ANYWHERE REAL ESTATE INC. 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 2021 Form 10-K. Unless otherwise noted, all dollar amounts in tables are in millions. Neither Anywhere, the indirect parent ofAnywhere Group , nor Anywhere Intermediate, the direct parent company ofAnywhere Group , conducts any operations other than with respect to its respective direct or indirect ownership ofAnywhere 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 2021 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 ") formerly referred to as Realogy Franchise
Group -franchises the Century 21®, Coldwell Banker®, Coldwell Banker Commercial®,
Corcoran®, ERA®, Sotheby's International Realty® and Better Homes and Gardens®
Real Estate brand names. As of June 30, 2022 , our real estate franchise systems
and proprietary brands had approximately 338,200 independent sales agents
worldwide, including approximately 197,600 independent sales agents operating in
the U.S. (which included approximately 58,800 company owned brokerage
independent sales agents). As of June 30, 2022 , our real estate franchise
systems and proprietary brands had approximately 20,900 offices worldwide in 120
countries and territories, including approximately 5,800 brokerage offices in
the U.S. (which included approximately 710 company owned brokerage offices).
This segment also includes our lead generation activities through Anywhere Leads
Group ("Leads Group ") and global relocation services operation through Cartus®
Relocation Services ("Cartus").
•Anywhere Advisors ("Owned Brokerage Group ") formerly referred to as Realogy
Brokerage Group -operates a full-service real estate brokerage business with
approximately 710 owned and operated brokerage offices with approximately 58,800
independent sales agents principally 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 RealSure and Real Estate Auction minority-owned joint ventures.
•Anywhere Integrated Services ("Title Group ") formerly referred to as Realogy
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 for Guaranteed Rate
Affinity, our minority-owned mortgage origination joint venture with Guaranteed
Rate, Inc. , and for 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.
RECENT DEVELOPMENTS
Amendment to the Senior Secured Credit Facility
In
•extends the maturity of the
•replaces LIBOR with a Term SOFR-based rate as the applicable benchmark for the Revolving Credit Facility; and
•makes certain other modifications to the Senior Secured Credit Agreement.
See Note 10, "Subsequent Events", to the Condensed Consolidated Financial Statements for additional information.
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Capital Resources Update
During the second quarter of 2022, the Company repurchased and retired 3.9 million shares of common stock for$45 million . As ofJune 30, 2022 , approximately$255 million of authorization remains available for the repurchase of shares under theFebruary 2022 share repurchase program. Refer to "Part II-Other Information, Item 2. Unregistered Sales ofEquity Securities and Use of Proceeds" for additional information on the Company's share repurchase program.
During the second quarter of 2022, the Company repurchased
CURRENT BUSINESS AND INDUSTRY TRENDS
The table below sets forth changes in homesale transaction volume, closed homesale sides (homesale transactions) and average homesale price at Franchise Group andBrokerage Group , both on a combined and individual basis, for each of the three and six months endedJune 30, 2022 as compared to the corresponding prior period: Three Months Ended Six Months Ended June 30, 2022 June 30, 2022 Anywhere Combined Homesale transaction volume* (6)% (2)% Closed homesale sides (15)% (13)% Average homesale price 11% 13% Anywhere Brands - Franchise Group Homesale transaction volume* (9)% (5)% Closed homesale sides (18)% (15)% Average homesale price 10% 12%Anywhere Advisors -Owned Brokerage Group Homesale transaction volume* -% 4% Closed homesale sides (8)% (6)% Average homesale price 8% 11% _______________
* Homesale transaction volume is measured by multiplying closed homesale sides by average homesale price.
We believe constrained inventory contributed to the declines in closed homesale sides, with the largest decreases in homes with average sales prices below$500,000 , particularly in the Northeast and West regions, driven byCalifornia . The delta betweenOwned Brokerage Group and Franchise Group was driven in part by acquisitions as well as geographic and luxury mix atOwned Brokerage Group . Low inventory strongly contributed to higher average homesale price, with both Franchise Group andOwned Brokerage Group also benefiting from relative strength at the high-end of the housing market.Owned Brokerage Group additionally benefited from its concentrated geographic footprint in certain major metropolitan markets, includingNew York City . Rapidly rising mortgage rates, high inflation, declining affordability (including as related to continuing increases in average homesale price), and broader macroeconomic concerns had a dampening impact on consumer demand, particularly later in the second quarter of 2022. TheU.S. Federal Reserve Board continues to take aggressive action intended to try to control inflation, including raising the target federal funds rate by three-quarters of a percentage point in both June andJuly 2022 , which strongly contributes to rising mortgage rates. For the week endingJuly 29, 2022 , mortgage rates on a 30-year fixed-rate mortgage averaged 5.30%, an increase of 110 basis points sinceMarch 31, 2022 and an increase of nearly 250 basis points over the past 12 months. This mortgage rate of 5.30% is more than 150 basis points over the 10-year average, according to Freddie Mac. We believe that in the second half of 2022, economic pressures and concerns most likely will continue to have a negative impact on consumer demand and affordability. Accordingly, we expect we will have a more significant decline in homesale transaction volume during the second half of the year, primarily due to fewer homesale transactions as well as smaller increases in average homesale price. We have begun to take additional permanent and temporary cost savings actions to offset, in part, the expected declines in homesale transaction volume in the second half of 2022, including 36
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reductions in the near term on spending on certain variable and semi-variable expenses as well as certain longer term actions, such as administrative and retail office footprint reductions and streamlining our administrative support cost structure. We will continue to adjust our workforce to adapt to fluctuations in volume demand in our businesses.Title Group . Refinancing volumes are inherently cyclical and are also highly correlated with (and particularly sensitive to) increases in mortgage rates. Our financial results are typically negatively impacted by a high interest rate environment as increasing mortgage rates generally result in decreased refinancing and homesale transactions that in turn results in decreased title services and mortgage origination activity. We believe that the rising mortgage rate environment impactedTitle Group's results starting in the first quarter of 2022, with refinancing title and closing units declining 62%, purchase title and closing units declining 7%, and equity in earnings from Guaranteed Rate Affinity declining$47 million , during the six months endedJune 30, 2022 as compared to the prior year. Fewer homesale transactions (due to increases in mortgage rates, constraints in inventory, declines in affordability, or otherwise), generally result in decreased title services and mortgage origination activity. For example, the number of purchase title and closing units atTitle Group declined 9% in the second quarter of 2022 compared to the prior period, as the number of homesale transactions atOwned Brokerage Group declined 8%. Equity in earnings at Guaranteed Rate Affinity declined from earnings of$8 million in the second quarter of 2021 to losses of$1 million in the second quarter of 2022 and declined from earnings of$38 million during the six months endedJune 30, 2021 to losses of$9 million during the six months endedJune 30, 2022 . The declines were primarily driven by higher mortgage rates, the impact of mark-to-market adjustments on the mortgage loan pipeline and significant gain-on-sale margin compression due to the highly competitive mortgage industry, lower refinancing volume and increased headcount to grow the business and its market share. Operating margins are expected to continue to be compressed due to competitive factors related to decreased demand and the significant increase in mortgage rates, resulting in a material decline in equity in earnings year-over-year from this joint venture. In the first quarter of 2022,Title Group closed the sale of our former Title Underwriter in exchange for cash and a 30% minority equity stake in the form of common units in a Title Insurance Underwriter Joint Venture that owns the Title Underwriter. In the second quarter of 2022,Title Group sold a portion of its minority interest in the Title Insurance Underwriter Joint Venture reducing its equity stake from 30% to 26%. As a minority held joint venture, equity earnings or losses related to our minority interest in the Title Insurance Underwriter Joint Venture are included in the financial results ofTitle Group , but are not reported as revenue toTitle Group . The sale of the Title Underwriter resulted in declines of$102 million in underwriter revenue and$19 million in Operating EBITDA in the second quarter of 2022 as compared to the second quarter of 2021, with$3 million of equity in earnings attributable to the Title Insurance Underwriter Joint Venture partially offsetting the decline in earnings.Title Group also includes our 51% majority interest inREALtech Title LLC ("REALtech"), a joint venture with an affiliate ofHome Partners of America , which provides title and settlement services to various buyers and sellers in real estate purchase transactions.
