______________________________________________________________________________________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 001-35674 | Commission File No. 333-148153 | ||||
| Anywhere Real Estate Inc. | Anywhere Real Estate Group LLC | ||||
| (Exact name of registrant as specified in its charter) | (Exact name of registrant as specified in its charter) | ||||
| 20-8050955 | 20-4381990 | ||||
| (I.R.S. Employer Identification Number) | (I.R.S. Employer Identification Number) | ||||
___________________________________________________________________________________________________
| Delaware | 175 Park Avenue | ||||
| (State or other jurisdiction of incorporation or organization) | Madison, New Jersey 07940 | ||||
(973) 407-2000 | (Address of principal executive offices, including zip code) | ||||
| (Registrants' telephone number, including area code) | |||||
| Securities registered pursuant to Section 12(b) of the Act: | |||||||||||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||||||||||||||
| Anywhere Real Estate Inc. | Common Stock, par value $0.01 per share | HOUS | New York Stock Exchange | ||||||||||||||
| Anywhere Real Estate Group LLC | None | None | None | ||||||||||||||
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Anywhere Real Estate Inc. Yes ☑ No ☐ Anywhere Real Estate Group LLC Yes ☐ No ☑
Indicate by check mark whether the Registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit such files).
Anywhere Real Estate Inc. Yes ☑ No ☐ Anywhere Real Estate Group LLC Yes ☑ No ☐
Indicate by check mark whether the Registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies, or emerging growth companies. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||||
| Anywhere Real Estate Inc. | ☑ | ☐ | ☐ | ☐ | ☐ | ||||||||||||||||||||||||
| Anywhere Real Estate Group LLC | ☐ | ☐ | ☑ | ☐ | ☐ | ||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act).
Anywhere Real Estate Inc. Yes ☐ No ☑ Anywhere Real Estate Group LLC Yes ☐ No ☑
There were 111,273,147 shares of Common Stock, $0.01 par value, of Anywhere Real Estate Inc. outstanding as of July 30, 2024.
__________________________________________________________________________________________________________________
TABLE OF CONTENTS
| Page | ||||||||
| PART I | FINANCIAL INFORMATION | |||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II | OTHER INFORMATION | |||||||
| Item 1. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
INTRODUCTORY NOTE
Except as otherwise indicated or unless the context otherwise requires, the terms "we," "us," "our," "our company," "Anywhere" and the "Company" refer to Anywhere Real Estate Inc., a Delaware corporation, and its consolidated subsidiaries, including Anywhere Intermediate Holdings LLC, a Delaware limited liability company ("Anywhere Intermediate"), and Anywhere Real Estate Group LLC, a Delaware limited liability company ("Anywhere Group"). Neither Anywhere, the indirect parent of Anywhere Group, nor Anywhere Intermediate, the direct parent company of Anywhere Group, conducts any operations other than with respect to its respective direct or indirect ownership of Anywhere Group. As a result, the consolidated financial positions, results of operations and cash flows of Anywhere, Anywhere Intermediate and Anywhere Group are the same.
As used in this Quarterly Report on Form 10-Q:
•"Senior Secured Credit Agreement" refers to the Amended and Restated Credit Agreement dated as of March 5, 2013, as amended, amended and restated, modified or supplemented from time to time, that governs the senior secured credit facility, or "Senior Secured Credit Facility", which includes the "Revolving Credit Facility";
•"Term Loan A Agreement" refers to the Term Loan A Agreement, dated as of October 23, 2015, as amended, amended and restated, modified or supplemented from time to time, also referred to as the "Term Loan A Facility;"
•"7.00% Senior Secured Second Lien Notes" refers to our 7.00% Senior Secured Second Lien Notes due 2030;
•"5.75% Senior Notes" and "5.25% Senior Notes" refer to our 5.75% Senior Notes due 2029 and 5.25% Senior Notes due 2030, respectively, and are referred to collectively as the "Unsecured Notes"; and
•"Exchangeable Senior Notes" refers to our 0.25% Exchangeable Senior Notes due 2026.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as "believe," "expect," "anticipate," "intend," "project," "estimate," "plan," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could."
In particular, information appearing under "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, it is based on management's current plans and expectations, expressed in good faith and believed to have a reasonable basis. However, we can give no assurance that any such expectation or belief will result or will be achieved or accomplished.
The following include some, but not all, of the risks and uncertainties that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements:
•The residential real estate market is cyclical, and we are negatively impacted by adverse developments or the absence of sustained improvement in the U.S. residential real estate markets, either regionally or nationally, which could include, but are not limited to factors that impact homesale transaction volume (homesale sides times average homesale price), such as:
◦prolonged periods of a high mortgage rate environment;
◦high rates of inflation;
◦continued or accelerated reductions in housing affordability, including but not limited to rising or high mortgage rates, the impact of increasing home prices, and the failure of wages to keep pace with inflation;
◦continued or accelerated increases in the costs of home ownership, including but not limited to rising or high insurance costs; continued or increasing challenging in securing homeowners insurance, especially in areas affected by climate changes, and increases in other fees and taxes;
◦continued or accelerated declines in consumer demand;
◦continued or accelerated declines in inventory or excessive inventory;
◦homeowners retaining their homes for longer periods of time, including as a result of the high mortgage rate environment, resulting in inventory shortages in new and existing housing;
1
◦continued or accelerated declines, or the absence of significant increases, in the number of home sales; and
◦stagnant or declining home prices;
•We are negatively impacted by adverse developments or the absence of sustained improvement in macroeconomic conditions (such as business, economic or political conditions) on a global, domestic or local basis, which could include, but are not limited to:
◦contraction, stagnation or uncertainty in the U.S. economy;
◦economic instability, including as related to foreign conflicts and supply chain disruptions;
◦continued or accelerated increases in inflation;
◦the potential or actual shutdown of the U.S. government due to a failure to enact debt ceiling legislation; and
◦monetary policies of the federal government and its agencies, particularly those that may result in unfavorable changes to the interest rate environment;
•We are subject to risks related to industry structure changes that disrupt the functioning of the residential real estate market, including as a result of litigation, legislative or regulatory developments, such as a change in the manner in which broker commissions are communicated, negotiated or paid, including potentially significant restrictions or bans on offers of compensation by the seller or listing agent to the buy-side agent, as well as a potential increase in buyers transacting without a broker;
•Risks related to the impact of evolving competitive and consumer dynamics, whether driven by competitive or regulatory factors or other changes to industry rules, which could include, but are not limited to:
◦meaningful decreases in the average broker commission rate (including the average buy-side commission rate);
◦continued erosion of our share of the commission income generated by homesale transactions;
◦our ability to compete against traditional and non-traditional competitors;
◦our ability to adapt our business to changing consumer preferences; and
◦further disruption in the residential real estate brokerage industry related to listing aggregator market power and concentration, including with respect to ancillary services;
•Our business and financial results may be materially and adversely impacted if we are unable to execute our business strategy, including if we are not successful in our efforts to:
◦recruit and retain productive independent sales agents and teams, and other agent-facing talent;
◦continued strength and benefits in our franchise model (relative to other business options) to attract and retain franchisees or renew existing franchise agreements without reducing contractual royalty rates or increasing the amount and prevalence of sales incentives;
◦simplify the transaction process for agents and consumers;
◦develop or procure products, services and technology that support our strategic initiatives;
◦successfully adopt and integrate artificial intelligence (AI) and other machine learning technology into our products and services;
◦achieve or maintain cost savings and other benefits from our cost-saving initiatives;
◦generate a meaningful number of high-quality leads for independent sales agents and franchisees; and
◦complete, integrate or realize the expected benefits of acquisitions and joint ventures;
•Adverse developments or outcomes in current or future litigation, in particular class action antitrust litigation and litigation related to the Telephone Consumer Protection Act ("TCPA"), that may materially harm our business, results of operations and financial condition;
•Our substantial indebtedness, alone or in combination with other factors, particularly heightened during industry downturns or broader recessions, could (i) adversely limit our operations, including our ability to grow our business, (ii) adversely impact our liquidity including, but not limited to, with respect to our interest obligations and the negative covenant restrictions contained in our debt agreements and/or (iii) adversely impact our ability, and any actions we may take, to refinance, restructure or repay our indebtedness or incur additional indebtedness;
•An event of default under our material debt agreements would adversely affect our operations and our ability to satisfy obligations under our indebtedness;
2
•Our financial condition and/or results of operations may be adversely impacted by risks related to our business structure, including, but not limited to:
◦the operating results of affiliated franchisees and their ability to pay franchise and related fees;
◦continued consolidation among our top 250 franchisees;
◦challenges relating to the owners of the two brands we do not own;
◦the geographic and high-end market concentration of our company owned brokerages;
◦the loss of our largest real estate benefit program client or multiple significant relocation clients;
◦the failure of third-party vendors or partners to perform as expected or our failure to adequately monitor them;
◦our reliance on information technology to operate our business and maintain our competitiveness; and
◦the negligence or intentional actions of affiliated franchisees and their independent sales agents or independent sales agents engaged by our company owned brokerages, which are traditionally outside of our control, and any resulting direct claims against us based on theories of vicarious liability, negligence, joint operations or joint employer liability;
•We are subject to risks related to legal and regulatory matters, which may cause us to incur increased costs and/or result in adverse financial, operational or reputational consequences to us, including but not limited to, our failure or alleged failure to comply with laws, regulations and regulatory interpretations and any changes or stricter interpretations of any of the foregoing, including but not limited to: (1) antitrust laws and regulations, (2) the Real Estate Settlement Procedures Act ("RESPA") or other federal or state consumer protection or similar laws, (3) state or federal employment laws or regulations that would require reclassification of independent contractor sales agents to employee status, (4) the TCPA and any related laws limiting solicitation of business, and (5) privacy or cybersecurity laws and regulations;
•We face reputational, business continuity and legal and financial risks associated with cybersecurity incidents;
•Our goodwill and other long-lived assets are subject to further impairment which could negatively impact our earnings;
•We could be subject to significant losses if banks do not honor our escrow and trust deposits;
•Changes in accounting standards and management assumptions and estimates could have a negative impact on us;
•We face risks related to potential attrition among our senior executives or other key employees and related to our ability to develop our existing workforce and to recruit talent in order to advance our business strategies;
•We face risks related to our Exchangeable Senior Notes and exchangeable note hedge and warrant transactions;
•We face risks related to severe weather events or natural disasters, which may be exacerbated by climate change and may cause increased homeowners insurance costs, and other catastrophic events, including public health crises;
•Increasing scrutiny and changing expectations related to corporate sustainability practices may impose additional costs on us or expose us to reputational or other risks;
•Market forecasts and estimates, including our internal estimates, may prove to be inaccurate; and
•We face risks related to our common stock, including that price of our common stock may fluctuate significantly.
More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission ("SEC"), including this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K"), particularly under the captions "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings." Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with any forward-looking statements that may be made by us and our businesses generally.
All forward-looking statements herein speak only as of the date of this Quarterly Report. Except as is required by law, we expressly disclaim any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this Quarterly Report. For any forward-looking statement contained in this Quarterly Report, our public filings or other public statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Anywhere Real Estate Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of Anywhere Real Estate Inc. and its subsidiaries (the "Company") as of June 30, 2024, and the related condensed consolidated statements of operations and of comprehensive income (loss) for the three-month and six-month periods ended June 30, 2024 and 2023 and the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2024 and 2023, including the related notes (collectively referred to as the "interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2023, and the related consolidated statements of operations, of comprehensive (loss) income, of equity and of cash flows for the year then ended (not presented herein), and in our report dated February 20, 2024, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2023, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
August 1, 2024
4
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholder of Anywhere Real Estate Group LLC
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of Anywhere Real Estate Group LLC and its subsidiaries (the "Company") as of June 30, 2024, and the related condensed consolidated statements of operations and of comprehensive income (loss) for the three-month and six-month periods ended June 30, 2024 and 2023 and the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2024 and 2023, including the related notes (collectively referred to as the "interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of December 31, 2023, and the related consolidated statements of operations, of comprehensive (loss) income and of cash flows for the year then ended (not presented herein), and in our report dated February 20, 2024, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2023, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These interim financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our reviews in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB or in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
August 1, 2024
5
ANYWHERE REAL ESTATE INC. AND ANYWHERE REAL ESTATE GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Gross commission income | $ | 1,376 | $ | 1,363 | $ | 2,283 | $ | 2,266 | |||||||||||||||
| Service revenue | 159 | 163 | 278 | 290 | |||||||||||||||||||
| Franchise fees | 101 | 102 | 171 | 171 | |||||||||||||||||||
| Other | 33 | 43 | 63 | 75 | |||||||||||||||||||
| Net revenues | 1,669 | 1,671 | 2,795 | 2,802 | |||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Commission and other agent-related costs | 1,108 | 1,092 | 1,834 | 1,815 | |||||||||||||||||||
| Operating | 285 | 299 | 558 | 585 | |||||||||||||||||||
| Marketing | 47 | 56 | 92 | 105 | |||||||||||||||||||
| General and administrative | 93 | 104 | 192 | 227 | |||||||||||||||||||
| Former parent legacy cost, net | 1 | 1 | 2 | 17 | |||||||||||||||||||
| Restructuring costs, net | 7 | 6 | 18 | 31 | |||||||||||||||||||
| Impairments | 2 | 4 | 8 | 8 | |||||||||||||||||||
| Depreciation and amortization | 48 | 49 | 103 | 99 | |||||||||||||||||||
| Interest expense, net | 40 | 39 | 79 | 77 | |||||||||||||||||||
Other income, net | — | (1) | (1) | (2) | |||||||||||||||||||
| Total expenses | 1,631 | 1,649 | 2,885 | 2,962 | |||||||||||||||||||
Income (loss) before income taxes, equity in earnings and noncontrolling interests | 38 | 22 | (90) | (160) | |||||||||||||||||||
Income tax expense (benefit) | 11 | 8 | (17) | (38) | |||||||||||||||||||
Equity in earnings of unconsolidated entities | (3) | (5) | (2) | (3) | |||||||||||||||||||
Net income (loss) | 30 | 19 | (71) | (119) | |||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | — | — | — | |||||||||||||||||||
Net income (loss) attributable to Anywhere and Anywhere Group | $ | 30 | $ | 19 | $ | (71) | $ | (119) | |||||||||||||||
Earnings (loss) per share attributable to Anywhere shareholders: | |||||||||||||||||||||||
Basic earnings (loss) per share | $ | 0.27 | $ | 0.17 | $ | (0.64) | $ | (1.08) | |||||||||||||||
Diluted earnings (loss) per share | $ | 0.27 | $ | 0.17 | $ | (0.64) | $ | (1.08) | |||||||||||||||
Weighted average common and common equivalent shares of Anywhere outstanding: | |||||||||||||||||||||||
| Basic | 111.2 | 110.4 | 110.9 | 110.1 | |||||||||||||||||||
| Diluted | 111.9 | 111.3 | 110.9 | 110.1 | |||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
6
ANYWHERE REAL ESTATE INC. AND ANYWHERE REAL ESTATE GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Net income (loss) | $ | 30 | $ | 19 | $ | (71) | $ | (119) | |||||||||||||||
| Currency translation adjustment | — | — | (1) | — | |||||||||||||||||||
| Defined benefit pension plan—amortization of actuarial gain (loss) to periodic pension cost | — | — | — | 1 | |||||||||||||||||||
Other comprehensive (loss) income, before tax | — | — | (1) | 1 | |||||||||||||||||||
Income tax expense related to items of other comprehensive income amounts | — | — | — | — | |||||||||||||||||||
Other comprehensive (loss) income, net of tax | — | — | (1) | 1 | |||||||||||||||||||
Comprehensive income (loss) | 30 | 19 | (72) | (118) | |||||||||||||||||||
Less: comprehensive income attributable to noncontrolling interests | — | — | — | — | |||||||||||||||||||
Comprehensive income (loss) attributable to Anywhere and Anywhere Group | $ | 30 | $ | 19 | $ | (72) | $ | (118) | |||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
7
ANYWHERE REAL ESTATE INC. AND ANYWHERE REAL ESTATE GROUP LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)
| June 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 128 | $ | 106 | |||||||
| Restricted cash | 9 | 13 | |||||||||
Trade receivables (net of allowance for doubtful accounts of $18 for both periods presented) | 126 | 105 | |||||||||
| Relocation receivables | 209 | 138 | |||||||||
| Other current assets | 219 | 218 | |||||||||
| Total current assets | 691 | 580 | |||||||||
| Property and equipment, net | 254 | 280 | |||||||||
| Operating lease assets, net | 361 | 380 | |||||||||
| Goodwill | 2,499 | 2,499 | |||||||||
| Trademarks | 586 | 586 | |||||||||
| Franchise agreements, net | 854 | 887 | |||||||||
| Other intangibles, net | 117 | 127 | |||||||||
| Other non-current assets | 484 | 500 | |||||||||
| Total assets | $ | 5,846 | $ | 5,839 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 105 | $ | 99 | |||||||
| Securitization obligations | 152 | 115 | |||||||||
| Current portion of long-term debt | 606 | 307 | |||||||||
| Current portion of operating lease liabilities | 112 | 113 | |||||||||
| Accrued expenses and other current liabilities | 523 | 573 | |||||||||
| Total current liabilities | 1,498 | 1,207 | |||||||||
| Long-term debt | 2,054 | 2,235 | |||||||||
| Long-term operating lease liabilities | 314 | 333 | |||||||||
| Deferred income taxes | 189 | 207 | |||||||||
| Other non-current liabilities | 177 | 176 | |||||||||
| Total liabilities | 4,232 | 4,158 | |||||||||
Commitments and contingencies (Note 6) | |||||||||||
| Equity: | |||||||||||
Anywhere preferred stock: $0.01 par value; 50,000,000 shares authorized, none issued and outstanding at June 30, 2024 and December 31, 2023 | — | — | |||||||||
Anywhere common stock: $0.01 par value; 400,000,000 shares authorized, 111,243,246 shares issued and outstanding at June 30, 2024 and 110,488,093 shares issued and outstanding at December 31, 2023 | 1 | 1 | |||||||||
| Additional paid-in capital | 4,818 | 4,813 | |||||||||
| Accumulated deficit | (3,162) | (3,091) | |||||||||
| Accumulated other comprehensive loss | (45) | (44) | |||||||||
| Total stockholders' equity | 1,612 | 1,679 | |||||||||
| Noncontrolling interests | 2 | 2 | |||||||||
| Total equity | 1,614 | 1,681 | |||||||||
| Total liabilities and equity | $ | 5,846 | $ | 5,839 | |||||||
See Notes to Condensed Consolidated Financial Statements.
