RE/MAX Holdings Reports Second Quarter 2017 Results

DENVER, Aug. 3, 2017 /PRNewswire/ --

Second Quarter 2017 Highlights
(Compared to second quarter 2016 unless otherwise noted)

• Total agent count grew by 5.7% to 116,270 agents
• U.S. and Canada combined agent count increased 2.8% to 84,302 agents
• Revenue increased 12.5% to $48.8 million
• Net income attributable to RE/MAX Holdings, Inc. of $7.5 million and earnings per diluted share (GAAP EPS) of $0.42
• Adjusted EBITDA¹ of $29.2 million, Adjusted EBITDA margin¹ of 59.7% and Adjusted earnings per diluted share (Adjusted EPS¹) of $0.54
• Announced $0.18 quarterly dividend on August 2, 2017

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, 2017. 

"Execution on our core business drivers and a robust housing market drove increased agent count and double-digit revenue growth year-over-year," stated Adam Contos, Co-Chief Executive Officer. "Our ability to expand our network, reacquire independent regions, and grow Motto Mortgage provides us with multiple levers of growth."

Contos continued, "For the third year in a row, RE/MAX agents and teams named 'America's Best Real Estate Agents' outnumbered every other brand according to REAL Trends' rankings. One out of every five agents included in this year's survey is a member of our network.  Our agents are incredibly dedicated to their clients and this ranking confirms that many of the industry's best are affiliated with RE/MAX."

Second Quarter 2017 Operating Results

Agent Count

The following table compares agent count as of June 30, 2017 and 2016:

Revenue

RE/MAX Holdings generated total revenue of $48.8 million for the second quarter of 2017, an increase of $5.4 million or 12.5% compared to $43.4 million in the second quarter of 2016, primarily due to contributions from the acquired independent regions, agent count growth and fee increases in the Company-owned regions. 

Recurring revenue streams, which consist of continuing franchise fees and annual dues, increased $3.7 million or 13.3% over the second quarter of 2016 and accounted for 64.7% of revenue in the second quarter of 2017 compared to 64.3% in the prior-year period.

Operating Expenses

Total operating expenses were $26.0 million for the second quarter of 2017, an increase of $3.3 million or 14.6% compared to the second quarter of 2016. This increase was due to additional amortization expense from the acquired independent regions as well as increased selling, operating and administrative expenses, many of which related to the acquired independent regions and the initial investment in Motto.

Selling, operating and administrative expenses were $20.6 million in the second quarter of 2017, an increase of $1.8 million or 9.5% from the second quarter of 2016 and represented 42.3% of revenue compared to 43.4% in the prior-year period. Expenses increased primarily due to continued investments in Motto and higher professional fees and other expenses, including costs related to the acquired independent regions and investments to support the Company's technology infrastructure.

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $7.5 million for the second quarter of 2017, an increase of $0.6 million or 8.2% from the second quarter of 2016. Net income grew primarily due to the contribution from acquired independent regions, agent count growth and fee increases in the Company-owned regions.  The increase was partially offset by higher amortization expense and operating expenses, as well as a decrease in revenue from preferred marketing arrangements. Reported basic and diluted EPS attributable to RE/MAX Holdings were $0.43 and $0.42 per share, respectively, for the second quarter of 2017.

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $29.2 million for the second quarter of 2017, an increase of $3.9 million or 15.3% from the second quarter of 2016. Adjusted EBITDA grew primarily due to contributions from the acquired independent regions, agent count growth and fee increases in the Company-owned regions, partially offset by investments in Motto and a decrease in revenue from preferred marketing arrangements.  Adjusted EBITDA margin was 59.7% in the second quarter of 2017 compared to 58.3% in the second quarter of 2016.

Adjusted basic and diluted EPS were both $0.54 for the second quarter of 2017. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended June 30, 2017 assumes RE/MAX Holdings owned 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX Holdings had in RMCO was 58.5% for the three months ended June 30, 2017.

Balance Sheet

As of June 30, 2017, the Company had a cash balance of $70.3 million, an increase of $12.7 million from December 31, 2016. As of June 30, 2017, RE/MAX had $229.9 million of term loans outstanding, net of unamortized debt discount and issuance costs, essentially flat compared with $230.8 million as of December 31, 2016.

"We generated nearly $32 million in free cash flow during the first half of 2017, highlighting the growth and positive cash flow characteristics of our business model," said Karri Callahan, Chief Financial Officer. "Second quarter margins, while benefiting from the favorable timing of expenses, also showcased the inherent leverage in our 100%-franchised business. Certain investments initially planned for the second quarter are now anticipated to occur in the second half of the year and are reflected in our third-quarter and full-year 2017 Outlook."