Mortgage Rates. A wide variety of factors can contribute to mortgage rates,
including federal interest rates,
InMay 2022 , theFederal Reserve Board increased the target federal funds rate by half of a percentage point and inJune 2022 , increased the rate by three-quarters of a percentage point-its largest rate increase since 1994. An additional 75 basis point increase was approved by theFederal Reserve Board onJuly 26, 2022 , bringing the target federal funds rate to a range of between 2.25% and 2.50%. Economic projections released by theFederal Reserve Board inMarch 2022 show that officials expect to raise interest rates at each of its remaining meetings in 2022 in order to help control inflation. According to Freddie Mac, mortgage rates on commitments for a 30-year, conventional, fixed-rate first mortgage increased to an average of 5.24% for the second quarter of 2022 compared to 3.00% for the second quarter of 2021. OnJune 30, 2022 , mortgage rates on a 30-year fixed-rate mortgage were 5.52%, or approximately 240 basis points higher than onDecember 31, 2021 and approximately 170 basis points higher than the 10-year average of 3.79% on a 30-year fixed-rate mortgage, according to Freddie Mac. 37
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A rising interest rate environment may negatively impact multiple aspects of our business, as increases in mortgage rates generally have an adverse impact on mortgage unit, closing and refinancing volumes, housing affordability and homesale transaction volume. For example, a rise in mortgage rates could result in decreased homesale transaction volume if 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 or if potential home buyers choose to rent rather than pay higher mortgage rates. Yields on the 10-yearTreasury note were 2.98% as ofJune 30, 2022 compared to 1.45% as ofJune 30, 2021 . Fiscal and monetary policies of the federal government and its agencies can also adversely impact mortgage rates. InJuly 2022 , theFederal Reserve confirmed that it will continue reducing its holdings of agency mortgage-backed securities and debt as well asTreasury securities. Additionally, banks may tighten mortgage standards, which could limit the availability of mortgage financing.
Inflation.
Inventory. Insufficient inventory levels generally have a negative impact on homesale transaction growth, and we believe this factor has contributed to a decline in homesale transactions since the second half of 2021. Continued or accelerated declines in inventory have and may continue to result in insufficient supply to meet demand. Additional inventory pressure arises from periods of slow or decelerated new housing construction, real estate models that purchase homes for rental use (rather than resale), and alternative competitors, such as traditional iBuying models. Low housing inventory levels have been a persistent industry-wide concern for years, in particular in certain highly sought-after geographies and at lower price points. Average sales price has increased significantly over the past two years, which we believe has contributed to further deterioration of inventory at lower price points. We estimate that inventory under$500,000 atOwned Brokerage Group declined 8% and inventory over$500,000 increased 12% as ofJune 30, 2022 compared toJune 30, 2021 . We believe that the speed of inventory supply turnover, which increased significantly over the past two years, began to plateau in the second quarter of 2022. For example, at our company owned Coldwell Banker brokerages, the speed at which a home that was listed for sale went under contract was a median of 13 days and 12 days on the market in the second quarters of 2022 and 2021, respectively, as compared to a median 26 days on the market in the second quarter of 2020. Affordability. The rapid increase in mortgage rates and inflation discussed above has had a corresponding negative impact on affordability, which has also been meaningfully impacted by rising home prices that are related, in part, to prolonged inventory constraints. Accordingly, we believe housing affordability has declined significantly year-over-year as well as since the first quarter of 2022. Housing affordability may be further impacted in future periods by inflationary pressures, increases in mortgage rates and average homesale price, further or accelerated declines in inventory, declining or stagnant wages, or other economic challenges. 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 our affiliated franchisees. In the second quarter of 2022, agents affiliated with our company owned brokerages grew 6% (or 9%, including the impact ofOwned Brokerage Group's acquisition of a large former franchisee of Franchise Group in the second quarter of 2022) and, based on information from such franchisees, agents affiliated with ourU.S. franchisees declined 1% (taking into account the impact of the Owned Brokerage acquisition of the franchisee in the second quarter of 2022), in each case as compared toJune 30, 2021 . Aggressive competition for the affiliation of independent sales agents in this industry continues to make recruitment and retention efforts at both Franchise Group andOwned Brokerage Group challenging, in particular with respect to more productive sales agents, and has in the past 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 38
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company owned residential 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. Relocation Spending. Global corporate spending on relocation services has continued to shift to lower cost relocation benefits as corporate clients engage in cost reduction initiatives and/or restructuring programs, as well as changes in employment relocation trends. As a result of a shift in the mix of services and number of services being delivered per move, as well as lower volume growth, our relocation operations have been increasingly subject to a competitive pricing environment and lower average revenue per relocation. The COVID-19 crisis, along with related ongoing travel restrictions in theU.S. and elsewhere, previously exacerbated these trends and could again put pressure on the financial results of Cartus (part of the Franchise Group segment), which may not return to levels consistent with those prior to the onset of the crisis. In addition, the greater acceptance of remote work arrangements has the potential to have a negative impact on relocation volumes in the long-term.
Other Trends. For information on additional industry trends impacting our
business, see "Part II-Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our 2021 Form 10-K under Current
Business and Industry Trends, subheadings "
For a discussion of the current legal and regulatory environment and how such environment could potentially impact us, see "Part I., Item 1.-Business-Government and Other Regulations" in our 2021 Form 10-K.
* * *
Note regarding NAR revision of Average Sale Price Data. Please see our Current
Report on Form 8-K filed on July 25, 2022 for information concerning NAR's
revision of average sales price data for U.S. existing homes and its cautionary
language with respect to the comparability and reliability of such data as well
as related matters.
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 , and the U.S.
Federal Reserve Board . We caution that such information is subject to change and
do not endorse or suggest reliance on this data or information alone.