8
ANYWHERE REAL ESTATE INC. AND ANYWHERE REAL ESTATE GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating Activities | |||||||||||
Net loss | $ | (71) | $ | (119) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | 103 | 99 | |||||||||
| Deferred income taxes | (19) | (39) | |||||||||
| Impairments | 8 | 8 | |||||||||
| Amortization of deferred financing costs and debt premium | 4 | 4 | |||||||||
Gain on the sale of businesses, investments or other assets, net | — | (1) | |||||||||
Equity in earnings of unconsolidated entities | (2) | (3) | |||||||||
| Stock-based compensation | 8 | 8 | |||||||||
Other adjustments to net loss | (2) | (3) | |||||||||
| Net change in assets and liabilities, excluding the impact of acquisitions and dispositions: | |||||||||||
| Trade receivables | (21) | 58 | |||||||||
| Relocation receivables | (71) | (46) | |||||||||
| Other assets | 40 | 36 | |||||||||
| Accounts payable, accrued expenses and other liabilities | (52) | (16) | |||||||||
| Dividends received from unconsolidated entities | 1 | 2 | |||||||||
| Other, net | (9) | (8) | |||||||||
Net cash used in operating activities | (83) | (20) | |||||||||
| Investing Activities | |||||||||||
| Property and equipment additions | (36) | (34) | |||||||||
Payments for acquisitions, net of cash acquired | — | (1) | |||||||||
| Net proceeds from the sale of businesses | — | 8 | |||||||||
| Proceeds from the sale of investments in unconsolidated entities | — | 6 | |||||||||
| Other, net | 1 | 1 | |||||||||
| Net cash used in investing activities | (35) | (20) | |||||||||
| Financing Activities | |||||||||||
| Net change in Revolving Credit Facility | 125 | — | |||||||||
| Amortization payments on term loan facilities | (10) | (7) | |||||||||
| Net change in securitization obligations | 37 | 38 | |||||||||
| Taxes paid related to net share settlement for stock-based compensation | (3) | (4) | |||||||||
| Other, net | (13) | (18) | |||||||||
Net cash provided by financing activities | 136 | 9 | |||||||||
| Effect of changes in exchange rates on cash, cash equivalents and restricted cash | — | 1 | |||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 18 | (30) | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 119 | 218 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 137 | $ | 188 | |||||||
| Supplemental Disclosure of Cash Flow Information | |||||||||||
Interest payments (including securitization interest of $4 and $6 respectively) | $ | 79 | $ | 82 | |||||||
Income tax payments, net | 1 | 3 | |||||||||
See Notes to Condensed Consolidated Financial Statements.
9
ANYWHERE REAL ESTATE INC. AND ANYWHERE REAL ESTATE GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are in millions)
(Unaudited)
1. BASIS OF PRESENTATION
Anywhere Real Estate Inc. ("Anywhere" or the "Company") is a holding company for its consolidated subsidiaries including Anywhere Intermediate Holdings LLC ("Anywhere Intermediate") and Anywhere Real Estate Group LLC ("Anywhere Group") and its consolidated subsidiaries. Anywhere, through its subsidiaries, is a global provider of residential real estate services. Neither Anywhere, the indirect parent of Anywhere Group, nor Anywhere Intermediate, the direct parent company of Anywhere Group, conducts any operations other than with respect to its respective direct or indirect ownership of Anywhere Group. As a result, the consolidated financial positions, results of operations, comprehensive income (loss) and cash flows of Anywhere, Anywhere Intermediate and Anywhere Group are the same.
The accompanying Condensed Consolidated Financial Statements include the financial statements of Anywhere and Anywhere Group. Anywhere's only asset is its investment in the common stock of Anywhere Intermediate, and Anywhere Intermediate's only asset is its investment in Anywhere Group. Anywhere's only obligations are its guarantees of certain borrowings and certain franchise obligations of Anywhere Group. All expenses incurred by Anywhere and Anywhere Intermediate are for the benefit of Anywhere Group and have been reflected in Anywhere Group's Condensed Consolidated Financial Statements.
The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with Article 10 of Regulation S-X. Interim results may not be indicative of full year performance because of seasonal and short-term variations. The Company has eliminated all material intercompany transactions and balances between entities consolidated in these financial statements. In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and the related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ materially from those estimates.
In management's opinion, the accompanying unaudited Condensed Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair statement of Anywhere and Anywhere Group's financial position as of June 30, 2024 and the results of operations and comprehensive income (loss) for the three and six months ended June 30, 2024 and 2023 and cash flows for the six months ended June 30, 2024 and 2023. The Consolidated Balance Sheet at December 31, 2023 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023.
The Company reports its operations in the following three business segments:
•Anywhere Brands ("Franchise Group")—franchises a portfolio of well-known, industry-leading franchise brokerage brands, including Better Homes and Gardens® Real Estate, Century 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran®, ERA® and Sotheby's International Realty®. This segment also includes the Company's global relocation services operation through Cartus® Relocation Services ("Cartus") and lead generation activities through Anywhere Leads Inc. ("Leads Group").
•Anywhere Advisors ("Owned Brokerage Group")—operates a full-service real estate brokerage business under the Coldwell Banker®, Corcoran® and Sotheby’s International Realty® brand names in many of the largest metropolitan areas in the U.S. This segment also includes the Company's share of equity earnings or losses from the Company's minority-owned real estate auction joint venture.
•Anywhere Integrated Services ("Title Group")—provides full-service title, escrow and settlement services to consumers, real estate companies, corporations and financial institutions primarily in support of residential real estate transactions. This segment also includes the Company's share of equity earnings or losses from Guaranteed Rate Affinity, the Company's minority-owned mortgage origination joint venture, and from the Company's minority-owned title insurance underwriter joint venture.
10
Fair Value Measurements
The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.
| Level Input: | Input Definitions: | |||||||
Level I | Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. | |||||||
Level II | Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date. | |||||||
Level III | Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. | |||||||
The availability of observable inputs can vary from asset to asset and is affected by a wide variety of factors, including, for example, the type of asset, whether the asset is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level III. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The fair value of financial instruments is generally determined by reference to quoted market values. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques, as appropriate. The fair value of interest rate swaps is determined based upon a discounted cash flow approach.
The Company measures financial instruments at fair value on a recurring basis and recognizes transfers within the fair value hierarchy at the end of the fiscal quarter in which the change in circumstances that caused the transfer occurred.
The following table summarizes fair value measurements by level at June 30, 2024 for assets and liabilities measured at fair value on a recurring basis:
| Level I | Level II | Level III | Total | ||||||||||||||||||||
| Deferred compensation plan assets (included in other non-current assets) | $ | 1 | $ | — | $ | — | $ | 1 | |||||||||||||||
Contingent consideration for acquisitions (included in accrued expenses and other current liabilities and other non-current liabilities) | — | — | 3 | 3 | |||||||||||||||||||
The following table summarizes fair value measurements by level at December 31, 2023 for assets and liabilities measured at fair value on a recurring basis:
| Level I | Level II | Level III | Total | ||||||||||||||||||||
| Deferred compensation plan assets (included in other non-current assets) | $ | 1 | $ | — | $ | — | $ | 1 | |||||||||||||||
Contingent consideration for acquisitions (included in accrued expenses and other current liabilities and other non-current liabilities) | — | — | 4 | 4 | |||||||||||||||||||
The fair value of the Company’s contingent consideration for acquisitions is measured using a probability weighted-average discount rate to estimate future cash flows based upon the likelihood of achieving future operating results for individual acquisitions. These assumptions are deemed to be unobservable inputs and as such the Company’s contingent consideration is classified within Level III of the valuation hierarchy. The Company reassesses the fair value of the contingent consideration liabilities on a quarterly basis.
11
The following table presents changes in Level III financial liabilities measured at fair value on a recurring basis:
| Level III | ||||||||
| Fair value of contingent consideration at December 31, 2023 | $ | 4 | ||||||
| Additions: contingent consideration related to acquisitions completed during the period | — | |||||||
Reductions: payments of contingent consideration | (1) | |||||||
| Changes in fair value (reflected in general and administrative expenses) | — | |||||||
| Fair value of contingent consideration at June 30, 2024 | $ | 3 | ||||||
The following table summarizes the principal amount of the Company’s indebtedness compared to the estimated fair value, primarily determined by quoted market values, at:
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Debt | Principal Amount | Estimated Fair Value (a) | Principal Amount | Estimated Fair Value (a) | |||||||||||||||||||
| Revolving Credit Facility | $ | 410 | $ | 410 | $ | 285 | $ | 285 | |||||||||||||||
Term Loan A Facility | 196 | 195 | 206 | 205 | |||||||||||||||||||
7.00% Senior Secured Second Lien Notes | 640 | 523 | 640 | 590 | |||||||||||||||||||
| 5.75% Senior Notes | 576 | 349 | 576 | 448 | |||||||||||||||||||
| 5.25% Senior Notes | 457 | 271 | 457 | 336 | |||||||||||||||||||
| 0.25% Exchangeable Senior Notes | 403 | 324 | 403 | 314 | |||||||||||||||||||
_______________
(a)The fair value of the Company's indebtedness is categorized as Level II.
Equity Method Investments
At June 30, 2024, the Company had various equity method investments totaling $179 million recorded on the other non-current assets line on the accompanying Condensed Consolidated Balance Sheets. Although the Company holds certain governance rights, it lacks controlling financial or operational interests in these investments.
The Company recorded equity in (earnings) losses from its equity method investments as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Guaranteed Rate Affinity (1) | $ | — | $ | (2) | $ | 2 | $ | — | |||||||||||||||
Title Insurance Underwriter Joint Venture (2) | (1) | (1) | (1) | (2) | |||||||||||||||||||
Other equity method investments (3) | (2) | (2) | (3) | (1) | |||||||||||||||||||
Equity in earnings of unconsolidated entities | $ | (3) | $ | (5) | $ | (2) | $ | (3) | |||||||||||||||
_______________
(1)The Company's 49.9% minority-owned mortgage origination joint venture with Guaranteed Rate, Inc. ("Guaranteed Rate Affinity") at Title Group had an investment balance of $65 million and $67 million at June 30, 2024 and December 31, 2023, respectively.
(2)The Company's 25% equity interest in the Title Insurance Underwriter Joint Venture at Title Group had an investment balance of $75 million and $74 million at June 30, 2024 and December 31, 2023, respectively.
(3)The Company's various other equity method investments at Title Group and Brokerage Group had a total investment balance of $39 million and $37 million at June 30, 2024 and December 31, 2023, respectively.
Income Taxes
The Company's provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against the income before income taxes for the period. In addition, non-recurring or discrete items are recorded in the period in which they occur. The provision for income taxes was an expense of $11 million and $8 million for the three months ended June 30, 2024 and 2023, respectively, and a benefit of $17 million and $38 million for the six months ended June 30, 2024 and 2023, respectively.
12
Revenue
Revenue is recognized upon the transfer of control of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services in accordance with the revenue accounting standard. The Company's revenue is disaggregated by major revenue categories on our Condensed Consolidated Statements of Operations and further disaggregated by business segment as follows:
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Franchise Group | Owned Brokerage Group | Title Group | Corporate and Other | Total Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross commission income (a) | $ | — | $ | — | $ | 1,376 | $ | 1,363 | $ | — | $ | — | $ | — | $ | — | $ | 1,376 | $ | 1,363 | |||||||||||||||||||||||||||||||||||||||
| Service revenue (b) | 55 | 62 | 7 | 6 | 97 | 95 | — | — | 159 | 163 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Franchise fees (c) | 190 | 191 | — | — | — | — | (89) | (89) | 101 | 102 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other (d) | 20 | 31 | 10 | 11 | 6 | 5 | (3) | (4) | 33 | 43 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenues | $ | 265 | $ | 284 | $ | 1,393 | $ | 1,380 | $ | 103 | $ | 100 | $ | (92) | $ | (93) | $ | 1,669 | $ | 1,671 | |||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Franchise Group | Owned Brokerage Group | Title Group | Corporate and Other | Total Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross commission income (a) | $ | — | $ | — | $ | 2,283 | $ | 2,266 | $ | — | $ | — | $ | — | $ | — | $ | 2,283 | $ | 2,266 | |||||||||||||||||||||||||||||||||||||||
| Service revenue (b) | 101 | 117 | 11 | 10 | 166 | 163 | — | — | 278 | 290 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Franchise fees (c) | 321 | 320 | — | — | — | — | (150) | (149) | 171 | 171 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other (d) | 43 | 54 | 18 | 19 | 8 | 9 | (6) | (7) | 63 | 75 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenues | $ | 465 | $ | 491 | $ | 2,312 | $ | 2,295 | $ | 174 | $ | 172 | $ | (156) | $ | (156) | $ | 2,795 | $ | 2,802 | |||||||||||||||||||||||||||||||||||||||
______________
(a)Gross commission income at Owned Brokerage Group is recognized at a point in time at the closing of a homesale transaction.
(b)Service revenue primarily consists of title and escrow fees at Title Group and are recognized at a point in time at the closing of a homesale transaction. Service revenue at Franchise Group includes relocation fees, which are recognized as revenue when or as the related performance obligation is satisfied dependent on the type of service performed, and fees related to leads and related services, which are recognized at a point in time at the closing of a homesale transaction or at the completion of the related service.
(c)Franchise fees at Franchise Group primarily include domestic royalties which are recognized at a point in time when the underlying franchisee revenue is earned (upon close of the homesale transaction).
(d)Other revenue is comprised of brand marketing funds received from franchisees at Franchise Group and other miscellaneous revenues across all of the business segments.
The following table shows the change in the Company's contract liabilities (deferred revenue) related to revenue contracts by reportable segment for the period:
| Beginning Balance at January 1, 2024 | Additions during the period | Recognized as Revenue during the period | Ending Balance at June 30, 2024 | ||||||||||||||||||||
Franchise Group: | |||||||||||||||||||||||
| Deferred area development fees (a) | $ | 39 | $ | 1 | $ | (3) | $ | 37 | |||||||||||||||
| Deferred brand marketing fund fees (b) | 19 | 35 | (34) | 20 | |||||||||||||||||||
| Deferred outsourcing management fees (c) | 3 | 22 | (20) | 5 | |||||||||||||||||||
| Other deferred income related to revenue contracts | 8 | 17 | (11) | 14 | |||||||||||||||||||
Total Franchise Group | 69 | 75 | (68) | 76 | |||||||||||||||||||
Owned Brokerage Group: | |||||||||||||||||||||||
| Advanced commissions related to development business (d) | 12 | 4 | (3) | 13 | |||||||||||||||||||
| Other deferred income related to revenue contracts | 3 | 3 | (1) | 5 | |||||||||||||||||||
Total Owned Brokerage Group | 15 | 7 | (4) | 18 | |||||||||||||||||||
| Total | $ | 84 | $ | 82 | $ | (72) | $ | 94 | |||||||||||||||
13
_______________
(a)The Company collects initial area development fees ("ADF") for international territory transactions, which are recorded as deferred revenue when received and recognized into franchise revenue over the average 25 year life of the related franchise agreement as consideration for the right to access and benefit from Anywhere’s brands. In the event an ADF agreement is terminated prior to the end of its term, the unamortized deferred revenue balance will be recognized into revenue immediately upon termination.
(b)Revenues recognized include intercompany marketing fees paid by Owned Brokerage Group.
(c)The Company earns revenues from outsourcing management fees charged to clients that may cover several of the various relocation services according to the clients' specific needs. Outsourcing management fees are recorded as deferred revenue when billed (usually at the start of the relocation) and are recognized as revenue over the average time period required to complete the transferee's move, or a phase of the move that the fee covers, which is typically 3 to 6 months depending on the move type.
(d)New development closings generally have a development period of between 18 and 24 months from contracted date to closing.
Allowance for Doubtful Accounts
The Company estimates the allowance necessary to provide for uncollectible accounts receivable. The estimate is based on historical experience, combined with a review of current conditions and forecasts of future losses, and includes specific accounts for which payment has become unlikely. The process by which the Company calculates the allowance is performed in the individual business units where specific problem accounts are identified and reserved primarily based upon the age profile of the receivables and specific payment issues, combined with reasonable and supportable forecasts of future losses.
Supplemental Cash Flow Information
Significant non-cash transactions included finance lease additions of $3 million and $4 million during the six months ended June 30, 2024 and 2023, respectively, which resulted in non-cash additions to property and equipment, net and other non-current liabilities.
Leases
The Company's lease obligations as of June 30, 2024 have not changed materially from the amounts reported in the 2023 Form 10-K.
