REALOGY Q3 2017 EARNINGS CALL November 3, 2017 Management - - PowerPoint PPT Presentation
REALOGY Q3 2017 EARNINGS CALL November 3, 2017 Management Presenters Richard A. Smith Chairman and Chief Executive Officer Ryan Schneider President and Chief Operating Officer Executive Vice President, Chief Financial Officer Tony Hull
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Richard A. Smith Chairman and Chief Executive Officer Tony Hull Executive Vice President, Chief Financial Officer & Treasurer Alicia Swift Senior Vice President, Investor Relations and Financial Planning & Analysis Ryan Schneider President and Chief Operating Officer
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Forward-Looking Statements This presentation contains forward-looking statements. The Company desires to take advantage of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all forward-looking statements. Therefore, the Company wishes to caution each participant to consider carefully the specific factors discussed with each forward-looking statement in this presentation and other factors contained in the Company’s filings with the Securities and Exchange Commission under the captions “Forward-Looking Statements”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as such factors in some cases have affected, and in the future (together with other factors) could affect, the ability of the Company to implement its business strategy and may cause actual results to differ materially from those contemplated by the statements expressed herein. The information contained in this presentation is as
contained herein, whether as a result of new information or otherwise. RECIPIENTS ARE STRONGLY ADVISED TO READ THE COMPANY’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Non-GAAP Financial Measures Certain financial measures, as used in this presentation, are supplemental measures of the Company’s performance that are not Generally Accepted Accounting Principles (“GAAP”) measures. Refer to slides 19-22 of this presentation and Tables 1a, 4a, 4b, 5, 6 ,7 and 8 of the November 3 press release announcing third quarter 2017 financial results for the definitions
the Company’s explanation of why it believes these non-GAAP measures are useful to investors. Because of the forward-looking nature of the Company’s forecasted non-GAAP financial measures, specific quantifications
Free Cash Flow to 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.
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Financial Results
NRT
RFG
Capital Deployment
* Represents production generated LTM from agents' previous brokers per respective Multiple Listing Service.
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Homesale Metrics Q4 2017 Guidance Ranges
Transaction Volume (both RFG and NRT) 4% to 6% Sides flat to 1% Price 4% to 5% RFG transaction volume 3% to 5% NRT transaction volume 7% to 9%
Guidance is as of November 3, 2017
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Homesale Metrics Full Year Guidance Ranges
Transaction Volume (both RFG and NRT) 6% to 7% RFG transaction volume 5% to 6% NRT transaction volume 7% to 8% Revenue $6.1 billion to $6.150 billion Operating EBITDA $725 million to $735 million Free Cash Flow $505 million to $520 million
Guidance is as of November 3, 2017
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Net Revenue:
Operating EBITDA1: Net Income and Net Income Per Share: Operating EBITDA was $258 million, compared with $279 million in Q3 2016 Net Income was $95 million, or $0.70 per share, compared with $106 million, or $0.74 per share in Q3 2016 Adjusted Net Income and Adjusted Earnings Per Share2: Adjusted Net Income was $97 million or $0.71 per share, compared with $108 million, or $0.75 per share in Q3 2016
Financial Metrics
1 See Slide 19 for a reconciliation from Net Income attributable to the Company to Operating EBITDA. 2 See Table 1a of our November 3, 2017 press release for a reconciliation from Net Income to Adjusted Net Income. 3 Defined as net corporate debt divided by EBITDA as defined by the Senior Secured Credit Facility. See Table 7 of our November 3,
2017 press release for Net Debt Leverage Ratio detail.
