Realogy Reports First Quarter 2020 Financial Results

 Realogy Holdings Corp. the largest full-service residential real estate services company in the United States, today reported financial results for the first quarter ended March 31, 2020.

“The first quarter marked strong results delivery for Realogy with 8% transaction volume growth and a $35 million increase in Operating EBITDA,” said Ryan Schneider, Realogy’s chief executive officer and president. “In this COVID crisis, Realogy’s first priority is the health, safety, and well-being of our employees, affiliated agents, franchise owners, and customers. I am very excited by the creativity our affiliated agents and employees are demonstrating to help customers safely buy and sell homes and by the corporate actions we are taking to position Realogy to navigate this crisis and emerge strong on the other side.”

“Realogy delivered on its operational and financial momentum in the first quarter with top line growth and margin expansion across the enterprise,” said Charlotte Simonelli, Realogy’s executive vice president, chief financial officer and treasurer. “Our ongoing strategic execution, rigorous cost management, liquidity, and capital allocation decisions are designed to enable us to manage the challenges of the COVID-19 pandemic.”

First Quarter 2020 Highlights

• Generated Revenue of $1.1 billion, an increase of 6% or $62 million year-over-year.
• Reported a Net loss of $462 million driven primarily by a $447 million impairment charge related to broad based declines in the overall market due to COVID-19 and a $38 million net increase in interest expense due to the mark-to-market adjustments on interest rate swaps.
• Generated Operating EBITDA of $37 million, an increase of $35 million year over year (See Table 4).
• Achieved Operating EBITDA margin expansion of 300 basis points year-over-year driven by cost savings hitting the bottom line.
• Delivered 8% transaction volume growth across both our owned and franchise businesses.
• Grew agents 4% year-over-year at Realogy Brokerage Group along with improved retention.
• Delivered a significant quarter at Realogy Title Group driven in part by an increase in refinance volumes versus prior year. The GRA mortgage JV continued to contribute meaningfully to our business results, generating $9 million in Operating EBITDA this quarter.
• Generated Free Cash Flow from continuing operations of negative $112 million vs. negative $115 million last year (See Table 6).

First Quarter 2020 Financial Highlights

The following tables sets forth Realogy’s financial highlights for the periods presented (in millions, except per share data) (unaudited):

Balance Sheet and Capital Allocation

The Company ended the quarter with cash and cash equivalents of $628 million.  Total corporate debt, including the short-term portion, net of cash and cash equivalents (net corporate debt), totaled $3.4 billion at March 31, 2020.  The Company’s Net Debt Leverage Ratio was 5.2 times at March 31, 2020. The Net Debt Leverage Ratio is net corporate debt divided by EBITDA, as defined by the Senior Secured Credit Facility, for the four-quarter period ended March 31, 2020. Earnings from Cartus Relocation Services are included in discontinued operations and have been excluded from EBITDA, as defined by the Senior Secured Credit Facility.

Cartus Relocation Services remained in discontinued operations for the first quarter of 2020 in accordance with GAAP notwithstanding our initiation of litigation on April 27, 2020 related to the sale of this business.  In the first quarter of 2020, we consolidated Realogy Leads Group into Realogy Franchise Group.  Based upon developments in our litigation related to the sale of Cartus Relocation Services, the Company may reassess segment classification in future periods.

The Company expects to prioritize investing in its business and reducing leverage over other potential uses of cash.

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

Investor Conference Call

Today, May 7, at 8:30 a.m. (ET), Realogy will hold a conference call via webcast to review its Q1 2020 results and provide a business update. The webcast will be hosted by Ryan Schneider, chief executive officer and president, and Charlotte Simonelli, 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 U.S. residential real estate services, encompassing franchise, brokerage, and title and settlement businesses as well as a mortgage joint venture.  Realogy’s diverse brand portfolio includes some of the most recognized names in real estate: Better Homes and Gardens® Real Estate, CENTURY 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran®, ERA®, and Sotheby’s International Realty®. Using innovative technology, data and marketing products, best-in-class learning and support services, and high-quality lead generation programs, Realogy fuels the productivity of independent sales agents, helping them build stronger businesses and best serve today’s consumers. Realogy’s affiliated brokerages operate around the world with approximately 188,900 independent sales agents in the United States and more than 122,400 independent sales agents in 113 other countries and territories. Recognized for nine consecutive years as one of the World’s Most Ethical Companies, Realogy has also been designated a Great Place to Work and one of Forbes’ Best Employers for Diversity. 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”, “potential” 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.