KEY DRIVERS OF OUR BUSINESSES
Within Franchise Group andOwned Brokerage Group , we measure operating performance using the following key operating metrics: (i) closed homesale sides, which represents either the "buy" side or the "sell" side of a homesale transaction, (ii) average homesale price, which represents the average selling price of closed homesale transactions, and (iii) average homesale broker commission rate, which represents the average commission rate earned on either the "buy" side or "sell" side of a homesale transaction. For Franchise Group, we also use net royalty per side, which represents the royalty payment to Franchise Group for each homesale transaction side taking into account royalty rates, homesale price, average broker commission rates, volume incentives achieved and other incentives. We utilize net royalty per side as it includes the impact of changes in average homesale price as well as all incentives and represents the royalty revenue impact of each incremental side. ForOwned Brokerage Group , we also use gross commission income per side, which represents gross commission income divided by closed homesale sides. Gross commission income includes commissions earned in homesale transactions and certain other activities, primarily leasing transactions.Owned Brokerage Group , as a franchisee of Franchise Group, pays a royalty fee of approximately 6% per transaction to Franchise Group from the commission earned on a real estate transaction. The remainder of gross commission income is split between the broker (Owned Brokerage Group ) and the independent sales agent in accordance with their applicable independent contractor agreement (which specifies the portion of the broker commission to be paid to the agent), which varies by agent agreement. ForTitle Group , operating performance is evaluated using the following key metrics: (i) purchase title and closing units, which represent the number of title and closing units we process as a result of home purchases, (ii) refinance title and closing units, which represent the number of title and closing units we process as a result of homeowners refinancing their home loans, and (iii) average fee per closing unit, which represents the average fee we earn on purchase title and refinancing title sides. 39
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The following table presents our drivers for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 % Change 2022 2021 % Change
Anywhere Brands - Franchise Group
(a) (b)
Closed homesale sides 263,600 320,463 (18) % 481,364 565,161 (15) %
Average homesale price $ 475,361 $ 430,756 10 % $ 463,549 $ 414,842 12 %
Average homesale broker
commission rate 2.43 % 2.46 % (3) bps 2.43 % 2.46 % (3) bps
Net royalty per side $ 450 $ 418 8 % $ 433 $ 402 8 %
Anywhere Advisors - Owned Brokerage Group (b)
Closed homesale sides 96,029 103,945 (8) % 167,400 178,938 (6) %
Average homesale price $ 735,013 $ 678,978 8 % $ 722,764 $ 649,634 11 %
Average homesale broker
commission rate 2.41 % 2.43 % (2) bps 2.40 % 2.43 % (3) bps
Gross commission income per side $ 18,297 $ 17,053 7 % $ 17,947 $ 16,357 10 %
Anywhere Integrated Services -
Title Group
Purchase title and closing units
(c) 41,483 45,563 (9) % 72,350 78,065 (7) %
Refinance title and closing units
(d) 4,712 13,730 (66) % 12,780 33,536 (62) %
Average fee per closing unit (e) $ 3,264 $ 2,720 20 % $ 3,158 $ 2,546 24 %
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(a)Includes all franchisees except for
(b)InJune 2022 ,Owned Brokerage Group acquired a franchisee formerly reported under Franchise Group. As a result of the acquisition, the drivers of the acquired entity shifted from Franchise Group toOwned Brokerage Group . Excluding the impact of the acquisition for the three and six months endedJune 30, 2022 , closed homesale sides for (i) Franchise Group would have improved to (17)% and (14)%, respectively, and (ii)Owned Brokerage Group would have decreased to (10)% and (8)%, respectively. The acquisition did not have a significant impact on the change in average homesale price for Franchise Group orOwned Brokerage Group in the three or six months endedJune 30, 2022 . (c)Purchase title and closing units for the three and six months endedJune 30, 2021 were revised to reflect a decrease of 1,812 and 3,138 units, respectively. The change was for the number of units only and did not impact revenue. (d)Refinance title and closing units for the three and six months endedJune 30, 2021 were revised to reflect a decrease of 742 and 1,403 units, respectively. The change was for the number of units only and did not impact revenue. (e)With the change in units noted above, Average fee per closing unit for the three and six months endedJune 30, 2021 was updated to reflect an increase of$112 and$100 per closing unit, respectively. A decline in the number of homesale transactions and/or decline in homesale prices could 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, (iii) reducing the demand for services offered throughTitle Group , including title, escrow and settlement services or the services of our mortgage origination or other joint ventures, and (iv) increasing the risk of franchisee default due to lower homesale volume. Our results could also 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. We attribute the 3 basis point decline in average homesale broker commission rate in the first half of 2022 atOwned Brokerage Group and Franchise Group over the prior period to price and geographic mix. Over the past 10 years, we have experienced an average of approximately one basis point decline in the average homesale broker commission rate each year, which we believe has been largely attributable to increases in average homesale prices (as higher priced homes tend to have a lower broker commission) and, to a lesser extent, competitors providing fewer or similar services for a reduced fee. Royalty fees are charged to all franchisees pursuant to the terms of the relevant franchise agreements and are included 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-Realogy Franchise Group-Operations-Franchising" in our 2021 Form 10-K for additional information. 40 -------------------------------------------------------------------------------- T able of Conten t s Transaction volume growth has generally exceeded royalty revenue growth due primarily to the growth in gross commission income generated by our top 250 franchisees and our increased use of other sales incentives, both of which directly impact royalty revenue. Over the past several years, our top 250 franchisees have grown faster than our other franchisees through organic growth and market consolidation. If the amount of gross commission income generated by our top 250 franchisees continues to grow at a quicker pace relative to our other franchisees, we would expect our royalty revenue to continue to increase, but at a slower pace than homesale transaction volume, due to franchisee achievement of progressive volume incentives and more favorable royalty pricing and incentives. Likewise, our royalty revenue would continue to increase, but at a slower pace than homesale transaction volume, if the gross commission income generated by all of our franchisees grows faster than the applicable annual volume incentive table increase or if we increase our use of standard volume or other incentives. However, in the event that the gross commission income generated by our franchisees increases as a result of increased transaction volume, we would expect to recognize an increase in overall royalty payments to us. 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, we may, from time to time, 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; however, these pressures were more than offset by increases in homesale prices during 2020 and 2021 as well as in the three and six-month period endedJune 30, 2022 .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 theU.S. real estate market, particularly the east and west coasts, while Franchise Group has franchised offices that are more widely dispersed acrossthe United States . Accordingly, operating results and homesale statistics may differ betweenOwned 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 byOwned 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 below represent our segments for which separate financial information is available and which is utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by our segments. Management evaluates the operating results of each of our reportable segments based upon revenue and Operating EBITDA. Operating EBITDA is defined by us as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations), income taxes, and other items that are not core to the operating activities of the Company such as restructuring charges, former parent legacy items, gains or losses on the early extinguishment of debt, impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets. Our presentation of Operating EBITDA may not be comparable to similarly titled measures used by other companies.
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.
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Three Months Ended
Our consolidated results comprised the following:
Three Months Ended June 30,
2022 2021 Change
Net revenues $ 2,142 $ 2,276 $ (134)
Total expenses 2,016 2,075 (59)Income before income taxes, equity in losses (earnings) and noncontrolling interests
126 201 (75)
Income tax expense 32 60 (28)
Equity in losses (earnings) of unconsolidated entities 4 (10) 14
Net income 90 151 (61)
Less: Net income attributable to noncontrolling interests (2) (2) -
Net income attributable to Anywhere and Anywhere Group $
88
Net revenues decreased$134 million or 6% for the three months endedJune 30, 2022 compared with the three months endedJune 30, 2021 driven primarily by the sale of the Title Insurance Underwriter during the first quarter of 2022 and lower homesale transaction volume at Franchise Group andOwned Brokerage Group as the decline in homesale transactions more than offset homesale price appreciation.
