

184

$

143

$

438

Addback:

Loss on the early extinguishment of debt, net of tax

29

28

40

Mark-to-market interest rate swap adjustments, net of tax

12

19

(2)

Former parent legacy benefit, net of tax

(9)

(6)

(2)

Reversal of the income tax valuation allowance

(11)

(341)

Bararsani legal settlement, net of tax

3

Adjusted net income attributable to Realogy Holdings

$

219

$

173

$

133

Adjusted earnings per share

Basic earnings per share:

$

1.49

$

1.18

$

0.91

Diluted earnings per share:

$

1.48

$

1.18

$

0.91

Weighted average common and common equivalent shares outstanding:

Basic:

146.5

146.0

145.4

Diluted:

148.1

147.2

146.6

 

 

Table 2

REALOGY HOLDINGS CORP.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

December 31,  2015

December 31,  2014

ASSETS

Current assets:

Cash and cash equivalents

$

415

$

313

Trade receivables (net of allowance for doubtful accounts of $20 and $27)

141

116

Relocation receivables

279

297

Other current assets

126

120

Total current assets

961

846

Property and equipment, net

254

233

Goodwill

3,618

3,477

Trademarks

745

736

Franchise agreements, net

1,428

1,495

Other intangibles, net

316

341

Other non-current assets

209

176

Total assets

$

7,531

$

7,304

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

139

$

128

Securitization obligations

247

269

Due to former parent

31

51

Current portion of long-term debt

740

19

Accrued expenses and other current liabilities

448

411

Total current liabilities

1,605

878

Long-term debt

2,962

3,836

Deferred income taxes

267

171

Other non-current liabilities

275

236

Total liabilities

5,109

5,121

Commitments and contingencies

Equity:

Realogy Holdings preferred stock: $.01 par value; 50,000,000 shares authorized, none issued and outstanding at December 31, 2015 and December 31, 2014

Realogy Holdings common stock: $.01 par value; 400,000,000 shares authorized 146,746,537 shares outstanding at December 31, 2015 and 146,382,923 shares outstanding at December 31, 2014

1

1

Additional paid-in capital

5,733

5,677

Accumulated deficit

(3,280)

(3,464)

Accumulated other comprehensive loss

(36)

(35)

Total stockholders' equity

2,418

2,179

Noncontrolling interests

4

4

Total equity

2,422

2,183

Total liabilities and equity

$

7,531

$

7,304

 

 

Table 3a

REALOGY HOLDINGS CORP.

2015 KEY DRIVERS

Quarter Ended

Year Ended

March 31,  2015

June 30,  2015

September 30,  2015

December 31,  2015

December 31, 2015

RFG (a) (b)

Closed homesale sides

212,139

307,293

318,873

263,028

1,101,333

Average homesale price

$

251,373

$

266,456

$

267,296

$

266,874

$

263,894

Average homesale broker commission rate

2.52%

2.52%

2.52%

2.49%

2.51%

Net effective royalty rate

4.52%

4.48%

4.47%

4.46%

4.48%

Royalty per side

$

302

$

312

$

312

$

309

$

309

NRT

Closed homesale sides (c)

60,187

99,435

99,789

77,333

336,744

Average homesale price (d)

$

502,597

$

493,746

$

479,874

$

487,024

$

489,673

Average homesale broker commission rate

2.43%

2.46%

2.48%

2.47%

2.46%

Gross commission income per side

$

13,019

$

12,830

$

12,524

$

12,645

$

12,730

Cartus

Initiations

38,168

51,528

42,303

35,750

167,749

Referrals

18,022

29,033

30,010

22,466

99,531

TRG

Purchase title and closing units (e)

21,643

35,596

41,245

32,057

130,541

Refinance title and closing units (f)

9,496

9,815

9,989

9,244

38,544

Average fee per closing unit

$

1,751

$

1,795

$

1,932

$

1,928

$

1,861

_______________

(a)

Includes all franchisees except for NRT.

(b)

In April 2015, NRT acquired a large franchisee of RFG.  As a result of the acquisition, the drivers of the acquired entity shifted from RFG to NRT.  Closed homesale sides for RFG, excluding the impact of the acquisition, would have increased 5% for the year ended December 31, 2015 compared to 2014.  The acquisition did not have a significant impact on the change in average homesale price for RFG.

