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RE/MAX Holdings Reports Fourth Quarter And Full Year 2013 Results

By: RE/MAX |  0 Shares     169 Reads

DENVER, March 27, 2014 // PRNewswire // --

Fourth Quarter 2013 Highlights

• Revenue of $40.2 million, up 14.7% compared to the prior year quarter
• Adjusted EBITDA¹ of $18.5 million, up 3.7% compared to the prior year quarter
• Adjusted EBITDA¹ margin was 46.0% compared to 50.9% in the prior year quarter
• Reported adjusted basic and diluted earnings per share ("EPS") of $0.32 and $0.31, respectively
• Acquired the regional franchise rights in the Southwest and Central Atlantic regions
• Successful completion of initial public offering ("IPO") in October 2013

Full Year 2013 Highlights

• Total agent count at year-end was 93,228, up 4.7% compared to the prior year
• Revenue of $158.9 million, up 10.6% compared to the prior year
• Adjusted EBITDA¹ was $77.3 million, up 15.8% compared to the prior year
• Adjusted EBITDA¹ margin was 48.6% for the full year compared to 46.5% in the prior year
• Announced first quarterly dividend of $0.0625 per share of Class A common stock

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 fourth quarter and year ended December 31, 2013.

"For the second year in a row, we grew agent count, revenue and our adjusted EBITDA margin from the prior year," stated Margaret Kelly, Chief Executive Officer of RE/MAX. "Our highly productive agents capitalized on the recovering housing market in 2013, enabling us to perform extremely well. In addition, we acquired regional franchise rights for the Southwest and Central Atlantic regions, consistent with our strategy to drive enhanced profitability."

Kelly continued, "At RE/MAX, we understand success is driven by people and relationships. In 2014, we will continue our relentless efforts to provide our network of agents and brokers with innovative tools and ideas, so they are able to connect with more buyers and sellers. We will also continue to promote the benefits of our agent-centric model to attract productive agents to the RE/MAX family."

Fourth Quarter and Full Year 2013 Operating Results

In 2013, RE/MAX grew total agent count by 4,220 agents or 4.7% to 93,228 at year-end compared to the prior year-end. Agent count, as of December 31, 2013, in the United States ("U.S.") and Canada increased by 2,744 agents or 3.9% to 73,413 compared to the prior year-end. Agent count outside the U.S. and Canada saw an increase of 1,476 agents or 8.0% to 19,815 agents compared to the prior year-end.

Revenue

RE/MAX generated revenue of $158.9 million during the full year 2013, representing a 10.6% increase compared to $143.7 million for the same period in 2012. Increased revenue was primarily attributable to growth in agent count and higher broker fee revenue due to a rise in commissions resulting from increased home sale transactions and prices. The Company also generated additional fee-based revenue as a result of the acquisitions of the RE/MAX of Texas region in December 2012 and the Southwest and Central Atlantic regions in October 2013. Revenue was $40.2 million for the fourth quarter 2013, up 14.7% from the same period in 2012 due to the same revenue drivers that increased full year 2013 revenue.

The Company's fixed recurring revenue streams, which include annual dues and continuing franchise fees, accounted for 59.2% of the Company's annual revenues in 2013 and 59.3% of 2012 revenues. Annual dues, which are fixed fees paid by agents directly to RE/MAX, rose 2.1% to $29.5 million compared to the prior year due to growth in agent count. 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 $64.5 million, up 14.4% over the prior year. The increase was primarily driven by the acquisition and subsequent growth of RE/MAX of Texas and the acquisitions of the Southwest and Central Atlantic regions which allowed RE/MAX to earn a greater portion of continuing franchise fees.

RE/MAX also realized incremental growth through additional broker fee revenue as the housing market continued to recover and home sale transactions and prices increased. Broker fees, the percentage fee paid on agent-generated transactions, grew 26.7% to $24.8 million compared to $19.6 million in the prior year, reflecting incremental revenue that RE/MAX realizes as home sale transactions increase. Franchise sales and other franchise revenue increased $0.9 million or 4.2% to $23.6 million compared to the prior year primarily due to an increase in the sale of master franchise rights, including Japan for $1.0 million in the fourth quarter of 2013.

Brokerage revenue, which principally represents fees assessed by the Company's owned brokerages for services provided to their affiliated real estate agents, was $16.5 million, an increase of $0.3 million or 1.7% from the prior year.

Operating Expenses

Total operating expenses were $111.8 million for the full year 2013, $13.7 million higher than 2012 mainly due to one-time IPO-related expenses, amortization expense associated with the acquisition of the Texas, Southwest and Central Atlantic regions, increased personnel costs associated with the acquisitions and the activities related to being a public company.
Total operating expenses for the three months ended December 31, 2013 were $30.6 million, an increase of $5.5 million from the same period in 2012 due to the same drivers that increased operating expense for the full year 2013.