Recently Issued Accounting Pronouncements
The Company systematically reviews and evaluates the relevance and implications of all Accounting Standards Updates ("ASUs"). While recently issued standards not expressly listed below were scrutinized, they were deemed either inapplicable or anticipated to not have a material impact on the Company's consolidated financial position or results of operations.
The FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures". This standard does not alter the methodology employed by the Company in identifying its operating segments, aggregating those operating segments or applying the quantitative thresholds to determine its reportable segments. Instead, the new standard adds required disclosures concerning significant segment expenses that are regularly provided to or easily computed from information regularly provided to by the chief operating decision maker ("CODM") and included within the Company's reported measure of segment profit of loss, as well as certain other disclosures. The new standard also allows disclosure of multiple measures of segment profitability if those measures are used to allocate resources and assess performance by the CODM. Furthermore, certain annual disclosures will be required on an interim basis. The new standard is effective for annual financial statements of public business entities for fiscal years beginning after December 15, 2023 and in interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. The new guidance should be adopted retrospectively unless impracticable. The Company is currently evaluating the impact of the new guidance on its financial statement disclosures.
The FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". This standard includes enhanced income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid for annual periods. The new standard is effective for annual financial statements of public business entities for fiscal years beginning after December 15, 2024, with early adoption permitted. The new guidance should be adopted on a prospective basis with retrospective application permitted. The Company is currently evaluating the impact of the new guidance on its financial statement disclosures.
14
SEC Rule on Climate-Related Disclosures
In March 2024, the SEC adopted final regulations aimed at improving and streamlining climate-related disclosures for publicly traded companies and in public offerings. These regulations represent the SEC's response to investors' calls for more uniform, comparable, and trustworthy data regarding the financial implications of climate-related risks on a company's operations, as well as its strategies for managing such risks. The registrants will be required to provide disclosure, subject to existing audit requirements, regarding the effects of severe weather events and other natural conditions on the financial statements; financial information related to certain carbon offsets and renewable energy certificates; and material impacts on financial estimates and assumptions that are due to severe weather events and other natural conditions or disclosed climate-related targets or transition plans. Additional disclosure requirements will include: material direct and indirect (Scope 1 and Scope 2) greenhouse gas emissions; governance and oversight of material climate-related risks; the material impact of climate risks on the company’s strategy, results of operations and financial condition; risk management processes for material climate-related risks; and material climate targets and goals. The final rule was scheduled to become effective May 28, 2024, however, the SEC has voluntarily stayed the rule's effective date pending judicial review of consolidated challenges to those rules by the U.S. Court of Appeals for the Eighth Circuit. Pending the resolution of the legal challenges, the final rule provides phase-in periods for compliance with the earliest compliance period applying to large accelerated filers for their annual reports for fiscal year 2025 (filed in 2026). The compliance period begins for annual reports for fiscal year 2026 (filed in 2027) for accelerated filers, with additional delays for smaller companies and greenhouse gas emissions related and certain other disclosures. The SEC final rules follow on the heels of the California climate legislation that will require public and private companies that do business in California to disclose their greenhouse gas emissions and their climate-related financial risks. The Company is currently evaluating the impact of the new laws and regulations.
2. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of Goodwill and Accumulated impairment losses by reportable segment are as follows:
Franchise Group | Owned Brokerage Group | Title Group | Total Company | ||||||||||||||||||||
Goodwill (gross) at December 31, 2023 | $ | 3,953 | $ | 1,089 | $ | 455 | $ | 5,497 | |||||||||||||||
Goodwill acquired | — | — | — | — | |||||||||||||||||||
| Goodwill reduction | — | — | — | — | |||||||||||||||||||
Goodwill (gross) at June 30, 2024 | 3,953 | 1,089 | 455 | 5,497 | |||||||||||||||||||
Accumulated impairment losses at December 31, 2023 | (1,586) | (1,088) | (324) | (2,998) | |||||||||||||||||||
| Goodwill impairment | — | — | — | — | |||||||||||||||||||
Accumulated impairment losses at June 30, 2024 (a) | (1,586) | (1,088) | (324) | (2,998) | |||||||||||||||||||
Goodwill (net) at June 30, 2024 | $ | 2,367 | $ | 1 | $ | 131 | $ | 2,499 | |||||||||||||||
_______________
(a)Includes impairment charges which reduced goodwill by $25 million during 2023, $394 million during 2022, $540 million during 2020, $253 million during 2019, $1,279 million during 2008 and $507 million during 2007.
Intangible Assets
Intangible assets are as follows:
| As of June 30, 2024 | As of December 31, 2023 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||
| Amortizable—Franchise agreements (a) | $ | 2,010 | $ | 1,156 | $ | 854 | $ | 2,010 | $ | 1,123 | $ | 887 | |||||||||||||||||||||||
| Indefinite life—Trademarks (b) | $ | 586 | $ | 586 | $ | 586 | $ | 586 | |||||||||||||||||||||||||||
| Other Intangibles | |||||||||||||||||||||||||||||||||||
| Amortizable—License agreements (c) | $ | 45 | $ | 16 | $ | 29 | $ | 45 | $ | 16 | $ | 29 | |||||||||||||||||||||||
| Amortizable—Customer relationships (d) | 454 | 396 | 58 | 454 | 385 | 69 | |||||||||||||||||||||||||||||
| Indefinite life—Title plant shares (e) | 29 | 29 | 28 | 28 | |||||||||||||||||||||||||||||||
| Amortizable—Other (f) | 7 | 6 | 1 | 7 | 6 | 1 | |||||||||||||||||||||||||||||
| Total Other Intangibles | $ | 535 | $ | 418 | $ | 117 | $ | 534 | $ | 407 | $ | 127 | |||||||||||||||||||||||
15
_______________
(a)Generally amortized over a period of 30 years.
(b)Primarily related to real estate franchise, title and relocation trademarks which are expected to generate future cash flows for an indefinite period of time.
(c)Relates to the Sotheby’s International Realty® and Better Homes and Gardens® Real Estate agreements which are being amortized over 50 years (the contractual term of the license agreements).
(d)Relates to the customer relationships which are being amortized over a period of 10 to 20 years.
(e)Ownership in a title plant is required to transact title insurance in certain states. The Company expects to generate future cash flows for an indefinite period of time.
(f)Consists of covenants not to compete which are amortized over their contract lives and other intangibles which are generally amortized over periods ranging from 3 to 5 years.
Intangible asset amortization expense is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Franchise agreements | $ | 17 | $ | 16 | $ | 33 | $ | 33 | |||||||||||||||
| Customer relationships | 5 | 6 | 11 | 11 | |||||||||||||||||||
| Other | 1 | — | 1 | 1 | |||||||||||||||||||
| Total | $ | 23 | $ | 22 | $ | 45 | $ | 45 | |||||||||||||||
Based on the Company’s amortizable intangible assets as of June 30, 2024, the Company expects related amortization expense for the remainder of 2024, the four succeeding years and thereafter to be approximately $45 million, $89 million, $89 million, $74 million, $68 million and $577 million, respectively.
3. OTHER CURRENT ASSETS AND ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Other current assets consisted of:
| June 30, 2024 | December 31, 2023 | ||||||||||
| Prepaid contracts and other prepaid expenses | $ | 90 | $ | 78 | |||||||
| Prepaid agent incentives | 43 | 49 | |||||||||
| Franchisee sales incentives | 29 | 30 | |||||||||
| Other | 57 | 61 | |||||||||
| Total other current assets | $ | 219 | $ | 218 | |||||||
Accrued expenses and other current liabilities consisted of:
| June 30, 2024 | December 31, 2023 | ||||||||||
| Accrued payroll and related employee costs | $ | 119 | $ | 158 | |||||||
| Advances from clients | 28 | 29 | |||||||||
| Accrued volume incentives | 21 | 28 | |||||||||
| Accrued commissions | 44 | 34 | |||||||||
| Restructuring accruals | 14 | 14 | |||||||||
| Deferred income | 65 | 53 | |||||||||
| Accrued interest | 36 | 34 | |||||||||
| Current portion of finance lease liabilities | 8 | 9 | |||||||||
| Due to former parent | 40 | 38 | |||||||||
| Other | 148 | 176 | |||||||||
| Total accrued expenses and other current liabilities | $ | 523 | $ | 573 | |||||||
16
4. SHORT AND LONG-TERM DEBT
Total indebtedness is as follows:
| June 30, 2024 | December 31, 2023 | ||||||||||
Revolving Credit Facility | $ | 410 | $ | 285 | |||||||
Term Loan A Facility | 196 | 206 | |||||||||
7.00% Senior Secured Second Lien Notes | 629 | 627 | |||||||||
| 5.75% Senior Notes | 576 | 576 | |||||||||
| 5.25% Senior Notes | 451 | 451 | |||||||||
| 0.25% Exchangeable Senior Notes | 398 | 397 | |||||||||
| Total Short-Term & Long-Term Debt | $ | 2,660 | $ | 2,542 | |||||||
| Securitization Obligations: | |||||||||||
| Apple Ridge Funding LLC | $ | 152 | $ | 115 | |||||||
Indebtedness Table
As of June 30, 2024, the Company’s borrowing arrangements were as follows:
| Interest Rate | Expiration Date | Principal Amount | Unamortized Premium and Debt Issuance Costs | Net Amount | |||||||||||||||||||||||||
Revolving Credit Facility (1) | (2) | July 2027 (3) | $ | 410 | $ * | $ | 410 | ||||||||||||||||||||||
Term Loan A Facility | (4) (5) | February 2025 | 196 | — | 196 | ||||||||||||||||||||||||
Senior Secured Second Lien Notes | 7.00% | April 2030 | 640 | 11 | 629 | ||||||||||||||||||||||||
Senior Notes | 5.75% | January 2029 | 576 | — | 576 | ||||||||||||||||||||||||
Senior Notes | 5.25% | April 2030 | 457 | 6 | 451 | ||||||||||||||||||||||||
| Exchangeable Senior Notes | 0.25% | June 2026 | 403 | 5 | 398 | ||||||||||||||||||||||||
| Total Short-Term & Long-Term Debt | $ | 2,682 | $ | 22 | $ | 2,660 | |||||||||||||||||||||||
Securitization obligations: (6) | |||||||||||||||||||||||||||||
| Apple Ridge Funding LLC | May 2025 | $ | 152 | $ * | $ | 152 | |||||||||||||||||||||||
_______________
*The debt issuance costs related to our Revolving Credit Facility and securitization obligations are classified as a deferred financing asset within other assets.
(1)As of June 30, 2024, the Company had $1,100 million of borrowing capacity under its Revolving Credit Facility. As of June 30, 2024, there were $410 million of outstanding borrowings under the Revolving Credit Facility and $33 million of outstanding undrawn letters of credit. On July 30, 2024, the Company had $400 million of outstanding borrowings under the Revolving Credit Facility and $33 million of outstanding undrawn letters of credit.
(2)The interest rate with respect to revolving loans under the Revolving Credit Facility at June 30, 2024 is based on, at the Company's option, Term Secured Overnight Financing Rate (" SOFR") plus a 10 basis point credit spread adjustment or JP Morgan Chase Bank, N.A.'s prime rate ("ABR") plus (in each case) an additional margin subject to adjustment based on the then current senior secured leverage ratio. Based on the previous quarter's senior secured leverage ratio, the SOFR margin was 1.75% and the ABR margin was 0.75% for the three months ended June 30, 2024.
(3)The maturity date of the Revolving Credit Facility is July 27, 2027 and may spring forward to an earlier date as follows: (i) if on or before March 16, 2026, the 0.25% Exchangeable Senior Notes have not been extended, refinanced or replaced to have a maturity date after October 26, 2027 (or are not otherwise discharged, defeased or repaid by March 16, 2026), the maturity date of the Revolving Credit Facility will be March 16, 2026; and (ii) if on or before November 9, 2024, the "term A loans" under the Term Loan A Agreement have not been extended, refinanced or replaced to have a maturity date after October 26, 2027 (or are not otherwise repaid by November 9, 2024), the maturity date of the Revolving Credit Facility will be November 9, 2024.
(4)The interest rate with respect to outstanding borrowings under the Term Loan A Facility at June 30, 2024 is based on, at the Company's option, Term SOFR plus a 10 basis point credit spread adjustment or ABR, plus (in each case) an additional margin subject to adjustment based on the then current senior secured leverage ratio. Based on the previous quarter's senior secured leverage ratio, the SOFR margin was 1.75% and the ABR margin was 0.75% for the three months ended June 30, 2024.
(5)The Term Loan A Facility provides for quarterly amortization payments based on a percentage of the original principal amount of $237 million as follows: 1.25% per quarter from June 30, 2022 to March 31, 2023; 1.875% per quarter from June 30, 2023 to March
17
31, 2024; and 2.50% per quarter for periods ending on or after June 30, 2024, with the balance of the Term Loan A Facility due at maturity on February 8, 2025.
(6)In May 2024, Anywhere Group extended the existing Apple Ridge Funding LLC securitization program until May 30, 2025. As of June 30, 2024, the Company had $200 million of borrowing capacity under the Apple Ridge Funding LLC securitization program with $152 million being utilized leaving $48 million of available capacity subject to maintaining sufficient relocation related assets to collateralize the securitization obligation. Certain of the funds that Anywhere Group receives from relocation receivables and related assets are required to be utilized to repay securitization obligations. These obligations are collateralized by $214 million and $146 million of underlying relocation receivables and other related relocation assets at June 30, 2024 and December 31, 2023, respectively. Substantially all relocation related assets are realized in less than twelve months from the transaction date. Accordingly, all of Anywhere Group's securitization obligations are classified as current in the accompanying Condensed Consolidated Balance Sheets. Interest incurred in connection with borrowings under the facility amounted to $2 million and $3 million for the three months ended June 30, 2024 and 2023, respectively, as well as $4 million and $6 million for the six months ended June 30, 2024 and 2023, respectively. This interest is recorded within net revenues in the accompanying Condensed Consolidated Statements of Operations as related borrowings are utilized to fund Anywhere Group's relocation operations where interest is generally earned on such assets. The securitization obligations represent floating rate debt for which the average weighted interest rate was 8.4% and 7.1% for the six months ended June 30, 2024 and 2023, respectively.
Maturities Table
As of June 30, 2024, the combined aggregate amount of maturities for long-term borrowings for the remainder of 2024 and each of the next four years is as follows:
| Year | Amount | |||||||
Remaining 2024 (a) | $ | 422 | ||||||
| 2025 | 184 | |||||||
| 2026 | 403 | |||||||
| 2027 | — | |||||||
| 2028 | — | |||||||
_______________
(a)Remaining 2024 includes amortization payments totaling $12 million for the Term Loan A Facility, as well as $410 million of outstanding borrowings under the Revolving Credit Facility which expires in July 2027 (subject to earlier spring maturity) but is classified on the balance sheet as current due to the revolving nature and terms and conditions of the facility. The current portion of long-term debt of $606 million shown on the Condensed Consolidated Balance Sheets consists of $410 million of outstanding borrowings under the Revolving Credit Facility and $196 million of outstanding borrowings under the Term Loan A Facility expiring February 8, 2025.
5. RESTRUCTURING COSTS
Restructuring charges were $7 million and $18 million for the three and six months ended June 30, 2024, respectively, and $6 million and $31 million for the three and six months ended June 30, 2023, respectively. The components of the restructuring charges were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Personnel-related costs (1) | $ | 5 | $ | 2 | $ | 10 | $ | 13 | |||||||||||||||
| Facility-related costs (2) | 2 | 4 | 8 | 18 | |||||||||||||||||||
| Total restructuring charges (3) | $ | 7 | $ | 6 | $ | 18 | $ | 31 | |||||||||||||||
_______________
(1)Personnel-related costs consist of severance costs provided to employees who have been terminated.
(2)Facility-related costs consist of costs associated with planned facility closures such as contract termination costs, amortization of lease assets that will continue to be incurred under the contract for its remaining term without economic benefit to the Company, accelerated depreciation on asset disposals and other facility and employee relocation related costs.
(3)Restructuring charges for the three months ended June 30, 2024 include $6 million of expense related to the Operational Efficiencies Plan and $1 million of expense related to prior restructuring plans.
Restructuring charges for the three months ended June 30, 2023 include $5 million of expense related to the Operational Efficiencies Plan and $1 million of expense related to prior restructuring plans.
18
Restructuring charges for the six months ended June 30, 2024 include $16 million of expense related to the Operational Efficiencies Plan and $2 million of expense related to prior restructuring plans.
Restructuring charges for the six months ended June 30, 2023 include $28 million of expense related to the Operational Efficiencies Plan and $3 million of expense related to prior restructuring plans.
Operational Efficiencies Plan
The Company is actively executing its strategic Operational Efficiencies Plan ("the Plan"). In response to housing market trends, a significant workforce reduction occurred in January 2023. Additional costs in 2024 relate primarily to facility closures as part of ongoing Plan execution. The Company’s broader cost reduction initiatives include digital transformation efforts and technology investments in efforts to support its independent sales agents, franchisees and consumers.
The following is a reconciliation of the beginning and ending reserve balances related to the Plan:
| Personnel-related costs | Facility-related costs | Total | |||||||||||||||
Balance at December 31, 2023 | $ | 10 | $ | 4 | $ | 14 | |||||||||||
| Restructuring charges (1) | 10 | 6 | 16 | ||||||||||||||
| Costs paid or otherwise settled | (8) | (7) | (15) | ||||||||||||||
Balance at June 30, 2024 | $ | 12 | $ | 3 | 15 | ||||||||||||
_______________
(1)In addition, the Company incurred $6 million of facility-related costs for lease asset impairments in connection with the Plan during the six months ended June 30, 2024.
