RE/MAX Holdings Reports Fourth Quarter And Full Year 2014 Results

DENVER, March 12, 2015 // PRNewswire // --

Full Year 2014 Highlights
(Compared to full year 2013 unless otherwise noted)

  • Year-end agent count of 98,010, up 5.1%
  • Revenue grew by 7.6% to $171.0 million
  • Adjusted EBITDA1 was $83.8 million, up 8.8%
  • Adjusted EBITDA1 margin of 49.0%, up from 48.5%
  • Adjusted basic and diluted earnings per share ("EPS") of $1.54 and $1.51, respectively 
  • FX negatively impacted full year 2014 Adjusted EBITDA margin by 116 basis points and Adjusted basic and diluted EPS by approximately $0.03
  • Doubled regular quarterly dividend to $0.125 per share
  • Announced special dividend of $1.50 per share

Fourth Quarter 2014 Highlights
(Compared to the fourth quarter 2013 unless otherwise noted)

  • Revenue grew by 5.8% to $42.6 million
  • Adjusted EBITDA1 of $20.3 million, up 11.3%
  • Adjusted EBITDA1 margin of 47.8%, up from 45.4%
  • Adjusted basic and diluted EPS of $0.37 and $0.37, respectively 
  • FX negatively impacted Q4 Adjusted EBITDA margin by 240 basis points and Adjusted basic and diluted EPS by approximately $0.02

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 full-year ended December 31, 2014.

"In 2014, we had our largest agent gain since 2006 as nearly 4,800 agents chose to join RE/MAX," stated Dave Liniger, Chief Executive Officer ("CEO") and Co-Founder of RE/MAX. "Our 2014 office franchise sales outpaced every year since 2010 and we expanded our Adjusted EBITDA margin to 49% despite foreign exchange headwinds. With a steadily improving housing market, we believe our agent-centric model will continue to attract more real estate professionals in 2015, allowing us to grow our global agent network by an estimated 4% to 5% over 2014."

Liniger continued, "One of the key strengths of our business model is our significant free cash flow generation, which allows us the capital flexibility to invest in growing the business and return capital to shareholders. Given the inherent stability of our business model and the strength of our balance sheet, our Board doubled our regular quarterly dividend to $0.125 per share and approved a special one-time dividend of $1.50 per share. Our focus is and will continue to be on allocating capital to create value for shareholders."

Full Year 2014 Operating Results

Agent Count

Total agent count grew by 4,782 agents to 98,010 agents or 5.1% compared to year-end 2013. In the United States ("U.S."), agent count increased by 2,614 agents to 57,105 agents or 4.8% compared to the prior year. Agent count in the U.S. Company-owned and Independent regions grew by 5.6% and 3.5%, respectively, compared to the prior year. In Canada, agent count increased by 118 agents to 19,040 agents or 0.6% compared to the prior year. Outside the U.S. and Canada, agent count increased by 2,050 agents to 21,865 agents or 10.3% compared to the prior year.

Revenue

RE/MAX generated revenue of $171.0 million for the full-year 2014, a 7.6% increase compared to $158.9 million in 2013, driven by incremental revenue from the Southwest and Central Atlantic regions acquired in October 2013 and an increase in agent count. Recurring revenue streams, which include continuing franchise fees and annual dues, accounted for 60.5% of revenues in 2014 compared to 59.2% in the prior year.

Revenue from continuing franchise fees was $72.7 million, up $8.2 million or 12.8% over the prior year primarily due to growth in agent count and incremental revenue that resulted from the acquisition of the Southwest and Central Atlantic regions.

Revenue from annual dues was $30.7 million, up $1.2 million or 4.1% compared to the prior year. The increase was due to 1) an increase in total agent count of 4,782 from the prior year, of which 2,732 agents were located in the U.S. and Canada, and 2) the January 1, 2014 increase in annual dues membership fees for the Company's U.S. and Canadian agents.

Revenue from broker fees was $28.7 million, up $3.9 million or 15.6% compared to the prior year. The increase was driven by growth in agent count and incremental revenue that resulted from the acquisition of the Southwest and Central Atlantic regions.

Franchise sales and other franchise revenue was $23.4 million, down $0.1 million or 0.6% compared to the prior year driven by a decrease in regional and master franchise sales outside the U.S. and Canada. The decrease was partially offset by an increase in office franchise sales and renewals in U.S. Company-owned regions.