Net Debt Leverage Ratio3: Revenue was $1.7 billion, an increase of 2% compared with Q3 2016 3.9x, reflective of $3.2 billion of Net Corporate Debt (excluding securitizations) at September 30, 2017
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Amount % Change Realogy Franchise Group Closed Homesale Sides 318,961 (1%) Average Homesale Price $292,000 6% Average Broker Commission Rate 2.49% (1) bps
NRT
Closed Homesale Sides 95,236 —% Average Homesale Price $506,418 4% Average Broker Commission Rate 2.45% (1) bps Cartus Initiations 39,608 (2%) Referrals 23,905 (6%) Title Resource Group Purchase Title and Closing Units 43,764 2% Refinance Title and Closing Units 6,513 (57%) Average Fee per Closing Unit $2,115 16%
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Net Revenue ($ in millions) Q3 2017 Q3 2016 $ Change % Change RFG $ 224 $ 215 $ 9 4 % NRT 1,267 1,231 36 3 % Cartus 111 116 (5) (4)% TRG 154 164 (10) (6)% Intercompany Eliminations (82) (82) — * Total Revenue $ 1,674 $ 1,644 $ 30 2 % Operating EBITDA ($ in millions) Q3 2017 Q3 2016 $ Change % Change RFG $ 159 154 $ 5 3 % NRT (before PHHHL JV earnings) 52 76 (24) (32)% PHHHL JV earnings* 12 4 8 200 % Cartus 37 41 (4) (10)% TRG 21 24 (3) (13)% Corporate (23) (20) (3) ** Total Operating EBITDA $ 258 $ 279 $ (21) (8)%
Note: Operating EBITDA excludes restructuring, legacy and early extinguishment of debt charges. See Slides 19-21 for a reconciliation of Operating EBITDA to Net
PHH Corporation (“PHH”). We own 49.9% of the joint venture and PHH owns the remaining 50.1% and as managing member of the venture is responsible for its
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2017* ($ in millions) Low High Operating EBITDA1 $725 $735 Cash Interest Expense (165) (165) Cash Taxes (10) (15) Working Capital 55 60 Cap Ex (100) (95) Free Cash Flow1 $505 $520
*Guidance is as of November 3, 2017
1 See Appendix for the definitions of Operating EBITDA and Free Cash Flow, a reconciliation of thees measures to their most
comparable GAAP measures, and the Company's explanation of why it believes these non-GAAP measures are useful to investors
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NAR (sides x price) RFG (sides x price) NRT (sides x price)
National Association of Realtors vs. Realogy 2013-2017
35% 25% 15% 5%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Source: National Association of Realtors, Realogy data
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ABCR Median Price
Average Broker Commission Rate and NAR Median Homesale Price Trends
8.0 7.8 7.6 7.4 7.2 7.0 6.8 6.6 6.4 6.2 6.0 5.8 5.6 5.4 5.2 5.0 4.8 4.6 4.4 4.2 4.0 ABCR % 275,000 225,000 175,000 125,000 75,000 Median Homesale Price in $ 1991 1996 2001 2006 2011 2016 Period Ending Source: RealTrends, National Association of Realtors
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($ in millions)
Rate Maturity Date As of September 30, 2017
Cash and Cash Equivalents $348 Revolver L+200 (1) October 2020 190 Term Loan A L+200 (1) October 2020 397 Term Loan A-1 L+200 (1) July 2021 344 Term Loan B L+225 (1)(2) July 2022 1,086 Senior Notes 4.50% April 2019 450 Senior Notes 5.25% December 2021 550 Senior Notes 4.875% June 2023 500 Net Corporate Debt (excluding securitizations) $3,169 Net Debt Leverage Ratio (3) 3.9x
1) Adjusts up or down based on senior secured leverage ratio as defined by the Senior Secured Credit Facility. 2) Includes 75 basis point LIBOR floor. 3) Defined as net corporate debt divided by EBITDA as defined by the Senior Secured Credit Facility. See Table 7 of our November 3,
2017 press release for a Net Debt Leverage Ratio calculation.