The following table shows the total costs currently expected to be incurred by type of cost related to the Plan:
| Total amount expected to be incurred | Amount incurred to date | Total amount remaining to be incurred | |||||||||||||||
| Personnel-related costs | $ | 47 | $ | 45 | $ | 2 | |||||||||||
| Facility-related costs | 41 | 34 | 7 | ||||||||||||||
| Total | $ | 88 | $ | 79 | $ | 9 | |||||||||||
The following table shows the total costs currently expected to be incurred by reportable segment related to the Plan:
| Total amount expected to be incurred | Amount incurred to date | Total amount remaining to be incurred | |||||||||||||||
| Franchise Group | $ | 16 | $ | 16 | $ | — | |||||||||||
| Owned Brokerage Group | 54 | 46 | 8 | ||||||||||||||
| Title Group | 6 | 5 | 1 | ||||||||||||||
| Corporate and Other | 12 | 12 | — | ||||||||||||||
| Total | $ | 88 | $ | 79 | $ | 9 | |||||||||||
Prior Restructuring Plans
During 2019, the Company took various strategic initiatives to reduce costs and institute operational and facility related efficiencies to drive profitability. During 2020, as a result of the COVID-19 pandemic, the Company transitioned substantially all of its employees to a remote-work environment which allowed the Company to reevaluate its office space needs. As a result, additional facility and operational efficiencies were identified and implemented which included the transformation of its corporate headquarters in Madison, New Jersey to an open-plan innovation hub. At December 31, 2023, the remaining liability related to these initiatives was $9 million. During the six months ended June 30, 2024, the Company incurred $2 million of costs and paid or settled $2 million of costs resulting in a remaining accrual of $9 million at June 30, 2024. The remaining accrual of $9 million and total amount remaining to be incurred of $17 million primarily relate to the transformation of the Company's corporate headquarters.
19
6. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in various claims, legal proceedings, alternative dispute resolution and governmental inquiries or regulatory actions, including the matters described below.
Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties. Even cases brought by us can involve counterclaims asserted against us and even in matters in which we are not a named party, regulatory investigations and other litigation can have significant implications for the Company, particularly to the extent that changes in industry rules and practices can directly impact us. In addition, litigation and other legal matters, including class action lawsuits, multi-party litigation and regulatory proceedings challenging practices that have broad impact, can be costly to defend and, depending on the class size and claims, could be costly to settle. Certain types of claims, such as RESPA and antitrust laws, generally provide for joint and several liability and treble damages. Insurance coverage may be unavailable for certain types of claims (including antitrust and Telephone Consumer Protection Act ("TCPA") litigation), insurance carriers may dispute coverage, and even where coverage is provided, it may not cover the full amount of losses the Company incurs.
The Company believes that it has adequately accrued for legal matters as appropriate. The Company records litigation accruals for legal matters when it is both probable that a liability will be incurred, and the amount of the loss can be reasonably estimated. Where the reasonable estimate of the probable loss is a range, the Company records as an accrual in its financial statements the most likely estimate of the loss, or the low end of the range if there is no "most likely" estimate. For other litigation described on the following pages, management is unable to provide a meaningful estimate of the possible loss or range of possible losses that could potentially result from such litigation.
The captioned matters described herein cover evolving, complex litigation and the Company assesses its accruals on an ongoing basis taking into account the procedural stage and developments in the litigation. The Company could incur charges or judgments or enter into settlements of claims, based upon future events or developments, with liabilities that are materially in excess of amounts accrued and these judgments or settlements could have a material adverse effect on the Company’s financial condition, results of operations or cash flows in any particular period. As such, an increase in accruals for one or more of these matters in any reporting period may have a material adverse effect on the Company's results of operations and cash flows for that period.
From time to time, even if the Company believes it has substantial defenses, it may consider litigation settlements based on a variety of circumstances.
All of these matters are presented as currently captioned, but as noted elsewhere in this Quarterly Report, Realogy Holdings Corp. has been renamed Anywhere Real Estate Inc.
Antitrust Litigation
As disclosed in Note 15, "Commitments and Contingencies—Litigation" to the Consolidated Financial Statements in our 2023 Form 10-K, the Company has been named in a number of class actions covering sellers of homes utilizing a broker during the class period that challenge residential real estate industry rules and practices that require an offer of compensation and payment of buyer-broker commissions and certain alleged associated practices, including in the following cases:
•Burnett, Hendrickson, Breit, Trupiano, and Keel v. The National Association of Realtors, Realogy Holdings Corp., Homeservices of America, Inc., BHH Affiliates LLC, HSF Affiliates, LLC, RE/MAX LLC, and Keller Williams Realty, Inc. (U.S. District Court for the Western District of Missouri) (formerly captioned as Sitzer);
•Moehrl, Cole, Darnell, Ramey, Umpa and Ruh v. The National Association of Realtors, Realogy Holdings Corp., Homeservices of America, Inc., BHH Affiliates, LLC, The Long & Foster Companies, Inc., RE/MAX LLC, and Keller Williams Realty, Inc. (U.S. District Court for the Northern District of Illinois); and
•Nosalek, Hirschorn and Hirschorn v. MLS Property Information Network, Inc., Realogy Holdings Corp., Homeservices of America, Inc., BHH Affiliates, LLC, HSF Affiliates, LLC, RE/MAX LLC, and Keller Williams Realty, Inc. (U.S. District Court for the District of Massachusetts).
In October 2023, the Company agreed to a settlement, on a nationwide basis, of all claims asserted or that could have been asserted against Anywhere in the Burnett, Moehrl and Nosalek cases, including claims asserted on behalf of home sellers in similar matters (the “Anywhere Settlement”) and the court granted final approval of the Anywhere Settlement on
20
May 9, 2024. The final approval has been appealed by several parties, including a plaintiff class member from the Batton buy-side case (described below), specifically claiming that the release in the Anywhere Settlement should not release any buy-side claims that sellers may also have.
The Anywhere Settlement releases the Company, all subsidiaries, brands, affiliated agents, and franchisees from all claims that were or could have been asserted by all persons who sold a home that was listed on a multiple listing service anywhere in the United States where a commission was paid to any brokerage in connection with the sale of the home in the relevant class period. The Anywhere Settlement is not an admission of liability, nor does it concede or validate any of the claims asserted against Anywhere.
Under the terms of the nationwide Anywhere Settlement, Anywhere has agreed to injunctive relief as well as monetary relief of $83.5 million, of which $30 million has been paid and the remaining $53.5 million will be due within 21 business days after all appellate rights are exhausted.
The Anywhere Settlement includes injunctive relief for a period of five years, requiring practice changes in the Company owned brokerage operations and that the Company recommend and encourage these same practice changes to its independently owned and operated franchise network. The injunctive relief, includes but is not limited to, reminding Company owned brokerages, franchisees and their respective agents that Anywhere has no rule requiring offers of compensation to buyer brokers; prohibiting Company owned brokerages (and recommending to franchisees) and agents from using technology (or manually) to sort listings by offers of compensation, unless requested by the client; eliminating any minimum client commission for Company owned brokerages; and refraining from adopting any requirement that Company owned brokerages, franchisees or their respective agents belong to National Association of Realtors ("NAR") or follow NAR’s Code of Ethics or MLS handbook. The practice changes are to take place no later than six months after the Anywhere Settlement receives final court approval and all appellate rights are exhausted.
More recent settlements by NAR, other Realtor® associations or MLSs involve injunctive relief that, if approved and implemented, will impact the entire industry, including our owned brokerages and those of our franchisees. Specifically, NAR entered into a nationwide class action settlement (the "NAR Settlement"), which has been preliminarily approved by the court, under which it has agreed to certain practice changes and to pay $418 million. These practice changes include, but are not limited to, prohibiting offers of compensation to buyer brokers from being made on listings on an MLS, requiring Realtors® representing a buyer to enter into a written agreement with a buyer, setting forth the buyer broker’s fee and obligations before showing the buyer a property, and prohibiting Realtors® from representing their services as free, or collecting greater compensation than set forth in the written agreement with the buyer. The NAR Settlement allowed for participation by non-NAR MLSs, but a number of those MLSs have elected not to participate in the NAR Settlement, and as such, they will continue to operate on their own rules regarding broker compensation and will not be restricted by the constraints in the NAR Settlement. A hearing for final approval of the NAR settlement is scheduled for November 26, 2024.
In addition, since late October 2023, more than thirty additional lawsuits with similar or related claims have been filed against various real estate brokerages, NAR, MLSs, and/or state and local Realtor Associations, about a third of which name Anywhere, its subsidiaries or franchisees (the “Copycat Litigation”). In those cases, plaintiffs have generally either agreed to dismiss or stay the actions against Anywhere, its subsidiaries or franchisees pending the conclusion of the appeals of the trial court's grant of final approval of the Anywhere Settlement.
McFall v. Canadian Real Estate Association, et al., Federal Court, Canada, Court File No. T-119-24. In this putative class action, filed on January 18, 2024, plaintiff alleges that Coldwell Banker Canada, amongst other brokers, franchisors, Regional Real Estate Boards (“RREB”) and the Canadian Real Estate Board (“CREB”) conspired to fix the price of buyer brokerage services in violation of civil and criminal statutes. On March 14, 2024, the Court entered an order functionally staying the matter pending further order of the court. We believe the court will reexamine this order upon conclusion of the appeal in a previously filed matter involving similar allegations but different parties.
Separately, a putative nationwide class action on behalf of home buyers (instead of sellers) captioned Batton, Bolton, Brace, Kim, James, Mullis, Bisbicos and Parsons v. The National Association of Realtors, Realogy Holdings Corp., Homeservices of America, Inc., BHH Affiliates, LLC, HSF Affiliates, LLC, The Long & Foster Companies, Inc., RE/MAX LLC, and Keller Williams Realty, Inc. (U.S. District Court for the Northern District of Illinois Eastern Division) was filed on January 25, 2021 ("Batton", formerly captioned as Leeder), in which the plaintiffs take issue with certain NAR policies, including those related to buyer-broker compensation at issue in the Moehrl and Burnett matters, but claim the alleged conspiracy has harmed buyers (instead of sellers), and seek a permanent injunction enjoining NAR from establishing in the future the same or similar rules, policies, or practices as those challenged in the action as well as an award of damages and/
21
or restitution, interest, and reasonable attorneys’ fees and expenses. The only claims remaining outstanding are state law claims. The Company's motion to dismiss remains pending. The Company disputes the allegations against it in this case, believes it has substantial defenses to plaintiffs’ claims, and is vigorously defending this litigation. In addition to these substantial defenses, the final approval of the Anywhere Settlement limited the size of the Batton case because the settling plaintiffs are releasing claims of the type alleged in Batton. As noted above, the named plaintiffs in the Batton case have filed an appeal of the final approval of the Anywhere Settlement, objecting to the release of buy-side claims in that settlement.
The Company believes that additional antitrust litigation and investigations related to other industry practices may be possible beyond what has already been filed. We believe, for example, the DOJ is continuing to focus on the manner in which broker commissions are communicated, negotiated and paid, including how MLSs and state associations are implementing the changes required by the NAR settlement and potentially broader restrictions or bans on offers of compensation. Their focus has also expanded to include the comingling rule, which is a non-mandatory rule that precludes the joint display of MLS and non-MLS listings. The DOJ may expand its focus to include certain other rules, such as the clear cooperation policy, which is a NAR-mandated policy that requires a listing broker to submit a listing to the MLS for cooperation with other MLS participants within a specified time of marketing a property to the public.
Telephone Consumer Protection Act Litigation
Bumpus, et al. v. Realogy Holdings Corp., et al. (U.S. District Court for the Northern District of California, San Francisco Division). In this class action filed on June 11, 2019, plaintiffs allege that independent sales agents affiliated with Anywhere Advisors LLC violated the Telephone Consumer Protection Act of 1991 (TCPA) using dialers provided by Mojo Dialing Solutions, LLC and others. Plaintiffs seek relief on behalf of a National Do Not Call Registry class, an Internal Do Not Call class, and an Artificial or Prerecorded Message class.
While the Court certified the classes in March 2022, the plaintiffs filed a motion in early 2023 seeking to narrow the classes, which the Company opposed, seeking to decertify the classes. The plaintiffs, in response to the Company's request to decertify the classes and the court's order, have provided a Declaration with a detailed explanation of the bases for their request to reduce the class sizes. Those and other pre-trail motions remain pending.
The Company disputes the allegations against it in this case, believes it has substantial defenses to both plaintiffs’ liability claims and damage assertions, and is vigorously defending this action.
Other
Examples of other legal matters involving the Company may include but are not limited to:
•antitrust and anti-competition claims;
•TCPA claims;
•claims alleging violations of RESPA, state consumer fraud statutes, federal consumer protection statutes or other state real estate law violations;
•employment law claims, including claims that independent residential real estate sales agents engaged by our company owned brokerages or by affiliated franchisees—under certain state or federal laws—are potentially employees instead of independent contractors, and they or regulators therefore may bring claims against our Owned Brokerage Group for breach of contract, wage and hour classification claims, wrongful discharge, unemployment and workers' compensation and could seek benefits, back wages, overtime, indemnification, penalties related to classification practices and expense reimbursement available to employees or make similar claims against Franchise Group as an alleged joint employer of an affiliated franchisee’s independent sales agents;
•other employment law matters, including other types of worker classification claims as well as wage and hour claims and retaliation claims;
•claims regarding non-competition, non-solicitation and restrictive covenants together with claims of tortious interference and other improper recruiting conduct;
•information privacy and security claims, including claims under new and emerging data privacy laws related to the protection of customer, employee or third-party information, claims related to the implementation of various consumer opt-out rights, and claims under biometric data laws such as the Illinois Biometric Information Privacy Act;
22
•cyber-crime claims, including claims related to the diversion of homesale transaction closing funds;
•vicarious or joint liability claims based upon the conduct of individuals or entities traditionally outside of our control, including franchisees and independent sales agents, under joint employer claims or other theories of actual or apparent agency;
•claims by current or former franchisees that franchise agreements were breached, including improper terminations;
•claims generally against the company owned brokerage operations for negligence, misrepresentation or breach of fiduciary duty in connection with the performance of real estate brokerage or other professional services as well as other brokerage claims associated with listing information and property history;
•claims related to intellectual property or copyright law, including infringement actions alleging improper use of copyrighted photographs on websites or in marketing materials without consent of the copyright holder or claims challenging our trademarks;
•claims concerning breach of obligations to make websites and other services accessible for consumers with disabilities;
•claims against the title agent contending that the agent knew or should have known that a transaction was fraudulent or that the agent was negligent in addressing title defects or conducting the settlement;
•claims related to disclosure or securities law violations as well as derivative suits; and
•fraud, defalcation or misconduct claims.
Other ordinary course legal proceedings that may arise from time to time include those related to commercial arrangements, indemnification (under contract or common law), franchising arrangements, the fiduciary duties of brokers, standard brokerage disputes like the failure to disclose accurate square footage or hidden defects in the property such as mold, claims under the False Claims Act (or similar state laws), consumer lending and debt collection law claims, state auction law, and violations of similar laws in countries where we operate around the world with respect to any of the foregoing. In addition, with the increasing requirements resulting from government laws and regulations concerning data breach notifications and data privacy and protection obligations, claims associated with these laws may become more common. While most litigation involves claims against the Company, from time to time the Company commences litigation, including litigation against former employees, franchisees and competitors when it alleges that such persons or entities have breached agreements or engaged in other wrongful conduct.
* * *
Cendant Corporate Liabilities and Guarantees to Cendant and Affiliates
Anywhere Group (then Realogy Corporation) separated from Cendant on July 31, 2006 (the "Separation"), pursuant to a plan by Cendant (now known as Avis Budget Group, Inc.) to separate into four independent companies—one for each of Cendant's business units—real estate services (Anywhere Group, formerly referred to as Realogy Group), travel distribution services ("Travelport"), hospitality services, including timeshare resorts ("Wyndham Worldwide"), and vehicle rental ("Avis Budget Group"). Pursuant to the Separation and Distribution Agreement dated as of July 27, 2006 among Cendant, Anywhere Group, Wyndham Worldwide and Travelport (the "Separation and Distribution Agreement"), each of Anywhere Group, Wyndham Worldwide and Travelport have assumed certain contingent and other corporate liabilities (and related costs and expenses), which are primarily related to each of their respective businesses. In addition, Anywhere Group has assumed 62.5% and Wyndham Worldwide has assumed 37.5% of certain contingent and other corporate liabilities (and related costs and expenses) of Cendant. The due to former parent balance was $40 million at June 30, 2024 and $38 million at December 31, 2023, respectively. The due to former parent balance was comprised of the Company’s portion of the following: (i) Cendant’s remaining contingent tax liabilities, (ii) potential liabilities related to Cendant’s terminated or divested businesses, and (iii) potential liabilities related to the residual portion of accruals for Cendant operations.
In December 2022, a hearing was held with the California Office of Tax Appeals ("OTA") on a Cendant legacy tax matter involving Avis Budget Group that related to a 1999 transaction. The case presented two issues: (i) whether the notices of proposed assessment issued by the California Franchise Tax Board were barred by the statute of limitations; and (ii) whether a transaction undertaken by Avis Budget Group in tax year 1999 constituted a tax-free reorganization under the Internal Revenue Code. In March 2023, the OTA decided in favor of the California Franchise Tax Board on both issues. As a result, the Company increased its accrual for this legacy tax matter in the first quarter of 2023 and as of June 30, 2024 the
23
accrual is $40 million. On April 10, 2024, the Company's petition for rehearing was denied by the OTA, and the tax assessment is anticipated to become payable as early as the third quarter of 2024, even if judicial relief is sought.
