DENVER, May 14, 2014 // PRNewswire // -- First Quarter 2014 Highlights (as compared to first quarter 2013)
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 first quarter ended March 31, 2014.
"We continue to grow our agent-centric network and our recurring revenue streams, demonstrating the strength of our stable, fee-based franchise model," stated Margaret Kelly, Chief Executive Officer of RE/MAX. "While current indicators point to mixed trends in the housing market, we remain confident in our ability to leverage our resilient business model to grow our network of highly productive agents and drive margin expansion."
RE/MAX grew total agent count by 4,413 agents or 4.9% to 94,385 compared to the prior year quarter. Agent count in the United States ("U.S.") and Canada increased by 3,159 agents or 4.4% to 74,255 compared to the prior year quarter. The Company-owned regions in the U.S. and Canada had organic growth of 1,848 agents or 5.7% compared to the prior year quarter. Agent count outside the U.S. and Canada saw an increase of 1,254 agents or 6.6% to 20,130 agents compared to the prior year quarter.
RE/MAX generated revenue of $41.9 million during the first quarter of 2014, representing a 7.2% increase compared to $39.1 million for the same period in 2013. Increased revenue was primarily attributable to growth in agent count, an increase in continuing franchise fees of three dollars per agent per month in the U.S. Company-owned regions introduced on January 1, 2014, and additional fee-based revenue as a result of the acquisition of the Southwest and Central Atlantic regions in October 2013. The aforementioned revenue increases were partially offset by the weakening of the Canadian dollar compared to the U.S. dollar. The Company's Canadian operations generated approximately 14% of its total revenue during the first quarter of 2014.
Recurring revenue streams, which include continuing franchise fees and annual dues, accounted for 60.2% of revenues in the first quarter of 2014 compared to 58.0% in the prior year quarter. Continuing franchise fees, a fixed fee per agent paid by each regional franchise owner in independent regions or each franchisee in Company-owned regions, were $17.7 million, up 17.2% over the prior year quarter due to the previously mentioned revenue growth drivers.
Revenue from annual dues, which are fixed fees paid by agents directly to RE/MAX, increased $0.2 million to $7.5 million due to an increase in total agent count of 4,413 from the prior year quarter, of which 3,159 agents were located in the U.S. and Canada. This increase was offset by an approximately comparable amount of revenue included in the reported revenue for the prior year quarter related to a targeted program that was subsequently reversed during the second quarter of 2013.
Broker fees, the percentage fee paid on agent-generated transactions, grew $0.9 million or 18.9% to $5.6 million compared to the prior year quarter. The increase was driven by growth in agent count and additional broker fee revenue that resulted from the acquisition of the Southwest and Central Atlantic regions.
Franchise sales and other franchise revenue decreased $0.2 million or 3.0% to $7.9 million compared to the prior year quarter. The decrease was primarily due to lower registration revenue associated with the Company's 2014 annual convention. The prior year convention had higher attendance and registration revenue due to the celebration of the Company's fortieth anniversary. The decrease in registration revenue was partially offset by an increase in revenue from franchise sales and franchise renewals.
Brokerage revenue, which principally represents fees assessed by the Company's owned brokerages for services provided to their affiliated real estate agents, was $3.2 million, a decrease of $0.4 million or 10.8% from the prior year quarter primarily due to the sale of one of our owned brokerage offices to another RE/MAX franchisee in May of 2013.
Total operating expenses were $29.2 million in the first quarter of 2014, $0.5 million lower than the prior year quarter mainly due to higher professional fees in the first quarter of 2013 related to the Initial Public Offering ("IPO"), partially offset by increased legal and compliance fees associated with being a public company. Rent expense decreased due to increased sublease income at the corporate office and the renegotiation of certain leases at the Company's owned brokerage offices. These decreases were slightly offset by higher amortization expense and additional selling, operating and administrative expenses associated with the acquisition of the Southwest and Central Atlantic regions.
Adjusted EBITDA margin was 38.8% for the first quarter of 2014 compared to 39.5% in the prior year quarter. The decrease was due to higher selling, operating and administrative expenses of $0.8 million compared to the prior year quarter, after adjusting for IPO expenses and other non-recurring charges incurred in the first quarter of 2013, primarily related to on-going public company costs. Adjusted EBITDA margin was also negatively impacted by the effects of foreign currency, which decreased operating income by $0.4 million and increased foreign currency transaction losses related to cash held in Canadian dollars by $0.5 million. On a constant currency basis, Adjusted EBITDA margin would have been 210 basis points higher.
Adjusted EBITDA was $16.3 million in the first quarter of 2014, up 5.3% or $0.8 million from the prior year quarter. The increase in Adjusted EBITDA was driven by revenue growth of $2.8 million attributable to an increase in agent count, fee increases and the incremental contributions from the acquired Southwest and Central Atlantic regions. The increased revenue was offset by higher foreign currency transaction losses and higher selling, operating and administrative expenses after adjusting for certain non-recurring charges in the prior year quarter. A reconciliation of Adjusted EBITDA to net income is included in Table 5.
Reported net income was $7.8 million for the first quarter of 2014, an increase of 44.2% or $2.4 million compared to the prior year quarter. The increase was primarily due to a $3.3 million increase in operating income and lower interest expense as a result of the Company's 2013 refinancing activity, partially offset by increased amortization expense, a higher provision for income taxes, and losses associated with foreign currency transactions.