Total expenses decreased
•a$73 million decrease in operating and general and administrative expenses primarily attributable to a decrease in underwriter costs due to the sale of the Title Underwriter in the first quarter of 2022; •a$29 million net decrease in interest expense primarily due to a$15 million fair value adjustment related to mark-to-market adjustments for interest rate swaps that resulted in$9 million of gains during the second quarter of 2022 compared to$6 million of losses during the second quarter of 2021 and a reduction in total outstanding indebtedness and lower interest rates during the second quarter of 2022 compared to the second quarter of 2021;
partially offset by:
•a
•a
•$7 million in other income primarily due to the gain of$4 million in the second quarter of 2022 related to the disposition of a portion of our minority interest in the Title Insurance Underwriter Joint Venture compared to$16 million of other income primarily due to the$15 million gain recorded atOwned Brokerage Group in the second quarter of 2021. Equity in losses were$4 million during the second quarter of 2022 compared to earnings of$10 million during the second quarter of 2021. Equity in losses during the second quarter of 2022 primarily consisted of$6 million of losses for the RealSure joint venture and$1 million of losses for Guaranteed Rate Affinity, partially offset by$3 million of earnings for theTitle Insurance Underwriter Joint Venture. Equity in earnings for the second quarter ofJune 30, 2021 primarily consisted of$8 million of earnings for Guaranteed Rate Affinity. During the second quarter of 2022, we incurred$3 million of restructuring costs compared to$5 million during the second quarter of 2021 related to the Company's restructuring program focused on office consolidation and instituting operational efficiencies to drive profitability. The Company expects the estimated total cost of the program to be approximately$172 million , with$136 million incurred to date and$36 million remaining primarily related to future expenses as a result of reducing the leased-office footprints. 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$32 million for the three months endedJune 30, 2022 compared to$60 million for the three months endedJune 30, 2021 . Our effective tax rate was 26% and 28% for the three months endedJune 30, 2022 and 2021, respectively. 42
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The following table reflects the results of each of our reportable segments
during the three months ended
Revenues (a) % Operating EBITDA % Operating EBITDA Margin
2022 2021 $ Change Change 2022 2021 $ Change Change 2022 2021 Change
Franchise Group $ 339 $ 347 (8) (2) $ 204 $ 224 (20) (9) 60 % 65 % (5)
Owned Brokerage Group 1,775 1,791 (16) (1) 11 70 (59) (84) 1 4 (3)
Title Group 144 255 (111) (44) 21 55 (34) (62) 15 22 (7)
Corporate and Other (116) (117) 1 (a) (34) (39) 5 13
Total Company $ 2,142 $ 2,276 (134) (6) $ 202 $ 310 (108) (35) 9 % 14 % (5)
Less: Depreciation and amortization 55 51
Interest expense, net 28 57
Income tax expense 32 60
Restructuring costs, net (b) 3 5
Impairments (c) - 1
Former parent legacy cost, net (d) - 1
Loss on the early extinguishment of debt (d) - 1
Gain on the sale of businesses, investments or other assets, net (e)
(4) (15)
Net income attributable to Anywhere and Anywhere Group $ 88 $ 149
_______________
(a)Revenues include the elimination of transactions between segments, which
consists of intercompany royalties and marketing fees paid by Owned Brokerage
Group of $116 million and $117 million during the three months ended June 30,
2022 and 2021, respectively, and are eliminated through the Corporate and Other
line.
(b)Restructuring charges incurred for the three months ended June 30, 2022
include $1 million at Franchise Group, $1 million at Owned Brokerage Group and
$1 million at Corporate and Other. Restructuring charges incurred for the three
months ended June 30, 2021 include $1 million at Franchise Group, $2 million at
Owned Brokerage Group and $2 million at Corporate and Other.
(c)Non-cash impairments for the three months ended
(d)Former parent legacy items and Loss on the early extinguishment of debt are recorded in Corporate and Other.
(e)Gain on the sale of businesses, investments or other assets, net is recorded inTitle Group related to the sale of a portion of the Company's ownership of the Title Insurance Underwriter Joint Venture during the three months endedJune 30, 2022 . Gain on the sale of businesses, investments or other assets, net is recorded inOwned Brokerage Group during the three months endedJune 30, 2021 . As described in the aforementioned table, Operating EBITDA margin for "Total Company " expressed as a percentage of revenues decreased 5 percentage points to 9% from 14% for the three months endedJune 30, 2022 compared to 2021. Franchise Group's margin decreased 5 percentage points to 60% from 65% primarily due to lower royalty revenue and an increase in operating costs.Owned Brokerage Group's margin decreased 3 percentage points to 1% from 4% primarily due to higher agent commission costs and an increase in equity in losses.Title Group's margin decreased 7 percentage points to 15% from 22% largely the result of a net decline in Operating EBITDA as a result of a decrease in equity in earnings and a decline in refinance revenue due to a decrease in activity as mortgage rates increased.Title Group's margin, excluding equity in earnings and the impact of the sale of the Title Underwriter, decreased 4 percentage points to 13% from 17% largely the result of a decline in refinance revenue.
Corporate and Other Operating EBITDA for the three months ended
Anywhere Brands - Franchise Group
Revenues decreased$8 million to$339 million and Operating EBITDA decreased$20 million to$204 million for the three months endedJune 30, 2022 compared with the same period in 2021. Revenues decreased$8 million primarily as a result of a$19 million decrease in third-party domestic franchisee royalty revenue, primarily due to an 18% decrease in existing homesale transactions at Franchise Group, partially offset by a 10% increase in average homesale price, and a$4 million decrease in international and other franchise revenue. The revenue 43
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decreases were partially offset by a
Franchise Group's revenue includes intercompany royalties received fromOwned Brokerage Group of$112 million during both the second quarter of 2022 and 2021, which are eliminated in consolidation against the expense reflected inOwned Brokerage Group's results. The$20 million decrease in Operating EBITDA was primarily due to the net$8 million decrease in revenues discussed above, an$8 million increase in operating costs primarily as a result of higher employee headcount and higher travel expenses and a$4 million increase due to the return to in-person brand conferences and franchisee events in 2022.
Revenues decreased$16 million to$1,775 million and Operating EBITDA decreased$59 million to$11 million for the three months endedJune 30, 2022 compared with the same period in 2021.
