OREANDA-NEWS. Realogy Holdings Corp. (NYSE: RLGY), the preeminent provider of residential real estate services in the United States, today reported financial results for the first quarter ended March 31, 2016, including the following highlights:
  • Revenue of $1.1 billion, a 7% increase as compared to the first quarter of 2015, was primarily driven by higher homesale transaction volume.
  • Net loss for the period was $42 million, compared to $32 million in the first quarter of 2015. Basic loss per share was $0.29, compared to $0.22 in first quarter of 2015 (See Table 1).
  • Adjusted net loss was $17 million, and adjusted basic loss per share was $0.12, improvements of 29% and 25% respectively, on a comparable basis to the first quarter of 2015.  Adjusted net loss is adjusted for non-cash mark to market expense on interest rate swaps and restructuring charges (See Table 1a).
  • Adjusted (Covenant) EBITDA was $77 million, compared to $70 million in the first quarter of 2015, a year-over-year increase of 10% (See Table 6).
  • The Company repurchased $33 million, or 1 million shares, of Realogy's common stock in the open market at a weighted average market price of $33.45 per share, all under the $275 million repurchase plan announced in February 2016.
  • The Company implemented business optimization initiatives and remains on track to reach its annualized run-rate savings target of $40 million, of which $25 million is expected to be realized in 2016.

"During the quarter, we delivered solid revenue growth, and made progress on our key priorities to enhance the efficiency of our operations, strengthen our technology offerings and maximize the profitability of our integrated business model," said Richard A. Smith, Realogy's chairman, chief executive officer and president. "The spring selling season is shaping up in line with industry forecasts for sales volume, and we are encouraged by the level of demand we are seeing in this inventory-constrained market. We are confident that our differentiated technology platform, and the continued investments we are making to enhance our value proposition, position us well to capitalize on an improving housing market."

Operational Results

In the first 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 6% as compared to the first quarter of 2015.  RFG reported a homesale transaction sides increase of 3% and an average homesale price increase of 3%.  NRT reported a homesale transaction sides increase of 7% and an average homesale price decrease of 2%.

In the title and settlement services sector, TRG was involved in the closing of approximately 39,000 transactions during the quarter, reflecting a 35% increase in purchase units and a 2% increase in refinance units as compared to the first quarter of 2015. These results include the benefits of the acquisition of Independence Title late last year.

Looking Ahead

For the second quarter of 2016, Realogy expects to achieve homesale transaction volume gains in the range of 3% to 7% year-over-year. Based on the Company's closed and open sales activity in April and the first several days of May, Realogy expects second quarter homesale transaction sides to be up 3% to 5% year-over-year and average homesale price to be flat to up 2% on a company-wide basis. Realogy'sguidance is in line with industry forecasts that expect an average of 5% transaction volume growth for the second quarter. In the current market environment, the Company is on track to continue to generate significant free cash flow for full year 2016.

"We continue to make significant progress toward our strategic financial objectives -- optimizing our cost structure, executing our share repurchase program and delevering the balance sheet, which is the strongest it has been since we went public," said Anthony E. Hull, executive vice president, chief financial officer and treasurer.

Balance Sheet

The Company ended the quarter with cash and cash equivalents of $283 million.  Total long-term corporate debt, including the short-term portion, net of cash and cash equivalents, totaled $3.5 billion at March 31, 2016.  The ratio of total corporate debt, net of cash and cash equivalents, to Adjusted (Covenant) EBITDA for the 12 months ended March 31, 2016 was 4.1 times.  On May 2, 2016, the Company used a combination of cash on hand and borrowings under its revolving credit facility to retire the $500 million of 3.375% Senior Notes that matured at that time.

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 257,200 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.

 

Table 1

REALOGY HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 
 

Three Months Ended
March 31,
 

2016

  

2015

Revenues

      

Gross commission income

$

826

    

$

781

  

Service revenue

190

    

171

  

Franchise fees

69

    

67

  

Other

49

    

43

  

Net revenues

1,134

    

1,062

  

Expenses

      

Commission and other agent-related costs

558

    

530

  

Operating

367

    

342

  

Marketing

58

    

56

  

General and administrative

86

    

78

  

Former parent legacy costs, net

1

    

—

  

Restructuring costs

9

    

—

  

Depreciation and amortization

48

    

46

  

Interest expense, net

73

    

68

  

Total expenses

1,200

    

1,120

  

Loss before income taxes, equity in earnings and noncontrolling interests

(66)