(c)

Closed homesale sides for NRT, excluding the impact of larger acquisitions with an individual purchase price greater than $20 million, would have increased 2% for the year ended December 31, 2015 compared to 2014.

(d)

Average homesale price for NRT, excluding the impact of larger  acquisitions with an individual purchase price greater than $20 million, would have increased 1% for the year ended December 31, 2015 compared to 2014.

(e)

The amounts presented for the year ended December 31, 2015 include 13,304 purchase units as a result of the acquisition of Independence Title on July 1, 2015.

(f)

The amounts presented for the year ended December 31, 2015 include 3,403 refinance units as a result of the acquisition of Independence Title on July 1, 2015.

 

 

Table 3b

REALOGY HOLDINGS CORP.

2014 KEY DRIVERS

Quarter Ended

Year Ended

March 31,  2014

June 30,  2014

September 30,  2014

December 31,  2014

December 31,  2014

RFG (a)

Closed homesale sides

203,972

293,450

306,338

261,578

1,065,339

Average homesale price

$

236,711

$

252,606

$

255,780

$

251,539

$

250,214

Average homesale broker commission rate

2.53%

2.53%

2.51%

2.52%

2.52%

Net effective royalty rate

4.49%

4.46%

4.49%

4.52%

4.49%

Royalty per side

$

282

$

297

$

301

$

299

$

296

NRT

Closed homesale sides

56,685

87,803

89,472

74,372

308,332

Average homesale price

$

489,053

$

511,969

$

498,650

$

498,276

$

500,589

Average homesale broker commission rate

2.50%

2.47%

2.46%

2.45%

2.47%

Gross commission income per side

$

13,041

$

13,335

$

12,985

$

12,888

$

13,072

Cartus

Initiations

37,898

51,306

44,019

37,987

171,210

Referrals

16,496

27,346

29,259

23,654

96,755

TRG

Purchase title and closing units

20,775

33,104

32,355

26,840

113,074

Refinance title and closing units

7,199

6,410

6,520

7,400

27,529

Average price per closing unit

$

1,715

$

1,812

$

1,803

$

1,770

$

1,780

_______________

(a)

Includes all franchisees except for NRT.

 

 

Table 4a

REALOGY HOLDINGS CORP.

SELECTED 2015 FINANCIAL DATA

(In millions)

Three Months Ended

Year Ended

March 31,

June 30,

September 30,

December 31,

December 31,

2015

2015

2015

2015

2015

Net revenues (a)

Real Estate Franchise Services

$

151

$

213

$

214

$

177

$

755

Company Owned Real Estate Brokerage Services

796

1,289

1,267

992

4,344

Relocation Services

85

108

124

98

415

Title and Settlement Services

87

128

147

125

487

Corporate and Other

(57)

(87)

(84)

(67)

(295)

Total Company

$

1,062

$

1,651

$

1,668

$

1,325

$

5,706

EBITDA (b)

Real Estate Franchise Services

$

86

$

146

$

152

$

111

$

495

Company Owned Real Estate Brokerage Services

(16)

97

96

22

199

Relocation Services

7

29

47

22

105

Title and Settlement Services

(3)

20

20

11

48

Corporate and Other (c)

(16)

(27)

(6)

(72)

(121)

Total Company

$

58

$

265

$

309

$

94

$

726

Less:

Depreciation and amortization

46

52

55

48

201

Interest expense, net

68

50

70

43

231

Income tax expense (benefit)

(24)

66

74

(6)

110

Net Income (loss) attributable to Realogy Holdings

$

(32)

$

97

$

110

$

9

$

184

_______________

(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 $57 million, $87 million, $84 million and $67 million for the three months ended March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015, respectively.  Such amounts are eliminated through the Corporate and Other line.

Revenues for the Relocation Services segment include $8 million, $15 million, $16 million and $10 million of intercompany referral commissions paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015, respectively.  Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment.

(b)

The three months ended June 30, 2015 includes a net benefit of $1 million from former parent legacy items at the Corporate and Other segment.

