Realogy Year Ended December 31, 2017 Earnings Call February 27, 2018

Transcription

1 Realogy Year Ended December 31, 2017 Earnings Call February 27, 2018

2 Management Presenters Ryan Schneider Chief Executive Officer and President Tony Hull Executive Vice President, Chief Financial Officer & Treasurer Alicia Swift Senior Vice President, Investor Relations and Financial Planning & Analysis 2

3 Important Disclosures 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 of February 27, The Company assumes no obligation to update the information or the forward-looking statements 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 of this presentation and Tables 1a, 4a, 4b, 5, 6,7, 8, and 9 of the February 27 press release announcing full year 2017 financial results for the definitions of these non-gaap financial measures, a reconciliation of these measures to their most comparable GAAP measures, and the Company s explanation of why it believes these non-gaap measures are useful to investors. 3

4 Realogy's Advantages in Residential Real Estate Market 1. National Scale and Industry-leading Market Position 15.9% market share in Well Known and Established Brands 3. Technology and Data Scale Opportunity to better leverage our $200+ million annual technology spend and our industry-leading data scale 4. Powerful Financial Engine Generated $1.5 billion in free cash flow in the past three years Strong balance sheet 4

5 Full Year 2017 Results Financial Metrics Net Revenue: Operating EBITDA 1 : Net Income and Net Income Per Share: Adjusted Net Income and Adjusted Earnings Per Share 2 : Free Cash Flow 3 and Capital Return: Revenue was $6.1 billion, an increase of 5% compared with the full year 2016 Operating EBITDA was $732 million, compared with $770 million in full year 2016 Net Income was $431 million, or $3.15 per share, compared with $213 million, or $1.47 per share in full year 2016, up 102% and 114%, respectively Adjusted Net Income was $217 million or $1.59 per share, compared with $237 million, or $1.64 per share in full year 2016 Free Cash Flow grew by 23% to $559 million; Returned $325 million to shareholders through share repurchases and dividends 1 See Slide 16 for a reconciliation from Net Income attributable to the Company to Operating EBITDA. 2 See Table 1a of our February 27, 2018 press release for a reconciliation from Net Income to Adjusted Net Income. 3 See Slide 19 for a reconciliation from Net Income to Free Cash Flow. 5

6 2017 Key Revenue Drivers FY 2017 vs. FY 2016 Amount % Change Realogy Franchise Group Closed Homesale Sides 1,144,217 1% Average Homesale Price $288,929 6% Average Broker Commission Rate 2.50% bps NRT Closed Homesale Sides 344,446 3% Average Homesale Price $514,685 5% Average Broker Commission Rate 2.44% (2 bps) Cartus Initiations 161,755 (1)% Referrals 83,678 (4)% Title Resource Group Purchase Title and Closing Units 159,113 4% Refinance Title and Closing Units 28,564 (44)% Average Fee per Closing Unit $2,092 12% 6

7 Business Unit Revenue and Operating EBITDA Net Revenue ($ in millions) FY 2017 FY 2016 $ Change % Change RFG $ 830 $ 781 $ 49 6 % NRT 4,643 4, % Cartus (23) (6)% TRG (3) (1)% Intercompany Eliminations (311) (293) (18) ** Total Revenue $ 6,114 $ 5,810 $ % Operating EBITDA ($ in millions) FY 2017 FY 2016 $ Change % Change RFG $ 560 $ 520 $ 40 8 % NRT (before PHHHL JV earnings) (38) (25)% PHHHL JV earnings* % Cartus (15) (15)% TRG (4) (6)% Corporate (107) (72) (35) ** Total Operating EBITDA $ 732 $ 770 $ (38) (5)% Note: Operating EBITDA excludes restructuring, legacy and early extinguishment of debt charges. See Slides for a reconciliation of Operating EBITDA to Net Income. * NRT results exclude equity earnings related to our investment in PHH Home Loans LLC ( PHHHL JV Earnings ), our former home mortgage joint venture with PHH Corporation ( PHH ). The current mortgage joint venture with Guaranteed Rate is reported in the TRG segment. ** Not meaningful 7

8 Q Guidance Homesale Metrics Q Guidance Ranges Transaction Volume (both RFG and NRT) 2% to 5% Sides Flat to 2% Price 2% to 3% RFG transaction volume 4% to 6% NRT transaction volume flat to 2% Guidance is as of February 27th, 2018 Q1 Operating EBITDA is not indicative of our full year 2018 outlook 8

9 Call Highlights We generated $1.5 billion in free cash flow over the past three years We have a strong balance sheet with $1.4 billion of revolver capacity Our Board authorized a $350 million share buyback program for 2018 We returned $325 million of capital to shareholders through share repurchases and dividends in 2017 The change in tax law reduces our corporate tax rate from approximately 41% to an estimated 29%, which would equate to approximately $50 million per year at our current earnings level if we were a cash taxpayer today 9

10 Appendix

11 Existing Home Sale Transaction Volume 35% National Association of Realtors vs. Realogy % 15% 5% -5% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 NAR (sides x Average price) RFG (sides x price) NRT (sides x price) Source: National Association of Realtors, Realogy data 11

12 Capitalization Table ($ in millions) Rate Maturity Date As of December 31, 2017 Cash and Cash Equivalents $227 Revolver L+200 (1) October 2020 $70 Term Loan A L+200 (1) October 2020 $391 Term Loan A-1 L+200 (1) July 2021 $342 Term Loan B L+225 (2) July 2022 $1,083 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) $3,159 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 facilities. 2) Includes 75 basis point LIBOR floor. 3) Defined as net corporate debt divided by EBITDA as defined by the senior secured credit facilities. See Table 8 of our February 27, 2018 press release for a Net Debt Leverage Ratio calculation. 12