The revenue decrease of
Operating EBITDA decreased
•a$29 million increase in commission expenses paid to independent sales agents from$1,373 million for the second quarter of 2021 to$1,402 million in the second quarter of 2022. Commission expense increased primarily as a result of higher agent commission costs primarily driven by the impact of agent mix with more productive, higher compensated agents closing more volume and the impact of recruitment and retention efforts;
•a
•$6 million of equity in losses related to the RealSure joint venture; and
•a
Franchise Group and
The following table reflects the results of Franchise Group andOwned Brokerage Group before intercompany royalties and marketing fees as well as on a combined basis to show the Operating EBITDA contribution of these business segments to the overall Operating EBITDA of the Company. The Operating EBITDA margin for the combined segments decreased 4 percentage points from 15% to 11% primarily due to lower royalty revenue, higher agent commission costs driven by the impact of agent mix and recruiting and retention efforts and an increase in equity in losses during the second quarter of 2022 compared to the second quarter of 2021: Revenues % Operating EBITDA % Operating EBITDA Margin 2022 2021 $ Change Change 2022 2021 $ Change Change 2022 2021 Change Franchise Group (a)$ 223 $ 230 (7) (3)$ 88 $ 107 (19) (18) 39 % 47 % (8)Owned Brokerage Group (a) 1,775 1,791 (16) (1) 127 187 (60) (32) 7 10 (3) Franchise Group and Owned Brokerage Group Combined$ 1,998 $ 2,021 (23) (1)$ 215 $ 294 (79) (27) 11 % 15 % (4) _______________ (a)The segment numbers noted above do not reflect the impact of intercompany royalties and marketing fees paid byOwned Brokerage Group to Franchise Group of$116 million and$117 million during the three months endedJune 30, 2022 and 2021, respectively.
Anywhere Integrated Services -
Revenues decreased$111 million to$144 million and Operating EBITDA decreased$34 million to$21 million for the three months endedJune 30, 2022 compared with the same period in 2021. In the first quarter of 2022,Title Group closed the sale of our former Title Underwriter in exchange for cash and a 30% minority equity stake in the form of common units in a Title Insurance Underwriter Joint Venture that owns the Title Underwriter. Revenues decreased$111 million primarily due to a$102 million decrease in underwriter revenue during the second quarter of 2022 compared to the second quarter of 2021 as a result of the sale of the Title Underwriter. In addition, refinance revenue decreased$9 million due to a decrease in activity as average mortgage rates in the second quarter of 2022 44
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increased approximately 220 basis points over the prior period. Equity earnings or losses related to our minority interests in Guaranteed Rate Affinity and the Title Insurance Underwriter Joint Venture are included in the financial results ofTitle Group , but are not reported as revenue toTitle Group . In the second quarter of 2022,Title Group sold a portion of its minority stake in the Title Insurance Underwriter Joint Venture reducingTitle Group's equity stake from 30% to 26%.
Operating EBITDA decreased
Equity in earnings decreased$8 million from earnings of$10 million during the second quarter of 2021 to earnings of$2 million during the second quarter of 2022. The decrease primarily related to Guaranteed Rate Affinity which decreased$9 million from earnings of$8 million during the second quarter of 2021 to losses of$1 million during the second quarter of 2022. The decline in equity in earnings for Guaranteed Rate Affinity was partially offset by$3 million of earnings for our Title Insurance Underwriter Joint Venture during the second quarter of 2022.
Six Months Ended
Our consolidated results comprised the following:
Six Months Ended June 30,
2022 2021 Change
Net revenues $ 3,777 $ 3,823 $ (46)
Total expenses 3,606 3,602 4Income before income taxes, equity in earnings and noncontrolling interests
171 221 (50)
Income tax expense 44 77 (33)
Equity in earnings of unconsolidated entities 14 (41) 55
Net income 113 185 (72)
Less: Net income attributable to noncontrolling interests (2) (3) 1
Net income attributable to Anywhere and Anywhere Group $ 111 $ 182 $ (71)
Net revenues decreased $46 million or 1% for the six months ended June 30, 2022
compared with the six months ended June 30, 2021 driven primarily by the absence
of revenue at Title Group as a result of the sale of the Title Underwriter
during the first quarter of 2022, partially offset by higher homesale
transaction volume at Owned Brokerage Group , primarily due to homesale price
appreciation offset by lower homesale transactions.
Total expenses remained relatively flat for the first half of 2022 compared to the first half of 2021 primarily due to:
•a
•a$92 million loss on the early extinguishment of debt as a result of the refinancing transactions during the first quarter of 2022 which includes approximately$80 million related to make-whole premiums paid in connection with the early redemption of the 7.625% Senior Secured Second Lien Notes and 9.375% Senior Notes, compared to an$18 million loss as a result of the refinancing transactions during the first half of 2021; and
•a
partially offset by: •$138 million in other income primarily due to the gain recorded atTitle Group for the sale of the Title Underwriter during the first quarter of 2022 and the disposition during the second quarter of 2022 of a portion of our minority interest in the Title Insurance Underwriter Joint Venture compared to$18 million of other income due to the gain recorded atOwned Brokerage Group during the second quarter of 2021; •a$49 million net decrease in interest expense primarily due to a$28 million fair value adjustment related to mark-to-market adjustments for interest rate swaps that resulted in$35 million of gains during the first half of 2022 compared to$7 million of gains during the first half of 2021 and a reduction in total outstanding indebtedness and lower interest rates during the first half of 2022 compared to the first half of 2021; and •a$43 million decrease in operating and general and administrative expenses primarily due to a decrease in underwriter costs due to the sale of the Title Underwriter in the first quarter of 2022, partially offset by an increase 45
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in employee headcount, higher travel costs, an increase in costs related to brand conferences and franchisee events and other business expenses, all of which relate, in part, to "catch-up" business activities that had been curtailed over the 18-months prior to 2022 in connection with the COVID-19 crisis.
Equity in losses were$14 million for the six months endedJune 30, 2022 compared to earnings of$41 million during the same period of 2021. Equity in losses for the six months endedJune 30, 2022 primarily consisted of$9 million of losses for Guaranteed Rate Affinity and$10 million of losses for the RealSure joint venture, partially offset by$3 million of earnings for the Title Insurance Underwriter Joint Venture. Equity in earnings for the six months endedJune 30, 2021 primarily consisted of$38 million of earnings for Guaranteed Rate Affinity. The decrease for Guaranteed Rate Affinity was primarily driven by the impact of mark-to-market adjustments on the mortgage loan pipeline and significant gain-on-sale margin compression due to the highly competitive mortgage industry, lower refinancing volume and increased headcount to grow the business and its market share. During the six months endedJune 30, 2022 , we incurred$7 million of restructuring costs compared to$10 million during the six months endedJune 30, 2021 related to the Company's restructuring program focused on office consolidation and instituting operational efficiencies to drive profitability. The Company expects the estimated total cost of the program to be approximately$172 million , with$136 million incurred to date and$36 million remaining primarily related to future expenses as a result of reducing the leased-office footprints. 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$44 million for the six months endedJune 30, 2022 compared to$77 million for the six months endedJune 30, 2021 . Our effective tax rate was 28% and 29% for the six months endedJune 30, 2022 andJune 30, 2021 , respectively. The effective tax rate for the six months endedJune 30, 2022 was primarily impacted by the sale of the Title Underwriter and non-deductible executive compensation.