Brokerage revenue, which principally represents fees assessed by the Company's owned brokerages for services provided to their affiliated real estate agents, was $15.4 million, a decrease of $1.1 million or 6.4% from the prior year. The decrease was due to a reduction in the number of owned brokerage offices in the second quarter of 2013, which had a full year impact in 2014, and a reduction in closed transaction sides and home sales volume at the Company's owned brokerage offices.

Operating Expenses

Total operating expenses were $107.1 million for the full-year 2014, a decrease of $4.6 million or 4.1% compared to the prior year. Selling, operating and administrative expenses were $91.8 million, down $4.4 million or 4.6% from the prior year. Selling, operating and administrative expenses were 53.7% of revenue for 2014 compared to 60.6% in the prior year. The reduction in operating expenses is primarily due to 1) lower professional fees compared to the prior year due to costs incurred in connection with the Company's initial public offering ("IPO") during 2013 and 2) lower rent expense due to a loss recorded in 2013 related to the sublease of office space at the Company's headquarters. The expense reduction was partially offset by one-time severance and other related expenses incurred in the fourth quarter of 2014 in connection with the retirement of the Company's former CEO and a re-organization to improve operating efficiencies at the corporate headquarters.

Adjusted EBITDA

Adjusted EBITDA margin was 49.0% for 2014 compared to 48.5% in the prior year. Adjusted EBITDA was $83.8 million for 2014, up $6.8 million or 8.8% from the prior year. 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 continued weakening of the Canadian dollar against the U.S. dollar and the effect of foreign currency transaction losses primarily related to cash held in Canadian dollars decreased Adjusted EBITDA margin by approximately 116 basis points for the year. A reconciliation of Adjusted EBITDA to net income is included in Table 5.

Net Income

Reported net income was $44.0 million for 2014, an increase of $15.7 million or 55.7% compared to the prior year. The increase was primarily due to higher operating income and lower interest expense as a result of the Company's 2013 debt refinancing, partially offset by foreign currency transaction losses and a higher provision for income taxes.

Adjusted net income2 was $45.3 million for 2014, an increase of $8.2 million or 22.2% compared to the prior year. Adjusted basic and diluted EPS were $1.54 and $1.51 for 2014, respectively, compared to $1.26 and $1.24 for 2013, respectively. The weakening of the Canadian dollar against the U.S. dollar during 2014 negatively impacted 2014 Adjusted basic and diluted EPS by approximately $0.03.

Net income attributable to RE/MAX Holdings, Inc. was $13.4 million for 2014. This amount excludes net income attributable to the non-controlling interest. Reported basic and diluted EPS attributable to RE/MAX Holdings, Inc. were $1.16 and $1.10, respectively. 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 and twelve months ended December 31, 2014 contemplates RE/MAX owning 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX had of RMCO was 39.67% and 39.57% for the three months and twelve months ended December 31, 2014, respectively. 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

As of December 31, 2014, the Company had a cash balance of $107.2 million, an increase of $18.8 million from December 31, 2013. The Company had $211.7 million of term loans outstanding, net of unamortized discount as of December 31, 2014, down from $228.4 million as of December 31, 2013.

Dividend

The Company announced that its Board of Directors doubled the quarterly dividend to $0.125 per share and approved a special cash dividend of $1.50 per share. The aggregate payment of the special cash dividend will be approximately $45 million and will be funded through existing cash.

The regular quarterly dividend is payable on April 8, 2015 to shareholders of record at the close of business on March 25, 2015. The special cash dividend is payable on April 8, 2015 to shareholders of record at the close of business on March 23, 2015.

Outlook

Revenue, selling, operating and administrative expenses and Adjusted EBITDA margin are subject to currency exchange rate fluctuations principally related to changes in the Canadian dollar to U.S. dollar exchange rate. In 2014, the Company generated 14% of its revenue in Canada and realized an average exchange of $0.90 U.S. for every $1.00 Canadian. The Company's 2015 outlook reflects an annualized estimated exchange rate of $0.78 U.S. for every $1.00 Canadian.

First Quarter 2015 Outlook:

  • Agent count is estimated to increase by 4.5% to 5% over first quarter 2014;
  • Revenue is estimated to increase by 4% to 5% over first quarter 2014;
  • Selling, operating and administrative expenses are estimated to be 56% to 58% of first quarter 2015 revenue; and
  • Adjusted EBITDA margin is estimated to be in the 40% to 41% range.

The Company's expenses are higher and its Adjusted EBITDA margin is lower in the first quarter due to seasonality of the business and expenses associated with the Company's annual convention, which is an important agent and broker engagement and recruitment event.