    

(58)

  

Income tax benefit

(24)

    

(24)

  

Equity in earnings of unconsolidated entities

—

    

(2)

  

Net loss

(42)

    

(32)

  

Less: Net income attributable to noncontrolling interests

—

    

—

  

Net loss attributable to Realogy Holdings

$

(42)

    

$

(32)

  
       

Loss per share attributable to Realogy Holdings:

      

Basic loss per share

$

(0.29)

    

$

(0.22)

  

Diluted loss per share

$

(0.29)

    

$

(0.22)

  

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

Basic

146.5

    

146.3

  

Diluted

146.5

    

146.3

  

Table 1a

REALOGY HOLDINGS CORP.
Adjusted Net Income (Loss) and Adjusted Earnings (Loss) Per Share
(In millions, except per share data)

We present Adjusted net income (loss) and Adjusted earnings (loss) per share because we believe these measures are useful as supplemental measures in evaluating the performance of our operating businesses and provides greater transparency into our operating results.  Below, we have presented 2015 quarterly reconciliations from Net loss to Adjusted net loss for purposes of comparability as certain adjustments below were not included in Adjusted net income (loss) and Adjusted earnings (loss) per share reported in prior periods.

Adjusted net income (loss) is defined by us as net income (loss) before: (a) mark to market interest rate swap adjustments, whose fair value is subject to movements in LIBOR and the forward yield curve and therefore are subject to significant fluctuations; (b) former parent legacy items, which pertain to liabilities of the former parent for matters prior to mid-2006 and are non-operational in nature; (c) restructuring charges, which the Company believes will be significant as a result of the business optimization initiatives currently in progress; and (d) the loss on the early extinguishment of debt that results from refinancing and deleveraging debt initiatives.  These items are shown on the tables below as net of income taxes. 

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

Set forth in the table below is a reconciliation of Net loss to Adjusted net loss for the three-month period ended March 31, 2016 and 2015:

 

Three Months Ended
March 31,
 

2016

  

2015

Net loss attributable to Realogy Holdings

$

(42)

    

$

(32)

  

Addback:

      

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

19

    

8

  

Former parent legacy cost, net of tax

1

    

—

  

Restructuring charges, net of tax

5

    

—

  

Adjusted net loss

$

(17)

    

$

(24)

  
       

Adjusted loss per share

      

Adjusted basic loss per share:

$

(0.12)

    

$

(0.16)

  

Adjusted diluted loss per share:

$

(0.12)

    

$

(0.16)

  
       

Weighted average common and common equivalent shares outstanding:

      

Basic:

146.5

    

146.3

  

Diluted:

146.5

    

146.3

  

Set forth in the table below is a reconciliation of Net income (loss) to Adjusted net income (loss) for the three-month periods and the year ended December 31, 2015:

 

Three Months Ended

  

Year Ended
 

March 31,

  

June 30,

  

September 30,

  

December 31,

  

December 31,
 

2015

  

2015

  

2015

  

2015

  

2015

Net income (loss) attributable to Realogy Holdings

$

(32)

    

$

97

    

$

110

    

$

9

    

$

184

  

Addback:

                  

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

8

    

(2)

    

9

    

(3)

    

12

  

Former parent legacy cost (benefit), net of tax

—

    

(1)

    

(8)

    

—

    

(9)

  

Restructuring charges, net of tax

—

    

—

    

—

    

6

    

6

  

Loss on the early extinguishment of debt, net of tax

—

    

—

    

—

    

29

    

29

  

Adjusted net income (loss)

$

(24)

    

$

94

    

$

111

    

$

41

    

$

222

  
                   

Adjusted earnings (loss) per share

                  

Adjusted basic earnings (loss) per share:

$

(0.16)

    

$

0.64

    

$

0.76

    

$

0.28

    

$

1.52

  

Adjusted diluted earnings (loss) per share:

$

(0.16)

    

$

0.64

    

$

0.75

    

$

0.28

    

$

1.50

  
                   

Weighted average common and common equivalent shares outstanding:

                  

Basic:

146.3

    

146.5

    

146.6

    

146.7

    

146.5

  

Diluted:

146.3

    

148.0

    

148.1

    

148.2

    

148.1

  

Table 2

REALOGY HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)
 
 

March 31,
 2016

  

December 31,
 2015

ASSETS

      

Current assets:

      

Cash and cash equivalents

$

283

    

$

415

  