Tax Matters
The Company is subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording related assets and liabilities. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by tax authorities whereby the outcome of the audits is uncertain. The Company believes there is appropriate support for positions taken on its tax returns. The liabilities that have been recorded represent the best estimates of the probable loss on certain positions and are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. However, the outcomes of tax audits are inherently uncertain.
Escrow and Trust Deposits
As a service to its customers, the Company administers escrow and trust deposits which represent undisbursed amounts received for the settlement of real estate transactions. Deposits at FDIC-insured institutions are insured up to $250,000. These escrow and trust deposits totaled approximately $844 million at June 30, 2024 and while these deposits are not assets of the Company (and, therefore, are excluded from the accompanying Condensed Consolidated Balance Sheets), the Company remains contingently liable for the disposition of these deposits.
7. EQUITY
Condensed Consolidated Statement of Changes in Equity for Anywhere
| Three Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | 111.1 | $ | 1 | $ | 4,814 | $ | (3,192) | $ | (45) | $ | 2 | $ | 1,580 | ||||||||||||||||||||||||||||
Net income | — | — | — | 30 | — | — | 30 | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 4 | — | — | — | 4 | ||||||||||||||||||||||||||||||||||
| Issuance of shares for vesting of equity awards | 0.1 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | (1) | (1) | ||||||||||||||||||||||||||||||||||
Contributions from non-controlling interests | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 111.2 | $ | 1 | $ | 4,818 | $ | (3,162) | $ | (45) | $ | 2 | $ | 1,614 | ||||||||||||||||||||||||||||
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 110.4 | $ | 1 | $ | 4,805 | $ | (3,132) | $ | (47) | $ | 3 | $ | 1,630 | ||||||||||||||||||||||||||||
Net income | — | — | — | 19 | — | — | 19 | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 4 | — | — | — | 4 | ||||||||||||||||||||||||||||||||||
| Issuance of shares for vesting of equity awards | 0.1 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares withheld for taxes on equity awards | (0.1) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 110.4 | $ | 1 | $ | 4,809 | $ | (3,113) | $ | (47) | $ | 3 | $ | 1,653 | ||||||||||||||||||||||||||||
24
| Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 110.5 | $ | 1 | $ | 4,813 | $ | (3,091) | $ | (44) | $ | 2 | $ | 1,681 | ||||||||||||||||||||||||||||
Net loss | — | — | — | (71) | — | — | (71) | ||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (1) | — | (1) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 8 | — | — | — | 8 | ||||||||||||||||||||||||||||||||||
| Issuance of shares for vesting of equity awards | 1.2 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares withheld for taxes on equity awards | (0.5) | — | (3) | — | — | — | (3) | ||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | (1) | (1) | ||||||||||||||||||||||||||||||||||
Contributions from non-controlling interests | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 111.2 | $ | 1 | $ | 4,818 | $ | (3,162) | $ | (45) | $ | 2 | $ | 1,614 | ||||||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 109.5 | $ | 1 | $ | 4,805 | $ | (2,994) | $ | (48) | $ | 3 | $ | 1,767 | ||||||||||||||||||||||||||||
Net loss | — | — | — | (119) | — | — | (119) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 8 | — | — | — | 8 | ||||||||||||||||||||||||||||||||||
| Issuance of shares for vesting of equity awards | 1.5 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares withheld for taxes on equity awards | (0.6) | — | (4) | — | — | — | (4) | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 110.4 | $ | 1 | $ | 4,809 | $ | (3,113) | $ | (47) | $ | 3 | $ | 1,653 | ||||||||||||||||||||||||||||
Condensed Consolidated Statement of Changes in Equity for Anywhere Group
The Company has not included a statement of changes in equity for Anywhere Group as the operating results of Anywhere Group are consistent with the operating results of Anywhere as all revenue and expenses of Anywhere Group flow up to Anywhere and there are no incremental activities at the Anywhere level. The only difference between Anywhere Group and Anywhere is that the $1 million in par value of common stock in Anywhere's equity is included in additional paid-in capital in Anywhere Group's equity.
Stock Repurchases
The Company may repurchase shares of its common stock under authorizations from its Board of Directors. Shares repurchased are retired and not displayed separately as treasury stock on the condensed consolidated financial statements. The par value of the shares repurchased and retired is deducted from common stock and the excess of the purchase price over par value is first charged against any available additional paid-in capital with the balance charged to retained earnings. Direct costs incurred to repurchase the shares are included in the total cost of the shares.
The Company's Board of Directors authorized a share repurchase program of up to $300 million of the Company's common stock in February 2022. The Company has not repurchased any shares under the share repurchase programs since 2022. As of June 30, 2024, $203 million remained available for repurchase under the share repurchase program. The Company is subject to limitations on share repurchases, which include compliance with the terms of our debt agreements.
Stock-Based Compensation
During the first quarter of 2024, the Company granted restricted stock units related to 1.3 million shares with a grant date fair value of $6.09 and performance share units ("PSU") related to 1.3 million shares with a grant date fair value of $6.44. The Company granted all time-based equity awards in the form of restricted stock units which are subject to ratable vesting over a three-year period.
During the first quarter of 2024, the Company incorporated investor feedback in the design of its 2024 long-term incentive program in an effort to reduce volatility of payouts. The Company redesigned the PSU award tied to free cash flow
25
achieved over a three-year period. Specifically, free cash flow targets are now set annually instead of a three-year cumulative goal set at the beginning of the three-year cycle, with the actual payout being the average of the payouts of the three separate annual achievements, subject to further adjustment based upon how Anywhere's common stock performed against a peer group over the three-year period. The actual payout, if any, will be subject to a 15% +/- adjustment if the total stockholder return of Anywhere's common stock is at or above the 75th percentile or below the 25th percentile of the total stockholder return of the peer group the Company's Compensation and Talent Management Committee uses to benchmark executive compensation (subject to additional weighting for the Company's direct peers in that peer group). With the foregoing change, the Company eliminated the separate PSU awards tied to the total stockholder return of Anywhere's common stock relative to the total stockholder return of the S&P MidCap 400 index, referred to as our RTSR PSU units.
8. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share attributable to Anywhere
Basic earnings (loss) per common share is computed based on net income (loss) attributable to Anywhere stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed consistently with the basic computation plus the effect of dilutive potential common shares outstanding during the period. Dilutive potential common shares include shares that the Company could be obligated to issue from its Exchangeable Senior Notes and warrants if dilutive and outstanding stock-based compensation awards. For purposes of computing diluted earnings (loss) per common share, weighted average common shares do not include potentially dilutive common shares if their effect is anti-dilutive. As such, the shares that the Company could be obligated to issue from its stock options, warrants and Exchangeable Senior Notes are excluded from the earnings (loss) per share calculation if the exercise or exchangeable price exceeds the average market price of common shares.
The Company uses the treasury stock method to calculate the dilutive effect of outstanding stock-based compensation. If dilutive, the Company uses the if converted method to calculate the dilutive effect of its Exchangeable Senior Notes. These notes will have a dilutive impact when the average market price of the Company’s common stock exceeds the initial exchange price of $24.49 per share. The Exchangeable Senior Notes were not dilutive as of June 30, 2024 as the closing price of the Company's common stock as of June 30, 2024 was less than the initial exchange price.
The following table sets forth the computation of basic and diluted earnings (loss) per share:
_______________
(a)The three months ended June 30, 2024 and 2023, exclude 7.4 million and 6.6 million shares of common stock, respectively, issuable for incentive equity awards which includes performance share units based on the achievement of target amounts that are anti-dilutive to the diluted earnings per share computation. The Company was in a net loss position for the six months ended June 30, 2024 and 2023 and therefore, the impact of incentive equity awards was excluded from the computation of dilutive loss per share as the inclusion of such amounts would be anti-dilutive.
(b)Shares to be provided to the Company from the exchangeable note hedge transactions purchased concurrently with its issuance of Exchangeable Senior Notes are anti-dilutive and therefore they are not treated as a reduction to its diluted shares.
26
9. SEGMENT INFORMATION
The reportable segments presented represent those for which the Company maintains separate financial information regularly reviewed and utilized by its chief operating decision maker for performance assessment and resource allocation. The classification of reportable segments also considers the distinctive nature of services offered by each segment.
Management's evaluation of individual reportable segment performance centers on two key metrics: revenue and Operating EBITDA. Operating EBITDA is defined as net income (loss) adjusted for depreciation and amortization, interest expense, net (excluding relocation services interest for securitization assets and securitization obligations), income taxes, and certain non-core items. Non-core items include restructuring charges, former parent legacy items, gains or losses on the early extinguishment of debt, impairments, and gains or losses on discontinued operations or the sale of businesses, investments, or other assets.
The Company’s presentation of Operating EBITDA may not align with similar measures employed by other entities. Variations may arise due to differences in the inclusion or exclusion of specific items and the interpretation of non-core elements within the calculation. This disclosure provides insight into the Company's approach to segment reporting and the metrics pivotal to its strategic decision-making processes.
| Revenues (a) | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Franchise Group | $ | 265 | $ | 284 | $ | 465 | $ | 491 | |||||||||||||||
Owned Brokerage Group | 1,393 | 1,380 | 2,312 | 2,295 | |||||||||||||||||||
Title Group | 103 | 100 | 174 | 172 | |||||||||||||||||||
| Corporate and Other (b) | (92) | (93) | (156) | (156) | |||||||||||||||||||
| Total Company | $ | 1,669 | $ | 1,671 | $ | 2,795 | $ | 2,802 | |||||||||||||||
_______________
(a)Transactions between segments are eliminated in consolidation. Revenues for Franchise Group include intercompany royalties and marketing fees paid by Owned Brokerage Group of $92 million and $156 million for the three and six months ended June 30, 2024, respectively, and $93 million and $156 million for the three and six months ended June 30, 2023, respectively. Such amounts are eliminated through the Corporate and Other line.
(b)Includes the elimination of transactions between segments.
Set forth in the table below is Operating EBITDA presented by reportable segment and a reconciliation to Net income (loss) attributable to Anywhere and Anywhere Group for the three and six months ended June 30, 2024 and 2023:
| Operating EBITDA | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Franchise Group | $ | 159 | $ | 164 | $ | 248 | $ | 261 | |||||||||||||||
Owned Brokerage Group | 4 | (10) | (55) | (85) | |||||||||||||||||||
Title Group | 9 | 10 | (6) | (7) | |||||||||||||||||||
| Corporate and Other (a) | (33) | (38) | (65) | (95) | |||||||||||||||||||
| Total Company | $ | 139 | $ | 126 | $ | 122 | $ | 74 | |||||||||||||||
| Less: Depreciation and amortization | 48 | 49 | 103 | 99 | |||||||||||||||||||
Interest expense, net | 40 | 39 | 79 | 77 | |||||||||||||||||||
Income tax expense (benefit) | 11 | 8 | (17) | (38) | |||||||||||||||||||
Restructuring costs, net (b) | 7 | 6 | 18 | 31 | |||||||||||||||||||
Impairments (c) | 2 | 4 | 8 | 8 | |||||||||||||||||||
| Former parent legacy cost, net (d) | 1 | 1 | 2 | 17 | |||||||||||||||||||
Gain on the sale of businesses, investments or other assets, net | — | — | — | (1) | |||||||||||||||||||
Net income (loss) attributable to Anywhere and Anywhere Group | $ | 30 | $ | 19 | $ | (71) | $ | (119) | |||||||||||||||
27
_______________
(a)Includes the elimination of transactions between segments.
(b)The three months ended June 30, 2024 includes restructuring charges of $2 million at Franchise Group, $1 million at Owned Brokerage Group, $1 million at Title Group and $3 million at Corporate and Other.
The three months ended June 30, 2023 includes restructuring charges of $4 million at Owned Brokerage Group , $1 million at Title Group and $1 million at Corporate and Other.
The six months ended June 30, 2024 includes restructuring charges of $3 million at Franchise Group, $7 million at Owned Brokerage Group, $1 million at Title Group and $7 million at Corporate and Other.
The six months ended June 30, 2023 includes restructuring charges of $6 million at Franchise Group, $18 million at Owned Brokerage Group, $1 million at Title Group and $6 million at Corporate and Other.
(c)Non-cash impairments primarily related to leases and other assets.
(d)Former parent legacy cost is recorded in Corporate and Other and relates to a legacy tax matter.
28
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying notes thereto included elsewhere herein and with our Consolidated Financial Statements and accompanying notes included in the 2023 Form 10-K. Unless otherwise noted, all dollar amounts in tables are in millions. Neither Anywhere, the indirect parent of Anywhere Group, nor Anywhere Intermediate, the direct parent company of Anywhere Group, conducts any operations other than with respect to its respective direct or indirect ownership of Anywhere Group. As a result, the condensed consolidated financial positions, results of operations and cash flows of Anywhere, Anywhere Intermediate and Anywhere Group are the same. This Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, contains forward-looking statements. See "Forward-Looking Statements" in this Quarterly Report as well as our 2023 Form 10-K for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements.
OVERVIEW
We, through our subsidiaries, are a global provider of residential real estate services and report our operations in the following three business segments:
•Anywhere Brands ("Franchise Group")—franchises a portfolio of well-known, industry-leading franchise brokerage brands, including Better Homes and Gardens® Real Estate, Century 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran®, ERA® and Sotheby's International Realty®. As of June 30, 2024, our real estate franchise systems and proprietary brands had approximately 316,000 independent sales agents worldwide, including approximately 182,900 independent sales agents operating in the U.S. (which included approximately 54,500 company owned brokerage independent sales agents). As of June 30, 2024, our real estate franchise systems and proprietary brands had approximately 18,000 offices worldwide in 118 countries and territories, including approximately 5,500 brokerage offices in the U.S. (which included approximately 610 company owned brokerage offices). This segment also includes our global relocation services operation through Cartus® Relocation Services ("Cartus") and lead generation activities through Anywhere Leads Inc. ("Leads Group").
•Anywhere Advisors ("Owned Brokerage Group")—operates a full-service real estate brokerage business with approximately 610 owned and operated brokerage offices with approximately 54,500 independent sales agents under the Coldwell Banker®, Corcoran® and Sotheby’s International Realty® brand names in many of the largest metropolitan areas in the U.S. This segment also includes our share of equity earnings or losses from our minority-owned real estate auction joint venture.
•Anywhere Integrated Services ("Title Group")—provides full-service title, escrow and settlement services to consumers, real estate companies, corporations and financial institutions primarily in support of residential real estate transactions. This segment also includes the Company's share of equity earnings or losses from Guaranteed Rate Affinity, our minority-owned mortgage origination joint venture, and from our minority-owned title insurance underwriter joint venture.
Our technology and data organization is dedicated to providing innovative technology products and solutions that support the productivity and success of Anywhere’s businesses, brands, brokers, agents, and consumers.
CURRENT BUSINESS AND INDUSTRY TRENDS
The residential real estate market is at historic lows. According to data from NAR, homesale transactions in 2023 totaled 4.09 million compared to 5.03 million transactions in 2022 and 6.12 million in 2021, marking the lowest amount since 1995. For the Company, combined closed homesale sides for Franchise Group and Owned Brokerage Group decreased by 36% in 2023 compared to 2021 (20% in 2022 and by another 20% in 2023 compared to the previous year).
Market conditions in the residential real estate industry remained weak in the first half of 2024. NAR reported that existing homesale transactions decreased 3% for the first half of 2024 as compared to the same period in 2023. For 2024, as of its most recently released forecast, Fannie Mae is forecasting existing homesale transactions to increase 2% to 4.17 million.
29
Several market factors contributed to the substantial declines in homesale transactions, the reduced activity in purchase and refinancing units and the reduced mortgage origination volume. These factors include the rapid escalation of mortgage rates starting in March 2022, persistent high inflation over the past two years, low housing inventory, reduced housing affordability, and broader macroeconomic concerns. The low housing inventory environment not only led to a decrease in closed homesale sides but also contributed to an elevation in the average homesale price over the past two years.
The table below sets forth changes in homesale transaction volume, closed homesale sides (homesale transactions) and average homesale price at Franchise Group and Owned Brokerage Group, both on a combined and individual basis, for the three and six months ended June 30, 2024 as compared with the same period in 2023:
| Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | ||||||||||
| Anywhere Combined | |||||||||||
| Homesale transaction volume* | 3% | 3% | |||||||||
| Closed homesale sides | (5)% | (5)% | |||||||||
| Average homesale price | 8% | 7% | |||||||||
| Anywhere Brands - Franchise Group | |||||||||||
| Homesale transaction volume* | 2% | 3% | |||||||||
| Closed homesale sides | (5)% | (4)% | |||||||||
| Average homesale price | 7% | 7% | |||||||||
| Anywhere Advisors - Owned Brokerage Group | |||||||||||
| Homesale transaction volume* | 4% | 3% | |||||||||
| Closed homesale sides | (5)% | (5)% | |||||||||
| Average homesale price | 9% | 8% | |||||||||
_______________
* Homesale transaction volume is measured by multiplying closed homesale sides by average homesale price.
The graphic below shows the improvement in combined homesale transaction volume for the Company by quarter in 2023 and 2024 as compared with the same period in the prior year:
Furthermore, refinancing title and closing units declined 2% and purchase title and closing units declined 1% at Title Group during the first half of 2024 compared with the same period in 2023 as a result of the high interest rate environment.