13 Pro Forma Capitalization Table Reflects Refinancing in February 2018 ($ in millions) Rate Maturity Date As of December 31, 2017 Cash and Cash Equivalents $227 Revolver L+200 (1) February 2023 $70 Term Loan A L+200 (1) February 2023 $750 Term Loan B L+225 (2) February 2025 $1,080 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) $3,173 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 8 of our February 27, 2018 press release for a Net Debt Leverage Ratio calculation. 13

14 2018 Industry Forecasts Industry Forecasts 9% 8% 7.8% volume 7% YoY % change 6% 5% 4% 3% 2% 1% 0% -1% 3.1% volume 2.5% 0.5% NAR 5.3% 2.4% FNMA 1% volume Freddie Mac 1.6% 1.9% (1.0)% 4.1% volume 2.2% MBA 1% volume 1.1% (0.2)% Goldman Sachs Housing Monitor ~3% average volume increase Existing Homesale Units Existing Home Median Price All forecasts are as of February except Freddie Mac, MBA and Goldman Sachs which are as of January. NAR, FNMA and MBA forecasts reflect unit and median price increases. Goldman Sachs and Freddie Mac price increases are represented by their respective Home Price Indices. Freddie Mac forecasts total homesale units (new + existing), which the Company adjusts by NAR projected new homesales. 14

15 Seasonal Revenue Trends $2,000 Quarterly Revenue $1,800 $1,651 $1,668 $1,662 $1,644 $1,793 $1,674 $1,600 $1,400 $1,325 $1,370 $1,444 $ Millions $1,200 $1,000 $800 $1,062 $1,134 $1,203 $600 $400 $200 $ Revenue $5, Revenue $5, Revenue $6,114 Q1 Q2 Q3 Q4 15

16 GAAP Reconciliation For the Year Ended ($ in millions) December 31, 2017 December 31, 2016 Net income attributable to Realogy $431 $213 Income tax (benefit) expense (65) 144 Income before income taxes Interest expense, net Depreciation and amortization (a) EBITDA EBITDA adjustments: Restructuring costs Former parent legacy benefit, net (10) (2) Loss on the early extinguishment of debt 5 Operating EBITDA $732 $770 (a) Depreciation and amortization for the year ended December 31, 2017 includes $3 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 9 of the Press Release dated February 27, 2018 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. 16

17 GAAP Reconciliation ($ in millions) For the Year Ended December 31, 2017 December 31, 2016 RFG $560 $520 NRT Cartus TRG Corporate and Other (107) (72) Operating EBITDA Total Company $732 $770 Less: Restructuring costs Former parent legacy benefit, net (10) (2) Loss on the early extinguishment of debt 5 0 Depreciation and amortization (a) Interest expense, net Income tax (benefit) expense (65) 144 Net income attributable to Realogy Holdings $431 $213 (a) Depreciation and amortization for the year ended December 31, 2017 includes $3 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 9 of the Press Release dated February 27, 2018 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. 17

18 GAAP Reconciliation ($ in millions) For the Year Ended December 31st Net income attributable to Realogy $438 $143 $184 $213 $431 Income tax expense (benefit) (242) (65) Income before income taxes Interest expense, net Depreciation and amortization (a) EBITDA $653 $687 $726 $733 $725 EBITDA adjustments: Restructuring costs, net 4 (1) Former parent legacy benefit, net (4) (10) (15) (2) (10) Loss on the early extinguishment of debt Operating EBITDA $721 $723 $769 $770 $732 (a) Depreciation and amortization for the year ended December 31, 2017 includes $3 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 9 of the Press Release dated February 27, 2018 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. 18

19 GAAP Reconciliation For the Year Ended December 31, December 31, ($ in millions) Net income attributable to Realogy $431 $213 Income tax (benefit) expense, net of payments (77) 120 Interest expense, net Cash interest payments (172) (181) Depreciation and amortization Capital expenditures (99) (87) Restructuring costs and former parent legacy items, net of payments (19) 5 Loss on the early extinguishment of debt 5 0 Working capital adjustments Relocation receivables (assets), net of securitization obligations 12 (9) Free Cash Flow $559 $456 Free Cash Flow $559 $456 Operating EBITDA 1 $732 $770 Conversion of Operating EBITDA to Free Cash Flow 76% 59% 1) See Slides for a reconciliation of Operating EBITDA to Net Income. Note: Refer to Table 9 of the Press Release dated February 27, 2018 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. 19

20 RFG and NRT Combined Operating EBITDA Reconciliation ($ in millions) For the year ended December 31st Change RFG and NRT Combined Revenue 1 $5,162 $4,832 7 % RFG EBITDA % NRT EBITDA (8)% RFG and NRT Combined EBITDA $685 $653 5 % EBITDA adjustments: Restructuring costs, net (62)% RFG and NRT Combined Operating EBITDA $695 $679 2 % RFG and NRT Combined Margin 13.5% 14.1% (4)% PHHHL JV Earnings 2 (22) (8) RFG and NRT Combined Operating EBITDA (before PHHHL JV Earnings) $673 $671 % RFG and NRT Combined Margin (before PHH HL JV Earnings) 13.0% 13.9% 1 RFG and NRT Revenue after netting out intercompany royalties and marketing fees. 2 Represents equity earnings related to our investment in PHH Home Loans LLC ( PHHHL JV Earnings ), our former home mortgage joint venture with PHH Corporation ( PHH ), which are reported in the NRT segment. The current mortgage joint venture with Guaranteed Rate is reported in the TRG segment. 20