MADISON, N.J., Aug. 4, 2016 /PRNewswire/ — Realogy Holdings Corp. (NYSE: RLGY), the largest full-service residential real estate services company in the United States, today reported financial results for the second quarter ended June 30, 2016, including the following highlights:

• Revenue of $1.66 billion, a 1% increase as compared to the second quarter of 2015, was primarily driven by higher homesale transaction volume at the Realogy Franchise Group (RFG) along with higher purchase and refinance closing unit volume at Title Resource Group (TRG). The Company’s combined homesale transaction volume increased 3% in the quarter, consisting of a 7% volume gain at RFG and a 3% decline in volume at NRT.
• Net income for the period was $92 million, compared to $97 million in the second quarter of 2015. Basic earnings per share (EPS) was $0.63, compared to $0.66 in second quarter of 2015 (See Table 1).
• Adjusted net income was $108 million, and adjusted basic EPS was $0.74, improvements of 15% and 16%, respectively, compared to the second quarter of 2015 (See Table 1a).¹
• Operating EBITDA was $275 million, compared to $264 million in the second quarter of 2015, a year-over-year increase of 4% (See Table 6).²
• The Company today announced that Realogy’s Board of Directors has approved the initiation of a quarterly cash dividend policy on its common stock. The Board has declared a cash dividend of $0.09 per share of the Company’s common stock, payable on Aug. 31, 2016 to shareholders of record as of the close of business on Aug. 17, 2016. The dividend complements the Company’s existing $275 million share repurchase program announced in February 2016.
• During the second quarter, Realogy repurchased approximately 1 million shares of Realogy’s common stock in the open market at a weighted average market price of $31.50 per share for a total of $34 million. Year-to-date, the Company repurchased $67 million, or approximately 2 million shares, of common stock in the open market.
• The Company expanded its business optimization program with additional process improvements expected within NRT, increasing Realogy’s annualized run-rate savings target from $40 million to $60 million. The Company now expects to realize $30 million of overhead cost savings in 2016 with the goal of reaching a $60 million annualized savings run rate by mid-2017.  The total cost to implement the program is $66 million, of which $31 million has been incurred to date.

"Our results for the second quarter were mixed, as continued growth at RFG and TRG was offset by challenges at NRT," said Richard A. Smith, Realogy’s chairman, chief executive officer and president. "At NRT, a continued slowing of activity in the high end markets and increased competitive recruiting pressures further impacted our overall transaction volume. We are working diligently to improve agent retention at NRT as part of a broader strategy to increase the recruitment of top agents and agent teams."

Smith continued: "We continue to believe that housing is on a growth trajectory, and still has years to go before it reaches peak levels. As we execute our strategy to put Realogy in the strongest position possible to capitalize on a long-term housing recovery, we remain committed to returning capital to shareholders. We are pleased to announce the initiation of a cash dividend beginning this quarter and with the progress we’ve made on our existing $275 million share repurchase program. We believe our stock remains an attractive value at current prices."

¹  Adjusted net income is adjusted for non-cash mark-to-market expense on interest rate swaps and restructuring charges.

² The Company introduced Operating EBITDA as a new financial metric in the first quarter, and it is defined as EBITDA before restructuring costs, early extinguishment of debt and former parent legacy items.

Operational Results

In the second quarter of 2016, Realogy’s franchise (RFG) and Company-owned (NRT) business segments achieved a combined homesale transaction volume (transaction sides multiplied by average sale price) increase of 3% as compared to the second quarter of 2015, which was within the Company’s previous guidance range. RFG reported a homesale transaction sides increase of 4% and an average homesale price increase of 3%. NRT reported a homesale transaction sides decrease of 1% and an average homesale price decrease of 2%.

In the title and settlement services sector, TRG was involved in the closing of approximately 55,000 transactions during the quarter, reflecting a 23% increase in purchase units and a 14% increase in refinance units as compared to the second quarter of 2015. These results include the benefits of the acquisition of Independence Title late last year.

Looking Ahead

For the third quarter of 2016, Realogy expects to achieve overall homesale transaction volume gains in the range of 1% to 4% year-over-year. Based on the Company’s closed and open sales activity in July, Realogy expects third quarter homesale transaction sides to increase between 1% and 3% year-over-year and average homesale price to be in the flat to 1% range. The disparity in transaction volume between RFG and NRT is expected to continue for the remainder of the year.  RFG volume in the third quarter is anticipated to increase between 4% to 6%, while NRT transaction volume is expected to be down by 1% to 3%.

For the full year 2016, Realogy expects to deliver Adjusted (Covenant) EBITDA of $845 million to $885 million and Adjusted (Covenant) EBITDA margin of 14.7% to 15.0%. Realogy expects to convert approximately 60% of its forecasted Operating EBITDA, expected to be between $760 million and $800 million, into free cash flow ranging between $450 million and $500 million.

