RE/MAX Holdings Reports Third Quarter 2015 Results

DENVER, Nov. 5, 2015 /PRNewswire/ --

Third Quarter 2015 Highlights
(Compared to the third quarter 2014 unless otherwise noted)

• Agent count grew by 6.0% to 103,491 agents
• Revenue grew by 2.0% to $45.1 million
• Operating Income grew by 3.5% to $20.6 million
• Adjusted EBITDA¹ of $25.1 million, up 7.5%
• Adjusted EBITDA¹ margin of 55.7%, up from 52.8%
• Adjusted basic and diluted earnings per share¹ ("EPS") of $0.46
• Declared quarterly dividend of $0.125 per share
• Raising full-year 2015 agent count growth outlook to 5.6% to 5.8% from 5.0% to 5.5%
• Raising full-year 2015 Adjusted EBITDA margin outlook to 50.0% to 51.0% from 49.0% to 50.0%

RE/MAX Holdings, Inc. (the "Company" or "RE/MAX") (NYSE: RMAX), one of the world's leading franchisors of real estate brokerage services, today announced operating results for the third quarter ended September 30, 2015. 

"Our global network of highly productive agents continues to grow, gaining nearly 5,500 agents in the first nine months of the year, our best agent growth on an absolute and percentage basis in the last ten years," stated Dave Liniger, Chief Executive Officer and Co-Founder of RE/MAX. "We continue to see positive indicators in our industry and our business even as we enter the slower part of the year for the housing market. We are raising our full-year agent growth outlook to 5.6% to 5.8% over 2014 due to our solid franchise sales results, our continued ability to attract agents to the RE/MAX network and the sustained growth of the housing market."

Third Quarter 2015 Operating Results

Agent Count

Total agent count grew by 5,844 agents to 103,491 agents or 6.0% compared to the third quarter ended September 30, 2014. In the United States ("U.S."), agent count increased by 2,598 agents to 59,779 agents or 4.5%. Agent count in U.S. Company-owned and Independent regions grew by 5.0% and 3.8%, respectively. In Canada, agent count increased by 399 agents to 19,506 agents or 2.1% compared to the prior year quarter end. Outside the U.S. and Canada, agent count increased by 2,847 agents to 24,206 agents or 13.3%. During the nine months ended September 30, 2015, the Company grew total agent count by 5,481 agents or 5.6% compared to total agent count growth of 4,419 agents or 4.7% during the same period in 2014. 

Revenue

RE/MAX generated total revenue of $45.1 million for the third quarter of 2015, a 2.0% increase compared to $44.2 million in the third quarter of 2014, primarily driven by increased revenue from continuing franchise fees and broker fees, partially offset by lower brokerage revenue.

Revenue from continuing franchise fees was $18.9 million, up $0.4 million or 2.1% compared to the prior year quarter primarily due to agent count growth. Revenue growth was partially offset by a decrease in aggregate fee revenue per agent partly due to fee waivers for certain new agents associated with the Company's Momentum agent development and recruiting program that began in the fourth quarter of 2014 and the divestiture of the Caribbean and Central America regions on December 31, 2014. The strength of the U.S. dollar compared to the Canadian dollar also negatively impacted revenue from continuing franchise fees during the quarter.

Revenue from annual dues was $8.0 million, up $0.3 million or 4.1% compared to the prior year quarter primarily due to an increase in total agent count of 5,844 from the prior year quarter, of which 2,997 agents were in the U.S. and Canada.

Revenue from broker fees was $9.3 million, up $1.0 million or 12.6% compared to the prior year quarter. The increase was driven by agent count growth and increased transaction volume due in part to better market conditions.

Franchise sales and other franchise revenue was $5.6 million, up $0.2 million or 2.8% compared to the prior year quarter driven by an increase in office franchise sales in the U.S., offset by a decrease in revenue from global franchise sales.

Brokerage revenue was $3.3 million, a decrease of $1.0 million or 23.9% from the prior year quarter largely attributable to the sale of six previously owned brokerage offices to an existing RE/MAX franchisee in April 2015.

Operating Expenses

Total operating expenses were $24.5 million for the third quarter of 2015, an increase of $0.2 million or 0.7% compared to the prior year quarter. The increase was primarily due to higher selling, operating and administrative expenses which were $20.7 million, up $0.2 million or 0.8% from the prior year quarter largely due to higher personnel related costs and commissions paid in conjunction with franchise sales. Selling, operating and administrative expenses were 45.9% of revenue in the third quarter compared to 46.5% in the prior year quarter.

