Realogy Reports Financial Results For Full Year 2018

MADISON, N.J., Feb. 26, 2019 /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 full year ended December 31, 2018, including the following highlights:

• Revenue was $6.1 billion, a decrease of $35 million compared to 2017. In the fourth quarter of 2018, revenue was $1.4 billion, a decrease of $90 million versus the fourth quarter of 2017 largely due to lower transaction volume at NRT.
• The Company's combined homesale transaction volume (transaction sides multiplied by average sale price) increased 1% compared with 2017 and declined 5% year-over-year in the fourth quarter. For reference, the National Association of Realtors reported that homesale transaction volume remained flat in 2018 compared to 2017 and declined 4% year-over-year in the fourth quarter.
• Operating EBITDA was $658 million, a decrease of $74 million compared with 2017. The decline was largely due to lower revenue in the fourth quarter of 2018, higher agent commission rates and the absence of $22 million of net earnings related to the sale of our former mortgage joint venture in 2017. The fourth quarter 2018 Operating EBITDA was $106 million, a decrease of $38 million compared with 2017 due to lower homesale transaction volume and the absence of $14 million of net earnings related to the sale of our former mortgage joint venture. (See Tables 4a & 4b)¹
• Net income for the full year was $137 million for 2018, compared to $431 million for 2017. The 2017 net income included a tax benefit of $216 million resulting from the change in the U.S. corporate tax rate. Basic earnings per share was $1.10 in 2018 compared with basic earnings per share of $3.15 in 2017. Fourth quarter net loss was $22 million for 2018, compared to net income of $255 million for the fourth quarter of 2017. Basic loss per share was $0.19 in the fourth quarter of 2018 compared with basic earnings per share of $1.91 in the fourth quarter of 2017.
• Adjusted earnings per share for 2018 was $1.52 compared with $1.59 for 2017. Adjusted earnings per share for the fourth quarter of 2018 was $0.04 compared with $0.26 for the fourth quarter of 2017. (See Table 1a)²
• In 2018, Realogy generated free cash flow of $325 million (See Table 6)³ and returned $447 million of capital through share repurchases and dividends.

"2018 was both an exciting and challenging time at Realogy and in the industry," said Ryan Schneider, Realogy's chief executive officer and president. "While we face an uncertain housing market, the strategic changes we are driving for agents across products, technology, data and talent are beginning to get traction, giving me early confidence that these initiatives will lead to better company performance."

In 2018, Realogy's 191,700 U.S.-based affiliated independent sales agents helped consumers with approximately 1.4 million homesale transaction sides.  In aggregate, Realogy achieved homesale transaction volume of approximately $512 billion, an increase of 1% compared to 2017.  RFG average homesale price increased 5% and homesale transaction sides decreased 4%.  NRT reported an average homesale price increase of 2% and homesale transaction sides decrease of 2%.

In the title and settlement services segment, TRG closed 176,000 transactions in 2018 with lower refinance volume leading to an overall decline of 6%.  Purchase units decreased 1% compared to 2017.  In the relocation services segment, Cartus initiations and referrals were both up 6%.  Cartus generates highly qualified leads for its network of affiliated agents and helps them to build their businesses.  Cartus generated referral opportunities for agents that resulted in approximately 80,000 in-network homesale closings for Realogy and its brands in 2018.

Capital Allocation, Quarterly Dividend and New Share Repurchase Authorization

Since the share repurchase program's inception in February 2016, the Company has repurchased approximately 35.5 million shares through February 22, 2019 at an average price of $25.22 for $896 million.  As a result, Realogy had approximately 113.5 million shares of common stock outstanding as of February 22, 2019.

Realogy today announced that its Board of Directors has authorized a new share repurchase program for up to $175 million of the Company's common stock.  This is in addition to the $29 million remaining under the share repurchase authorization announced in February 2018.  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.

"We ended the year at a 4.6x leverage ratio and we face an uncertain housing market.  Given this, in the first half of the year, you will see us focus on debt paydown.  We will be watching closely how the macro environment evolves and you should expect that the weaker the housing market, the more we will look to pay down debt.  The stronger the housing market, the more we will look to share repurchases," said Tim Gustavson, Realogy's interim chief financial officer.

On February 25, 2019, the Board of Directors of the Company declared a quarterly cash dividend of $0.09 per share of the Company's common stock.  This dividend payment will be made on March 25, 2019 to shareholders of record as of the close of business on March 11, 2019.

Balance Sheet

The Company ended the year with cash and cash equivalents of $225 million.  Total corporate debt, including the short-term portion, net of cash and cash equivalents (net corporate debt), totaled $3.4 billion at December 31, 2018.  The Company's net debt leverage ratio⁴ was 4.6 times at December 31, 2018.

At year end, the Company's net operating loss carryforwards were $855 million, which it expects will allow it to continue to pay minimal cash taxes through 2020.

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

Investor Conference Call

Today, February 26, at 8:30 a.m. (ET), Realogy will hold a conference call via webcast to review its full year 2018 results. The webcast will be hosted by Ryan Schneider, chief executive officer and president, and Tim Gustavson, interim chief financial officer, and will conclude with an investor Q&A period with management.