The three months ended September 30, 2015 includes a net benefit of $14 million from former parent legacy items at the Corporate and Other segment.

The three months ended December 31, 2015 includes $48 million related to the loss on early extinguishment of debt and restructuring charges of $4 million at the Corporate and Other segment, restructuring charges of $5 million at the Company Owned Real Estate Brokerage Services segment and restructuring charges of $1 million at the Relocation Services segment.

The year ended December 31, 2015 includes $48 million related to the loss on early extinguishment of debt, a net benefit of $15 million from former parent legacy items and restructuring charges of $4 million at the Corporate and Other segment, restructuring charges of $5 million at the Company Owned Real Estate Brokerage Services segment and restructuring charges of $1 million at the Relocation Services segment.

(c)

The three months ended June 30, 2015 includes $6 million of costs related to the settlement of a legal matter, subject to court approval, and certain transaction costs related to acquisitions in April 2015.

 

 

Table 4b

REALOGY HOLDINGS CORP.

SELECTED 2014 FINANCIAL DATA

(In millions)

Three Months Ended

Year Ended

March 31,

June 30,

September 30,

December 31,

December 31,

2014

2014

2014

2014

2014

Net revenues (a)

Real Estate Franchise Services

$

144

$

196

$

199

$

177

$

716

Company Owned Real Estate Brokerage Services

750

1,182

1,175

971

4,078

Relocation Services

86

107

125

101

419

Title and Settlement Services

81

108

111

98

398

Corporate and Other

(54)

(81)

(79)

(69)

(283)

Total Company

$

1,007

$

1,512

$

1,531

$

1,278

$

5,328

EBITDA (b)

Real Estate Franchise Services

$

79

$

137

$

136

$

111

$

463

Company Owned Real Estate Brokerage Services

(20)

91

93

29

193

Relocation Services

7

26

47

22

102

Title and Settlement Services

(5)

17

15

9

36

Corporate and Other

(25)

(33)

(18)

(31)

(107)

Total Company

$

36

$

238

$

273

$

140

$

687

Less:

Depreciation and amortization

46

46

48

50

190

Interest expense, net

70

73

54

70

267

Income tax expense (benefit)

(34)

51

71

(1)

87

Net income (loss) attributable to Realogy Holdings

$

(46)

$

68

$

100

$

21

$

143

_______________

(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 $54 million, $81 million, $79 million and $69 million for the three months ended March 31, 2014, June 30, 2014, September 30, 2014 and December 31, 2014, respectively.  Such amounts are eliminated through the Corporate and Other line.

Revenues for the Relocation Services segment include $7 million, $12 million, $13 million and $10 million of intercompany referral commissions paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, 2014, June 30, 2014, September 30, 2014 and December 31, 2014, respectively.  Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment.

(b)

The three months ended March 31, 2014 includes $10 million related to the loss on early extinguishment of debt and $1 million of former parent legacy costs.

The three months ended June 30, 2014 includes $17 million related to the loss on early extinguishment of debt.

The three months ended September 30, 2014 includes a net benefit of $2 million of former parent legacy items and the reversal of prior year restructuring of $1 million.

The three months ended December 31, 2014 includes $20 million related to loss on early extinguishment of debt and a net benefit of $9 million of former parent legacy items.

 

 

Table 5a

REALOGY HOLDINGS CORP.

2015 EBITDA AND ADJUSTED EBITDA

(In millions)

A reconciliation of net income attributable to Realogy Group to EBITDA and Adjusted EBITDA for the year ended December 31, 2015 is set forth in the following table:

Year Ended December 31, 2015

Net income attributable to Realogy Group

$

184

Income tax expense

110

Income before income taxes

294

Interest expense, net

231

Depreciation and amortization

201

EBITDA

726

Covenant calculation adjustments:

Restructuring costs and former parent legacy benefit, net (a)

(5)

Loss on the early extinguishment of debt

48

Pro forma effect of business optimization initiatives (b)

14

Non-cash charges (c)

46

Pro forma effect of acquisitions and new franchisees (d)

12

Incremental securitization interest costs (e)

4

Adjusted EBITDA

$

845

Total senior secured net debt (f)

$

2,180

Senior secured leverage ratio

2.58x

_______________

(a)

Consists of $10 million of restructuring costs offset by a net benefit of $15 million of former parent legacy items.