Net Income

Reported net income was $15.2 million for the third quarter of 2015, an increase of $1.1 million or 8.1% compared to the prior year quarter. The increase was primarily due to higher operating income and lower foreign currency transaction losses.

Adjusted net income² was $13.9 million for the third quarter of 2015, an increase of $1.0 million or 7.9% compared to the prior year quarter. Adjusted basic and diluted EPS were both $0.46 for the third quarter of 2015, compared to $0.44 and $0.43 for the prior year quarter, respectively. The strength of the U.S. dollar compared to the Canadian dollar negatively impacted both Adjusted basic and diluted EPS by $0.03 for the third quarter of 2015.

Net income attributable to RE/MAX Holdings, Inc. was $4.8 million for the third quarter of 2015. This amount excludes net income attributable to the non-controlling interest. Reported basic and diluted EPS attributable to RE/MAX Holdings, Inc. were both $0.39. Refer to Table 1 for the share counts used in the calculation of basic and diluted EPS attributable to RE/MAX Holdings, Inc. in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").

The ownership structure used to calculate Adjusted basic and diluted EPS for the three months ended September 30, 2015 and 2014 assumes RE/MAX owning 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX had of RMCO was 41.02% for the three months ended September 30, 2015. Refer to Table 6 for a reconciliation of Adjusted net income to net income and the share counts used in the Adjusted basic and diluted EPS calculations.

Adjusted EBITDA

Adjusted EBITDA was $25.1 million for the third quarter of 2015, up $1.7 million or 7.5% from the prior year quarter. Adjusted EBITDA margin was 55.7% for the third quarter of 2015 compared to 52.8% in the prior year quarter, driven by higher operating income and lower foreign currency transaction losses. The strength of the U.S. dollar compared to the Canadian dollar negatively impacted Adjusted EBITDA margin by approximately $1.3 million or 139 basis points for the third quarter of 2015. A reconciliation of Adjusted EBITDA to net income is included in Table 5.

Balance Sheet

As of September 30, 2015, the Company had a cash balance of $95.4 million, a decrease of $11.8 million from December 31, 2014. The cash balance reflects the aggregate payment of approximately $45 million made in April 2015 for a special dividend of $1.50 per share. The Company had $202.4 million of term loans outstanding, net of unamortized discount as of September 30, 2015, down from $211.7 million, net as of December 31, 2014.

Dividend

The Company's Board of Directors approved a quarterly dividend of $0.125 per share, which is payable on November 27, 2015 to shareholders of record at the close of business on November 13, 2015.

Outlook

Based on the Company's performance through the first nine months of this year and the sale of six of its owned brokerage offices in April of this year, RE/MAX is providing the following outlook for its fourth quarter and its full-year 2015:

Fourth Quarter 2015 Outlook:  

• Revenue is estimated to decrease by 4.5% to 5.0% from fourth quarter 2014;
  • Revenue would have decreased by an estimated 2.0% to 2.5% from fourth quarter 2014 if it were not for the sale of the six owned brokerage offices and the sale of the Caribbean and Central America regions;
• Selling, operating and administrative expenses are estimated to be 51.0% to 53.0% of fourth quarter 2015 revenue; and
• Adjusted EBITDA margin is estimated to be in the 48.0% to 49.0% range.

Full-Year 2015 Outlook:  

• Raising full-year agent count outlook to 5.6% to 5.8% from 5.0% to 5.5% over 2014;
• Revenue is estimated to increase by 1.0% to 2.0% over 2014 (trending to the high end);
  • Revenue would have increased by an estimated 3.0% to 4.0% over 2014 if it were not for the sale of the six owned brokerage offices and the sale of the Caribbean and Central America regions;
• Improving selling, operating and administrative expenses estimate to 49.0% to 51.0% from 50.0% to 52.0% of 2015 revenue;
• Increasing Adjusted EBITDA margin estimate to 50.0% to 51.0% from 49.0% to 50.0%;
• Total capital expenditures of $3.5 to $4.0 million (trending to $4.0 million)
  • Includes project related capital expenditures of $2.7 to $3.0 million, up from $2.0 to $2.5 million; and
• Project related operating expenditures of approximately $2.0 million, down from $3.0 million.

