RE/MAX Holdings Reports Second Quarter 2019 Results

DENVER, Aug. 1, 2019 /PRNewswire/ --

Second Quarter 2019 Highlights(Compared to second quarter 2018 unless otherwise noted)

• Total agent count increased 3.2% to 127,020 agents
• U.S. and Canada combined agent count decreased 2.0% to 84,133 agents
• Total open Motto Mortgage franchises increased to 98 offices
• Revenue of $71.4 million; excluding Marketing Funds revenue, decreased 1.8% to $53.3 million
• Net income attributable to RE/MAX Holdings, Inc. of $8.6 million and earnings per diluted share (GAAP EPS) of $0.48 
• Adjusted EBITDA1 of $29.9 million, Adjusted EBITDA margin1 of 41.9% and Adjusted earnings per diluted share (Adjusted EPS1) of $0.65

RE/MAX Holdings, Inc. (the "Company" or "RE/MAX Holdings") (NYSE: RMAX), parent company of RE/MAX, one of the world's leading franchisors of real estate brokerage services, and Motto Mortgage ("Motto"), an innovative mortgage brokerage franchise, today announced operating results for the quarter ended June 30, 2019. 

"Continued Motto Mortgage expansion and healthy international RE/MAX growth helped offset lower revenue in the second quarter driven by ongoing uneven housing market conditions in the U.S. and Canada," stated Adam Contos, RE/MAX Holdings Chief Executive Officer. "Against this backdrop, we continue to leverage the strength of our business model to deliver profitable growth by prudently managing our cost structure while making the necessary strategic investments in our network, our value proposition and future growth opportunities."

Contos continued, "As we move through the second half of 2019, we remain cautiously optimistic that the U.S. housing market will show signs of improvement. Given lower interest rates, solid demand, and increasing inventory, the ingredients are there to spur increased home sales, but supply and affordability remain overhangs. However, to date the subdued market has persisted longer than we expected, and combined with the competitive environment, has impacted our overall U.S. agent count results and led us to adjust our performance expectations for the full year 2019. Looking ahead, we're very excited about the imminent launch and staged rollout of the next generation of RE/MAX technology. The release of the booj platform is truly a landmark event in the rich history of RE/MAX and one we believe will further extend our leadership position in providing highly productive agents with the very best tools, technology and training to make their businesses even more successful."

Second Quarter 2019 Operating Results

Agent Count

The following table compares agent count as of June 30, 2019 and 2018:

Revenue

RE/MAX Holdings generated total revenue of $71.4 million in the second quarter of 2019, an increase of $17.1 million or 31.5% compared to $54.3 million in the second quarter of 2018. Revenue increased primarily due to the January 1, 2019 acquisition of the Marketing Funds. Recurring revenue streams, which consist of continuing franchise fees and annual dues, were almost even compared to the second quarter of 2018 and accounted for 63.2% of revenue in the second quarter of 2019, excluding the Marketing Funds, compared to 63.0% in the comparable period in 2018.

Operating Expenses

Total operating expenses were $49.3 million for the second quarter of 2019. Excluding operating expenses from the Marketing Funds, second quarter 2019 operating expenses totaled $31.3 million, a decrease of $2.1 million or 6.3% compared to $33.4 million in the second quarter of 2018. Expenses decreased primarily due to lower selling, operating and administrative expenses partially offset by higher depreciation and amortization expenses.

Selling, operating and administrative expenses were $25.7 million in the second quarter of 2019, a decrease of $2.6 million or 9.1% compared to the second quarter of 2018 and represented 48.2% of revenue excluding the Marketing Funds compared to 52.2% in the prior-year period. Selling, operating and administrative expenses decreased primarily due to changes in equity-based compensation expense, lower legal expenses, partially offset by increases in property taxes and bad debt expense. 

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $8.6 million for the second quarter of 2019, an increase of $0.9 million over the second quarter of 2018. Reported basic and diluted GAAP EPS were $0.48 for the second quarter of 2019 compared to $0.43 in the second quarter of 2018.  

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $29.9 million for the second quarter of 2019, an increase of $1.1 million or 4.0% from the second quarter of 2018. Adjusted EBITDA increased primarily due to lower selling, operating and administrative expenses and the expansion of Motto, partially offset by lower organic revenue growth. Adjusted EBITDA margin was 41.9% in the second quarter of 2019 compared to 53.0% in the second quarter of 2018 and decreased primarily due to the acquisition of the Marketing Funds.

Adjusted basic and diluted EPS were each $0.65 for the second quarter of 2019, an increase of $0.03 per share compared to the second quarter of 2018. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended June 30, 2019 assumes RE/MAX Holdings owned 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX Holdings had in RMCO was 58.6% for the quarter ended June 30, 2019.

Balance Sheet

As of June 30, 2019, the Company had cash and cash equivalents of $72.5 million. The Company's cash and cash equivalents increased $12.5 million from December 31, 2018. As of June 30, 2019, the Company had $226.7 million of outstanding debt, net of an unamortized debt discount and issuance costs, a decrease of $1.1 million compared to $227.8 million as of December 31, 2018.

