Anywhere(HOUS) - 2021 Q3 - Quarterly Report

Introductory Note This section clarifies the company's legal entity definitions and confirms identical consolidated financial reporting across its holding and operating entities - The terms "we," "us," "our," "our company," "Realogy," "Realogy Holdings" and the "Company" refer to Realogy Holdings Corp. and its consolidated subsidiaries, including Realogy Intermediate Holdings LLC and Realogy Group LLC[11] - Realogy Holdings and Realogy Intermediate do not conduct operations other than direct or indirect ownership of Realogy Group, resulting in identical consolidated financial positions, results of operations, and cash flows across the entities[11] Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to inherent risks and uncertainties, particularly concerning market conditions, macroeconomic factors, and competitive dynamics - The report contains forward-looking statements, particularly in "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are based on management's current plans and expectations but involve inherent risks and uncertainties[13] - Key risks and uncertainties that could materially affect future results include adverse developments in the residential real estate market (e.g., declines in inventory, increased mortgage rates, reduced affordability), macroeconomic conditions (e.g., U.S. economy contraction, fiscal/monetary policies), evolving competitive and consumer dynamics (e.g., erosion of broker commission share, non-traditional competitors), and the company's ability to execute its business strategy (e.g., recruit/retain agents, attract/retain franchisees, compete for ancillary services)[14][16] - Additional risks include the impact of the COVID-19 crisis, business structure risks (e.g., geographic concentration, franchisee operating results), listing aggregator market power, industry structure changes, substantial indebtedness, risks related to Exchangeable Senior Notes, legal and regulatory matters (e.g., antitrust, RESPA, worker classification), cybersecurity incidents, goodwill impairment, and severe weather/catastrophic events[16][19] PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of the company's financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Realogy Holdings Corp. and Realogy Group LLC for the periods ended September 30, 2021, and December 31, 2020. It includes statements of operations, comprehensive income (loss), balance sheets, and cash flows, along with detailed notes on accounting policies, fair value measurements, debt, equity, and segment information Report of Independent Registered Public Accounting Firm for Realogy Holdings Corp. This report confirms PricewaterhouseCoopers LLP's review of Realogy Holdings Corp.'s interim financial statements, finding no material modifications needed for GAAP conformity - PricewaterhouseCoopers LLP reviewed the interim financial statements of Realogy Holdings Corp. and its subsidiaries for the periods ended September 30, 2021 and 2020, and found no material modifications needed for conformity with GAAP[23] - The firm previously issued an unqualified opinion on the Company's consolidated financial statements as of December 31, 2020, and confirmed that the accompanying consolidated balance sheet information as of December 31, 2020, is fairly stated in relation to the audited statements[24] Report of Independent Registered Public Accounting Firm for Realogy Group LLC This report confirms PricewaterhouseCoopers LLP's review of Realogy Group LLC's interim financial statements, finding no material modifications needed for GAAP conformity - PricewaterhouseCoopers LLP reviewed the interim financial statements of Realogy Group LLC and its subsidiaries for the periods ended September 30, 2021 and 2020, and found no material modifications needed for conformity with GAAP[28] - The firm previously issued an unqualified opinion on Realogy Group LLC's consolidated financial statements as of December 31, 2020, and confirmed that the accompanying consolidated balance sheet information as of December 31, 2020, is fairly stated in relation to the audited statements[29] Condensed Consolidated Statements of Operations (in millions) This section presents the unaudited condensed consolidated statements of operations, detailing revenues, expenses, and net income (loss) for specified periods Condensed Consolidated Statements of Operations (in millions) | (Unaudited) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | | | | | | Gross commission income | $1,689 | $1,458 | $4,616 | $3,227 | | Service revenue | 315 | 281 | 878 | 702 | | Franchise fees | 139 | 133 | 391 | 289 | | Other | 43 | 37 | 124 | 114 | | Net revenues | 2,186 | 1,909 | 6,009 | 4,332 | | Expenses | | | | | | Commission and other agent-related costs | 1,309 | 1,105 | 3,567 | 2,420 | | Operating | 424 | 380 | 1,230 | 1,068 | | Marketing | 69 | 55 | 193 | 155 | | General and administrative | 120 | 108 | 324 | 265 | | Former parent legacy cost, net | — | 1 | 1 | 1 | | Restructuring costs, net | 4 | 17 | 14 | 47 | | Impairments | 1 | 70 | 3 | 610 | | Depreciation and amortization | 50 | 43 | 152 | 134 | | Interest expense, net | 52 | 48 | 147 | 208 | | Loss on the early extinguishment of debt | 3 | — | 21 | 8 | | Other loss (income), net | 1 | — | (17) | — | | Total expenses | 2,033 | 1,827 | 5,635 | 4,916 | | Income (loss) before income taxes, equity in earnings and noncontrolling interests | 153 | 82 | 374 | (584) | | Income tax expense (benefit) | 48 | 36 | 125 | (110) | | Equity in earnings of unconsolidated entities | (11) | (53) | (52) | (98) | | Net income (loss) | 116 | 99 | 301 | (376) | | Less: Net income attributable to noncontrolling interests | (2) | (1) | (5) | (2) | | Net income (loss) attributable to Realogy Holdings and Realogy Group | $114 | $98 | $296 | $(378) | | Earnings (loss) per share attributable to Realogy Holdings shareholders: | | | | | | Basic earnings (loss) per share | $0.98 | $0.85 | $2.55 | $(3.28) | | Diluted earnings (loss) per share | $0.95 | $0.84 | $2.46 | $(3.28) | | Weighted average common and common equivalent shares of Realogy Holdings outstanding: | | | | | | Basic | 116.6 | 115.4 | 116.3 | 115.2 | | Diluted | 120.3 | 116.7 | 120.2 | 115.2 | Condensed Consolidated Statements of Comprehensive Income (Loss) (in millions) This section presents the unaudited condensed consolidated statements of comprehensive income (loss), including net income (loss) and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (Loss) (in millions) | (In millions) (Unaudited) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $116 | $99 | $301 | $(376) | | Currency translation adjustment | — | — | (1) | (1) | | Defined benefit pension plan—amortization of actuarial loss to periodic pension cost | — | 1 | 2 | 2 | | Other comprehensive income, before tax | — | 1 | 1 | 1 | | Income tax expense (benefit) related to items of other comprehensive income amounts | — | — | — | — | | Other comprehensive income, net of tax | — | 1 | 1 | 1 | | Comprehensive income (loss) | 116 | 100 | 302 | (375) | | Less: comprehensive income attributable to noncontrolling interests | (2) | (1) | (5) | (2) | | Comprehensive income (loss) attributable to Realogy Holdings and Realogy Group | $114 | $99 | $297 | $(377) | Condensed Consolidated Balance Sheets (in millions, except share data) This section presents the unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in millions, except share data) | (In millions, except share data) (Unaudited) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | ASSETS | | | | Current assets: | | | | Cash and cash equivalents | $701 | $520 | | Restricted cash | 5 | 3 | | Trade receivables (net of allowance for doubtful accounts of $11 and $13) | 140 | 128 | | Relocation receivables | 185 | 139 | | Other current assets | 194 | 154 | | Total current assets | 1,225 | 944 | | Property and equipment, net | 302 | 317 | | Operating lease assets, net | 448 | 450 | | Goodwill | 2,899 | 2,910 | | Trademarks | 685 | 685 | | Franchise agreements, net | 1,038 | 1,088 | | Other intangibles, net | 175 | 188 | | Other non-current assets | 421 | 352 | | Total assets | $7,193 | $6,934 | | LIABILITIES AND EQUITY | | | | Current liabilities: | | | | Accounts payable | $125 | $128 | | Securitization obligations | 146 | 106 | | Current portion of long-term debt | 9 | 62 | | Current portion of operating lease liabilities | 126 | 129 | | Accrued expenses and other current liabilities | 661 | 600 | | Total current liabilities | 1,067 | 1,025 | | Long-term debt | 2,938 | 3,145 | | Long-term operating lease liabilities | 418 | 430 | | Deferred income taxes | 353 | 276 | | Other non-current liabilities | 289 | 291 | | Total liabilities | 5,065 | 5,167 | | Commitments and contingencies (Note 8) | | | | Equity: | | | | Realogy Holdings preferred stock: $0.01 par value; 50,000,000 shares authorized, none issued and outstanding at September 30, 2021 and December 31, 2020 | — | — | | Realogy Holdings common stock: $0.01 par value; 400,000,000 shares authorized, 116,586,201 shares issued and outstanding at September 30, 2021 and 115,457,067 shares issued and outstanding at December 31, 2020 | 1 | 1 | | Additional paid-in capital | 4,939 | 4,876 | | Accumulated deficit | (2,759) | (3,055) | | Accumulated other comprehensive loss | (58) | (59) | | Total stockholders' equity | 2,123 | 1,763 | | Noncontrolling interests | 5 | 4 | | Total equity | 2,128 | 1,767 | | Total liabilities and equity | $7,193 | $6,934 | Condensed Consolidated Statements of Cash Flows (in millions) This section presents the unaudited condensed consolidated statements of cash flows, categorizing cash movements into operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in millions) | (In millions) (Unaudited) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Operating Activities | | | | Net income (loss) | $301 | $(376) | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | Depreciation and amortization | 152 | 134 | | Deferred income taxes | 76 | (112) | | Impairments | 3 | 610 | | Amortization of deferred financing costs and debt discount (premium) | 12 | 8 | | Loss on the early extinguishment of debt | 21 | 8 | | Gain on the sale of business, net | (14) | — | | Equity in earnings of unconsolidated entities | (52) | (98) | | Stock-based compensation | 21 | 19 | | Mark-to-market adjustments on derivatives | (8) | 59 | | Other adjustments to net income (loss) | (2) | (1) | | Net change in assets and liabilities, excluding the impact of acquisitions and dispositions: | | | | Trade receivables | (13) | (24) | | Relocation receivables | (46) | 2 | | Other assets | (12) | 15 | | Accounts payable, accrued expenses and other liabilities | 32 | 137 | | Dividends received from unconsolidated entities | 49 | 59 | | Other, net | (31) | (22) | | Net cash provided by operating activities | 489 | 418 | | Investing Activities | | | | Property and equipment additions | (71) | (69) | | Proceeds from the sale of business | 15 | — | | Investment in unconsolidated entities | (7) | (2) | | Other, net | (5) | (13) | | Net cash used in investing activities | (68) | (84) | | Financing Activities | | | | Net change in Revolving Credit Facility | — | (50) | | Repayments of Term Loan A Facility and Term Loan B Facility | (1,490) | — | | Proceeds from issuance of Senior Notes | 905 | — | | Proceeds from issuance of Senior Secured Second Lien Notes | — | 550 | | Redemption of Senior Notes | — | (550) | | Proceeds from issuance of Exchangeable Senior Notes | 403 | — | | Payments for purchase of Exchangeable Senior Notes hedge transactions | (67) | — | | Proceeds from issuance of Exchangeable Senior Notes warrant transactions | 46 | — | | Amortization payments on term loan facilities | (8) | (31) | | Net change in securitization obligations | 40 | (62) | | Debt issuance costs | (20) | (14) | | Cash