DENVER, Feb. 20, 2020 // PRNewswire // -
Full-Year 2019 Highlights
(Compared to full-year 2018 unless otherwise noted)
Fourth Quarter 2019 Highlights
(Compared to fourth quarter 2018 unless otherwise noted)
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 full year and fourth quarter ended December 31, 2019.
"Recent RE/MAX recruiting initiatives and Motto marketing efforts generated positive results almost immediately, contributing to a bounce back in our U.S. agent count and record Motto Mortgage franchise sales, two of our key leading indicators, in the fourth quarter," stated Adam Contos, RE/MAX Holdings Chief Executive Officer. "Continued global agent count growth, contributions from the strategic initiatives we've undertaken and the investments we've made during the past two years, coupled with the relatively attractive housing markets in both the U.S. and Canada has us entering 2020 with momentum."
Contos continued, "The ongoing technology transformation at RE/MAX continues with the successful completion of the initial release of the booj Platform and the acquisition of First and its mobile app, which helps agents unlock the value of their network to drive more business. Our brokers and agents on the booj Platform are now able to connect better with clients and establish a more effective digital presence through compelling agent, team and office websites, a modern new consumer app, and the refresh of remax.com. On the Motto side, we see continued demand across multiple customer types alongside accelerating franchise sales. Interest in owning a Motto franchise remains high and we expect to surpass our 2019 franchise sales total in 2020."
Fourth Quarter 2019 Operating Results
Agent Count
The following table compares agent count as of December 31, 2019 and 2018:
Revenue
RE/MAX Holdings generated total revenue of $68.2 million in the fourth quarter of 2019, an increase of $17.4 million or 34.1% compared to $50.8 million in the fourth 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, decreased $0.5 million compared to the fourth quarter of 2018 and accounted for 66.6% of revenue (excluding the Marketing Funds) in the fourth quarter of 2019, compared to 67.4% in the comparable period in 2018.
Operating Expenses
Total operating expenses were $58.2 million for the fourth quarter of 2019. Excluding the Marketing Funds from operating expenses, fourth quarter 2019 operating expenses totaled $40.8 million, an increase of $11.4 million or 38.6% compared to $29.4 million in the fourth quarter of 2018. Fourth quarter operating expenses increased primarily due to higher selling, operating and administrative expenses and a gain on reduction in tax receivable agreement that occurred in the fourth quarter of 2018.
Selling, operating and administrative expenses were $35.2 million in the fourth quarter of 2019, an increase of $5.1 million or 17.0% compared to the fourth quarter of 2018 and represented 69.3% of revenue (excluding the Marketing Funds), compared to 59.1% in the prior-year period. Selling, operating and administrative expenses increased primarily due to higher equity-based compensation expense, the unfavorable timing of certain annual regional events, and increased legal expenses.
Net Income and GAAP EPS
Net income attributable to RE/MAX Holdings was $2.9 million for the fourth quarter of 2019, a decrease of $3.3 million over the fourth quarter of 2018. Reported basic and diluted GAAP EPS were each $0.16 for the fourth quarter of 2019 compared to $0.35 in the fourth quarter of 2018.
Adjusted EBITDA and Adjusted EPS
Adjusted EBITDA was $22.5 million for the fourth quarter of 2019, a decrease of $0.8 million or 3.3% from the fourth quarter of 2018. Adjusted EBITDA decreased primarily due to increased legal and event costs coupled with flat revenue. Adjusted EBITDA margin was 33.0% in the fourth quarter of 2019 compared to 45.8% in the fourth quarter of 2018 and decreased primarily due to the acquisition of the Marketing Funds.
Adjusted basic and diluted EPS were each $0.47 for the fourth quarter of 2019, a decrease of $0.02 per share compared to the fourth quarter of 2018. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended December 31, 2019 assumes RE/MAX Holdings owned 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX Holdings had in RMCO was 58.7% for the quarter ended December 31, 2019.
Balance Sheet
As of December 31, 2019, the Company had cash and cash equivalents of $83.0 million. The Company's cash and cash equivalents increased $23.0 million from December 31, 2018. As of December 31, 2019, the Company had $225.7 million of outstanding debt, net of an unamortized debt discount and issuance costs, a decrease of $2.1 million compared to $227.8 million as of December 31, 2018.