Dividend

On July 31, 2019, the Company's Board of Directors approved a quarterly cash dividend of $0.21 per share.  The quarterly dividend is payable on August 28, 2019, to shareholders of record at the close of business on August 14, 2019.

Outlook

The Company's third quarter and full-year 2019 Outlook assumes no further currency movements, acquisitions or divestitures.

For the third quarter of 2019, RE/MAX Holdings expects:

• Agent count to increase 2.25% to 3.25% over third quarter 2018;
• Revenue in a range of $69.0 million to $72.0 million (including revenue from the Marketing Funds in a range of $17.0 million to $18.0 million); and
• Adjusted EBITDA in a range of $25.5 million to $27.5 million.

For the full-year 2019, RE/MAX Holdings is adjusting its guidance and now expects:

• Agent count to increase 2.0% to 4.0% over full-year 2018;
• Revenue in a range of $279.5 million to $283.5 million (including revenue from the Marketing Funds in a range of $71.5 million to $73.5 million), down from $287.0 million to $291.0 million (including revenue from the Marketing Funds in a range of $72.5 million to $74.5 million); and
• Adjusted EBITDA in a range of $101.0 million to $104.0 million, down from $104.5 million to $107.5 million.

The effective U.S. GAAP tax rate attributable to RE/MAX Holdings is estimated to be between 17% and 19% in 2019.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, August 2, 2019, beginning at 8:30 a.m. Eastern Time. Interested parties can access the conference call using the following dial-in numbers:

Interested parties can access a live webcast through the Investor Relations section of the Company's website at investors.remax.com. Please dial-in or join the webcast 10 minutes before the start of the conference call. An archive of the webcast will be available on the Company's website for a limited time as well.

Basis of Presentation

Unless otherwise noted, the results presented in this press release are consolidated and exclude adjustments attributable to the non-controlling interest.

Footnote:

1 Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EPS are non-GAAP measures. These terms are defined at the end of this release.  Please see Tables 5 and 6 appearing later in this release for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures.

About RE/MAX Holdings, Inc.

RE/MAX Holdings, Inc. (NYSE: RMAX) is one of the world's leading franchisors in the real estate industry, franchising real estate brokerages globally under the RE/MAX® brand, and mortgage brokerages within the U.S. under the Motto® Mortgage brand. RE/MAX was founded in 1973 by David and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. Now with more than 125,000 agents across over 110 countries and territories, nobody in the world sells more real estate than RE/MAX, as measured by total residential transaction sides. Dedicated to innovation and change in the real estate industry, RE/MAX launched Motto Franchising, LLC, a ground-breaking mortgage brokerage franchisor, in 2016.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the use of words such as "believe," "intend," "expect," "estimate," "plan," "outlook," "project," "anticipate," "may," "will," "would" and other similar words and expressions that predict or indicate future events or trends that are not statements of historical matters. Forward-looking statements include statements related to: agent count; franchise sales; revenue; operating expenses; the Company's outlook for the third quarter and full year 2019; dividends; non-GAAP financial measures; estimated effective tax rates for 2019; housing and mortgage market conditions; economic and demographic trends; competition; potential transactions; future expansion of Motto Mortgage and such expansion's impact on revenue; statements regarding agent productivity; statements  regarding the timing and effects of the launch of the next generation of RE/MAX technology; statements regarding managing cost structure; statements regarding the Company's leadership position in the industry; and the Company's strategic and operating plans and business models. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily accurately indicate the times at which such performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Such risks and uncertainties include, without limitation, (1) changes in the real estate market or interest rates and availability of financing, (2) changes in business and economic activity in general, (3) the Company's ability to attract and retain quality franchisees, (4) the Company's franchisees' ability to recruit and retain real estate agents and mortgage loan originators, (5) changes in laws and regulations, (6) the Company's ability to enhance, market, and protect the RE/MAX and Motto Mortgage brands, (7) the Company's ability to implement its technology initiatives, (8) fluctuations in foreign currency exchange rates, (9) the impact of recent changes to our senior management team, (10) the impact of the findings and recommendations of the previously disclosed Special Committee investigation on the Company and its management and operations, and those risks and uncertainties described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission ("SEC") and similar disclosures in subsequent periodic and current reports filed with the SEC, which are available on the investor relations page of the Company's website at www.remax.com and on the SEC website at www.sec.gov.  Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Except as required by law, the Company does not intend, and undertakes no obligation, to update this information to reflect future events or circumstances.

 

 

 

 

 

 

 

Non-GAAP Financial Measures

The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures of financial measures that are not in accordance with U.S. GAAP, such as Adjusted EBITDA and the ratios related thereto, Adjusted net income, Adjusted basic and diluted earnings per share (Adjusted EPS) and free cash flow. These measures are derived on the basis of methodologies other than in accordance with U.S. GAAP.

The Company defines Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest expense, interest income and the provision for income taxes, each of which is presented in the unaudited condensed consolidated financial statements included earlier in this press release), adjusted for the impact of the following items that are either non-cash or that the Company does not consider representative of its ongoing operating performance: loss or gain on sale or disposition of assets and sublease, equity-based compensation expense, acquisition-related expense, Special Committee investigation and remediation expense, gain on reduction in tax receivable agreement liability, expense or income related to changes in the estimated fair value measurement of contingent consideration, and other non-recurring items.