30
Operational Efficiencies and Cost Savings. We continue to execute on our strategic plan to optimize operational efficiency, reduce office footprint costs, centralize certain aspects of our operational support structure and drive changes in how we serve our affiliated independent sales agents, franchisees and consumers. During the second quarter of 2024, we realized cost savings of approximately $30 million and approximately $60 million year to date of which approximately half related to specific restructuring activities.
Mortgage Rates. Freddie Mac's data shows that average mortgage rates for a 30-year, conventional, fixed-rate mortgage more than doubled in 2022, reaching a peak of 7.79% in the fourth quarter of 2023, the highest since 2000. Although rates began to decrease slightly in early 2024, they have remained high. As of the week ending July 25, 2024, mortgage rates averaged 6.78%.
Mortgage rates are influenced by a multitude of factors, including federal interest rates, Treasury note yields, inflation, demand, consumer income, unemployment levels, foreclosure rates, and fiscal and monetary policies. Since March 2022, the U.S. Federal Reserve Board has taken action intended to try to control inflation raising the target federal funds rate by over 400 basis points in 2022 and an additional 100 basis points in 2023. The Federal Reserve has kept rates unchanged since July 2023. In their most recent press release in July 2024, they conveyed their anticipation that inflation will gradually align with their target, prompting a reduction in rates. However, the timing of these cuts remains uncertain. As of June 30, 2024 yields on the 10-year Treasury note were 4.36% compared to 3.81% as of June 30, 2023.
The interest rate environment has adversely affected various aspects of our business. Higher mortgage rates typically lead to reduced homesale transaction volume, decreased housing affordability, and lower activity in both purchase and refinancing units and mortgage origination. We anticipate that our business will continue to be negatively impacted by the current high mortgage rate environment until there is an improvement in the interest rate environment. For example, we believe the high mortgage rate environment is contributing to decreased homesale transaction volume, as potential home sellers choose to stay with their lower mortgage rate rather than sell their home and pay a higher mortgage rate with the purchase of another home and potential home buyers choose to rent rather than pay higher mortgage rates.
Inflation. The prevailing inflationary environment has affected U.S. consumers and the repercussions may persist. As evidenced by the Consumer Price Index for All Urban Consumers (CPI), a gauge employed by the U.S. Bureau of Labor Statistics, there was a 3% (not seasonally adjusted) increase for the 12-month period ended June 30, 2024. The CPI serves as a metric for capturing the average fluctuations in prices paid by urban consumers across a diverse array of consumer goods and services. The macroeconomic landscape, including on-going conflicts around the world, introduces an additional layer of complexity to the inflationary dynamics. These geopolitical disruptions have the potential to intensify inflationary pressures, contributing to the volatility witnessed in the broader economic context. As consumers navigate this challenging landscape, the potential for continued impact on their purchasing power remains a significant consideration.
Affordability. The combination of higher mortgage rates and inflation has negatively impacted housing affordability. This is further exacerbated by the significant increase in home prices due to inventory constraints. Future periods may see further negative impacts on housing affordability due to persistent inflation, potential increases in mortgage rates, rising homesale prices, the cost of homeowners and flood insurance, further declines in housing inventory, stagnant or declining wages and other economic challenges.
Inventory & Turnover. Continued declines in inventory have and may continue to result in insufficient supply to meet demand. Housing inventory levels have been a persistent industry-wide concern for years, particularly in certain sought-after geographies and at lower price points. Additional inventory pressure arises from periods of slow new housing construction, potential home sellers choosing to stay with their lower mortgage rate rather than sell their home, real estate investment firms that purchase homes for rental use, and alternative competitors, such as iBuying models. These pressures have led to a significant increase in the average sales price over the past two years, which we believe has contributed to further deterioration of inventory at lower price points.
Recruitment and Retention of Independent Sales Agents; Commission Income. Recruitment and retention of independent sales agents and independent sales agent teams are critical to the business and financial results of a brokerage, including our company owned brokerages and those operated by affiliated franchisees. We've seen modest declines in our independent sales agents which we believe are consistent with a broader market trend of agents leaving the industry. Moreover, ongoing legal issues and changes in industry practices suggest that less experienced agents may continue to exit the industry.
31
Aggressive competition for the affiliation of independent sales agents in this industry continues to make recruitment and retention efforts at both Franchise Group and Owned Brokerage Group challenging, in particular with respect to more productive sales agents, and had and may continue to have a negative impact on our market share. These competitive market factors along with other trends (such as changes in the spending patterns of independent sales agents, as more agents purchase services from third parties outside of their affiliated broker) are expected to continue to put upward pressure on the average share of commissions earned by independent sales agents. If independent sales agents affiliated with our company owned brokerages are paid a higher proportion of the commissions earned on a homesale transaction or the level of commission income we receive from a homesale transaction is otherwise reduced, the operating margins of our company owned brokerages could continue to be adversely affected. Similarly, franchisees have and may continue to seek reduced royalty fee arrangements or other incentives from us to offset the continued business pressures on such franchisees, which would result in a reduction in royalty fees paid to us.
Competition and Industry Disruption. See Part I., "Item 1.—Business—Competition" in our 2023 Form 10-K for a discussion of the current competitive environment, including with respect to competition for independent sales agents and franchisees as well as non-traditional competition and industry disruption.
Litigation & Regulatory Matters. As further described in Note 6, "Commitments and Contingencies" to the Condensed Consolidated Financial Statements, the final court approval of our nationwide settlement in the Burnett antitrust sell-side class action litigation (the "Anywhere Settlement") has been appealed, which delays our final payment of the remaining $53.5 million due under the Anywhere Settlement until 21 business days after all appellate rights are exhausted (we previously paid the first $30 million due). We are on track to implement the NAR Settlement (as defined in Note 6) requirements by the mid-August 2024 deadline.
In addition, we believe the DOJ is continuing to focus on the manner in which broker commissions are communicated, negotiated and paid, including how MLSs and state associations are implementing the changes required by the NAR settlement, and on broader restrictions or bans on offers of compensation. We believe the DOJ has also begun focusing on certain other rules and may continue to expand the scope of its scrutiny.
For a further discussion of these matters, see Part II., "Item 1.—Legal Proceedings" and Note 6, "Commitments and Contingencies—Litigation", to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report, as well as Part I., "Item 1.—Business—Government and Other Regulations", Part I., "Item 1A.—Risk Factors", Part I. and "Item 3.—Legal Proceedings" in our 2023 Form 10-K, and Note 15, "Commitments and Contingencies—Litigation", to the Consolidated Financial Statements in our 2023 Form 10-K.
* * *
Other Third Party Data. This Quarterly Report includes data and information obtained from independent sources such as the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the U.S. Bureau of Labor Statistics, the U.S. Federal Reserve Board, the National Association of Realtors ("NAR") and the Federal National Mortgage Association ("Fannie Mae"). We caution that such information is subject to change and do not endorse or suggest reliance on this data or information alone.
32
KEY DRIVERS OF OUR BUSINESSES
Within Franchise Group and Owned Brokerage Group, our assessment of operating performance relies on the following key operating metrics:
•Closed Homesale Sides: This metric captures the number of transactions representing either the "buy" or "sell" side of a homesale transaction.
•Average Homesale Price: This metric reflects the average selling price of closed homesale transactions.
•Average Homesale Broker Commission Rate: This metric indicates the average commission rate earned on either the "buy" or "sell" side of a homesale transaction.
For Franchise Group, an additional metric, Net Royalty Per Side, is utilized. This metric represents the royalty payment to the Franchise Group for each homesale transaction side factoring in royalty rates, homesale prices, average homesale broker commission rates, volume incentives and other incentives. Net royalty per side is a comprehensive measure that accounts for changes in average homesale prices and all incentives and represents the royalty revenue impact of each incremental side.
For Owned Brokerage Group, we also gauge performance using Gross Commission Income Per Side. This metric is derived by dividing gross commission income (comprising commissions from homesale transactions and other activities, primarily leasing transactions) by closed homesale sides. Owned Brokerage Group, as a franchisee of Franchise Group, pays a royalty fee of approximately 6% per transaction to Franchise Group. The remaining gross commission income is distributed between the broker (Owned Brokerage Group) and independent sales agents based on their respective independent contractor agreements, specifying the agents share of the broker commission.
For Title Group, our assessment of operating performance centers on key metrics related to title and closing units differentiating between Purchase Title and Closing Units (resulting from home purchases), and Refinance Title and Closing Units (stemming from homeowners refinancing their home loans). The Average Fee Per Closing Unit metric represents the average fee earned on both purchase and refinancing title sides.
The following table presents our drivers for the three and six months ended June 30, 2024 and 2023. See "Results of Operations" below for a discussion as to how these drivers affected our business for the periods presented.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | % Change | 2024 | 2023 | % Change | ||||||||||||||||||||||||||||||
Anywhere Brands - Franchise Group (a) | |||||||||||||||||||||||||||||||||||
| Closed homesale sides | 194,372 | 203,928 | (5) | % | 339,147 | 354,419 | (4) | % | |||||||||||||||||||||||||||
| Average homesale price | $ | 506,676 | $ | 473,312 | 7 | % | $ | 491,070 | $ | 458,303 | 7 | % | |||||||||||||||||||||||
| Average homesale broker commission rate | 2.42 | % | 2.46 | % | (4) | bps | 2.43 | % | 2.46 | % | (3) | bps | |||||||||||||||||||||||
| Net royalty per side | $ | 462 | $ | 451 | 2 | % | $ | 443 | $ | 426 | 4 | % | |||||||||||||||||||||||
Anywhere Advisors - Owned Brokerage Group | |||||||||||||||||||||||||||||||||||
| Closed homesale sides | 71,895 | 75,506 | (5) | % | 122,408 | 129,303 | (5) | % | |||||||||||||||||||||||||||
| Average homesale price | $ | 775,453 | $ | 709,764 | 9 | % | $ | 748,239 | $ | 690,401 | 8 | % | |||||||||||||||||||||||
| Average homesale broker commission rate | 2.36 | % | 2.43 | % | (7) | bps | 2.38 | % | 2.42 | % | (4) | bps | |||||||||||||||||||||||
| Gross commission income per side | $ | 19,141 | $ | 18,059 | 6 | % | $ | 18,648 | $ | 17,525 | 6 | % | |||||||||||||||||||||||
Anywhere Integrated Services - Title Group | |||||||||||||||||||||||||||||||||||
| Purchase title and closing units | 29,816 | 30,136 | (1) | % | 51,141 | 51,885 | (1) | % | |||||||||||||||||||||||||||
| Refinance title and closing units | 2,394 | 2,308 | 4 | % | 4,419 | 4,506 | (2) | % | |||||||||||||||||||||||||||
| Average fee per closing unit | $ | 3,323 | $ | 3,202 | 4 | % | $ | 3,287 | $ | 3,170 | 4 | % | |||||||||||||||||||||||
_______________
(a)Includes all franchisees except for Owned Brokerage Group.
33
Declines in the number of closed homesale sides and/or declines in average homesale price adversely affect our results of operations by: (i) reducing the royalties we receive from our franchisees, (ii) reducing the commissions our company owned brokerage operations earn, and (iii) reducing the demand for services offered through Title Group, including title, escrow and settlement services or the services of our mortgage origination, title underwriter insurance, or other joint ventures. Additionally, declining closed homesale sides and/or declines in average homesale price increase the risk of franchisee default due to lower homesale volume. Further, our results have been and may continue to be negatively affected by a decline in commission rates charged by brokers, greater commission payments to independent sales agents, lower royalty rates from franchisees or an increase in other incentives paid to franchisees, among other factors.
Average homesale broker commission rate declined for the three months ended June 30, 2024, as compared with the same period in 2023, for both Franchise Group and Owned Brokerage Group partially related to an increase of homesale transactions individually in excess of $10 million that occurred in the second quarter of 2024 and the increase in average homesale broker commission in the second quarter of 2023.
Royalty fees are charged to all franchisees pursuant to the terms of the relevant franchise agreements and franchisees may receive volume incentives described in each of the real estate brands' franchise disclosure documents. Other incentives may also be used as consideration to attract new franchisees, grow franchisees (including through independent sales agent recruitment) or extend existing franchise agreements, although in contrast to volume incentives, the majority of other incentives are not homesale transaction based. See Part I., "Item 1.—Business—Anywhere Brands—Franchise Group—Operations—Franchising" in our 2023 Form 10-K for additional information.
Over the past several years, our top 250 franchisees have grown faster than our other franchisees through organic growth and market consolidation, which has had, and may continue to, put pressure on our ability to renew or negotiate franchise agreements with favorable terms due to their size and scale, and that has had, and could, adversely impact our royalty revenue.
We face significant competition from other national real estate brokerage brand franchisors for franchisees and we expect that the trend of increasing incentives will continue in the future in order to attract, retain, and help grow certain franchisees. Taking into account competitive factors, from time to time, we have and may continue to introduce pilot programs or restructure or revise the model used at one or more franchised brands, including with respect to fee structures, minimum production requirements or other terms. We expect to experience pressures on net royalty per side, largely due to the impact of competitive market factors noted above and continued concentration among our top 250 franchisees.
Owned Brokerage Group has a significant concentration of real estate brokerage offices and transactions in geographic regions where home prices are at the higher end of the U.S. real estate market, particularly the east and west coasts, while Franchise Group has franchised offices that are more widely dispersed across the United States. Accordingly, operating results and homesale statistics may differ between Owned Brokerage Group and Franchise Group based upon geographic presence and the corresponding homesale activity in each geographic region. In addition, the share of commissions earned by independent sales agents directly impacts the margin earned by Owned Brokerage Group. Such share of commissions earned by independent sales agents varies by region and commission schedules are generally progressive to incentivize sales agents to achieve higher levels of production.
RESULTS OF OPERATIONS
Discussed below are our condensed consolidated results of operations and the results of operations for each of our reportable segments. The reportable segments presented represent those for which we maintain separate financial information regularly reviewed and utilized by our chief operating decision maker for performance assessment and resource allocation. The classification of reportable segments also considers the distinctive nature of services offered by each segment. Management's evaluation of individual reportable segment performance centers on two key metrics: revenue and Operating EBITDA. Operating EBITDA is a non-GAAP financial measure and is defined as net income (loss) adjusted for depreciation and amortization, interest expense, net (excluding relocation services interest for securitization assets and securitization obligations), income taxes, and certain non-core items. Non-core items include restructuring charges, former parent legacy items, gains or losses on the early extinguishment of debt, impairments, and gains or losses on discontinued operations or the sale of businesses, investments or other assets. Operating EBITDA Margin is defined as Operating EBITDA as a percentage of revenues. Our presentation of Operating EBITDA may not align with similar measures employed by other entities. Variations may arise due to differences in the inclusion or exclusion of specific items and the interpretation of non-core elements within the calculation.
34
Our results of operations should be read in conjunction with our other disclosures in this Item 2. including under the heading Current Business and Industry Trends.
Three Months Ended June 30, 2024 vs. Three Months Ended June 30, 2023
Our consolidated results comprised the following:
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Net revenues | $ | 1,669 | $ | 1,671 | $ | (2) | |||||||||||
| Total expenses | 1,631 | 1,649 | (18) | ||||||||||||||
Income before income taxes, equity in earnings and noncontrolling interests | 38 | 22 | 16 | ||||||||||||||
Income tax expense | 11 | 8 | 3 | ||||||||||||||
Equity in earnings of unconsolidated entities | (3) | (5) | 2 | ||||||||||||||
Net income | 30 | 19 | 11 | ||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | — | — | ||||||||||||||
Net income attributable to Anywhere and Anywhere Group | $ | 30 | $ | 19 | $ | 11 | |||||||||||
Net revenues remained relatively flat for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 driven by a decrease in revenue at Franchise Group primarily from our relocation operations and leads business as a result of lower relocation volume, partially offset by an increase in revenue at Owned Brokerage Group primarily due to higher homesale transaction volume.
Total expenses decreased $18 million or 1% for the second quarter of 2024 compared to the second quarter of 2023 primarily due to:
•a $25 million net decrease in operating and general and administrative expenses primarily attributable to a decrease in employee-related and other operating costs due to cost savings initiatives in the second quarter of 2024 compared to the second quarter of 2023; and
•a $9 million decrease in marketing costs as a result of cost savings initiatives,
partially offset by a $16 million increase in commission and other sales agent-related costs primarily due to higher homesale transaction volume at Owned Brokerage Group.
Equity in earnings were $3 million during the second quarter of 2024 compared to earnings of $5 million during the second quarter of 2023. Equity in earnings during the second quarter of 2024 consisted of $1 million of earnings for the Title Insurance Underwriter Joint Venture and $2 million of earnings for the operations of our other equity method investments. Equity in earnings during the second quarter of 2023 consisted of $2 million of earnings for Guaranteed Rate Affinity, $1 million of earnings for the Title Insurance Underwriter Joint Venture and $2 million of earnings for the operations of our other equity method investments.
The Company continues to execute on its strategic plan ("the Operational Efficiencies Plan") to optimize operational efficiency, reduce its office footprint costs, centralize certain aspects of its operational support structure and drive changes in how it serves its affiliated independent sales agents, franchisees and consumers . Under the Operational Efficiencies Plan we incurred $6 million of costs, including $5 million of personnel related costs and $1 million of facility related costs, during the second quarter of 2024 compared to $5 million of costs during the second quarter of 2023. Total expected restructuring costs under the Operational Efficiencies Plan are currently anticipated to be $88 million with $79 million incurred to date through the second quarter of 2024. During the second quarter of 2024, we realized cost savings of approximately $30 million and approximately $60 million year to date of which approximately half related to specific restructuring activities. Furthermore, in connection with prior restructuring programs, we incurred $1 million of costs during both the second quarter of 2024 and 2023 primarily related to the transformation of our corporate headquarters. See Note 5, "Restructuring Costs", in the Condensed Consolidated Financial Statements for additional information.