paid for fees associated with early extinguishment of debt | (11) | (7) | | Taxes paid related to net share settlement for stock-based compensation | (9) | (5) | | Other, net | (27) | (34) | | Net cash used in financing activities | (238) | (203) | | Effect of changes in exchange rates on cash, cash equivalents and restricted cash | — | — | | Net increase in cash, cash equivalents and restricted cash | 183 | 131 | | Cash, cash equivalents and restricted cash, beginning of period | 523 | 266 | | Cash, cash equivalents and restricted cash, end of period | $706 | $397 | | Supplemental Disclosure of Cash Flow Information | | | | Interest payments (including securitization interest of $3 and $4 respectively) | $121 | $133 | | Income tax payments (refunds), net | 32 | (9) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes supporting the condensed consolidated financial statements, covering accounting policies, debt, equity, and segment information 1. BASIS OF PRESENTATION This note outlines the basis for preparing the financial statements, including company structure, GAAP compliance, and key accounting policies - Realogy Holdings Corp. is a global provider of residential real estate services through its consolidated subsidiaries, with Realogy Holdings and Realogy Intermediate serving as holding companies for Realogy Group LLC, resulting in identical consolidated financial statements[43] - The financial statements are prepared in accordance with GAAP and Article 10 of Regulation S-X, with interim results potentially not indicative of full-year performance due to seasonal variations[45] Fair Value Measurements (September 30, 2021) | | Level I | Level II | Level III | Total | | :--- | :--- | :--- | :--- | :--- | | Deferred compensation plan assets | $1 | $— | $— | $1 | | Interest rate swaps | — | 57 | — | 57 | | Contingent consideration for acquisitions | — | — | 3 | 3 | Equity Earnings from Unconsolidated Entities (Nine Months Ended September 30) | Entity | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Guaranteed Rate Affinity, LLC | $49 | $95 | | Other equity method investments | $3 | $3 | Income Tax Expense (Benefit) | Period | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $48 | $36 | | Nine Months Ended Sep 30 | $125 | $(110) | - The Company uses interest rate swaps with an aggregate notional value of $1,000 million to manage exposure to variable rate borrowings, with changes in fair value recorded in the Condensed Consolidated Statements of Operations as hedge accounting is not utilized[58][59] Net Revenues by Segment (Three Months Ended September 30) | Segment | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Realogy Franchise Group | $342 | $314 | | Realogy Brokerage Group | $1,705 | $1,479 | | Realogy Title Group | $250 | $213 | | Corporate and Other | $(111) | $(97) | | Total Net Revenues | $2,186 | $1,909 | Net Revenues by Segment (Nine Months Ended September 30) | Segment | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Realogy Franchise Group | $943 | $761 | | Realogy Brokerage Group | $4,667 | $3,281 | | Realogy Title Group | $706 | $510 | | Corporate and Other | $(307) | $(220) | | Total Net Revenues | $6,009 | $4,332 | - Revenue is recognized upon the transfer of control of promised services, with gross commission income and title/escrow fees recognized at the closing of a homesale transaction, and franchise fees recognized when underlying franchisee revenue is earned[60][61][62] - The Company adopted the new standard on Simplifying the Accounting for Income Taxes effective January 1, 2021, which did not impact its consolidated financial statements upon adoption[67] - The Company plans to adopt the new standard on Accounting for Convertible Instruments and Contracts in an Entity's Own Equity on January 1, 2022, using the modified retrospective approach, and is currently evaluating its impact[69] 2. GOODWILL AND INTANGIBLE ASSETS This note details the company's goodwill and intangible assets, including their carrying amounts, changes, and amortization expenses by reporting unit and asset type Goodwill by Reporting Unit (in millions) | Reporting Unit | Balance at Dec 31, 2020 | Goodwill Acquired | Goodwill Reduction for Sale of Business | Balance at Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Realogy Franchise Group | $2,509 | $— | $(3) | $2,506 | | Realogy Brokerage Group | $245 | $— | $(10) | $235 | | Realogy Title Group | $156 | $2 | $— | $158 | | Total Company | $2,910 | $2 | $(13) | $2,899 | Intangible Assets (Net Carrying Amount, in millions) | Intangible Asset | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Franchise agreements | $1,038 | $1,088 | | Trademarks | $685 | $685 | | License agreements | $31 | $32 | | Customer relationships | $117 | $133 | | Title plant shares | $25 | $20 | | Other | $2 | $3 | | Total Other Intangibles | $175 | $188 | Intangible Asset Amortization Expense (in millions) | Asset Type | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Franchise agreements | $16 | $17 | $50 | $51 | | License agreements | $1 | $1 | $1 | $1 | | Customer relationships | $5 | $— | $16 | $1 | | Other | $1 | $1 | $2 | $3 | | Total | $23 | $19 | $69 | $56 | - Expected amortization expense for amortizable intangible assets is approximately $23 million for the remainder of 2021, $90 million for 2022, $89 million for 2023, $89 million for 2024, $89 million for 2025, and $808 million thereafter[76] 3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES This note provides a breakdown of accrued expenses and other current liabilities, including payroll, advances, commissions, and restructuring accruals Accrued Expenses and Other Current Liabilities (in millions) | Category | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Accrued payroll and related employee costs | $253 | $239 | | Advances from clients | $29 | $65 | | Accrued volume incentives | $51 | $46 | | Accrued commissions | $54 | $48 | | Restructuring accruals | $12 | $16 | | Deferred income | $57 | $46 | | Accrued interest | $58 | $18 | | Current portion of finance lease liabilities | $12 | $13 | | Due to former parent | $19 | $19 | | Other | $116 | $90 | | Total | $661 | $600 | 4. SHORT AND LONG-TERM DEBT This note details the company's short and long-term debt, including senior secured credit facilities, senior notes, exchangeable senior notes, and securitization obligations Total Indebtedness (in millions) | Debt Type | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Senior Secured Credit Facility: | | | | Term Loan B | $— | $1,036 | | Term Loan A Facility: | | | | Extended Term Loan A | $233 | $— | | 7.625% Senior Secured Second Lien Notes | $542 | $540 | | 4.875% Senior Notes | $406 | $406 | | 9.375% Senior Notes | $544 | $544 | | 5.75% Senior Notes | $898 | $— | | 0.25% Exchangeable Senior Notes | $324 | $— | | Total Short-Term & Long-Term Debt | $2,947 | $3,207 | | Securitization Obligations: | | | | Apple Ridge Funding LLC | $144 | $102 | | Cartus Financing Limited | $2 | $4 | | Total Securitization Obligations | $146 | $106 | Combined Aggregate Maturities for Long-Term Borrowings (in millions) | Year | Amount | | :--- | :--- | | Remaining 2021 | $1 | | 2022 | $10 | | 2023 | $423 | | 2024 | $22 | | 2025 | $735 | - In September 2021, the Company repaid all remaining Term Loan A Facility ($197 million) and Term Loan B Facility ($238 million) using cash on hand[87] - The 2021 Amendments extended the maturity of a portion of the Term Loan A Facility and Revolving Credit Facility from February 2023 to February 2025, with a springing maturity clause tied to the 4.875% Senior Notes[88] - Realogy Group issued $403 million of 0.25% Exchangeable Senior Notes due 2026 in June 2021, with an initial exchange rate of 40.8397 shares per $1,000 principal amount[103][104][108] - The Exchangeable Senior Notes are redeemable by Realogy Group on or after June 20, 2024, if the common stock price exceeds 130% of the exchange price for a specified period[110] - The Company entered into exchangeable note hedge transactions ($67 million cost) and warrant transactions ($46 million proceeds) to offset potential dilution and/or cash payments upon exchange of the Exchangeable Senior Notes, effectively increasing the overall exchange price from $24.49 to $30.6075 per share[116][117][118] - Securitization obligations through Apple Ridge Funding LLC ($144 million utilized, $56 million available) and Cartus Financing Limited ($2 million utilized, $18 million available) are collateralized by relocation receivables and classified as current liabilities[120][121][125] - The Company recorded a $21 million loss on early extinguishment of debt during the nine months ended September 30, 2021, due to refinancing transactions and debt paydowns[127] 5. RESTRUCTURING COSTS This note outlines the company's restructuring charges, detailing personnel and facility-related costs associated with efficiency programs Restructuring Charges (in millions) | Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Personnel-related costs | $1 | $5 | $5 | $13 | | Facility-related costs | $3 | $12 | $9 | $34 | | Total restructuring charges | $4 | $17 | $14 | $47 | - The Company initiated a Facility and Operational Efficiencies Program in Q1 2019, expanding in late 2019 and 2020, to reduce storefront costs, centralize operational support, optimize workforce, and reevaluate office space needs due to remote work[131][132] Expected and Incurred Costs for Facility and Operational Efficiencies Program (in millions) | Cost Type | Total Expected | Incurred to Date | Remaining | | :--- | :--- | :--- | :--- | | Personnel-related costs | $57 | $55 | $2 | | Facility-related costs | $105 | $70 | $35 | | Other restructuring costs | $1 | $1 | $— | | Total | $163 | $126 | $37 | 6. EQUITY This note provides information on the company's equity, including details on restricted stock units and performance stock units granted - Realogy Holdings Corp. granted 0.9 million restricted stock units (weighted average fair value $14.10) and 0.6 million performance stock units (weighted average fair value $11.55) in Q1 2021, with time-based awards vesting ratably over three years[140] 7. EARNINGS (LOSS) PER SHARE This note presents the calculation of basic and diluted earnings (loss) per share attributable to Realogy Holdings shareholders Earnings (Loss) Per Share Attributable to Realogy Holdings Shareholders | (in millions, except per share data) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to Realogy Holdings shareholders | $114 | $98 | $296 | $(378) | | Weighted average common shares outstanding (basic) | 116.6 | 115.4 | 116.3 | 115.2 | | Dilutive effect of stock-based compensation | 3.7 | 1.3 | 3.9 | — | | Dilutive effect of Exchangeable Senior Notes and warrants | — | — | — | — | | Weighted average common shares outstanding (diluted) | 120.3 | 116.7 | 120.2 | 115.2 | | Basic earnings (loss) per share | $0.98 | $0.85 | $2.55 | $(3.28) | | Diluted earnings (loss) per share | $0.95 | $0.84 | $2.46 | $(3.28) | - The computation of diluted EPS for the three and nine months ended September 30, 2021, excluded 3.8 million and 3.6 million shares, respectively, of common stock issuable for incentive equity awards due to their anti-dilutive effect[141] - For the nine months ended September 30, 2020, incentive equity awards were excluded from diluted loss per share computation as the Company was in a net loss position, making their inclusion anti-dilutive[141] 8. COMMITMENTS AND CONTINGENCIES This note details the company's involvement in various claims, legal proceedings, governmental inquiries, and contingent liabilities - The Company is involved in various claims, legal proceedings, and governmental inquiries, including those related to antitrust, worker classification (e.g., Whitlach v. Premier Valley, Inc.), RESPA, intellectual property, and data