Full-Year 2015 Outlook:

  • Agent count is estimated to increase by 4% to 5% over 2014;
  • Revenue is estimated to increase by 3% to 4% over 2014;
  • Selling, operating and administrative expenses are estimated to be 50% to 52% of 2015 revenue;
  • Adjusted EBITDA margin is estimated to be in the 49% to 50% range; and
  • Project related operating and capital expenditures of $3.0 to $3.5 million and $2.0 to $2.5 million, respectively.

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.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, March 13, 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. 1-877-512-8755
Canada 1-855-669-9657
International 1-412-902-4144

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 March 13, 2015 through March 27, 2015, by dialing 1-877-344-7529 (U.S.), 1-855-669-9658 (Canada) or 1-412-317-0088 (International) and entering the pass code 10060939. 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 David and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. Over 98,000 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).

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 first quarter and full fiscal year, expectations regarding agent count and Adjusted EBITDA margins for its full fiscal year, the Company's belief that business fundamentals remain strong, 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.

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.

 

Non-GAAP measure. Adjusted net income measure assumes RE/MAX owns 100% of RMCO. As of December 31, 2014 RE/MAX actually owned 39.89% 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.

 

TABLE 1

 

RE/MAX Holdings, Inc.
Consolidated Statements of Income
(Amounts in thousands, except share and per share amounts)

 
   
 

Three Months Ended December 31,

   

Year Ended December 31,

 
 

2014

   

2013

   

2014

   

2013

 
 

(Unaudited)

                 

Revenue:

                   

Continuing franchise fees

$

18,455

   

$

17,428

   

$

72,706

   

$

64,465

 

Annual dues

 

7,880

     

7,472

     

30,726

     

29,524

 

Broker fees

 

6,832

     

6,107

     

28,685

     

24,811

 

Franchise sales and other franchise revenue

 

5,505

     

5,751

     

23,440

     

23,574

 

Brokerage revenue

 

3,893

     

3,476

     

15,427

     

16,488

 

Total revenue

 

42,565

     

40,234

     

170,984

     

158,862

 

Operating expenses:

                             

Selling, operating and administrative expenses

 

26,526

     

26,155

     

91,847

     

96,243

 

Depreciation and amortization

 

3,799

     

4,078

     

15,316

     

15,166

 

(Gain) loss on sale or disposition of assets, net

 

(13)

     

332

     

(14)

     

373

 

Total operating expenses

 

30,312

     

30,565

     

107,149

     

111,782

 

Operating income

 

12,253

     

9,669

     

63,835

     

47,080

 

Other expenses, net:

                             

Interest expense

 

(2,288)

     

(2,594)

     

(9,295)

     

(14,647)

 

Interest income

 

108

     

97

     

313

     

321

 

Foreign currency transaction losses

 

(844)

     

(629)

     

(1,348)

     

(764)

 

Loss on early extinguishment of debt

 

-

     

-

     

(178)

     

(1,798)

 

Equity in earnings of investees

 

206

     

168

     

600

     

904

 

Total other expenses, net

 

(2,818)

     

(2,958)

     

(9,908)

     

(15,984)

 

Income before provision for income taxes

 

9,435

     

6,711

     

53,927

     

31,096

 

Provision for income taxes

 

(1,818)

     

(1,111)

     

(9,948)

     

(2,844)

 

Net income

$

7,617

   

$

5,600

   

$

43,979

   

$

28,252

 

Less: net income attributable to non-controlling interest

 

5,241

     

4,094

     

30,543

     

26,746

 

Net income attributable to RE/MAX Holdings, Inc.

$

2,376

   

$

1,506

   

$

13,436

   

$

1,506

 
                               
         

October 7, 2013 through December 31, 2013

           

October 7, 2013 through December 31, 2013

 

Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock

                             

Basic

$

0.20

   

$

0.13

   

$

1.16

   

$

0.13

 

Diluted

$

0.19

   

$

0.12

   

$

1.10

   

$

0.12

 

Weighted average shares of Class A common stock outstanding

                             

Basic

 

11,662,874

     

11,607,971

     

11,611,164

     

11,607,971

 

Diluted

 

12,259,440

     

12,234,905

     

12,241,977

     

12,234,905

 

Cash dividends declared per share of Class A common stock

$

0.0625

   

$

-

   

$

0.25

   

$

-

 

 

TABLE 2

RE/MAX Holdings, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)

 
 

December 31,

 
 