Trade receivables (net of allowance for doubtful accounts of $18 and $20)

139

    

141

  

Relocation receivables

288

    

279

  

Other current assets

134

    

126

  

Total current assets

844

    

961

  

Property and equipment, net

251

    

254

  

Goodwill

3,629

    

3,618

  

Trademarks

745

    

745

  

Franchise agreements, net

1,411

    

1,428

  

Other intangibles, net

307

    

316

  

Other non-current assets

213

    

209

  

Total assets

$

7,400

    

$

7,531

  
       

LIABILITIES AND EQUITY

      

Current liabilities:

      

Accounts payable

$

128

    

$

139

  

Securitization obligations

220

    

247

  

Due to former parent

32

    

31

  

Current portion of long-term debt

541

    

740

  

Accrued expenses and other current liabilities

385

    

448

  

Total current liabilities

1,306

    

1,605

  

Long-term debt

3,203

    

2,962

  

Deferred income taxes

239

    

267

  

Other non-current liabilities

299

    

275

  

Total liabilities

5,047

    

5,109

  

Commitments and contingencies

      

Equity:

      

Realogy Holdings preferred stock: $.01 par value; 50,000,000 shares authorized, none issued and outstanding at March 31, 2016 and December 31, 2015

—

    

—

  

Realogy Holdings common stock: $.01 par value; 400,000,000 shares authorized 145,992,724 shares outstanding at March 31, 2016 and 146,746,537 shares outstanding at December 31, 2015

1

    

1

  

Additional paid-in capital

5,707

    

5,733

  

Accumulated deficit

(3,322)

    

(3,280)

  

Accumulated other comprehensive loss

(36)

    

(36)

  

Total stockholders' equity

2,350

    

2,418

  

Noncontrolling interests

3

    

4

  

Total equity

2,353

    

2,422

  

Total liabilities and equity

$

7,400

    

$

7,531

  

 

Table 3a

REALOGY HOLDINGS CORP.
2016 vs. 2015 KEY DRIVERS
 
   

Three Months Ended March 31,
   

2016

  

2015

  

% Change

RFG (a) (b)

            

Closed homesale sides

    

218,330

      

212,139

    

3

%

Average homesale price

  

$

259,044

    

$

251,373

    

3

%

Average homesale broker commission rate

    

2.51

%

    

2.52

%

  

(1)

 bps

Net effective royalty rate

    

4.51

%

    

4.52

%

  

(1)

 bps

Royalty per side

  

$

309

    

$

302

    

2

%

NRT

                      

Closed homesale sides (c)

    

64,244

      

60,187

    

7

%

Average homesale price (d)

  

$

493,125

    

$

502,597

    

(2)

%

Average homesale broker commission rate

    

2.46

%

    

2.43

%

  

3

bps

Gross commission income per side

  

$

12,878

    

$

13,019

    

(1)

%

Cartus

                      

Initiations

    

37,174

      

38,168

    

(3)

%

Referrals

    

16,893

      

18,022

    

(6)

%

TRG

                      

Purchase title and closing units (e)

    

29,236

      

21,643

    

35

%

Refinance title and closing units (f)

    

9,703

      

9,496

    

2

%

Average fee per closing unit

  

$

1,848

    

$

1,751

    

6

%
                       
                       

(a)   Includes all franchisees except for NRT.

(b)   In April 2015, NRT acquired Coldwell Banker United, a large franchisee of RFG.  As a result of the acquisition, the drivers of Coldwell Banker United shifted from RFG to NRT.  Closed homesale sides for RFG, excluding the impact of the acquisition, would have increased 4% for the three months ended March 31, 2016 compared to 2015.  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 the acquisition of Coldwell Banker United, would have increased 1% for the three months ended March 31, 2016 compared to 2015.

(d)   Average homesale price for NRT, excluding the impact of the acquisition of Coldwell Banker United, would have increased 1% for the three months ended March 31, 2016, compared to 2015.

(e)   The amounts presented for the three months ended March 31, 2016 include 6,585 purchase units as a result of the acquisition of Independence Title on July 1, 2015.

(f)    The amounts presented for the three months ended March 31, 2016 include 1,541 refinance units as a result of the acquisition of Independence Title on July 1, 2015.
 