privacy[142][143][144] - Real estate industry litigation, such as Moehrl, Sitzer, Leeder, and Bauman, alleges antitrust violations related to NAR and MLS rules concerning buyer broker compensation, with ongoing discovery and motions[146][147][148][149][150][152] - The Company initiated litigation against Urban Compass, Inc. and Compass, Inc. for alleged misappropriation of trade secrets, tortious interference, and unfair competition, with counterclaims filed by Compass[153][154] - Escrow and trust deposits, totaling $1,016 million at September 30, 2021, are administered by the Company but are not its assets, though it remains contingently liable for their disposition[160] 9. SEGMENT INFORMATION This note provides financial information by reportable segment, including revenues and Operating EBITDA for Realogy Franchise, Brokerage, and Title Groups - The Company's reportable segments are Realogy Franchise Group, Realogy Brokerage Group, and Realogy Title Group, with performance evaluated based on revenue and Operating EBITDA[162] Revenues by Segment (in millions) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Realogy Franchise Group | $342 | $314 | $943 | $761 | | Realogy Brokerage Group | $1,705 | $1,479 | $4,667 | $3,281 | | Realogy Title Group | $250 | $213 | $706 | $510 | | Corporate and Other | $(111) | $(97) | $(307) | $(220) | | Total Company | $2,186 | $1,909 | $6,009 | $4,332 | Operating EBITDA by Segment (in millions) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Realogy Franchise Group | $211 | $200 | $576 | $421 | | Realogy Brokerage Group | $51 | $61 | $116 | $25 | | Realogy Title Group | $54 | $95 | $170 | $168 | | Corporate and Other | $(43) | $(43) | $(117) | $(94) | | Total Company | $273 | $313 | $745 | $520 | - Operating EBITDA is defined as net income (loss) before depreciation and amortization, net interest expense (excluding relocation services interest), income taxes, and non-core items like restructuring charges, impairments, and gains/losses on debt extinguishment or asset sales[162] 10. SUBSEQUENT EVENTS This note discloses significant events occurring after the balance sheet date, including a strategic joint venture agreement for title insurance underwriting - On October 6, 2021, Realogy announced a strategic agreement with Centerbridge Partners, L.P. to form a title insurance underwriter joint venture[169] - Centerbridge funds will acquire a 70% equity stake in the joint venture (preferred units) for $210 million in cash, while Realogy will retain a 30% equity stake (common units) in Title Resources Guaranty Company[170] - The transaction is subject to regulatory approvals and customary closing conditions, with an expected close in Q1 2022, after which Realogy's share of equity earnings/losses will be reported in Realogy Title Group[171][172] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and cash flows, discussing key business segments, recent developments, industry trends, and critical accounting policies. It highlights the strong recovery in the residential real estate market, driven by high demand and prices, but also addresses challenges such as low inventory, competitive pressures, and the impact of rising interest rates OVERVIEW This section provides an overview of Realogy's global residential real estate services, detailing its three core business segments: Franchise, Brokerage, and Title Groups - Realogy is a global provider of residential real estate services, operating through three business segments: Realogy Franchise Group, Realogy Brokerage Group, and Realogy Title Group[175] - Realogy Franchise Group franchises major real estate brands (e.g., Century 21, Coldwell Banker) with approximately 337,400 independent sales agents worldwide and 21,100 offices, also including lead generation and global relocation services[175] - Realogy Brokerage Group operates a full-service real estate brokerage with approximately 660 owned offices and 55,100 independent sales agents, primarily under Coldwell Banker, Corcoran, and Sotheby's International Realty brands[175] - Realogy Title Group provides full-service title, escrow, and settlement services, including title underwriting through Title Resources Guaranty Company, and includes the Company's equity earnings from its mortgage origination joint venture, Guaranteed Rate Affinity[175] RECENT DEVELOPMENTS This section outlines recent significant events, including the formation of a title insurance underwriter joint venture and substantial debt repayments - Realogy Title Group LLC will form a title insurance underwriter joint venture with Centerbridge Partners, L.P., where Centerbridge funds will acquire a 70% equity stake for $210 million in cash, and Realogy will hold a 30% stake[176][177] - The Company repaid approximately $197 million of Term Loan A Facility and $238 million of Term Loan B Facility in September 2021 using cash on hand[180] CURRENT BUSINESS AND INDUSTRY TRENDS This section discusses prevailing trends in the residential real estate market, including recovery drivers, mortgage rate impacts, inventory levels, affordability, and competitive dynamics - The residential real estate market experienced a strong recovery from Q2 2020, driven by high demand, favorable mortgage rates, remote work, and millennial home-buying trends, leading to increased average homesale prices[181][182] Homesale Transaction Volume Growth (YoY) | Period | Realogy Franchise & Brokerage Groups Combined | Realogy Franchise Group | Realogy Brokerage Group | | :--- | :--- | :--- | :--- | | Nine Months Ended Sep 30, 2021 vs 2020 | +41% | +39% | +45% | | Three Months Ended Sep 30, 2021 vs 2020 | +12% | +9% | +17% | - NAR reported a 27% increase in homesale transaction volume for the nine months ended September 30, 2021, compared to 2020, and a 35% increase compared to 2019[185] - Equity in earnings at Guaranteed Rate Affinity declined significantly, from $51 million in Q3 2020 to $11 million