(b)

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

(c)

Represents the elimination of non-cash expenses, including $57 million of stock-based compensation expense less $11 million for the change in the allowance for doubtful accounts and notes reserves.

(d)

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 January 1, 2015.  Franchisee sales activity is comprised of new franchise agreements as well as growth through acquisitions and 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 EBITDA had we owned the acquired entities or entered into the franchise contracts as of January 1, 2015.

(e)

Incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended December 31, 2015.

(f)

Represents total borrowings under the Senior Secured Credit Facility and borrowings secured by a first priority lien on our assets of $2,502 million plus $26 million of capital lease obligations less $348 million of readily available cash as of December 31, 2015.  Pursuant to the terms of our Senior Secured Credit Facility and Term Loan A Facility, total senior secured net debt does not include our securitization obligations or unsecured indebtedness, including the Unsecured Notes.

 

 

Table 5b

REALOGY HOLDINGS CORP.

2014 EBITDA AND ADJUSTED EBITDA

(In millions)

A reconciliation of net income attributable to Realogy Group to EBITDA and Adjusted EBITDA for the year ended December 31, 2014 is set forth in the following table:

Year Ended December 31, 2014

Net income attributable to Realogy Group

$

143

Income tax expense

87

Income before income taxes

230

Interest expense, net

267

Depreciation and amortization

190

EBITDA

687

Covenant calculation adjustments:

Restructuring costs (reversals) and former parent legacy costs (benefit), net (a)

(11)

Loss on the early extinguishment of debt

47

Pro forma effect of business optimization initiatives (b)

14

Non-cash charges (c)

30

Pro forma effect of acquisitions and new franchisees (d)

8

Incremental securitization interest costs (e)

4

Adjusted EBITDA

$

779

Total senior secured net debt (f)

$

2,242

Senior secured leverage ratio

2.88x

_______________

(a)

Consists of  a net benefit of $1 million for the reversal of a restructuring reserve and a net benefit of $10 million for former parent legacy items.

(b)

Represents the twelve-month pro forma effect of business optimization initiatives including $9 million of transaction and integration costs incurred for the ZipRealty acquisition, $3 million related to business cost cutting initiatives and $2 million related to vendor renegotiations.

(c)

Represents the elimination of non-cash expenses, including $43 million of stock-based compensation expense less $12 million for the change in the allowance for doubtful accounts and notes reserves and $1 million of other items from January 1, 2014 through December 31, 2014.

(d)

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 January 1, 2014.  Franchisee sales activity is comprised of new franchise agreements as well as growth through acquisitions and 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 EBITDA had we owned the acquired entities or entered into the franchise contracts as of January 1, 2014.

(e)

Incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended December 31, 2014.

(f)

Represents total borrowings under the senior secured credit facility and borrowings secured by a first priority lien on our assets of $2,480 million plus $20 million of capital lease obligations less $258 million of readily available cash as of December 31, 2014.  Pursuant to the terms of our senior secured credit facility, total senior secured net debt does not include our securitization obligations or unsecured indebtedness, including the Unsecured Notes.

 

 

Table 6

REALOGY HOLDINGS CORP.

EBITDA AND ADJUSTED EBITDA

THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014

(In millions)

Set forth in the table below is a reconciliation of net income attributable to Realogy to Adjusted EBITDA for the three-month periods ended December 31, 2015 and 2014:

Three Months Ended

December 31,  2015

December 31,  2014

Net income attributable to Realogy

$

9

$

21

Income tax expense

(6)

(1)

Income before income taxes

3

20

Interest expense, net

43

70

Depreciation and amortization

48

50

EBITDA

94

140

Restructuring costs (reversals) and former parent legacy benefit, net

10

(9)

Loss on the early extinguishment of debt

48

20

Pro forma effect of business optimization initiatives

2

5

Non-cash charges

17

8

Pro forma effect of acquisitions and new franchisees

2

2

Incremental securitization interest costs

1

1

Adjusted EBITDA

$

174

$

167

 

 

Table 7

REALOGY HOLDINGS CORP.