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Existing Homesale Units Existing Home Median Price Industry Forecasts
11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
YoY % change NAR FNMA Freddie Mac MBA Goldman Sachs Housing Monitor 6.9% 2.3% 1.2% 2.6% 1.7% 4.6% 5.3% 2.8% 3.4% 12% volume 5% volume All forecasts are as of October except Goldman Sachs which is as of September. FNMA and MBA forecasts reflect unit and median price increases. Goldman Sachs and Freddie Mac price increases are represented by their respective Home Price
homesales. 8% volume 6% volume 5% volume
~7% average volume increase
5.2%
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Quarterly Revenue 2015-2017
$2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 $ Millions 2015 2016 2017 $1,062 $1,134 $1,203 $1,651 $1,662 $1,793 $1,668 $1,644 $1,674 $1,325 $1,370
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($ in millions) Three months ended September 30, 2017 September 30, 2016
Net income attributable to Realogy $95 $106 Income tax expense 67 74 Income before income taxes 162 180 Interest expense, net 41 37 Depreciation and amortization (a) 51 53 EBITDA $254 $270 EBITDA adjustments: Restructuring costs 2 9 Former parent legacy cost, net 1 — Loss on the early extinguishment of debt 1 — Operating EBITDA $258 $279
(a) Depreciation and amortization for the three months ended September 30, 2017 includes $1 million of amortization expense related to Guaranteed Rate Affinity's purchase accounting included in the "Equity in earnings of unconsolidated entities" line on the Condensed Consolidated Statement of Operations. Note: Refer to Table 8 of the Press Release dated November 3, 2017 for the definitions of certain non-GAAP financial measures and the Company’s explanation of why it believes those non-GAAP measures are useful to investors.
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(a) Depreciation and amortization for the three months ended September 30, 2017 includes $1 million of amortization expense related to Guaranteed Rate Affinity's purchase accounting included in the "Equity in earnings of unconsolidated entities" line on the Condensed Consolidated Statement of Operations. Note: Refer to Table 8 of the Press Release dated November 3, 2017 for the definitions of certain non-GAAP financial measures and the Company’s explanation of why it believes those non-GAAP measures are useful to investors.
($ in millions)
Three months ended September 30, 2017 September 30, 2016 RFG $159 $154 NRT 64 80 Cartus 37 41 TRG 21 24 Corporate and Other (23) (20) Operating EBITDA Total Company $258 $279 Less: Restructuring costs 2 9 Former parent legacy cost, net 1 — Loss on the early extinguishment of debt 1 Depreciation and amortization (a) 51 53 Interest expense, net 41 37 Income tax expense 67 74 Net income attributable to Realogy Holdings $95 $106
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($ in millions)
For the Year Ended December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2016
Net income attributable to Realogy $438 $143 $184 $213 Income tax expense (benefit) (242) 87 110 144 Income before income taxes 196 230 294 357 Interest expense, net 281 267 231 174 Depreciation and amortization 176 190 201 202 EBITDA $653 $687 $726 $733 EBITDA adjustments: Restructuring costs, net 4 (1) 10 39 Former parent legacy benefit, net (4) (10) (15) (2) Loss on the early extinguishment of debt 68 47 48 — Operating EBITDA $721 $723 $769 $770 Note: Refer to Table 8 of the Press Release dated November 3, 2017 for the definitions of certain non-GAAP financial measures and the Company’s explanation of why it believes those non-GAAP measures are useful to investors.
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Note: Refer to Table 8 of the Press Release dated November 3, 2017 for the definitions of certain non-GAAP financial measures and the Company’s explanation of why it believes those non-GAAP measures are useful to investors.
($ in millions) Nine months ended September 30, 2017 September 30, 2016
Net income attributable to Realogy $176 $156 Income tax expense, net of payments 121 101 Interest expense, net 127 169 Cash interest payments (111) (117) Depreciation and amortization 149 149 Capital expenditures (69) (61) Restructuring costs and former parent legacy items, net of payments (19) 4 Loss on the early extinguishment of debt 5 Working capital adjustments 28 (38) Relocation receivables (assets), net of securitization obligations (1) (5) Free Cash Flow $406 $358