The following include some, but not all, of the factors that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements. Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the coronavirus disease (COVID-19) pandemic: the extent, duration and severity of the spread of the COVID-19 pandemic and economic consequences stemming from the COVID-19 crisis (including a potential significant economic contraction) as well as related risks and the impact of any of the foregoing on our business, results of operations and liquidity; adverse developments or the absence of sustained improvement in general business, economic or political conditions or the U.S. residential real estate markets, either regionally or nationally, including but not limited to a decline in consumer confidence or spending, weak capital and financial markets and/or the instability of financial institutions, increased levels of unemployment and/or declining wages or stagnant wage growth in the U.S., an increase in potential homebuyers with low credit ratings or inability to afford down payments, constraints on the availability of mortgage financing, an increase in foreclosure activity, decline or a lack of improvement in the number of homesales, insufficient home inventory levels by market and price point, stagnant or declining home prices or a reduction in the affordability of housing, a lack of improvement or deceleration in the building of new housing, 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 (including potential consumer, business or governmental defaults due to the COVID-19 crisis) that particularly impact the residential real estate market and the business segments in which we operate whether broadly or by geography and price segments; risks related to our ability to comply with the senior secured leverage ratio covenant under our Senior Secured Credit Facility (including the Revolving Credit Facility) and Term Loan A Facility; risks associated with our substantial indebtedness and interest obligations and restrictions contained in our debt agreements, including risks relating to our ability to generate sufficient cash flows to service our debt (in particular if the COVID-19 crisis continues for a prolonged period) and 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; risks related to disruptions in the securitization markets, including in connection with the COVID-19 crisis; the impact of increased competition in the industry for clients, for the affiliation of independent sales agents and for the affiliation of franchisees on our results of operations and market share; the impact of disruption in the residential real estate brokerage industry, and on our results of operations and financial condition, as a result of listing aggregator concentration and market power; 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 inability to develop products, technology and programs (including our company-directed affinity programs) that supports our business strategy; our geographic and high-end market concentration; our inability to enter into franchise agreements with new franchisees or renew existing franchise agreements without reducing contractual royalty rates or increasing the amount and prevalence of sales incentives; the lack of revenue growth or declining profitability of our franchisees and company owned brokerage operations or declines in other revenue streams, such as third-party listing fees; increases in uncollectible accounts receivable and note reserves as a result of the adverse financial effects of the COVID-19 crisis on our franchisees and relocation clients; the potential impact of negative industry or business trends (including further declines in our market capitalization) on our valuation of goodwill and intangibles; the extent of the negative impact of the discontinuation of the USAA affinity program on our revenues and profits derived from affinity program referrals (including downstream revenue); the loss of our next largest affinity client or multiple significant relocation clients; risks related to our ongoing litigation with Madison Dearborn Partners, LLC and SIRVA Worldwide, Inc. regarding the planned sale of Cartus Relocation Services, including that such transaction will not close; 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, (iii) the Real Estate Settlement Procedures Act (RESPA) or other federal or state consumer protection or similar laws and (iv) antitrust laws and regulations; risks related to the impact on our operations and financial results that may be caused by any future meaningful changes in industry operations or structure as a result of governmental pressures, the actions of certain competitors, the introduction or growth of certain competitive models, changes to the rules of the multiple listing services, or otherwise; 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019, 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, 7a and 8 for definitions of these non-GAAP financial measures and Tables 1a, 4, 5a, 5b, 6, 7a and 7b for reconciliations of the historical non-GAAP financial measures to their most comparable GAAP terms.