Because Adjusted EBITDA and Adjusted EBITDA margin omit certain non-cash items and other non-recurring cash charges or other items, the Company believes that each measure is less susceptible to variances that affect its operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items. The Company presents Adjusted EBITDA and the related Adjusted EBITDA margin because the Company believes they are useful as supplemental measures in evaluating the performance of its operating businesses and provides greater transparency into the Company's results of operations. The Company's management uses Adjusted EBITDA and Adjusted EBITDA margin as factors in evaluating the performance of the business.

Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analyzing the Company's results as reported under U.S. GAAP. Some of these limitations are:

• these measures do not reflect changes in, or cash requirements for, the Company's working capital needs;
• these measures do not reflect the Company's interest expense, or the cash requirements necessary to service interest or principal payments on its debt;
• these measures do not reflect the Company's income tax expense or the cash requirements to pay its taxes;
• these measures do not reflect the cash requirements to pay dividends to stockholders of the Company's Class A common stock and tax and other cash distributions to its non-controlling unitholders;
• these measures do not reflect the cash requirements pursuant to the tax receivable agreements;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements;
• although equity-based compensation is a non-cash charge, the issuance of equity-based awards may have a dilutive impact on earnings per share; and
• other companies may calculate these measures differently so similarly named measures may not be comparable.

The Company's Adjusted EBITDA guidance does not include certain charges and costs. The adjustments to EBITDA in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA in prior quarters, such as gain on sale or disposition of assets and sublease and acquisition-related expense, among others.  The exclusion of these charges and costs in future periods will have a significant impact on the Company's Adjusted EBITDA. The Company is not able to provide a reconciliation of the Company's non-GAAP financial guidance to the corresponding U.S. GAAP measures without unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and costs.

Adjusted net income is calculated as Net income attributable to RE/MAX Holdings, assuming the full exchange of all outstanding non-controlling interests for shares of Class A common stock as of the beginning of the period (and the related increase to the provision for income taxes after such exchange), plus primarily non-cash items and other items that management does not consider to be useful in assessing the Company's operating performance (e.g., amortization of acquired intangible assets, gain on sale or disposition of assets and sub-lease, Special Committee investigation and remediation expense, acquisition-related expense and equity-based compensation expense). 

Adjusted basic and diluted earnings per share (Adjusted EPS) are calculated as Adjusted net income (as defined above) divided by pro forma (assuming the full exchange of all outstanding non-controlling interests) basic and diluted weighted average shares, as applicable.

When used in conjunction with GAAP financial measures, Adjusted net income and Adjusted EPS are supplemental measures of operating performance that management believes are useful measures to evaluate the Company's performance relative to the performance of its competitors as well as performance period over period.  By assuming the full exchange of all outstanding non-controlling interests, management believes these measures:

• facilitate comparisons with other companies that do not have a low effective tax rate driven by a non-controlling interest on a pass-through entity;
• facilitate period over period comparisons because they eliminate the effect of changes in Net income attributable to RE/MAX Holdings, Inc. driven by increases in its ownership of RMCO, LLC, which are unrelated to the Company's operating performance; and
• eliminate primarily non-cash and other items that management does not consider to be useful in assessing the Company's operating performance.

Free cash flow is calculated as cash flows from operations less capital expenditures and any changes in restricted cash of the Marketing Funds, all as reported under GAAP, and quantifies how much cash a company has to pursue opportunities that enhance shareholder value. The restricted cash of the Marketing Funds is limited in use for the benefit of franchisees and any impact to cash flow from operations due to this change is excluded from free cash flow. The Company believes free cash flow is useful to investors as a supplemental measure as it calculates the cash flow available for working capital needs, re-investment opportunities, potential independent region and strategic acquisitions, dividend payments or other strategic uses of cash.

Free cash flow after tax and non-dividend distributions to RIHI is calculated as free cash flow less tax and other non-dividend distributions paid to RIHI (the non-controlling interest holder) to enable RIHI to satisfy its income tax obligations. Similar payments would be made by the Company directly to federal and state taxing authorities as a component of the Company's consolidated provision for income taxes if a full exchange of non-controlling interests occurred in the future.  As a result and given the significance of the Company's ongoing tax and non-dividend distribution obligations to its non-controlling interest, free cash flow after tax and non-dividend distributions, when used in conjunction with GAAP financial measures, provides a meaningful view of cash flow available to the Company to pursue opportunities that enhance shareholder value.

Unencumbered cash generated is calculated as free cash flow after tax and non-dividend distributions to RIHI less quarterly debt principal payments less annual excess cash flow payment on debt, as applicable. Given the significance of the Company's excess cash flow payment on debt, when applicable, unencumbered cash generated, when used in conjunction with GAAP financial measures, provides a meaningful view of the cash flow available to the Company to pursue opportunities that enhance shareholder value after considering its debt service obligations.

 

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SOURCE RE/MAX Holdings, Inc.