in Q3 2021, primarily due to mark-to-market adjustments on the mortgage loan pipeline, gain-on-sale margin compression, and lower refinance volumes, despite strong purchase volume growth[202] - Mortgage rates, while increasing from late 2020 lows, remain below the 10-year average, but rising rates could negatively impact refinancing, housing affordability, and homesale transaction volume[203][205] - Low housing inventory levels persist, with U.S. existing homes for sale decreasing by 13% YoY to 1.3 million as of September 2021, leading to rapid turnover and potential constraints on homesale transaction volume[207][208] - Housing affordability decreased, with the NAR index falling from 166 in August 2020 to 151 in August 2021, potentially impacted by inflation, rising mortgage rates, and average homesale prices[209] - Agent recruitment and retention remain challenging due to aggressive competition, leading to upward pressure on agent commission shares and potential impacts on operating margins and royalty fees[211][212][213] - Non-traditional market participants, including iBuying, home swap models, and virtual brokerages, are disrupting the industry and competing for gross commission income and ancillary services, potentially impacting brokerages and agents[214][215][216] - Listing aggregators' market power creates disruption by setting up competing brokerages, expanding ancillary offerings, charging fees, and leveraging data, which can reduce earnings and dilute relationships for traditional brokerages[217] KEY DRIVERS OF OUR BUSINESSES This section identifies and analyzes the primary metrics and factors influencing the performance of Realogy's Franchise, Brokerage, and Title Group segments - Key operating metrics include closed homesale sides, average homesale price, and average homesale broker commission rate for Realogy Franchise and Brokerage Groups[224] - Realogy Franchise Group also uses net royalty per side, which accounts for royalty rates, homesale price, broker commission rates, and incentives[225] - Realogy Brokerage Group uses gross commission income per side, with a royalty fee of approximately 6% paid to Realogy Franchise Group, and the remainder split between the broker and independent sales agent[226] - Realogy Title Group's performance is evaluated by purchase title and closing units, refinance title and closing units, and average fee per closing unit[228] Key Business Drivers (Three Months Ended September 30) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Realogy Franchise Group | | | | | Closed homesale sides | 316,195 | 336,737 | (6)% | | Average homesale price | $427,052 | $367,095 | 16% | | Average homesale broker commission rate | 2.44% | 2.48% | (4) bps | | Net royalty per side | $401 | $367 | 9% | | Realogy Brokerage Group | | | | | Closed homesale sides | 101,536 | 101,890 | —% | | Average homesale price | $662,006 | $563,513 | 17% | | Average homesale broker commission rate | 2.42% | 2.44% | (2) bps | | Gross commission income per side | $16,633 | $14,315 | 16% | | Realogy Title Group | | | | | Purchase title and closing units | 47,004 units | 45,788 units | 3% | | Refinance title and closing units | 12,836 units | 18,387 units | (30)% | | Average fee per closing unit | $2,675 | $2,239 | 19% | Key Business Drivers (Nine Months Ended September 30) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Realogy Franchise Group | | | | | Closed homesale sides | 881,356 | 778,010 | 13% | | Average homesale price | $419,223 | $341,427 | 23% | | Average homesale broker commission rate | 2.46% | 2.48% | (2) bps | | Net royalty per side | $402 | $341 | 18% | | Realogy Brokerage Group | | | | | Closed homesale sides | 280,474 | 235,806 | 19% | | Average homesale price | $654,113 | $537,602 | 22% | | Average homesale broker commission rate | 2.43% | 2.43% | — bps | | Gross commission income per side | $16,457 | $13,685 | 20% | | Realogy Title Group | | | | | Purchase title and closing units | 128,207 units | 106,540 units | 20% | | Refinance title and closing units | 47,775 units | 44,834 units | 7% | | Average fee per closing unit | $2,524 | $2,189 | 15% | - A decline in homesale transactions or prices, reduced broker commission rates, or increased agent/franchisee incentives could adversely affect operating results[231] - Royalty fees are volume-based, with rates subject to reduction based on volume incentives, and other models exist (e.g., flat royalty, capped fee, tiered royalty)[233][234] RESULTS OF OPERATIONS This section analyzes the company's consolidated and segment-specific financial performance, detailing changes in revenues, expenses, and operating EBITDA for the reported periods - Consolidated net revenues increased by $277 million (15%) for the three months ended September 30, 2021, and by $1,677 million (39%) for the nine months ended September 30, 2021, driven by higher homesale transaction volume and prices[240][257] - Total expenses increased by $206 million (11%) for the three months and $719 million (15%) for the nine months ended September 30, 2021, primarily due to higher commission and agent-related costs, and increased operating/G&A expenses due to the absence of prior year's temporary cost savings[241][259] - Equity in earnings declined significantly, from $53 million to $11 million for the three months, and from $98 million to $52 million for the nine months ended September 30, 2021, mainly due to Guaranteed Rate Affinity's performance impacted by mark-to-market adjustments, margin compression, and lower refinance volumes[241][259] - Realogy Franchise Group's revenues increased by $28 million (9%) and Operating EBITDA by $11 million (6%) for the three months, and revenues by $182 million (24%) and Operating EBITDA by $155 million (37%) for the nine months ended September 30, 2021, driven by increased homesale transaction volume[248][249][266][267] - Realogy Brokerage Group's revenues increased by $226 million (15%) for the three months, and by $1,386 million (42%) for the nine months ended September 30, 2021, due to higher homesale transaction volume and prices[251][270] - Realogy Brokerage Group's Operating EBITDA decreased by $10 million (16%) for the three months but increased by $91 million (364%) for the nine months ended September 30, 2021, impacted by higher agent commission costs and the absence of temporary cost savings[250][253][269][271] - Realogy Title Group's revenues increased by $37 million (17%) for the three months and $196 million (38%) for the nine months ended September 30, 2021, due to increased purchase unit activity and higher homesale prices[254][255][272] - Realogy Title Group's Operating EBITDA decreased by $41 million (43%) for the three months but increased by $2 million (1%) for the nine months ended September 30, 2021, primarily due to the decline in equity earnings from Guaranteed Rate Affinity and increased operating costs[254][256][271][273] FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES This section assesses the company's financial position, liquidity sources, and capital management strategies, including changes in assets, liabilities, equity, and cash flows Financial Condition Summary (in millions) | Category | September 30, 2021 | December 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Total assets | $7,193 | $6,934 | $259 | | Total liabilities | $5,065 | $5,167 | $(102) | | Total equity | $2,128 | $1,767 | $361 | - Total assets increased by $259 million, primarily due to a $181 million increase in cash and cash equivalents, a $109 million increase in other current/non-current assets, and a $58 million increase in receivables[274] - Total liabilities decreased by $102 million, mainly due to a $260 million net decrease in corporate debt and a $15 million decrease in operating lease liabilities, partially offset by increases in deferred tax liabilities, accrued expenses, and securitization obligations[274] - Total equity increased by $361 million, driven by $296 million in net income and a $63 million increase in additional paid-in capital from the Exchangeable Senior Notes issuance[274] - Primary liquidity sources are cash flows from operations, Revolving Credit Facility, and securitization facilities, with a focus on business investment and debt reduction in 2021[275] - Total debt (excluding securitization obligations) was $3,044 million at September 30, 2021, down from $3,239 million at December 31, 2020, following significant debt repayments and refinancing activities[276][277] - The Company was in compliance with the senior secured leverage ratio covenant at September 30, 2021, and expects to meet cash flow needs for the next twelve months[279] Cash Flows Summary (Nine Months Ended September 30, in millions) | Activity | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Operating activities | $489 | $418 | $71 | | Investing activities | $(68) | $(84) | $16 | | Financing activities | $(238) | $(203) | $(35) | | Net change in cash, cash equivalents and restricted cash | $183 | $131 | $52 | - Cash provided by operating activities increased by $71 million, primarily due to higher operating results, partially offset by increased cash used for accounts payable, accrued expenses, and other liabilities[286] - Cash used in financing activities increased by $35 million, mainly due to $234 million in debt repayments (Term Loan A and B), partially offset by proceeds from Exchangeable Senior Notes and a net increase in securitization borrowings[287] Non-GAAP Financial Measures This section defines and explains the use of non-GAAP financial measures, such as Operating EBITDA, for evaluating performance and providing transparency - Operating EBITDA is defined as net income (loss) before depreciation and amortization, net interest expense (excluding relocation services interest), income taxes, and non-core items such as restructuring charges, former parent legacy items, gains/losses on early debt extinguishment, impairments, and gains/losses on asset sales[304][305] - Operating EBITDA is presented as a supplemental measure to evaluate operating performance and provide transparency, used by management and frequently by securities analysts and investors[306][307] - Limitations of Operating EBITDA include not reflecting changes in working capital, cash requirements for debt service or taxes, capital expenditures, or asset replacements, and potential incomparability with other companies' measures[308] Critical Accounting Policies This section discusses the significant accounting policies requiring management's judgment and estimates, particularly concerning goodwill and intangible asset impairment testing - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, particularly for future events, and significant unfavorable changes could materially impact financial condition or operating performance[309] - Goodwill and other indefinite-lived intangible assets ($2,899 million and $710 million, respectively, at Sep 30, 2021) are subject to annual impairment testing, comparing carrying values to fair values estimated using income approaches (discounted cash flow, relief from royalty method)[311][312] - Significant negative industry or economic trends, business disruptions, or a sustained decline in stock price could lead to material impairment of goodwill or other indefinite-lived intangible assets[313] - The SEC's amendments to MD&A, Selected Financial Data, and Supplementary Financial Information, effective February 10, 2021, will require compliance starting with the 2021 Annual Report on Form 10-K[314] Item 3. Quantitative and Qualitative Disclosures about Market Risks This section discusses the company's exposure to market risks, primarily interest rate fluctuations (LIBOR), and the strategies used to manage these risks, including sensitivity analysis and interest rate swaps. It also addresses the ongoing LIBOR transition