Adjusted EBITDA

The Company's Adjusted EBITDA margin was 48.6% for the full year 2013 compared to 46.5% in the prior year. Adjusted EBITDA was $77.3 million in 2013, up 15.8% or $10.5 million from the prior year. The increase in both Adjusted EBITDA and Adjusted EBITDA margin was driven by revenue growth of $15.2 million attributable to agent growth, higher broker fee revenue and additional continuing franchise fees from the acquisition of the Texas, Southwest and Central Atlantic regions.

The Company's Adjusted EBITDA margin was 46.0% for the three months ended December 31, 2013 compared to 50.9% in the fourth quarter of 2012. Adjusted EBITDA was $18.5 million for the three months ended December 31, 2013, up 3.7% from the prior year period Adjusted EBITDA of $17.9 million. The decrease in margin is primarily attributable to higher selling, operating and administrative expenses net of our one-time EBITDA Adjustments and increased foreign currency losses. A reconciliation of Adjusted EBITDA to net income is included in Table 5.

Net Income

Reported net income was $28.3 million for the full year 2013, a decrease of 15.2% or $5.1 million compared to the full year 2012 due primarily to increased interest expense and losses associated with the early extinguishment and refinancing of debt, one-time expenses related to the IPO, losses associated with foreign currency transactions and increased amortization expense associated with the acquisition of the Texas, Southwest and Central Atlantic regions. Reported net income was $5.6 million for the fourth quarter 2013. This compares to net income of $7.1 million for the same period in 2012. The 21.6% decline in reported net income reflects increased amortization expense associated with the acquisitions of the Texas, Southwest and Central Atlantic regions and increased losses associated with foreign currency transactions.

Adjusted net income2 increased by 18.6% to $37.9 million for the full year 2013. Adjusted net income for the fourth quarter 2013 grew 8.2% to $9.4 million. This compares to $8.7 million of adjusted net income for the fourth quarter 2012. Adjusted basic and diluted EPS were $0.32 and $0.31, respectively, for the fourth quarter 2013.
Net income attributable to RE/MAX Holdings, Inc. was $1.5 million for the period from the IPO (October 7, 2013) through December 31, 2013. This amount excludes net income attributable to non-controlling interest. Reported basic and diluted EPS attributable to RE/MAX Holdings, Inc. were $0.13 and $0.12, 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.

Since RE/MAX did not become a public company until the fourth quarter of 2013, the ownership structure used to calculate adjusted EPS for the three months ended December 31, 2013 reflects RE/MAX owning 100% of 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.

Balance Sheet

The Company ended 2013 with a cash balance of $88.4 million, an increase of $19.9 million from December 31, 2012. In July 2013, RE/MAX borrowed $230.0 million at a lower interest rate to refinance and repay existing debt. As of December 31, 2013, the Company had $228.4 million of term loans outstanding, net of unamortized discount.

Dividend

In-line with the Company's capital allocation strategy, 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 April 18, 2014 to shareholders of record at the close of business on April 4, 2014.
Successful Initial Public Offering

The Company completed its IPO of 11.5 million shares of Class A common stock on October 7, 2013 at a price to the public of $22.00 per share, raising net proceeds of $224.9 million after deducting underwriting discounts and commissions and offering expenses. The net proceeds of the IPO were used to acquire regional franchise rights in the Southwest and Central Atlantic regions of the U.S., redeem all of the outstanding preferred equity interests in RMCO held by the private equity firm Weston Presidio and purchase common interests from Weston Presidio and the RE/MAX founding shareholders.

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. For example, these historical results do not reflect the portion of RE/MAX's income attributable to the non-controlling interest or the provision for corporate income taxes on the income attributable to RE/MAX that we expect to record with respect to future periods.

Webcast and Conference Call

The Company will host a conference call for interested parties beginning at 5:00 p.m. Eastern Time on Thursday, March 27, 2014. Interested parties are able to access the conference call by dialing:

Dial-In:
1-888-317-6016

International Dial-In:
1-412-317-6016

Canada Dial-In:
1-855-669-9657

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 two hours after the end of the call on March 27, 2014 through April 4, 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 10041952. An archive of the webcast will be available on the Company's website for a limited time as well.

About the RE/MAX Network

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 93,000 agents provide RE/MAX a global reach of more than 90 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).

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, 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 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 final prospectus relating to the Company's IPO included in the Company's registration statement on Form S-1 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.

¹Non-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, LLC ("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.

 

 

 

 

 

 

 

 

 

 

Non-GAAP Financial Measures

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 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: loss 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 transaction 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, loss 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 transaction 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 39%.

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:

• — these measures do not reflect changes in, or cash requirements for, our 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 our interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
• — Adjusted EBITDA does not reflect our income tax expense or the cash requirements to pay our taxes; and
• — other companies may calculate these measures differently, so they may not be comparable.

SOURCE RE/MAX Holdings, Inc.

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