The Company's provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against the income or loss before income taxes for the period. In addition, non-recurring or discrete items are recorded in the period in which they occur. The provision for income taxes was an expense of $11 million for the three months ended June 30, 2024 compared to an expense of $8 million for the three months ended June 30, 2023. Our effective tax rate was 27% and 30% for the three months ended June 30, 2024 and 2023, respectively.
35
The following table reflects a reconciliation of Net income attributable to Anywhere and Anywhere Group to Operating EBITDA and the results of each of our reportable segments during the three months ended June 30, 2024 and 2023:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
Net income attributable to Anywhere and Anywhere Group | $ | 30 | $ | 19 | |||||||
Income tax expense | 11 | 8 | |||||||||
Income before income taxes | 41 | 27 | |||||||||
| Add: Depreciation and amortization | 48 | 49 | |||||||||
| Interest expense, net | 40 | 39 | |||||||||
| Restructuring costs, net (a) | 7 | 6 | |||||||||
| Impairments (b) | 2 | 4 | |||||||||
| Former parent legacy cost, net (c) | 1 | 1 | |||||||||
| Operating EBITDA | $ | 139 | $ | 126 | |||||||
Revenues (d) | $ Change | % Change | Operating EBITDA | $ Change | % Change | Operating EBITDA Margin | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Franchise Group | $ | 265 | $ | 284 | $ | (19) | (7) | % | $ | 159 | $ | 164 | $ | (5) | (3) | % | 60 | % | 58 | % | 2 | ||||||||||||||||||||||||||||||||||||||||||||
| Owned Brokerage Group | 1,393 | 1,380 | 13 | 1 | 4 | (10) | 14 | 140 | — | (1) | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Title Group | 103 | 100 | 3 | 3 | 9 | 10 | (1) | (10) | 9 | 10 | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate and Other | (92) | (93) | 1 | (d) | (33) | (38) | 5 | 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Company | $ | 1,669 | $ | 1,671 | $ | (2) | — | % | $ | 139 | $ | 126 | $ | 13 | 10 | % | 8 | % | 8 | % | — | ||||||||||||||||||||||||||||||||||||||||||||
_______________
(a)Restructuring charges incurred for the three months ended June 30, 2024 include $2 million at Franchise Group, $1 million at Owned Brokerage Group, $1 million at Title Group and $3 million at Corporate and Other. Restructuring charges incurred for the three months ended June 30, 2023 include $4 million at Owned Brokerage Group, $1 million at Title Group and $1 million at Corporate and Other.
(b)Non-cash impairments primarily related to leases and other assets.
(c)Former parent legacy cost is recorded in Corporate and Other.
(d)Revenues include the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by Owned Brokerage Group of $92 million and $93 million during the three months ended June 30, 2024 and 2023, respectively, and are eliminated through the Corporate and Other line.
As described in the aforementioned table, Operating EBITDA margin for "Total Company" expressed as a percentage of revenues remained flat for the three months ended June 30, 2024 compared to the same period in 2023. Franchise Group's margin increased 2 percentage points primarily due to lower employee-related and other operating costs as a result of cost savings initiatives, partially offset by lower revenue from our relocation operations and leads business as a result of lower volume. Owned Brokerage Group's margin increased 1 percentage point primarily due to cost savings initiatives. Title Group's margin decreased 1 percentage point primarily due to an increase in employee-related and other operating costs.
Corporate and Other Operating EBITDA for the three months ended June 30, 2024 improved $5 million to a loss of $33 million primarily attributable to lower expense in 2024 related to cost savings initiatives.
Anywhere Brands—Franchise Group
Revenues decreased $19 million to $265 million and Operating EBITDA decreased $5 million to $159 million for the three months ended June 30, 2024 compared to the same period in 2023.
Revenues decreased $19 million primarily due to an $8 million decrease in revenue from our relocation operations and leads business as a result of lower relocation volume and a $5 million decrease in other franchise revenue primarily related to the timing of registration fees for meetings and conferences. Royalty revenue decreased $2 million driven by a 5% decrease in existing homesale transactions and a decline in the average homesale broker commission rate, partially offset by a 7% increase in average homesale price. Furthermore, brand marketing fund revenue and related expense decreased $4 million primarily due to lower advertising costs for the three months ended June 30, 2024 as compared with the same period in 2023.
36
Franchise Group's revenue includes intercompany royalties received from Owned Brokerage Group of $89 million during both the second quarter of 2024 and 2023 which are eliminated in consolidation against the expense reflected in Owned Brokerage Group's results.
Operating EBITDA decreased $5 million primarily due to the $19 million decrease in revenues discussed above, partially offset by a $6 million decrease in employee-related and other operating costs primarily as a result of cost savings initiatives, a $4 million decrease in brand marketing fund expense discussed above and a $4 million decrease in meetings and conferences expenses due to timing.
Anywhere Advisors—Owned Brokerage Group
Revenues increased $13 million to $1,393 million and Operating EBITDA increased $14 million to $4 million for the three months ended June 30, 2024 compared with the same period in 2023.
The revenue increase of $13 million was primarily driven by a 4% increase in homesale transaction volume at Owned Brokerage Group which consisted of a 9% increase in average homesale price, partially offset by a 5% decrease in existing homesale transactions and a decline in the average homesale broker commission rate.
Operating EBITDA increased $14 million primarily due to:
•a $13 million increase in revenues as discussed above;
•a $10 million decrease in other operating costs primarily related to a decrease in employee-related costs due to lower employee headcount as a result of cost savings initiatives; and
•a $6 million decrease in marketing expense as a result of cost savings initiatives,
partially offset by a $16 million increase in commission expenses paid to independent sales agents primarily as a result of higher homesale transaction volume.
Anywhere Integrated Services—Title Group
Revenues increased $3 million to $103 million and Operating EBITDA decreased $1 million to $9 million for the three months ended June 30, 2024 compared with the same period in 2023.
Revenues increased $3 million primarily due to an increase in the average fee per closing unit and refinance units partially offset by a decrease in purchase units.
Operating EBITDA decreased $1 million primarily due to a decrease in equity in earnings primarily related to Guaranteed Rate Affinity. The increase in revenue discussed above was offset by operating expenses.
37
Six Months Ended June 30, 2024 vs. Six Months Ended June 30, 2023
Our consolidated results comprised the following:
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Net revenues | $ | 2,795 | $ | 2,802 | $ | (7) | |||||||||||
| Total expenses | 2,885 | 2,962 | (77) | ||||||||||||||
Loss before income taxes, equity in earnings and noncontrolling interests | (90) | (160) | 70 | ||||||||||||||
Income tax benefit | (17) | (38) | 21 | ||||||||||||||
Equity in earnings of unconsolidated entities | (2) | (3) | 1 | ||||||||||||||
Net loss | (71) | (119) | 48 | ||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | — | — | ||||||||||||||
Net loss attributable to Anywhere and Anywhere Group | $ | (71) | $ | (119) | $ | 48 | |||||||||||
Net revenues decreased $7 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 driven by a decrease in revenue at Franchise Group primarily from our relocation operations and leads business as a result of lower relocation volume, partially offset by an increase in revenue at Owned Brokerage Group primarily due to higher homesale transaction volume.
Total expenses decreased $77 million or 3% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to:
•a $62 million decrease in operating and general and administrative expenses primarily attributable to higher expense in 2023 related to accruals for legal matters, as well as a decrease in employee-related and other operating costs due to cost savings initiatives in the first half of 2024 compared to the first half of 2023;
•a $15 million decrease of former parent legacy costs due to the absence of expense for a legacy tax matter recorded during the first quarter of 2023;
•a $13 million decrease in marketing costs as a result of cost savings initiatives; and
•$13 million of lower restructuring costs,
partially offset by a $19 million increase in commission and other sales agent-related costs primarily due to higher homesale transaction volume at Owned Brokerage Group.
Equity in earnings were $2 million for the six months ended June 30, 2024 compared to earnings of $3 million during the same period of 2023. Equity in earnings for the six months ended June 30, 2024 consisted of $1 million of earnings for the Title Insurance Underwriter Joint Venture and $3 million of earnings for the operations of our other equity method investments, partially offset by $2 million of losses for Guaranteed Rate Affinity. Equity in earnings for the six months ended June 30, 2023 consisted of $2 million of earnings for the Title Insurance Underwriter Joint Venture and $1 million of earnings for the operations of our other equity method investments.
During the six months ended June 30, 2024, we incurred $16 million of costs related to the Operational Efficiencies Plan, including $10 million of personnel related costs and $6 million of facility related costs, compared to $28 million of costs during the six months ended 2023. Furthermore, in connection with prior restructuring programs, we incurred $2 million of costs during the six months ended June 30, 2024 compared to $3 million during the six months ended June 30, 2023 primarily related to the transformation of our corporate headquarters. See Note 5, "Restructuring Costs", in the Condensed Consolidated Financial Statements for additional information.
The Company's provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against the income or loss before income taxes for the period. In addition, non-recurring or discrete items are recorded in the period in which they occur. The provision for income taxes was a benefit of $17 million for the six months ended June 30, 2024 compared to a benefit of $38 million for the six months ended June 30, 2023. Our effective tax rate was 19% and 24% for the six months ended June 30, 2024 and June 30, 2023, respectively. The effective tax rate for the six months ended June 30, 2024 was primarily impacted by non-deductible executive compensation and equity awards for which the market value at vesting was lower than at the date of grant.
38
The following table reflects a reconciliation of Net loss attributable to Anywhere and Anywhere Group to Operating EBITDA and the results of each of our reportable segments during the six months ended June 30, 2024 and 2023:
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
Net loss attributable to Anywhere and Anywhere Group | $ | (71) | $ | (119) | |||||||
Income tax benefit | (17) | (38) | |||||||||
Loss before income taxes | (88) | (157) | |||||||||
| Add: Depreciation and amortization | 103 | 99 | |||||||||
Interest expense, net | 79 | 77 | |||||||||
Restructuring costs, net (a) | 18 | 31 | |||||||||
Impairments (b) | 8 | 8 | |||||||||
| Former parent legacy cost, net (c) | 2 | 17 | |||||||||
Gain on the sale of businesses, investments or other assets, net | — | (1) | |||||||||
Operating EBITDA | $ | 122 | $ | 74 | |||||||
Revenues (d) | $ Change | % Change | Operating EBITDA | $ Change | % Change | Operating EBITDA Margin | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Franchise Group | $ | 465 | $ | 491 | $ | (26) | (5) | % | $ | 248 | $ | 261 | $ | (13) | (5) | % | 53 | % | 53 | % | — | ||||||||||||||||||||||||||||||||||||||||||||
Owned Brokerage Group | 2,312 | 2,295 | 17 | 1 | (55) | (85) | 30 | 35 | (2) | (4) | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Title Group | 174 | 172 | 2 | 1 | (6) | (7) | 1 | 14 | (3) | (4) | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate and Other | (156) | (156) | — | (d) | (65) | (95) | 30 | 32 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Company | $ | 2,795 | $ | 2,802 | $ | (7) | — | % | $ | 122 | $ | 74 | $ | 48 | 65 | % | 4 | % | 3 | % | 1 | ||||||||||||||||||||||||||||||||||||||||||||
_______________
(a)Restructuring charges incurred for the six months ended June 30, 2024 include $3 million at Franchise Group, $7 million at Owned Brokerage Group, $1 million at Title Group and $7 million at Corporate and Other. Restructuring charges incurred for the six months ended June 30, 2023 include $6 million at Franchise Group, $18 million at Owned Brokerage Group, $1 million at Title Group and $6 million at Corporate and Other.
(b)Non-cash impairments primarily related to leases and other assets.
(c)Former parent legacy cost is recorded in Corporate and Other and relates to a legacy tax matter.
(d)Revenues include the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by Owned Brokerage Group of $156 million during both the six months ended June 30, 2024 and 2023 and are eliminated through the Corporate and Other line.
As described in the aforementioned table, Operating EBITDA margin for "Total Company" expressed as a percentage of revenues increased 1 percentage point for the six months ended June 30, 2024 compared to the same period in 2023. Franchise Group's margin remained flat primarily due to lower revenue from our relocation operations and leads business as a result of lower volume, offset by lower employee-related and other operating costs as a result of cost savings initiatives. Owned Brokerage Group's margin increased 2 percentage points primarily due to cost savings initiatives. Title Group's margin increased 1 percentage point primarily due to an increase in revenue as a result of an increase in the average fee per closing unit.
Corporate and Other Operating EBITDA for the six months ended June 30, 2024 improved $30 million to a loss of $65 million primarily attributable to higher expense in 2023 related to accruals for legal matters and lower expense in 2024 related to cost savings initiatives.
Anywhere Brands - Franchise Group
Revenues decreased $26 million to $465 million and Operating EBITDA decreased $13 million to $248 million for the six months ended June 30, 2024 compared to the same period in 2023.
Revenues decreased $26 million primarily due to a $17 million decrease in revenue from our relocation operations and leads business as a result of lower relocation volume and a $5 million decrease in other franchise revenue primarily related to the timing of registration fees for meetings and conferences. Furthermore, brand marketing fund revenue and related
39
expense decreased $4 million primarily due to lower advertising costs during the six months ended June 30, 2024 as compared with the same period in 2023. Royalty revenue remained flat driven by a 4% decrease in existing homesale transactions and a decline in the average homesale broker commission rate, partially offset by a 7% increase in average homesale price.
Franchise Group's revenue includes intercompany royalties received from Owned Brokerage Group of $150 million and $149 million during the six months ended June 30, 2024 and 2023, respectively, which are eliminated in consolidation against the expense reflected in Owned Brokerage Group's results.
Operating EBITDA decreased $13 million primarily due to the $26 million decrease in revenues discussed above, partially offset by a $5 million decrease in employee-related and other operating costs primarily as a result of cost savings initiatives, a $4 million decrease in brand marketing fund expense discussed above and a $4 million decrease in meetings and conferences expenses due to timing.
Anywhere Advisors - Owned Brokerage Group
Revenues increased $17 million to $2,312 million and Operating EBITDA increased $30 million to a loss of $55 million for the six months ended June 30, 2024 compared with the same period in 2023.
The revenue increase of $17 million was primarily driven by a 3% increase in homesale transaction volume at Owned Brokerage Group which consisted of an 8% increase in average homesale price, partially offset by a 5% decrease in existing homesale transactions and a decline in the average homesale broker commission rate.
Operating EBITDA increased $30 million primarily due to:
•a $20 million decrease in other operating costs primarily related to a decrease in employee-related costs due to lower employee headcount as a result of cost savings initiatives;
•a $17 million increase in revenues as discussed above; and
•a $10 million decrease in marketing expense as a result of cost savings initiatives,
partially offset by a $19 million increase in commission expenses paid to independent sales agents primarily as a result of higher homesale transaction volume.
Anywhere Integrated Services - Title Group
Revenues increased $2 million to $174 million and Operating EBITDA increased $1 million to a loss of $6 million for the six months ended June 30, 2024 compared with the same period in 2023.
Revenues increased $2 million primarily due to an increase in the average fee per closing unit partially offset by the decrease in purchase units.
Operating EBITDA increased $1 million due to the increase in revenue as discussed above and lower employee-related and other operating costs primarily as a result of cost savings partially offset by a decrease in equity in earnings primarily related to Guaranteed Rate Affinity.
40
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
| June 30, 2024 | December 31, 2023 | Change | |||||||||||||||
| Total assets | $ | 5,846 | $ | 5,839 | $ | 7 | |||||||||||
| Total liabilities | 4,232 | 4,158 | 74 | ||||||||||||||
| Total equity | 1,614 | 1,681 | (67) | ||||||||||||||
For the six months ended June 30, 2024, total assets increased $7 million primarily due to:
•a $92 million increase in relocation and trade receivables primarily due to timing; and
•a $22 million increase in cash and cash equivalents as discussed below under the header "Cash Flows",
partially offset by:
•a $44 million net decrease in franchise agreements and other amortizable intangible assets primarily due to amortization;
•a $26 million decrease in property and equipment primarily due to asset depreciation;
•a $19 million net decrease in operating lease assets primarily due to asset depreciation; and
•a $15 million net decrease in other current and non-current assets primarily due to prepaid contracts and independent sales agent incentives.
Total liabilities increased $74 million primarily due to:
•a $118 million net increase in corporate debt primarily related to additional borrowings under the Revolving Credit Facility; and
•a $37 million increase in securitization obligations,
partially offset by:
•a $50 million decrease in accrued expenses and other current liabilities primarily due to payment of employee-related liabilities in the first quarter of 2024 which were fully accrued as of December 31, 2023 and payments of previously accrued legal matters;
•a $20 million decrease in operating lease liabilities; and
•an $18 million decrease in deferred tax liabilities.
Total equity decreased $67 million due to net loss of $71 million for the six months ended June 30, 2024.
Liquidity and Capital Resources
Cash flows from operations, supplemented by funds available under our Revolving Credit Facility and Apple Ridge securitization facility are our primary sources of liquidity, along with, from time to time, distributions from our unconsolidated joint ventures.
Our primary uses of liquidity include working capital, business investment and capital expenditures, as well as debt service (includes contractual amortization and interest payments). We have used and may also use future cash flows to repurchase or redeem outstanding indebtedness and to acquire stock under our share repurchase program.
Business investments may include investments in strategic initiatives, including our existing or future joint ventures, products and services that are designed to simplify the home sale and purchase transaction, independent sales agent recruitment and retention, and franchisee system growth and acquisitions.