Dividend
On February 19, 2020, the Company's Board of Directors approved a quarterly cash dividend of $0.22 per share of Class A common stock. The quarterly dividend is payable on March 18, 2020, to shareholders of record at the close of business on March 4, 2020.
Outlook
"Looking ahead, we plan to continue to make strategic investments like First that add value to and deepen our connection with our networks," said Karri Callahan, RE/MAX Holdings Chief Financial Officer. "We are excited by First's potential to be a popular and effective tool designed to improve the productivity of those RE/MAX agents who subscribe to it. As we transition off First's legacy customer base and on-board RE/MAX agents, we expect the acquisition to be dilutive to 2020 Adjusted EPS by $0.04 to $0.06 per share, and to be accretive to both 2021 Adjusted EBITDA margin and Adjusted EPS."
Callahan continued, "We also continue to invest in RE/MAX recruiting efforts and initial returns on this investment are encouraging as evidenced by our fourth quarter U.S. agent count improvement. Our fourth quarter recruiting campaign incentivized our RE/MAX broker-owners in part by waiving certain fees on newly recruited agents for a limited time. As a result, we estimate we will forgo $2 million to $3 million in non-Marketing Fund related revenue through the third quarter of this year. These financial incentives are an investment in our franchisees' and agents' businesses and reduce the barriers of changing affiliations."
For the first quarter of 2020, RE/MAX Holdings expects:
For the full-year 2020, RE/MAX Holdings expects:
The Company's first quarter and full-year 2020 Outlook assumes no further currency movements, acquisitions or divestitures.
The effective U.S. GAAP tax rate attributable to RE/MAX Holdings is estimated to be between 18% and 20% in 2020.
Webcast and Conference Call
The Company will host a conference call for interested parties on Friday, February 21, 2020, 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.
Footnotes:
1Total open Motto Mortgage franchises includes only "bricks and mortar" offices with a unique physical address with rights granted by a full franchise agreement with Motto Franchising, LLC and excludes any "virtual" offices or "branchises". A virtual office is a right granted by Motto to a franchisee to operate in an additional state. The rights for up to two virtual offices are granted to a Motto franchisee at the time of purchase; the virtual office concept allows that franchisee to take advantage of business opportunities in an additional, sometimes adjoining, state. There are no incremental franchise fees or monthly royalty fees directly associated with a virtual office. A branchise is a scaled down Motto franchise. Branchises are designed for an existing Motto franchise owner who desires to expand to an additional location where the franchisee is uncertain whether anticipated loan origination volume will support full franchise fees. Motto franchisees pay a reduced franchise fee and monthly royalty rate for a branchise.
2Adjusted 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.
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 130,000 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. Motto Mortgage has grown to over 100 offices across more than 30 states.
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 first quarter and full-year 2020; dividends; non-GAAP financial measures; estimated effective tax rates for 2020; housing and mortgage market conditions; economic and demographic trends; expansion of Motto Mortgage; the effectiveness of recruiting initiatives and marketing efforts; technology initiatives, including the booj technology platform and First technology; the Company's momentum in 2020; 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, and (8) fluctuations in foreign currency exchange rates, 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.
View Original for Full Data Table
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(1) For the three months ended December 31, 2019, modification of awards granted for certain booj work deliverables resulted in the entire fair value of the awards being recognized in expense as compared to the prior comparative period.
(2) Acquisition-related expense includes legal, accounting, advisory and consulting fees incurred in connection with the acquisition and integration of acquired companies.
(3) Gain on reduction in tax receivable agreement liability is a result of the Tax Cuts and Jobs Act enacted in December 2017 and further clarified in 2018.
(4) Special Committee investigation and remediation expense relates to costs incurred in relation to the previously disclosed investigation by the special committee of independent directors of actions of certain members of our senior management and the implementation of the remediation plan.
(5) Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liability.
(6) Non-GAAP measure. See the end of this press release for definitions of non-GAAP measures.
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:
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:
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 free cash flow is removed. 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.
SOURCE RE/MAX Holdings, Inc.