The following table reflects the results of each of our reportable segments
during the six months ended
Revenues (a) % Operating EBITDA % Operating EBITDA Margin
2022 2021 $ Change Change 2022 2021 $ Change Change 2022 2021 Change
Franchise Group $ 606 $ 601 5 1 $ 342 $ 365 (23) (6) 56 % 61 % (5)
Owned Brokerage Group 3,039 2,962 77 3 (29) 65 (94) (145) (1) 2 (3)
Title Group 334 456 (122) (27) 18 116 (98) (84) 5 25 (20)
Corporate and Other (202) (196) (6) (a) (60) (74) 14 19
Total Company $ 3,777 $ 3,823 (46) (1) $ 271 $ 472 (201) (43) 7 % 12 % (5)
Less: Depreciation and amortization 106 102
Interest expense, net 46 95
Income tax expense 44 77
Restructuring costs, net (b) 7 10
Impairments (c) - 2
Former parent legacy cost, net (d) - 1
Loss on the early extinguishment of debt (d) 92 18
Gain on the sale of businesses, investments or other assets, net (e)
(135) (15)
Net income attributable to Anywhere and Anywhere Group $ 111 $ 182
_______________
(a)Revenues include the elimination of transactions between segments, which
consists of intercompany royalties and marketing fees paid by Owned Brokerage
Group of $202 million and $196 million during the six months ended June 30, 2022
and 2021, respectively, and are eliminated through the Corporate and Other line.
(b)Restructuring charges incurred for the six months ended June 30, 2022 include
$2 million at Franchise Group, $3 million at Owned Brokerage Group and $2
million at Corporate and Other. Restructuring charges incurred for the six
months ended June 30, 2021 include $3 million at Franchise Group, $4 million at
Owned Brokerage Group and $3 million at Corporate and Other.
(c)Non-cash impairments for the six months ended
(d)Former parent legacy items and Loss on the early extinguishment of debt are recorded in Corporate and Other.
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(e)Gain on the sale of businesses, investments or other assets, net is recorded inTitle Group related to the sale of the Title Underwriter during the first quarter of 2022 and the sale of a portion of the Company's ownership in the Title Insurance Underwriter Joint Venture during the second quarter of 2022. Gain on the sale of businesses, investments or other assets, net is recorded inOwned Brokerage Group during the six months endedJune 30, 2021 . As described in the aforementioned table, Operating EBITDA margin for "Total Company " expressed as a percentage of revenues decreased 5 percentage points to 7% for the six months endedJune 30, 2022 compared to 12% for the same period in 2021. Franchise Group's margin decreased 5 percentage points to 56% from 61% primarily due to an increase in operating costs and an increase in marketing expense, partially offset by an increase in revenue from our relocation business.Owned Brokerage Group's margin decreased 3 percentage points to negative 1% from 2% primarily due to higher agent commission costs, an increase in other operating costs and an increase in equity in losses.Title Group's margin decreased 20 percentage points to 5% from 25% largely the result of a decrease in equity in earnings for Guaranteed Rate Affinity and a decline in refinance revenue.Title Group's margin, excluding equity in earnings and the impact of the sale of the Title Underwriter, decreased 9 percentage points to 7% from 16% largely the result of a decline in refinance revenue.
Corporate and Other Operating EBITDA for the six months ended
Anywhere Brands - Franchise Group
Revenues increased$5 million to$606 million and Operating EBITDA decreased$23 million to$342 million for the six months endedJune 30, 2022 compared with the same period in 2021. Revenues increased$5 million primarily as a result of a$23 million net increase in revenue from our relocation operations driven principally by higher volume and a$5 million increase in intercompany royalties received fromOwned Brokerage Group . In addition, brand marketing fund revenue increased$3 million and related expense increased$4 million primarily due to higher advertising costs as compared to the first half of 2021. The revenue increases were partially offset by a$23 million decrease in third-party domestic franchisee royalty revenue, primarily due to a 15% decrease in existing homesale transactions at Franchise Group, partially offset by a 12% increase in average homesale price, and a$3 million decrease in international and other franchise revenue. Franchise Group's revenue includes intercompany royalties received fromOwned Brokerage Group of$193 million and$188 million during the first half of 2022 and 2021, respectively, which are eliminated in consolidation against the expense reflected inOwned Brokerage Group's results. The$23 million decrease in Operating EBITDA was primarily due to a$17 million increase in operating costs primarily as a result of higher employee headcount and higher travel expenses, and a$7 million increase due to the return to in-person brand conferences and franchisee events in 2022, both of which relate, in part, to "catch-up" business activities that had been curtailed over the 18-months prior to 2022 in connection with the COVID-19 crisis. In addition, there was a$4 million increase in brand marketing fund related expense as discussed above. These expense increases were partially offset by the$5 million increase in revenues discussed above.
Revenues increased
The revenue increase of$77 million was driven by a 4% increase in homesale transaction volume atOwned Brokerage Group which consisted of an 11% increase in average homesale price, partially offset by a 6% decrease in existing homesale transactions and a decline in the average homesale broker commission rate.
Operating EBITDA decreased
•a$132 million increase in commission expenses paid to independent sales agents from$2,258 million for the first half of 2021 to$2,390 million in the first half of 2022. Commission expense increased as a result of higher agent commission costs primarily driven by agent mix with more productive, higher compensated agents closing more volume and the impact of recruitment and retention efforts, and the impact of higher homesale transaction volume as discussed above; 47
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•an$18 million increase in other operating costs primarily due to an increase in employee headcount as a result of acquisitions and higher travel expenses related, in part, to "catch-up" business activities that had been curtailed over the 18-months prior to 2022 in connection with the COVID-19 crisis;
•$9 million of equity in losses primarily related to the RealSure joint venture;
•a
•a
partially offset by the
Franchise Group and
The following table reflects the results of Franchise Group andOwned Brokerage Group before intercompany royalties and marketing fees as well as on a combined basis to show the Operating EBITDA contribution of these business segments to the overall Operating EBITDA of the Company. The Operating EBITDA margin for the combined segments decreased 4 percentage points from 13% to 9% primarily due to higher agent commission costs driven by the impact of recruiting and retention efforts, an increase in other operating costs which relate, in part, to "catch-up" business activities that had been curtailed over the 18-months prior to 2022 in connection with the COVID-19 crisis, and a decrease in equity earnings during the first half of 2022 compared to the first half of 2021: Revenues % Operating EBITDA % Operating EBITDA Margin 2022 2021 $ Change Change 2022 2021 $ Change Change 2022 2021 Change Franchise Group (a)$ 404 $ 405 (1) -$ 140 $ 169 (29) (17) 35 % 42 % (7)Owned Brokerage Group (a) 3,039 2,962 77 3 173 261 (88) (34) 6 9 (3) Franchise Group and Owned Brokerage Group Combined$ 3,443 $ 3,367 76 2$ 313 $ 430 (117) (27) 9 % 13 % (4) _______________ (a)The segment numbers noted above do not reflect the impact of intercompany royalties and marketing fees paid byOwned Brokerage Group to Franchise Group of$202 million and$196 million during the six months endedJune 30, 2022 and 2021, respectively.