From time to time, we seek to repay, refinance or restructure all or a portion of our debt or to repurchase our outstanding debt through, as applicable, tender offers, exchange offers, open market purchases, privately negotiated transactions or otherwise. Such transactions, if any, will depend on a number of factors, including prevailing market conditions, our liquidity requirements and contractual requirements (including compliance with the terms of our debt agreements), among other factors. We plan to extend, refinance, replace or repay our Term Loan A Facility by November 2024. See Note 4, "Short and Long-Term Debt", to the Condensed Consolidated Financial Statements for further information.
41
On May 9, 2024, we received final court approval of a settlement agreement the Company has entered into to settle all claims asserted against it or that could have been asserted against it in the Burnett and Moehrl antitrust class action litigation. The final approval has been appealed by several parties. Under the terms of the nationwide settlement we agreed to injunctive relief as well as monetary relief of $83.5 million, of which $30 million has been paid and the remaining $53.5 million will be due within 21 business days after all appellate rights are exhausted. See Note 6, "Commitments and Contingencies", to the Condensed Consolidated Financial Statements for more information.
As further described in Note 6, "Commitments and Contingencies—Litigation—Cendant Corporate Liabilities and Guarantees to Cendant and Affiliates", the California Office of Tax Appeals has declined the Company’s petition for a rehearing of its legacy tax matter, and the tax assessment, which as of June 30, 2024 is accrued at $40 million, is anticipated to become payable when Avis Budget Group receives notice from California which could be as early as the third quarter of 2024, even if the Company seeks further judicial relief.
Our material cash requirements from known contractual and other obligations as of June 30, 2024 have not changed materially from the amounts reported in our 2023 Form 10-K.
Other material factors that may impact our liquidity, include, but are not limited to, the following:
Market and Macroeconomic Conditions. Our earnings have significantly decreased since mid 2022. This decline has been driven by the rapid downturn in the residential real estate market and has resulted in a substantial increase in our net debt leverage ratio. If the residential real estate market or the economy as a whole does not improve or further weakens, our business, financial condition and liquidity are likely to continue to be adversely affected. In particular, we may experience higher leverage as a result of lower earnings and/or increased borrowing under our Revolving Credit Facility, and our ability to access capital, grow our business and return capital to stockholders may be adversely impacted.
Material Litigation. We are a party to certain material litigation, as described in Note 6, "Commitments and Contingencies—Litigation", to the Condensed Consolidated Financial Statements. We dispute the allegations against the Company in each of these matters, believe we have substantial defenses against plaintiffs’ claims and are vigorously defending these actions, however it is not feasible to predict the ultimate outcome of litigation. Adverse outcomes in these matters could have a material adverse effect, individually or in the aggregate, on our business, results of operations and financial condition, in particular with respect to liquidity.
Seasonality. Historically, operating results and revenues for all of our businesses have been strongest in the second and third quarters of the calendar year. A significant portion of the expenses we incur in our real estate brokerage operations are related to marketing activities and commissions and therefore, are variable. However, many of our other expenses, such as interest payments, facilities costs and certain personnel-related costs, are fixed and cannot be reduced during the seasonal fluctuations in the business. Consequently, our need to borrow under the Revolving Credit Facility and corresponding debt balances are generally at their highest levels at or around the end of the first quarter of every year but a continued downturn in the residential real estate market or other factors impacting our liquidity could require us to incur additional borrowings under the Revolving Credit Facility.
We believe that we will continue to meet our cash flow needs during the next twelve months through the sources outlined above. In the event that our liquidity assumptions change or we seek to provide incremental liquidity, we may explore additional debt financing, debt exchanges, private or public offerings of debt or common stock or consider asset disposals.
42
Cash Flows
At June 30, 2024, we had $137 million of cash, cash equivalents and restricted cash, an increase of $18 million compared to the balance of $119 million at December 31, 2023. The following table summarizes our cash flows for the six months ended June 30, 2024 and 2023:
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Cash provided by (used in): | |||||||||||||||||
| Operating activities | $ | (83) | $ | (20) | $ | (63) | |||||||||||
| Investing activities | (35) | (20) | (15) | ||||||||||||||
| Financing activities | 136 | 9 | 127 | ||||||||||||||
| Effects of change in exchange rates on cash, cash equivalents and restricted cash | — | 1 | (1) | ||||||||||||||
| Net change in cash, cash equivalents and restricted cash | $ | 18 | $ | (30) | $ | 48 | |||||||||||
For the six months ended June 30, 2024, $63 million more cash was used in operating activities compared to the same period in 2023 principally due to:
•$104 million less cash provided by the net change in relocation and trade receivables due to timing; and
•$36 million more cash used for accounts payable, accrued expenses and other liabilities primarily related to the payment of higher employee incentive compensation in the first quarter of 2024 and payments of previously accrued legal matters,
partially offset by $75 million more cash provided by operating results.
For the six months ended June 30, 2024, $15 million less cash was provided by investing activities compared to the same period in 2023 primarily due to the absence in 2024 of $8 million proceeds from the sale of business in 2023 and $6 million proceeds received from investments in 2023.
For the six months ended June 30, 2024, $136 million of cash was provided by financing activities compared to $9 million of cash provided by financing activities during the same period in 2023. For the six months ended June 30, 2024, $136 million of cash was provided by financing activities primarily due to:
•$125 million of additional borrowings under the Revolving Credit Facility; and
•$37 million net increase in securitization borrowings,
partially offset by:
•$13 million of other financing payments primarily related to contracts and finance leases; and
•$10 million of quarterly amortization payments on the term loan facilities.
For the six months ended June 30, 2023, $9 million of cash was provided by financing activities as follows:
•$38 million net increase in securitization borrowings,
partially offset by:
•$18 million of other financing payments primarily related to finance leases and contracts; and
•$7 million of quarterly amortization payments on the term loan facilities.
Financial Obligations
See Note 4, "Short and Long-Term Debt", to the Condensed Consolidated Financial Statements, for information on the Company's indebtedness as of June 30, 2024.
43
Covenants under the Senior Secured Credit Facility, Term Loan A Facility and Indentures; Events of Default
The Senior Secured Credit Agreement, Term Loan A Agreement, and the indentures governing the Unsecured Notes and 7.00% Senior Secured Second Lien Notes contain various covenants that limit (subject to certain exceptions) Anywhere Group’s ability to, among other things:
•incur or guarantee additional debt or issue disqualified stock or preferred stock;
•pay dividends or make distributions to Anywhere Group’s stockholders, including Anywhere;
•repurchase or redeem capital stock;
•make loans, investments or acquisitions;
•incur restrictions on the ability of certain of Anywhere Group's subsidiaries to pay dividends or to make other payments to Anywhere Group;
•enter into transactions with affiliates;
•create liens;
•merge or consolidate with other companies or transfer all or substantially all of Anywhere Group's and its material subsidiaries' assets;
•transfer or sell assets, including capital stock of subsidiaries; and
•prepay, redeem or repurchase subordinated indebtedness.
As a result of the covenants to which we remain subject, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs. In addition, the Senior Secured Credit Agreement and Term Loan A Agreement require us to maintain a senior secured leverage ratio.
Senior Secured Leverage Ratio applicable to our Senior Secured Credit Facility and Term Loan A Facility
The senior secured leverage ratio is tested quarterly and may not exceed 4.75 to 1.00. The senior secured leverage ratio is measured by dividing Anywhere Group's total senior secured net debt by the trailing four quarters EBITDA calculated on a Pro Forma Basis, as those terms are defined in the Senior Secured Credit Agreement. Total senior secured net debt does not include the 7.00% Senior Secured Second Lien Notes, our unsecured indebtedness, including the Unsecured Notes and Exchangeable Senior Notes, or the securitization obligations. EBITDA calculated on a Pro Forma Basis, as defined in the Senior Secured Credit Agreement, includes adjustments for restructuring, retention and disposition costs, former parent legacy cost (benefit) items, net, loss (gain) on the early extinguishment of debt, stock-based compensation expense, non-cash charges, extraordinary, nonrecurring or unusual items and incremental securitization interest costs, as well as pro forma cost savings for restructuring initiatives, the pro forma effect of business optimization initiatives and the pro forma effect of acquisitions and new franchisees, in each case calculated as of the beginning of the trailing four-quarter period. The Company was in compliance with the senior secured leverage ratio covenant at June 30, 2024.
Events of Default
Certain events would constitute an event of default under the Senior Secured Credit Facility or Term Loan A Facility as well as the indentures governing the 7.00% Senior Secured Second Lien Notes, Unsecured Notes and Exchangeable Senior Notes. Such events of default include, without limitation, nonpayment of principal or interest, insolvency, bankruptcy, nonpayment of certain material judgments, change of control, and cross-events of default on material indebtedness as well as, under the Senior Secured Credit Facility and Term Loan A Facility, material misrepresentations, failure to comply with the senior secured leverage ratio covenant and failure to obtain an unqualified audit opinion by 90 days after the end of any fiscal year. If such an event of default were to occur and the Company failed to obtain a waiver from the applicable lenders or holders of the 7.00% Senior Secured Second Lien Notes, Unsecured Notes or Exchangeable Senior Notes, our financial condition, results of operations and business would be materially adversely affected.
Non-GAAP Financial Measures
The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures of "non-GAAP financial measures," such as Operating EBITDA. These measures are derived on the basis of methodologies other than in accordance with GAAP.
Operating EBITDA is defined as net income (loss) adjusted for depreciation and amortization, interest expense, net (excluding relocation services interest for securitization assets and securitization obligations), income taxes, and certain non-
44
core items. Non-core items include restructuring charges, former parent legacy items, gains or losses on the early extinguishment of debt, impairments, and gains or losses on discontinued operations or the sale of businesses, investments or other assets. Operating EBITDA is our primary non-GAAP measure. Operating EBITDA Margin is defined as Operating EBITDA as a percentage of revenues.
We present Operating EBITDA because we believe it is useful as a supplemental measure in evaluating the performance of our operating businesses and provides greater transparency into our results of operations. Our management, including our chief operating decision maker, uses Operating EBITDA as a factor in evaluating the performance of our business. Operating EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations data prepared in accordance with GAAP.
We believe Operating EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expense), taxation, the age and book depreciation of facilities (affecting relative depreciation expense) and the amortization of intangibles, as well as other items that are not core to the operating activities of the Company such as restructuring charges, gains or losses on the early extinguishment of debt, former parent legacy items, impairments, gains or losses on discontinued operations and gains or losses on the sale of businesses, investments or other assets, which may vary for different companies for reasons unrelated to operating performance. We further believe that Operating EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an Operating EBITDA measure when reporting their results.
Operating EBITDA has limitations as an analytical tool, and you should not consider Operating EBITDA either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:
•this measure does not reflect changes in, or cash required for, our working capital needs;
•this measure does not reflect our interest expense (except for interest related to our securitization obligations), or the cash requirements necessary to service interest or principal payments on our debt;
•this measure does not reflect our income tax expense or the cash requirements to pay our taxes;
•this measure does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and this measure does not reflect any cash requirements for such replacements; and
•other companies may calculate this measure differently so they may not be comparable.
Critical Accounting Estimates
In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our combined results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time.
These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2023, which includes a description of our critical accounting policies that involve subjective and complex judgments that could potentially affect reported results.
Impairment of goodwill and other indefinite-lived intangible assets
Goodwill and other indefinite-lived intangible assets are subject to an impairment assessment annually as of October 1, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The impairment assessment involves the use of accounting estimates and assumptions, changes in which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions. Although management believes that assumptions are reasonable, actual results may vary significantly.
45
Furthermore, significant negative industry or economic trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets, a decrease in our business results, growth rates that fall below our assumptions, divestitures, and a sustained decline in our stock price and market capitalization may have a negative effect on the fair values and key valuation assumptions. Such changes could result in changes to our estimates of our fair value and a material impairment of goodwill or other indefinite-lived intangible assets. To address this uncertainty, a sensitivity analysis is performed on key estimates and assumptions.
Recently Issued Accounting Pronouncements
See Note 1, "Basis of Presentation", to the Condensed Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risks.
We are exposed to market risk from changes in interest rates primarily through our senior secured debt. At June 30, 2024, our primary interest rate exposure was to interest rate fluctuations, specifically SOFR, due to its impact on our borrowings under the Revolving Credit Facility and Term Loan A Facility. We do not have significant exposure to foreign currency risk, nor do we expect to have significant exposure to foreign currency risk in the foreseeable future.
We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on earnings, fair values and cash flows based on a hypothetical change (increase and decrease) in interest rates. We exclude the fair values of relocation receivables and advances and securitization borrowings from our sensitivity analysis because we believe the interest rate risk on these assets and liabilities is mitigated as the rate we earn on relocation receivables and advances and the rate we incur on our securitization borrowings are based on similar variable indices.
At June 30, 2024, we had variable interest rate debt outstanding under our Revolving Credit Facility and Term Loan A Facility of $606 million. The interest rate with respect to the Revolving Credit Facility and Term Loan A Facility, which was 7.19% at June 30, 2024, is based on Term SOFR plus a 10 basis point credit spread adjustment plus an additional margin subject to adjustment based on the current senior secured leverage ratio. Based on the June 30, 2024 senior secured leverage ratio, the margin was 1.75%. At June 30, 2024, the one-month SOFR was 5.34%; therefore, we have estimated that a 0.25% increase in SOFR would have an approximately $2 million impact on our annual interest expense.
Item 4. Controls and Procedures.
Controls and Procedures for Anywhere Real Estate Inc.
(a)Anywhere Real Estate Inc. ("Anywhere") maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its filings under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Anywhere's management, including the Chief Executive Officer and the Chief Financial Officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
(b)As of the quarterly period ended June 30, 2024 covered by this report on Form 10-Q, Anywhere has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Anywhere's disclosure controls and procedures are effective at the "reasonable assurance" level.
(c)There has not been any change in Anywhere's internal control over financial reporting during the quarterly period ended June 30, 2024 covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
46
Controls and Procedures for Anywhere Real Estate Group LLC
(a)Anywhere Real Estate Group LLC ("Anywhere Group") maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its filings under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Anywhere Group's management, including the Chief Executive Officer and the Chief Financial Officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
(b)As of the quarterly period ended June 30, 2024 covered by this report on Form 10-Q, Anywhere Group has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Anywhere Group's disclosure controls and procedures are effective at the "reasonable assurance" level.
(c)There has not been any change in Anywhere Group's internal control over financial reporting during the quarterly period ended June 30, 2024 covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Other Financial Information
The Condensed Consolidated Financial Statements as of June 30, 2024 and for the three and six-month periods ended June 30, 2024 and 2023 have been reviewed by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Their reports, dated August 1, 2024, are included on pages 4 and 5. The reports of PricewaterhouseCoopers LLP state that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act for their report on the unaudited financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act.
47
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 6, "Commitments and Contingencies—Litigation", to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview and Industry Trends" for additional information on the Company's legal proceedings. The Company disputes the allegations against it in each of the captioned matters set forth in Note 6, believes it has substantial defenses against plaintiffs’ claims and is vigorously defending these actions (though the courts have stayed its defense in the Burnett and Moehrl cases as part of the settlement of those cases described in Note 6).
See Part I., "Item 1.—Business—Government and Other Regulations" in our 2023 Form 10-K for additional information on important legal and regulatory matters that impact our business, including a summary of the current legal and regulatory environment.
Litigation, investigations, claims and regulatory proceedings against other participants in the residential real estate industry or relocation industry—or against companies in other industries—may impact the Company and its affiliated franchisees when the rulings or settlements in those cases cover practices common to the broader industry or business community (such as in the areas of worker classification and antitrust and competition, among others) and may generate litigation or investigations for the Company. For example, see Note 6, "Commitments and Contingencies—Litigation" for additional information about the NAR Settlement and the DOJ's continuing focus on the manner in which broker commissions are communicated, negotiated and paid, including how MLSs and state associations are implementing the changes required by the NAR settlement, and on broader restrictions or bans on offers of compensation and other industry rules. See Part I., "Item 1A.—Risk Factors" in our 2023 Form 10-K and Part I., "Item 2.—Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report for additional disclosure regarding potential industry structure changes.
Item 5. Other Information.
Amended and Restated Bylaws
On July 30, 2024, the Board approved amendments to the Company’s Sixth Amended and Restated Bylaws (the "Bylaw Amendments"), which became immediately effective, to clarify the definition of "competitor" and "affiliate" and narrow the definition of who is required to provide various information as part of a stockholder director nomination.
The foregoing description of the Bylaw Amendments is qualified in its entirety by reference to the Seventh Amended and Restated Bylaws, a copy of which is filed as Exhibit 3.1 hereto and is incorporated herein by reference.
Securities Trading Plans of Directors and Executive Officers
During the three months ended June 30, 2024, there were no Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements adopted, modified or terminated by any director or officer of the Company.
48
Item 6. Exhibits.
Exhibit Description
31.3* Certification of the Chief Executive Officer of Anywhere Real Estate Group LLC pursuant to Rules 13(a)-14(a) and 15(d)-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
101 The following financial information from Anywhere's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 formatted in iXBRL (Inline eXtensible Business Reporting Language) includes: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
______________
* Filed herewith.
49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ANYWHERE REAL ESTATE INC.
and
ANYWHERE REAL ESTATE GROUP LLC
(Registrants)
Date: August 1, 2024
/S/ CHARLOTTE C. SIMONELLI
Charlotte C. Simonelli
Executive Vice President and
Chief Financial Officer
Date: August 1, 2024
/S/ TIMOTHY B. GUSTAVSON
Timothy B. Gustavson
Senior Vice President,
Chief Accounting Officer and
Controller
50