"We remain focused on positioning the Company for success in any market environment," said Anthony E. Hull, Realogy’s executive vice president, CFO and treasurer. "We will continue to execute on our process improvement efficiencies, office footprint optimization, technology and media spending, centralized procurement and organizational design. At the same time, we are progressing ahead of schedule on returning capital to shareholders while balancing investments in the growth of the business and opportunistic acquisitions. We believe that the combination of a quarterly cash dividend and our existing share repurchase program is an efficient and sustainable way for us to deliver on our commitment to return capital to shareholders. We have strong financial flexibility and remain committed to achieving our goal of 3 times net debt to EBITDA."

Balance Sheet

The Company ended the quarter with cash and cash equivalents of $423 million.  Total long-term corporate debt, including the short-term portion, net of cash and cash equivalents, totaled $3.4 billion at June 30, 2016.  The ratio of total corporate debt, net of cash and cash equivalents, to Adjusted (Covenant) EBITDA for the 12 months ended June 30, 2016 was 3.8 times. 

In July, Realogy completed the refinancing of its Term Loan B and extended its maturity date by two years to 2022, resulting in a more attractive maturity profile.  The new Term Loan B was issued at par and bears the same interest rate as the existing Term Loan B. Concurrently, Realogy completed a new Term Loan A tranche of $355 million with a 2021 maturity date under its existing Term Loan A facility and on terms substantially similar to its existing Term Loan A.  Realogy used the net proceeds from the new Term Loan B and the new Term Loan A, borrowings of $225 million under its existing revolving credit facility and cash on hand, to repay the existing Term Loan B, the effect of which is to reduce Term Loan B borrowings by approximately $760 million to $1.1 billion.  We continue to expect our corporate cash interest to be approximately $170 million in 2016.

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

Dividend Policy

In connection with the Company’s initiation of its quarterly cash dividend policy, the declaration and payment of any future dividend will be subject to the discretion of the Board of Directors and will depend on a variety of factors, including the Company’s financial condition and results of operations, contractual restrictions, including restrictive covenants contained in the Company’s credit agreement, and the indenture governing the Company’s outstanding debt securities, capital requirements and other factors that the Board of Directors deems relevant.

Investor Conference Call      

Today, August 4, at 8:30 a.m. (EDT), Realogy will hold a conference call via webcast to review its second quarter 2016 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 August 4 through August 18, 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®, Corcoran®, ERA®, Sotheby’s International Realty® and ZipRealty®.  Collectively, Realogy’s franchise system members operate approximately 13,600 offices with more than 261,000 independent sales associates conducting business in 109 countries and territories around the world.  NRT LLC, Realogy’s company-owned real estate brokerage, is the largest residential brokerage company in the United States, operates under several of Realogy’s brands and also provides related residential real estate services.  Realogy also owns Cartus, a prominent worldwide provider of relocation services to corporate and affinity clients, Title Resource Group (TRG), a leading provider of title, settlement and underwriting services, and ZapLabs LLC, its innovation and technology development subsidiary.  Realogy is headquartered in Madison, New Jersey.

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, or return capital to stockholders; 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 Quarterly Reports filed on Form 10-Q for the quarters ended March 31, 2016 and June 30, 2016, and 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. As required by SEC rules, important information regarding such measures is contained in the Tables attached to this release. See Tables 1a and 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 (Covenant) EBITDA and forecasted Operating 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.

 

 

 

 

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 8

Non-GAAP Definitions

Adjusted net income (loss) is defined by us as net income (loss) before mark to market interest rate adjustments, former parent legacy items, restructuring charges and loss on the early extinguishment of debt.  The gross amounts for these items as well as the adjustment for income taxes are presented.  Adjusted income (loss) per share is Adjusted net income (loss) divided by the weighted average common and common equivalent shares outstanding.  We present Adjusted net income (loss) and Adjusted earnings (loss) per share because we believe these measures are useful as supplemental measures in evaluating the performance of our operating businesses and provides greater transparency into our operating results.

EBITDA is defined by us as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations) and income taxes and is our primary non-GAAP measure.

Operating EBITDA is defined by us as EBITDA before restructuring, early extinguishment of debt and legacy items and is used as a supplementary financial measure.  Operating EBITDA calculated for a twelve-month period is presented because the Company believes these items do not directly affect the operating results of the Company and accordingly should be excluded in comparing operating results.  Operating EBITDA does not include pro-forma adjustments for business optimization initiatives and acquisitions or non-cash adjustments such as stock-based compensation expense, used to calculate Adjusted (Covenant) EBITDA in the Senior Secured Credit Facility and the Term Loan A Facility senior secured leverage ratio. 

Adjusted (Covenant) 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 (Covenant) 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 (Covenant) 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.

We present EBITDA, Operating EBITDA and Adjusted (Covenant) EBITDA because we believe EBITDA, Operating EBITDA and Adjusted (Covenant) 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, Operating EBITDA and Adjusted (Covenant) 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, Operating EBITDA and Adjusted (Covenant) EBITDA have limitations as analytical tools, and you should not consider EBITDA, Operating EBITDA or Adjusted (Covenant) 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 (Covenant) EBITDA includes pro forma cost savings, the pro forma effect of business optimization initiatives and the pro forma full period 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.  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.

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SOURCE Realogy Holdings Corp.