 FREE CASH FLOW

FOR THE YEAR ENDED DECEMBER 31, 2015 AND 2014

A reconciliation of net income attributable to Realogy Holdings to free cash flow is set forth in the following table:

Year Ended

December 31, 2015

December 31, 2014

($ in millions)

($ per share)

($ in millions)

($ per share)

Net income attributable to Realogy Holdings / Basic earnings per share

$

184

$

1.26

$

143

$

0.98

Income tax expense, net of payments

93

0.63

77

0.53

Interest expense, net

231

1.58

267

1.83

Cash interest payments

(244)

(1.67)

(249)

(1.71)

Depreciation and amortization

201

1.37

190

1.30

Capital expenditures

(84)

(0.57)

(71)

(0.49)

Restructuring costs (reversals) and former parent legacy benefit, net of payments

(14)

(0.10)

(15)

(0.10)

Loss on the early extinguishment of debt

48

0.33

47

0.32

Working capital adjustments

26

0.18

(10)

(0.07)

Relocation receivables, net of securitization obligations

(4)

(0.03)

(12)

(0.08)

Free Cash Flow / Cash Earnings Per Share

$

437

$

2.98

$

367

$

2.51

Basic weighted average number of common shares outstanding (in millions)

146.5

146.0

 

 

Table 8

Non-GAAP Definitions

Adjusted net income is defined by us as net income before the loss on the early extinguishment of debt, mark to market interest rate adjustments, former parent legacy benefit net, reversal of income tax valuation allowance and Bararsani legal settlement.  Adjusted earnings per share is Adjusted net income divided by the weighted average common and common equivalent shares outstanding.  We present Adjusted net income and Adjusted earnings per share because we believe these measures are useful as supplemental measures in evaluating the performance of our operating businesses and provides greater transparency into our results of operations.

EBITDA is defined by us as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations) and income taxes.  Adjusted EBITDA calculated for a twelve-month period is presented to demonstrate our compliance with the senior secured leverage ratio covenant in the Senior Secured Credit Facility and the Term Loan A Facility.  Adjusted EBITDA calculated for a twelve-month period corresponds to the definition of "EBITDA," calculated on a "pro forma basis," used in the Senior Secured Credit Facility and the Term Loan A Facility to calculate the senior secured leverage ratio.  Adjusted EBITDA includes adjustments to EBITDA for restructuring costs, former parent legacy cost (benefit) items, net, loss on the early extinguishment of debt, non-cash charges and incremental securitization interest costs, as well as pro forma cost savings for restructuring initiatives, the pro forma effect of business optimization initiatives and the pro forma effect of acquisitions and new franchisees, in each case calculated as of the beginning of the twelve-month period.  Adjusted EBITDA calculated for a three-month period adjusts for the same items as for a twelve-month period, except that the pro forma effect of cost savings, business optimizations and acquisitions and new franchisees are calculated as of the beginning of the three-month period instead of the twelve-month period.

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

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

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

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

In addition to the limitations described above, Adjusted EBITDA includes pro forma cost savings, the pro forma effect of business optimization initiatives and the pro forma full year effect of acquisitions and new franchisees.  These adjustments may not reflect the actual cost savings or pro forma effect recognized in future periods.

Free Cash Flow is defined as net income (loss) attributable to Realogy before income tax expense (benefit), net of payments, interest expense, net, depreciation and amortization, capital expenditures, restructuring costs and former parent legacy costs (benefits), net of payments, loss on the early extinguishment of debt, working capital adjustments and relocation assets, net of change in securitization obligations.  Cash Earnings Per Share is defined as Free Cash Flow divided by the weighted average basic shares outstanding.  We use Free Cash Flow and Cash Earnings Per Share in our internal evaluation of operating effectiveness and decisions regarding the allocation of resources.  Free Cash Flow and Cash Earnings Per Share are 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. Free Cash Flow and Cash Earnings Per Share may differ from similarly titled measures presented by other companies.

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SOURCE Realogy Holdings Corp.



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