Adjusted net income2 was $8.3 million for the first quarter 2014, an increase of 18.6% or $1.3 million compared to the prior year quarter. Adjusted basic and diluted EPS were both $0.28 for the first quarter 2014. Adjusted basic and diluted EPS each would have been $0.02 and $0.01 higher or $0.30 and $0.29, respectively, without the negative effects of foreign currency.
Net income attributable to RE/MAX Holdings, Inc. was $2.4 million for the first quarter of 2014. This amount excludes net income attributable to non-controlling interest. Reported basic and diluted EPS attributable to RE/MAX Holdings, Inc. were $0.21 and $0.20, respectively. Refer to Table 1 for the share counts used in the calculation of GAAP basic and diluted EPS attributable to RE/MAX Holdings, Inc.
The ownership structure used to calculate adjusted basic and diluted EPS for the three months ended March 31, 2014 reflects RE/MAX owning 100% of RMCO, LLC ("RMCO"). The actual RE/MAX ownership of RMCO is 39.56%. Refer to Table 6 in this press release for a reconciliation of adjusted net income to net income and the share counts used in the adjusted basic and diluted EPS calculations.
As of March 31, 2014, the Company had a cash balance of $97.2 million, an increase of $8.8 million from December 31, 2013. The Company had $227.8 million of term loans outstanding, net of unamortized discount as of March 31, 2014.
The Company's Board of Directors approved a quarterly dividend of $0.0625 per share of Class A common stock. The dividend is payable on June 5, 2014 to shareholders of record at the close of business on May 22, 2014.
Subsequent to the IPO, RE/MAX began to operate and control all of the business affairs of RMCO. As a result, RE/MAX began to consolidate RMCO on October 7, 2013, and because RE/MAX and RMCO are entities under common control, such consolidation has been reflected for all periods presented. Unless otherwise noted, the results presented in this press release are consolidated and exclude adjustments attributable to the non-controlling interest.
These historical results do not purport to reflect what the results of operations of RE/MAX would have been had the IPO and related reorganization and other transactions occurred prior to such periods.
The Company will host a conference call for interested parties beginning at 8:30 a.m. Eastern Time on Thursday, May 15, 2014. Interested parties are able to access the conference call using the following dial-in numbers:
U.S. 1-888-317-6016
Canada 1-855-669-9657
International 1-412-317-6016
Interested parties can access the live webcast through the Investor Relations section of the Company's website at www.remax.com. Please dial-in or join the webcast 10 minutes before the start of the conference call.
A replay of the call will be available approximately one hour after the end of the call on May 15, 2014 through May 23, 2014, by dialing 1-877-344-7529 (U.S.), 1-855-669-9658 (Canada) or 1-412-317-0088 (International) and entering the pass code 10044815. An archive of the webcast will be available on the Company's website for a limited time as well.
RE/MAX was founded in 1973 by Dave and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. Over 94,000 agents provide RE/MAX a global reach of more than 95 countries. Nobody sells more real estate than RE/MAX.
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).
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, including statements regarding outlook. 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 belief that it will drive margin expansion in the future and that it will continue to grow its network of agents, as well as any 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) our ability to attract and retain quality franchisees, (4) our franchisees' ability to recruit and retain agents, (5) changes in laws and regulations that may affect our business or the real estate market, (6) failure to maintain, protect and enhance the RE/MAX brand, 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 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 our 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.
1 Non-GAAP measures. See Table 5 for a reconciliation of net income to Adjusted EBITDA. See the end of this press release for a definition of Non-GAAP measures.
2 Non-GAAP measure. Adjusted Net Income measure assumes RE/MAX owns 100% of RMCO. RE/MAX actually owns 39.56% of RMCO. See Table 6 for a reconciliation of Adjusted Net Income and adjusted EPS to net income. See the end of this press release for a definition of Non-GAAP measures.
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The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures of non-GAAP financial measures, such as 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 GAAP.
RE/MAX defines Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest expense, net and the provision for income taxes, each of which is presented in our consolidated financial statements included elsewhere in this press release), adjusted for the impact of the following items that we do not consider representative of our ongoing operating performance: gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, equity-based compensation, non-cash straight-line rent expense, salaries paid to David and Gail Liniger, the Company's Chairman and Vice Chair, respectively, that the Company discontinued subsequent to the completion of the IPO, expenses incurred in connection with the IPO and acquisition integration costs.
RE/MAX defines Adjusted Net Income as net income, excluding the impact of amortization expense related to the Company's franchise agreements, charges incurred related to the early extinguishment of debt, gain on sale or disposition of assets and sublease, equity-based compensation, salaries paid to David and Gail Liniger, that the Company discontinued subsequent to the completion of the IPO, expenses incurred in connections with the IPO, and acquisition integration costs and reflects 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 taxes. The estimated effective tax rate was 38%.
Because Adjusted EBITDA and Adjusted Net Income omit certain non-cash items and other infrequent cash charges, the Company feels that these metrics are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and other infrequent cash charges 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 they are useful as supplemental measures in evaluating the performance of the Company's operating businesses and provides greater transparency into the Company's results of operations. The Company's management uses Adjusted EBITDA as a factor in evaluating the performance of their 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 results RE/MAX reported under GAAP. Some of these limitations are:
SOURCE RE/MAX Holdings, Inc.