Investors may access the conference call live via webcast at ir.realogy.com or by dialing (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 on the website.

About Realogy Holdings Corp.

Realogy Holdings Corp. (NYSE: RLGY) is the leading and most integrated provider of residential real estate services in the U.S. that is focused on empowering independent sales agents to best serve today's consumers. Realogy delivers its services through its well-known industry brands including Better Homes and Gardens^® Real Estate, CENTURY 21^®, Climb Real Estate^®, Coldwell Banker^®, Coldwell Banker Commercial^®, Corcoran Group^®, ERA^®, Sotheby's International Realty^® as well as NRT, Cartus^®, Title Resource Group and ZapLabs^®, an in-house innovation and technology development lab. Realogy's fully integrated business model includes brokerage, franchising, relocation, mortgage, and title and settlement services. Realogy provides independent sales agents access to leading technology, best-in-class marketing and learning programs, and support services to help them become more productive and build stronger businesses. Realogy's affiliated brokerages operate around the world with approximately 191,700 independent sales agents in the United States and approximately 107,700 independent sales agents in 112 other countries and territories. Realogy is headquartered in Madison, New Jersey.

Footnotes:
¹  Operating EBITDA is defined as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations), income taxes, and other items that are not core to the operating activities of the Company such as restructuring charges, former parent legacy items, losses on the early extinguishment of debt, asset impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets.
²  Adjusted net income (loss) is defined as net income (loss) before mark-to-market interest rate swap adjustments, former parent legacy items, restructuring charges, the loss on the early extinguishment of debt, the tax effect of the foregoing adjustments and adjustments to the reserve for uncertain tax positions.
³  Free Cash Flow is defined as net income (loss) attributable to Realogy before income tax expense (benefit), net of payments, net interest expense, cash interest payments, depreciation and amortization, capital expenditures, restructuring costs and former parent legacy costs (benefits), net of payments, loss on the early extinguishment of debt, working capital adjustments and relocation receivables (assets), net of change in securitization obligations.
⁴  Net corporate debt divided by EBITDA, as defined by the Senior Secured Credit Facility, for the twelve-month period ended December 31, 2018.

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 in the forward-looking statements, include, but are not limited to: adverse developments or the absence of sustained improvement in general business, economic and political conditions or the residential real estate markets, either regionally or nationally, including but not limited to a decline or a lack of improvement in the number of homesales, stagnant or declining home prices or a reduction in the affordability of housing, increasing mortgage rates and/or constraints on the availability of mortgage financing, insufficient or excessive home inventory levels by market and price point, a lack of improvement or deceleration in the building of new housing and/or irregular timing or volume of new development closings, the potential negative impact of certain provisions of the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") on home values over time in states with high property, sales and state and local income taxes or on homeownership rates, and/or the impact of recessions, slow economic growth, or a deterioration in other economic factors that particularly impact the residential real estate market and the business segments in which we operate whether broadly or by geography and price segments; increased competition in the industry and for independent sales agents; our ability to successfully develop or procure technology that supports our business strategy; continuing pressure on the share of gross commission income paid by our company owned brokerages and affiliated franchisees to affiliated independent sales agents and sales agent teams; our geographic and high-end market concentration; our inability to enter into franchise agreements with new franchisees or renew existing franchise agreements at current contractual royalty rates without increasing the amount and prevalence of sales incentives; the lack of revenue growth or declining profitability of our franchisees and company owned brokerage operations; the loss of a significant affinity client or multiple significant relocation clients or changes in corporate relocation practices resulting in fewer employee relocations, reduced relocation benefits and/or increasing competition in corporate relocation; an increase in the experienced claims losses of our title underwriter; our failure or alleged failure to comply with laws, regulations and regulatory interpretations and any changes or stricter interpretations of any of the foregoing (whether through private litigation or governmental action), including but not limited to (i) state or federal employment laws or regulations that would require reclassification of independent contractor sales agents to employee status, (ii) privacy or data security laws and regulations and (iii) RESPA or other federal or state consumer protection or similar laws; risks relating to our ability to return capital to stockholders; risks associated with our substantial indebtedness and interest obligations and restrictions contained in our debt agreements, including risks relating to having to dedicate a significant portion of our cash flows from operations to service our debt and risks relating to our ability to refinance or repay our indebtedness or incur additional indebtedness; and risks and growing costs related to both cybersecurity threats to our data and customer, franchisee, employee and independent sales agent data, as well as those related to our compliance with the growing number of laws, regulations and other requirements related to the protection of personal information.

Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings "Forward-Looking Statements" and "Risk Factors" in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2018, and our other filings made from time to time, in connection with considering any forward-looking statements that may be made by us and our businesses generally. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events except as required by law.

Non-GAAP Financial Measures

This release includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, important information regarding such measures is contained in the Tables attached to this release. See Tables 1a, 7 and 8 for definitions of these non-GAAP financial measures and Tables 1a, 4a, 4b, 5a, 5b, 6 and 7 for reconciliations of the historical non-GAAP financial measures to their most comparable GAAP terms.