Anywhere Integrated Services -
Revenues decreased$122 million to$334 million and Operating EBITDA decreased$98 million to$18 million for the six months endedJune 30, 2022 compared with the same period in 2021. Revenues decreased$122 million primarily due to a$107 million decrease in underwriter revenue during the first half of 2022 compared to the first half of 2021 as a result of the sale of the Title Underwriter. In addition, refinance revenue decreased$22 million due to a decrease in activity as average mortgage rates in the first half of 2022 increased approximately 160 basis points over the prior period. The revenue decreases were partially offset by a$7 million increase in resale revenue due to an increase in the average fee per closing unit partially offset by a decrease in transactions. Equity in earnings or losses related to our minority interests in Guaranteed Rate Affinity and the Title Insurance Underwriter Joint Venture are included in the financial results ofTitle Group , but are not reported as revenue toTitle Group . Operating EBITDA decreased$98 million primarily due to a$46 million decrease in equity in earnings, a$28 million net decline as a result of the sale of the Title Underwriter, and the$15 million net decrease in refinance and resale revenue discussed above. Equity in earnings decreased$46 million from earnings of$41 million during the first half of 2021 to losses of$5 million during the first half of 2022. The decrease primarily related to Guaranteed Rate Affinity which decreased$47 million from earnings of$38 million during the six months ended 2021 to losses of$9 million during the six months endedJune 30, 2022 . The decline in equity in earnings from Guaranteed Rate Affinity was mostly driven by the impact of mark-to-market adjustments on the mortgage loan pipeline and significant gain-on-sale margin compression due to the highly competitive mortgage industry, lower refinancing volume and increased headcount to grow the business and its market share. The decline in equity in earnings for Guaranteed Rate Affinity was partially offset by$3 million of earnings for our Title Insurance Underwriter Joint Venture during the first half of 2022. 48
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In addition, employee-related and other operating costs increased$5 million atTitle Group primarily due to higher headcount in the latter half of 2021, which includes incremental headcount supporting our REALtech joint venture. Operating EBITDA was also down due to the absence of a$6 million unrealized gain on an investment recognized during the first quarter of 2021.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
June 30, 2022 December 31, 2021 Change
Total assets $ 6,978 $ 7,210 $ (232)
Total liabilities 4,769 5,018 (249)
Total equity 2,209 2,192 17
For the six months ended
•a
•a$13 million decrease in goodwill primarily due to the sale of the Title Underwriter in the first quarter of 2022, partially offset by goodwill acquired; and
•a
partially offset by:
•a
•a$136 million increase in other current and non-current assets primarily due to our equity investment in the Title Insurance Underwriter Joint Venture during the first quarter of 2022 and prepaid agent incentives.
Total liabilities decreased
•a$147 million decrease in accrued expenses and other current liabilities primarily due to payment of employee-related liabilities in the first quarter of 2022 which were fully accrued as ofDecember 31, 2021 ; •a$101 million net decrease in corporate debt primarily related to a$100 million net decrease due to the issuance of$1,000 million aggregate principal amount of 5.25% Senior Notes inJanuary 2022 and repayment of$550 million aggregate principal amount of 7.625% Senior Secured Second Lien Notes and$550 million aggregate principal amount of 9.375% Senior Notes inFebruary 2022 . In addition, we repurchased$60 million in principal amount of our 4.875% Senior Notes through open market purchases at an aggregate purchase price of$59 million during the second quarter of 2022. The decreases were partially offset by a$65 million increase to the 0.25% Exchangeable Senior Notes liability due to the adoption of ASU 2020-06 onJanuary 1, 2022 which resulted in the reversal of the unamortized debt discount and related equity component; •a$47 million decrease in other non-current liabilities related to certain liabilities of the Title Underwriter due to the sale and a favorable fair value adjustment related to mark-to-market adjustments on the Company's interest rate swaps; and
•a
partially offset by a
Total equity increased
•net income of
•a$5 million reduction to accumulated deficit onJanuary 1, 2022 related to the reversal of cumulative interest expense recognized for the amortization of the debt discount on the Exchangeable Senior Notes since issuance as a result of the adoption of ASU 2020-06, partially offset by: •a$98 million decrease in additional paid-in capital primarily due to a$53 million reduction onJanuary 1, 2022 related to the adoption of ASU 2020-06 which resulted in the reversal of the equity component related to the Exchangeable Senior Notes and the repurchase of 3.9 million shares of common stock for$45 million during the second quarter of 2022. 49
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See Note 1, "Basis of Presentation-Recently Adopted Accounting Pronouncements", to the Condensed Consolidated Financial Statements for further discussion related to the adoption of ASU 2020-06.
Liquidity and Capital Resources
Cash flows from operations and distributions from our unconsolidated joint ventures, supplemented by funds available under our Revolving Credit Facility and securitization facilities, are our primary sources of liquidity.
Our primary uses of liquidity include working capital, business investment and capital expenditures, as well as debt service. We have used and may also use future cash flows 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, franchisee system growth and acquisitions. Debt service includes contractual amortization and interest payments on our long-term debt. We intend to repay or refinance our 4.875% Senior Notes due 2023 at or prior to maturity. In addition, we may, from time to time, seek to repay or refinance certain of our other debt. OnFebruary 16, 2022 , our Board of Directors authorized a share repurchase program of up to$300 million of our common stock. Repurchases under the program may be made at management's discretion from time to time on the open market or through privately negotiated transactions. The actual timing, number and value of shares repurchased will be determined by us and may fluctuate based on a number of factors, including, but not limited to, our priorities for the use of cash, price, market and economic conditions, and legal and contractual requirements (including compliance with the terms of our debt agreements). The repurchase program has no time limit and may be suspended or discontinued at any time.
During the second quarter of 2022, the Company repurchased and retired 3.9
million shares of common stock for
In addition, we may seek to repurchase our outstanding debt from time to time through, as applicable, tender offers, open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on similar factors, including prevailing market conditions, our liquidity requirements, and contractual restrictions, among other factors.
During the second quarter of 2022, the Company repurchased
OnJuly 27, 2022 , the Company amended its Senior Secured Credit Facility to, among other things, extend the maturity of the Revolving Credit Facility toJuly 2027 (subject to certain earlier springing maturity dates), terminate the 2023 Non-extended Revolving Credit Commitments, and replace LIBOR with a Term SOFR-based rate as the applicable benchmark for the Revolving Credit Facility. Following amendment, the Revolving Credit Facility has an aggregate of$1.1 billion in capacity. See Note 10, "Subsequent Events", to the Consolidated Financial Statements for additional information. In the first quarter of 2022, we issued$1,000 million aggregate principal amount of 5.25% Senior Notes due in 2030. We used the net proceeds from the issuance, together with cash on hand, to redeem in full both the$550 million aggregate principal amount of 9.375% Senior Notes and the$550 million aggregate principal amount of 7.625% Senior Secured Second Lien Notes, each at a redemption price of 100% plus the applicable "make whole" premium, together with accrued interest to the redemption date on both such notes. Aggregate consideration paid for the redemption of the 9.375% Senior Notes and the 7.625% Senior Secured Second Lien Notes, together with debt issuance costs associated with the 5.25% Senior Notes, totaled$1,220 million . See Note 4, "Short and Long-Term Debt", to the Condensed Consolidated Financial Statements for additional information. Other than the$60 million repurchase in principal amount of our 4.875% Senior Notes, our material cash requirements from known contractual and other obligations as ofJune 30, 2022 have not changed materially from the amounts reported in our 2021 Form 10-K, which included the Company's debt transactions on a pro forma basis that occurred during the first quarter of 2022, as described in Note 4, "Short and Long-Term Debt", to the Condensed Consolidated Financial Statements.
On
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Consolidated Balance Sheets as cash and cash equivalents. In the second quarter of 2022, we sold a portion of our minority stake in the Title Insurance Underwriter Joint Venture reducing its equity stake from 30% to 26%.