 

 

Table 3b

  

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 4a

REALOGY HOLDINGS CORP.
SELECTED 2016 FINANCIAL DATA
(In millions)
 
 

Three Months Ended
 

March 31,
 2016

Net revenues (a)

  

Real Estate Franchise Services

$

157

  

Company Owned Real Estate Brokerage Services

841

  

Relocation Services

83

  

Title and Settlement Services

111

  

Corporate and Other

(58)

  

Total Company

$

1,134

  
   

EBITDA (b)

  

Real Estate Franchise Services

$

92

  

Company Owned Real Estate Brokerage Services

(21)

  

Relocation Services

5

  

Title and Settlement Services

—

  

Corporate and Other

(21)

  

Total Company

$

55

  

Less:

  

Depreciation and amortization

48

  

Interest expense, net

73

  

Income tax benefit

(24)

  

Net loss attributable to Realogy Holdings

$

(42)

  

______________

(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 $58 million for the three months ended March 31, 2016.  Such amounts are eliminated through the Corporate and Other line.

        Revenues for the Relocation Services segment include $8 million of intercompany referral commissions paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, 2016.  Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment.

(b)   The three months ended March 31, 2016 includes a net cost of $1 million of former parent legacy items and $9 million of restructuring charges.

 

The amounts broken down by business unit are as follows:
 
 

Three Months Ended
 

March 31,
 

2016

Real Estate Franchise Services

—

  

Company Owned Real Estate Brokerage Services

2

  

Relocation Services

2

  

Title and Settlement Services

—

  

Corporate and Other

6

  

Total Company

10

  

Table 4b

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 for former parent legacy items.

        The three months ended September 30, 2015 includes a net benefit of $14 million for former parent legacy items.

        The three months ended December 31, 2015 includes $48 million related to the loss on early extinguishment of debt and restructuring charges of $10 million.

        The year ended December 31, 2015 includes $48 million related to the loss on early extinguishment of debt and restructuring charges of $10 million, partially offset by a net benefit of $15 million for former parent legacy items.

       

The amounts broken down by business unit are as follows:

  
 

Three Months Ended

  

Year Ended
 

March 31,

  

June 30,

  

September 30,

  

December 31,

  

December 31,
 

2015

  

2015

  

2015

  

2015

  

2015

Real Estate Franchise Services

—

    

—

    

—

    

—

    

—

  

Company Owned Real Estate Brokerage Services

—

    

—

    

—

    

5

    

5

  

Relocation Services

—

    

—

    

—

    

1

    

1

  

Title and Settlement Services

—

    

—

    

—

    

—

    

—

  

Corporate and Other

—

    

(1)

    

(14)

    

52

    

37

  

Total Company

—

    

(1)

    

(14)

    

58

    

43

  
 

(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 5a

REALOGY HOLDINGS CORP.
2016 EBITDA, OPERATING EBITDA AND ADJUSTED (COVENANT) EBITDA
(In millions)
 

A reconciliation of net income attributable to Realogy Group to EBITDA, Operating EBITDA and Adjusted (Covenant) EBITDA for the twelve months ended March 31, 2016 are set forth in the following table:
 
     

Less

  

Equals

  

Plus

  

Equals
 

Year

Ended

  

Three

Months

Ended

  

Nine

Months
Ended

  

Three

 Months

Ended

  

Twelve

 Months
Ended
 

December 31,
 2015

March 31,
 2015

December 31,
 2015

March 31,
 2016

March 31,
 2016

Net income (loss) attributable to Realogy Group (a)

$

184

    

$

(32)

    

$

216

    

$

(42)

    

$

174

  

Income tax (benefit) expense

110

    

(24)

    

134

    

(24)

    

110

  

Income (loss) before income taxes

294

    

(56)

    

350

    

(66)

    

284

  

Interest expense, net

231

    

68

    

163

    

73

    

236

  

Depreciation and amortization

201

    

46

    

155

    

48

    

203

  

EBITDA (b)

726

    

58

    

668

    

55

    

723

  

EBITDA adjustments:

    

Restructuring costs

  

19

  

Former parent legacy costs (benefit), net

  

(14)

  

Loss on the early extinguishment of debt

  

48

  

Operating EBITDA

  

776

  

Bank covenant adjustments:

    

Pro forma effect of business optimization initiatives (c)

  

21

  

Non-cash charges (d)

  

46

  

Pro forma effect of acquisitions and new franchisees (e)

  

16

  

Incremental securitization interest costs (f)

  

4

  

Adjusted (Covenant) EBITDA

  

$

863

  

Total senior secured net debt (g)

  

$

2,094

  

Senior secured leverage ratio

  

2.43

x
 

_______________

(a)    Net income (loss) attributable to Realogy consists of:  (i) income of $97 million for the second quarter of 2015, (ii) income of $110 million for the third quarter of 2015, (iii) income of $9 million for the fourth quarter of 2015 and (iv) a loss of $42 million for the first quarter of 2016.