Dividend

On August 2, 2017, the Company's Board of Directors approved a quarterly cash dividend of $0.18 per share.  The quarterly dividend is payable on August 30, 2017, to shareholders of record at the close of business on August 16, 2017.

Outlook

The Company's third-quarter and full-year 2017 Outlook assumes no further currency movements, acquisitions or divestitures.

For the third quarter of 2017, RE/MAX Holdings expects:

• Agent count to increase 4.5% to 5.5% over third quarter 2016;
• Revenue in a range of $49.0 million to $50.5 million;
• Selling, operating and administrative expenses in a range of 46.0% to 47.5% of third quarter 2017 revenue; and
• Adjusted EBITDA margin in a range of 54.0% to 55.5% of third quarter 2017 revenue.

For the full-year 2017, RE/MAX Holdings is increasing its agent count guidance, reiterating its full-year 2017 financial guidance and expects:

• Agent count to increase 4.5% to 5.5% over 2016, up from 4.0% to 5.0%, driven by agent count growth outside the U.S. and Canada;
• Revenue in a range of $194.0 million to $197.0 million;
• Selling, operating and administrative expenses in a range of 48.0% to 49.5% of 2017 revenue; and
• Adjusted EBITDA margin in a range of 52.5% to 54.0% of 2017 revenue.

The effective U.S. GAAP tax rate attributable to RE/MAX Holdings is estimated to be between 23% and 25% in 2017.   

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, August 4, 2017, beginning at 8:30 a.m. Eastern Time. Interested parties are able to access the conference call using the following dial-in numbers:

Interested parties are also able to 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. For the RE/MAX Quarterly Update Q2 2017 infographic, visit http://rem.ax/2cYFT50.

Basis of Presentation

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

About the RE/MAX Network

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. Over 115,000 agents provide RE/MAX a global reach of over 100 countries and territories. Nobody sells more real estate than RE/MAX as measured by total residential transaction sides.

RE/MAX, one of the world's leading franchisors of real estate brokerage services, and Motto Mortgage, an innovative mortgage brokerage franchise, are subsidiaries of RMCO, LLC, which is controlled and managed by RE/MAX Holdings, Inc. (NYSE: RMAX).

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 may be identified by the use of words such as "believe," "intend," "expect," "estimate," "plan," "outlook," "project" and other similar words and expressions that predict or indicate future events or trends that are not statements of historical matters. These forward-looking statements include statements regarding the Company's outlook for the third quarter and full fiscal year, including expectations regarding agent count, revenue, SO&A (Selling, operating and administrative) expenses, and Adjusted EBITDA margins for its third quarter of 2017 and full fiscal year; the Company's focus in 2017 and over the long term on successfully growing its strategic initiatives related to its acquisition of six independent regions and the launch of Motto Mortgage; as well as other statements regarding the Company's strategic and operational plans and business models. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will 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 business and economic activity in general, (2) changes in the real estate market, including changes due to interest rates and availability of financing, (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 that may affect the business or the real estate market, (6) failure to maintain, protect and enhance the RE/MAX and Motto Mortgage brands, (7) fluctuations in foreign currency exchange rates, as well as 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 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 duty, 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 in the Quarterly Report on Form 10-Q), adjusted for the impact of the following items that are either non-cash or the Company does not consider representative of its ongoing operating performance: loss or gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, professional fees and certain expenses incurred in connection with the Secondary Offering, acquisition-related expenses and equity-based compensation expense. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenue. During the first quarter of 2017, the Company revised its definition of Adjusted EBITDA to better reflect the performance of the business and comply with SEC guidance. The Company now adjusts for equity-based compensation expense and no longer adjusts for straight-line rent expense and severance-related expenses.  Adjusted EBITDA was revised in prior periods to reflect this change for consistency in presentation.

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 to pay RIHI Inc. and Oberndorf 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 margin guidance does not include certain charges and costs. The adjustments to EBITDA margin in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA margin in prior quarters, such as gain on sale or disposition of assets and sublease and acquisition related expenses, among others.  The exclusion of these charges and costs in future periods will have a significant impact on the Company's Adjusted EBITDA margin. 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, loss on early debt extinguishment, public-offering related expenses, acquisition-related expenses 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, both as reported under GAAP, and quantifies how much cash a company has to pursue opportunities that enhance shareholder value.  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.