DENVER, Aug. 13, 2014 // PRNewswire // --
Second Quarter 2014 Highlights
(As compared to the second quarter 2013 unless otherwise noted)
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 second quarter ended June 30, 2014.
"We continue to grow our network of highly productive agents, maintain our expense discipline and expand our margins," stated Margaret Kelly, Chief Executive Officer of RE/MAX. "Even with mixed trends in the housing market, the strength and resilience of our business model is evident in the performance of our key business drivers. We are encouraged by our ongoing momentum and we expect continued agent count growth and solid margins for the remainder of the year."
Total agent count grew by 4,280 agents or 4.7% to 96,089 agents compared to the second quarter of 2013. For the six months ended June 30, 2014, the Company grew agent count by 2,861 agents or 3.1%. In the United States ("U.S."), agent count increased by 2,934 agents or 5.5% to 56,262 agents compared to the prior year quarter. In Canada, agent count decreased by 15 agents or 0.1% to 19,030 agents compared to the prior year quarter. Outside the U.S. and Canada, agent count increased by 1,361 agents or 7.0% to 20,797 agents compared to the prior year quarter.
RE/MAX generated revenue of $42.3 million during the second quarter of 2014, a 7.8% increase compared to $39.2 million for the same period in 2013 driven by an increase in agent count and incremental revenue from the acquired Southwest and Central Atlantic regions. Recurring revenue streams, which include continuing franchise fees and annual dues, accounted for 60.7% of revenues in the second quarter of 2014 compared to 58.3% in the prior year quarter.
Continuing franchise fees were $18.0 million, up $2.2 million or 13.8% over the prior year quarter primarily due to growth in agent count and additional revenue as a result of the acquisition of the Southwest and Central Atlantic regions in October 2013.
Revenue from annual dues was $7.6 million, up $0.6 million or 8.5% due to an increase in total agent count of 4,280 from the prior year quarter, of which 2,919 agents were located in the U.S. and Canada, and the January 1, 2014 increase in annual dues membership fee in the U.S. and Canada.
Revenue from broker fees was $8.0 million, up $1.2 million or 17.4% compared to the prior year quarter. The increase was driven by growth in agent count and additional revenue that resulted from the acquisition of the Southwest and Central Atlantic regions.
Franchise sales and other franchise revenue was $4.6 million, in-line with the prior year quarter.
Brokerage revenue, which principally represents fees assessed by the Company's owned brokerages for services provided to their affiliated real estate agents, was $4.1 million, a decrease of $0.9 million or 17.7% from the prior year quarter. The decrease was due to reduced management fee revenue recognized by our owned brokerage offices and a reduction in the number of closed transaction sides and home sales volume.
Total operating expenses were $23.3 million in the second quarter of 2014, a decrease of $2.5 million or 9.5% compared to the prior year quarter. Selling, operating and administrative expenses were $19.5 million, down $2.5 million or 11.4% from the prior year quarter. Selling, operating and administrative expenses were 46.0% of revenue in the second quarter of 2014 compared to 56.0% in the prior year quarter. The reduction in operating expenses is primarily due to lower professional fees compared to the prior year quarter when the Company incurred expenses related to its initial public offering ("IPO"). Selling, operating and administrative expenses also decreased due to a reduction in rent expense as a result of increased sublease income at the corporate office and the renegotiation of certain leases at the Company's owned brokerage offices.
Adjusted EBITDA margin was 57.2% for the second quarter of 2014 compared to 54.2% in the prior year quarter. Adjusted EBITDA was $24.2 million in the second quarter of 2014, up 13.7% or $2.9 million from the prior year quarter. The increase in Adjusted EBITDA was largely driven by revenue growth attributable to an increase in agent count and incremental contributions from the acquired Southwest and Central Atlantic regions. The increase was also attributable to lower selling, operating and administrative expenses and foreign currency transaction gains related primarily to cash held in Canadian dollars. A reconciliation of Adjusted EBITDA to net income is included in Table 5.
Reported net income was $14.5 million for the second quarter of 2014, an increase of $5.0 million or 52.0% compared to the prior year quarter. The increase was primarily due to higher operating income, lower interest expense as a result of the Company's 2013 refinancing activity and gains associated with foreign currency transactions, partially offset by a higher provision for income taxes.
Adjusted net income2 was $13.4 million for the second quarter 2014, an increase of $2.7 million or 25.4% compared to the prior year quarter. Adjusted basic and diluted EPS were $0.46 and $0.45, respectively for the second quarter 2014.
Net income attributable to RE/MAX Holdings, Inc. was $4.4 million for the second 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 $0.38 and $0.36, respectively. Refer to Table 1 for the share counts used in the calculation of U.S. 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 and six months ended June 30, 2014 reflects RE/MAX owning 100% of RMCO, LLC ("RMCO"). The actual RE/MAX ownership of RMCO was 39.50% at June 30, 2014. 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 June 30, 2014, the Company had a cash balance of $84.6 million, a decrease of $3.8 million from December 31, 2013. The Company made an excess cash flow payment of $14.6 million on its term loan in April of 2014. The Company had $212.7 million of term loans outstanding, net of unamortized discount as of June 30, 2014, down from $228.4 million as of December 31, 2013.
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 September 3, 2014 to shareholders of record at the close of business on August 20, 2014.
Based on the Company's performance during the first and second quarters of this year and its belief in a measured and sustainable housing recovery, the Company is providing the following outlook for its third quarter 2014 and re-confirming its full-year outlook for 2014:
Third Quarter 2014 Outlook:
Full-Year 2014 Outlook:
Revenue, Selling, operating and administrative expenses and Adjusted EBITDA margin are subject to fluctuations in the Canadian dollar to U.S. dollar exchange rate.
Basis of Presentation
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.
Webcast and Conference Call
The Company will host a conference call for interested parties today, August 13, 2014, beginning at 5:00 p.m. Eastern Time. Interested parties are able to access the conference call using the following dial-in numbers:
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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 August 13, 2014 through August 28, 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 10049898. 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 David and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. Over 96,000 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 for the third quarter 2014 and full fiscal year 2014. 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 expectation of continued agent growth and solid margins for the balance of the year, its belief in a measured and sustainable recovery, 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) 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, 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 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.
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 39.50% 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 financial measures that are not in accordance with U.S. generally accepted accounting principles ("U.S. 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 U.S. 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 the Company's condensed consolidated financial statements included elsewhere in this press release), adjusted for the impact of the following items that we do not consider representative of the Company's 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, professional fees and non-recurring 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 connection 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 non-recurring cash charges, 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 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 U.S. GAAP. Some of these limitations are:
With respect to the Company's outlook with respect to Adjusted EBITDA margin for the third quarter and the full fiscal year 2014, 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 charges, such as gain on sale or disposition of assets and sublease, loss on early extinguishment of debt and equity-based compensation, 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 this non-GAAP guidance measures to U.S. GAAP is not available without unreasonable effort.
SOURCE RE/MAX Holdings, Inc.