and its potential impact - The Company's primary market risk exposure is to interest rate fluctuations, specifically LIBOR, due to its impact on variable rate borrowings under the Senior Secured Credit Facility and Term Loan A Facility[291][316] - The ongoing LIBOR transition to alternative reference rates like SOFR introduces uncertainty; if successor rates are higher, it could increase the cost of variable rate indebtedness[290] - As of September 30, 2021, the Company had $234 million in variable interest rate long-term debt (excluding securitization obligations) with a weighted average interest rate of 1.83%[318] - A sensitivity analysis estimates that a 0.25% increase in LIBOR would result in an approximately $1 million impact on annual interest expense[318] - The Company uses interest rate swaps with a notional value of $1,000 million to manage interest rate exposure, with fixed rates ranging from 2.07% to 3.11%. A 0.25% increase in the LIBOR yield curve would increase the fair value of these swaps by $7 million and decrease interest expense[319] Item 4. Controls and Procedures This section details the disclosure controls and procedures for Realogy Holdings Corp. and Realogy Group LLC, confirming their effectiveness at a reasonable assurance level and reporting no material changes in internal control over financial reporting during the period - Realogy Holdings Corp.'s management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of September 30, 2021, and concluded they are effective at the "reasonable assurance" level[321] - There have been no material changes in Realogy Holdings Corp.'s internal control over financial reporting during the period covered by this quarterly report[321] - Realogy Group LLC's management, including the CEO and CFO, also concluded that its disclosure controls and procedures are effective at the "reasonable assurance" level as of September 30, 2021[324] - There have been no material changes in Realogy Group LLC's internal control over financial reporting during the period covered by this quarterly report[324] PART II - OTHER INFORMATION This section provides updates on legal proceedings, risk factors, and a list of exhibits filed with the quarterly report Item 1. Legal Proceedings This section provides an update on ongoing legal proceedings, including worker classification and real estate industry litigation, and discusses the broader legal and regulatory environment impacting the company. It highlights increased scrutiny from regulators like the DOJ and FTC on industry practices - The Company is involved in various legal proceedings and believes it has adequately accrued for probable and estimable legal matters, but outcomes are inherently unpredictable and could materially affect financial results[326][327] - The real estate industry is highly regulated and subject to shifts in public policy, statutory interpretation, and enforcement priorities, with increased scrutiny from federal and state regulators[328][330] - The Department of Justice (DOJ) withdrew its consent to a proposed settlement with the National Association of Realtors (NAR) in July 2021, indicating a broader investigation into NAR's rules and conduct, which could disrupt the Company's business[331][336] - The Federal Trade Commission (FTC) and the executive branch are also increasing focus on competition across industries, including real estate brokerage, with potential for further investigations or actions[332][333][334][336] - Worker classification litigation, particularly in New Jersey and California, continues to evolve, with potential impacts on real estate agents' employment status and related claims[335] Item 1A. Risk Factors This section updates specific risk factors, including those related to the planned title underwriting joint venture with Centerbridge Partners and the potential effects of the exchangeable note hedge and warrant transactions on the company's common stock value and counterparty risk - The planned sale of a controlling interest in the title underwriting business to Centerbridge is subject to closing conditions, including antitrust waiting periods and regulatory approvals, with no assurance of timely completion or anticipated benefits[338][339] - Risks associated with the title underwriting joint venture include unexpected costs, operational disruptions, adverse effects on employee retention, and potential for lower business volume than historical levels[340][341] - The exchangeable note hedge and warrant transactions may affect the value of the common stock, with warrant transactions potentially having a dilutive effect if the market price exceeds the strike price[342][343] - The Company is exposed to counterparty risk with the Option Counterparties for the exchangeable note hedge transactions, as a default would make Realogy an unsecured creditor with potential adverse tax consequences and dilution[345] Item 6. Exhibits This section refers to the Exhibit Index for a comprehensive list of documents filed as part of the Form 10-Q - A detailed list of exhibits filed with the Quarterly Report on Form 10-Q is provided in the Exhibit Index[346] SIGNATURES This section contains the official signatures of the company's executive officers, certifying the accuracy of the report - The report is signed by Charlotte C. Simonelli, Executive Vice President and Chief Financial Officer, and Timothy B. Gustavson, Senior Vice President, Chief Accounting Officer and Controller, on behalf of Realogy Holdings Corp. and Realogy Group LLC, dated November 3, 2021[349] EXHIBIT INDEX This section provides a comprehensive list of all exhibits filed with the Quarterly Report on Form 10-Q, including certifications and financial data - The Exhibit Index lists various documents filed with the Form 10-Q, including certifications from the CEO and CFO for both Realogy Holdings Corp. and Realogy Group LLC, and financial information in iXBRL format[351][354]