(b)      EBITDA consists of:  (i) $265 million for the second quarter of 2015, (ii) $309 million for the third quarter of 2015, (iii) $94 million for the fourth quarter of 2015 and (iv) $55 million for the first quarter of 2016.

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

(d)      Represents the elimination of non-cash expenses, including $58 million of stock-based compensation expense less $10 million for the change in the allowance for doubtful accounts and notes reserves and $2 million of foreign exchange benefit from April 1, 2015 through March 31, 2016.

(e)      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 April 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 April 1, 2015.

(f)       Incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended March 31, 2016.

(g)      Represents total borrowings under the Senior Secured Credit Facility and borrowings secured by a first priority lien on our assets of $2,293 million plus $27 million of capital lease obligations less $226 million of readily available cash as of March 31, 2016.  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.
2015 EBITDA, OPERATING EBITDA AND ADJUSTED (COVENANT) EBITDA
(In millions)
 

A reconciliation of net income attributable to Realogy Group to EBITDA, Operating EBITDA and Adjusted (Covenant) 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

  

EBITDA adjustments:

  

Restructuring costs

10

  

Former parent legacy costs (benefit), net

(15)

  

Loss on the early extinguishment of debt

48

  

Operating EBITDA

769

  

Bank covenant adjustments:

  

Pro forma effect of business optimization initiatives (a)

14

  

Non-cash charges (b)

46

  

Pro forma effect of acquisitions and new franchisees (c)

12

  

Incremental securitization interest costs (d)

4

  

Adjusted (Covenant) EBITDA

$

845

  

Total senior secured net debt (e)

$

2,180

  

Senior secured leverage ratio

2.58

x
 

_______________

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

(b)   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.

(c)     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.

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

(e)    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 6

REALOGY HOLDINGS CORP.
EBITDA, OPERATING EBITDA AND ADJUSTED (COVENANT) EBITDA
THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(In millions)
 

Set forth in the table below is a reconciliation of net loss attributable to Realogy to EBITDA, Operating EBITDA and Adjusted (Covenant) EBITDA for the three-month periods ended March 31, 2016 and 2015:
 
 

Three Months Ended
 

March 31,
 2016

  

March 31,
 2015

Net loss attributable to Realogy

$

(42)

    

$

(32)

  

Income tax benefit

(24)

    

(24)

  

Loss before income taxes

(66)

    

(56)

  

Interest expense, net

73

    

68

  

Depreciation and amortization

48

    

46

  

EBITDA

55

    

58

  

EBITDA adjustments:

      

Restructuring costs

9

    

—

  

Former parent legacy costs, net

1

    

—

  

Operating EBITDA

65

    

58

  

Bank covenant adjustments:

      

Pro forma effect of business optimization initiatives

2

    

1

  

Non-cash charges

8

    

9

  

Pro forma effect of acquisitions and new franchisees

1

    

1

  

Incremental securitization interest costs

1

    

1

  

Adjusted (Covenant) EBITDA

$

77

    

$

70

  

Table 7

REALOGY HOLDINGS CORP.
FREE CASH FLOW
THREE MONTHS ENDED MARCH 31, 2016 AND 2015

 

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

Three Months Ended
 

March 31, 2016

March 31, 2015
 

($ in millions)

  

($ in millions)

Net loss attributable to Realogy Holdings

$

(42)

    

$

(32)

  

Income tax benefit, net of payments

(26)

    

(25)

  

Interest expense, net

73

    

68

  

Cash interest payments

(28)

    

(57)

  

Depreciation and amortization

48

    

46

  

Capital expenditures

(22)

    

(19)

  

Restructuring costs and former parent legacy items, net of payments

2

    

(6)

  

Working capital adjustments

(86)

    

(46)

  

Relocation receivables (assets), net of securitization obligations

(36)

    

(51)

  

Free Cash Flow

$

(117)

    

$

(122)

  

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.  These items are shown net of the related tax impact.  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.

Operating EBITDA is defined by us as EBITDA before restructuring, early extinguishment of debt and legacy items.  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.

Adjusted (Covenant) 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, 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.  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. Free Cash Flow may differ from similarly titled measures presented by other companies.