The Company's 2015 outlook reflects an annualized estimated exchange rate of $0.78 U.S. for every $1.00 Canadian.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, November 6, 2015, beginning at 8:30 a.m. Eastern Time. Interested parties are able to access the conference call using the following dial-in numbers:

U.S.                                    1-877-201-0168
Canada & International          1-647-788-4901

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.

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

RE/MAX, LLC, one of the world's leading franchisors of real estate brokerage services, is a wholly-owned subsidiary of RMCO, 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 "anticipate," "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 fourth quarter and full fiscal year, including expectations regarding agent count and Adjusted EBITDA margins for its fourth quarter and full fiscal year, the Company's optimism for agent recruitment and improving market conditions, as well as other statements regarding the Company's strategic and operational plans. 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 agents, (5) changes in laws and regulations that may affect the Company's business or the real estate market, (6) failure to maintain, protect and enhance the RE/MAX brand, (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 Operation" in the most recent Annual Report or Form 10-K filed with the Securities and Exchange Commission ("SEC") and similar disclosures in subsequent 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 Adjusted net income and the ratios related thereto. These measures are derived on the basis of methodologies other than in accordance with U.S. GAAP.

RE/MAX 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 Company's condensed consolidated financial statements included elsewhere in this press release), adjusted for the impact of the following items that the Company does not consider representative of the Company's ongoing operating performance: loss or gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, non-cash straight-line rent expense, non-recurring severance and other related expenses and acquisition integration and professional fees expense. During the third quarter of 2014, the Company revised its definition of Adjusted EBITDA to no longer adjust for recurring equity-based compensation expense. Adjusted EBITDA in prior periods has been revised to reflect this change for consistency of presentation. During the fourth quarter of 2014, the Company revised its definition of Adjusted EBITDA to adjust for non-recurring severance and other related expenses. Prior to such time, the Company had not incurred any of these types of expenses.

RE/MAX defines Adjusted net income as net income, excluding the impact of amortization expense related to the Company's franchise agreements, the GAAP provision for income taxes, loss or gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, non-cash straight-line rent expense, non-recurring severance and other related expenses, and acquisition integration and professional fees expense, but reflects a provision for income taxes as if all outstanding common units of RMCO were exchanged for or converted into shares of the Company's Class A common stock on a one-for-one basis. Assuming the full exchange and conversion, all income of RMCO is treated as if it were allocated to RE/MAX, and the adjusted provision for income taxes represents an estimate of income tax expense at an effective rate reflecting assumed federal, state, and local income tax rates. The estimated effective tax rate was 38%.

Because Adjusted EBITDA and Adjusted net income omit certain non-cash items and other non-recurring cash charges or other items, the Company feels that these metrics are less susceptible to variances that affect the Company's operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items and is more reflective of other factors that affect the Company's operating performance. The Company presents Adjusted EBITDA and Adjusted net income because it believes the metrics are useful as supplemental measures in evaluating the performance of the Company's operating businesses and provide greater transparency into the Company's results of operations. The Company's management uses Adjusted EBITDA as a factor in evaluating the performance of its business.

Adjusted EBITDA and Adjusted net income have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyzing the results the Company 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 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 these measures do not reflect any cash requirements for such replacements;
• Adjusted EBITDA does not reflect the Company's interest expense, or the cash requirements necessary to service interest or principal payments on the Company's debt;
• Adjusted EBITDA does not reflect the Company's income tax expense or the cash requirements to pay the Company's taxes;
• Adjusted EBITDA and Adjusted net income do not reflect the cash requirements to pay dividends to shareholders of the Company's Class A common stock and tax and other cash distributions to non-controlling unitholders;
• Adjusted EBITDA and Adjusted net income do not reflect the cash requirements to pay RIHI, Inc. and Oberndorf Investments LLC pursuant to the tax receivable agreements entered into at the time of the IPO; and
• other companies may calculate these measures differently, so they may not be comparable.

With respect to the Company's outlook with respect to Adjusted EBITDA margin for the fourth quarter and the full fiscal year 2015, the Company is not able to provide a reconciliation of this non-GAAP financial measure to U.S. GAAP because it does not provide specific guidance for the various reconciling non-cash items and other non-recurring cash and non-cash charges, such as loss or gain on sale or disposition of assets and sublease and loss on early extinguishment of debt, among others. Certain items that impact these measures have not yet occurred, are out of the Company's control or cannot be reasonably predicted, and as a result, reconciliation of these non-GAAP guidance measures to U.S. GAAP is not available without unreasonable effort.

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SOURCE RE/MAX Holdings, Inc.