Historically, operating results and revenues for all of our businesses have been strongest in the second and third quarters of the calendar year. Although industry seasonality experienced volatility in 2020 and 2021, we believe that in the first quarter of 2022, the industry began to realign with historical seasonality patterns and expect that the industry will continue to return to historical seasonality patterns throughout 2022. 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. If the residential real estate market or the economy as a whole does not improve or weakens, our business, financial condition and liquidity may be materially adversely affected, including our ability to access capital, grow our business and return capital to stockholders. We believe that we will continue to meet our cash flow needs during the next twelve months, through the sources outlined above. Additionally, we may seek additional financing to fund future growth or refinance our existing indebtedness through the debt capital markets, but we cannot be assured that such financing will be available on favorable terms, or at all. Over the longer term, to the extent these sources of liquidity are insufficient to meet our needs, we may also conduct additional private or public offerings of debt or our common stock or dispose of certain assets.
Cash Flows
AtJune 30, 2022 , we had$262 million of cash, cash equivalents and restricted cash, a decrease of$481 million compared to the balance of$743 million atDecember 31, 2021 . The following table summarizes our cash flows for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 Change Cash (used in) provided by: Operating activities$ (205) $ 186 $ (391) Investing activities 7 (51) 58 Financing activities (282) 208 (490)
Effects of change in exchange rates on cash, cash equivalents and restricted cash
(1) - (1)
Net change in cash, cash equivalents and restricted cash
For the six months ended
•$157 million less cash provided by operating results;
•$107 million more cash used for accounts payable, accrued expenses and other liabilities primarily related to the payment of employee incentive compensation in the first quarter of 2022;
•$69 million less cash provided by the net change in relocation and trade receivables;
•$37 million less cash received from dividends primarily related to the absence of Guaranteed Rate Affinity dividends in 2022; and
•$22 million more cash used for other assets primarily due independent sales agent recruitment and retention and franchise system growth incentives.
For the six months ended
•$47 million more cash proceeds from the sale of businesses primarily related to the sale of the Title Underwriter in the first quarter of 2022 which included$208 million of cash received, partially offset by the absence of$152 million of cash held as statutory reserves by the Title Underwriter and no longer included in our Condensed Consolidated Balance Sheet; 51
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•$23 million more cash from other investing activities which included the$12 million dividend received from the Title Insurance Underwriter Joint Venture; and
•$13 million more cash proceeds received from investments,
partially offset by:
•$11 million more cash used for acquisition related payments; and
•$8 million more cash used for investments.
For the six months ended
•$198 million of cash paid as a result of the issuance of 5.25% Senior Notes and redemption of both the 9.375% Senior Notes and 7.625% Senior Secured Second Lien Notes in the first quarter of 2022;
•$59 million for the repurchase of
•$45 million for the repurchase of our common stock;
•$17 million of other financing payments primarily related to finance leases and contracts; and
•$16 million of tax payments related to net share settlement for stock-based compensation,
partially offset by
For the six months ended
•$201 million of cash provided as a result of finance transactions primarily from the issuance of the Exchangeable Senior Notes, which included payments for the purchase of exchangeable note hedges and proceeds from issuance of warrants, partially offset by a partial pay down of outstanding borrowings under the Term Loan B Facility, in the second quarter of 2021; and
•$40 million net increase in securitization borrowings,
partially offset by:
•$18 million of other financing payments primarily related to finance leases and contracts;
•$9 million of tax payments related to net share settlement for stock-based compensation; and
•$6 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 ofJune 30, 2022 and Note 10, "Subsequent Events", to the Condensed Consolidated Financial Statements, for information on the Company's amendment to its Senior Secured Credit Facility inJuly 2022 .
LIBOR Transition
The cessation date for submission and publication ofU.S. dollar LIBOR is expected to be mid-2023. LIBOR is expected to be replaced in theU.S. with a new index calculated by short-term repurchase agreements, backed byU.S. Treasury securities: the Secured Overnight Financing Rate, or "SOFR." In connection with theJuly 2022 Amendment to the Senior Secured Credit Facility, LIBOR was replaced with a SOFR-based rate plus a 10 basis point SOFR credit spread adjustment as the applicable benchmark for the Revolving Credit Facility. SOFR will likely not replicate LIBOR exactly and if future rates based upon SOFR are higher than LIBOR rates as currently determined, it could result in an increase in the cost of our variable rate indebtedness and may have an adverse effect on our financial condition and results of operations. Our primary interest rate exposure is interest rate fluctuations due to the impact on our variable rate borrowings under the Senior Secured Credit Facility (for our Revolving Credit Facility) and the Term Loan A Facility. Additionally, as ofJune 30, 2022 , we had interest rate swaps based on LIBOR with a notional value of$1,000 million to manage a portion of our exposure to changes in interest rates associated with our variable rate borrowings. 52
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Covenants under the Senior Secured Credit Facility, Term Loan A Facility and Indentures
The Senior Secured Credit Agreement, Term Loan A Agreement, and the indentures governing the Unsecured 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
•repurchase or redeem capital stock;
•make loans, investments or acquisitions;
•incur restrictions on the ability of certain of
•enter into transactions with affiliates;
•create liens;
•merge or consolidate with other companies or transfer all or substantially all
of
•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 dividingAnywhere 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 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 to EBITDA for restructuring, retention and disposition costs, former parent legacy cost (benefit) items, net, loss (gain) on the early extinguishment of debt, non-cash charges 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 atJune 30, 2022 .
Non-GAAP Financial Measures
TheSEC has adopted rules to regulate the use in filings with theSEC 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 by us as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations), income taxes, and other items that are not core to the operating activities of the Company such as restructuring charges, former parent legacy items, gains or losses on the early extinguishment of debt, impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets. Operating EBITDA is our primary non-GAAP measure. 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 53
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extinguishment of debt, former parent legacy items, impairments, gains or losses on discontinued operations and gains or losses on the sale of 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 endedDecember 31, 2021 , 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 ofOctober 1 , or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The impairment assessment is performed at the reporting unit level which includesOwned Brokerage Group , franchise services (reported within the Franchise Group reportable segment),Title Group andLeads Group (includes lead generation and Cartus Relocation Services and reported within the Franchise Group reportable segment). This assessment compares the carrying value of each reporting unit and the carrying value of each other indefinite lived intangible asset to their respective fair values and, when appropriate, the carrying value is reduced to fair value and an impairment charge is recorded on a separate line in the Consolidated Statements of Operations for the excess. In testing goodwill, the fair value of each reporting unit is estimated using the income approach, a discounted cash flow method. For the other indefinite lived intangible assets, fair value is estimated using the relief from royalty method. Management utilizes long-term cash flow forecasts and the Company's annual operating plans adjusted for terminal value assumptions. The fair value of the Company's reporting units and other indefinite lived intangible assets are determined utilizing the best estimate of future revenues, operating expenses, including commission expense, market and general economic conditions, trends in the industry, as well as assumptions that management believes marketplace participants would utilize. These assumptions include discount rates based on the Company's best estimate of the weighted average cost of capital, long-term growth rates based on the Company's best estimate of terminal growth rates, and trademark royalty rates which are determined by reviewing similar trademark agreements with third parties. 54
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Although management believes that assumptions are reasonable, actual results may vary significantly. These impairment assessments involve 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. 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 FASB accounting pronouncements.
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