2014

   

2013

 

Assets

             

Current assets:

             

Cash and cash equivalents

$

107,199

   

$

88,375

 

Escrow cash - restricted

 

693

     

710

 

Accounts and notes receivable, current portion, less allowances of $4,495 and $4,122, respectively

 

16,641

     

15,980

 

Accounts receivable from affiliates

 

231

     

5

 

Income taxes receivable

 

765

     

-

 

Other current assets

 

5,237

     

5,010

 

 Total current assets

 

130,766

     

110,080

 

Property and equipment, net of accumulated depreciation of $19,993 and $19,400, respectively

 

2,661

     

2,583

 

Franchise agreements, net of accumulated amortization of $87,330 and $73,764, respectively

 

75,505

     

89,071

 

Other intangible assets, net of accumulated amortization of $8,550 and $7,912, respectively

 

2,725

     

2,486

 

Goodwill

 

72,463

     

72,781

 

Deferred tax assets, net

 

66,903

     

67,791

 

Investments in equity method investees

 

3,693

     

3,642

 

Debt issuance costs, net

 

1,896

     

2,353

 

Other assets

 

1,715

     

2,036

 

 Total assets

$

358,327

   

$

352,823

 

Liabilities and stockholders' equity

             

Current liabilities:

             

Accounts payable

$

561

   

$

731

 

Accounts payable to affiliates

 

1,114

     

1,017

 

Escrow liabilities

 

693

     

710

 

Accrued liabilities

 

9,380

     

9,344

 

Income taxes and tax distributions payable

 

189

     

3,000

 

Deferred revenue and deposits

 

17,142

     

15,821

 

Current portion of debt

 

9,460

     

17,300

 

Current portion of payable pursuant to tax receivable agreements

 

3,914

     

902

 

Other current liabilities

 

211

     

206

 

 Total current liabilities

 

42,664

     

49,031

 

Debt, net of current portion

 

202,213

     

211,104

 

Payable pursuant to tax receivable agreements, net of current portion

 

63,504

     

67,938

 

Deferred tax liabilities, net

 

190

     

195

 

Other liabilities, net of current portion

 

10,473

     

9,016

 

 Total liabilities

 

319,044

     

337,284

 

Commitments and contingencies

             

Stockholders' equity:

             

Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 11,768,041 shares issued and outstanding as of December 31, 2014; 11,607,971 shares issued and outstanding as of December 31, 2013

 

1

     

1

 

Class B common stock, par value $0.0001 per share, 1,000 shares authorized; 1 share issued and outstanding as of December 31, 2014 and 2013

 

-

     

-

 

Additional paid-in capital

 

241,882

     

239,086

 

Retained earnings

 

12,041

     

1,506

 

Accumulated other comprehensive income

 

886

     

1,371

 

 Total stockholders' equity attributable to RE/MAX Holdings, Inc.

 

254,810

     

241,964

 

Non-controlling interest

 

(215,527)

     

(226,425)

 

 Total stockholders' equity

 

39,283

     

15,539

 

 Total liabilities and stockholders' equity

$

358,327

   

$

352,823

 

 

TABLE 3

RE/MAX Holdings, Inc.
Consolidated Statements of Cash Flow
(Amounts in thousands)

 
 

Year Ended December 31,

 
 

2014

   

2013

 

Cash flows from operating activities:

             

Net income

$

43,979

   

$

28,252

 

Adjustments to reconcile net income to net cash provided by operating activities:

             

Depreciation and amortization

 

15,316

     

15,166

 

Bad debt expense

 

630

     

604

 

(Gain) loss on sale or disposition of assets, net

 

(14)

     

373

 

Loss on early extinguishment of debt

 

178

     

1,798

 

Equity in earnings of investees

 

(600)

     

(904)

 

Distributions received from equity investees

 

549

     

1,162

 

Equity-based compensation

 

2,002

     

2,995

 

Non-cash interest expense

 

365

     

859

 

Deferred income tax expense

 

1,865

     

402

 

Changes in operating assets and liabilities:

             

Accounts and notes receivable, current portion

 

(1,466)

     

(585)

 

Advances from/to affiliates

 

(161)

     

57

 

Other current and noncurrent assets

 

100

     

(1,245)

 

Other current and noncurrent liabilities

 

858

     

1,574

 

Deferred revenue and deposits

 

1,094

     

(439)

 

Payment pursuant to Tax Receivable Agreement

 

(986)

     

-

 

Net cash provided by operating activities

 

63,709

     

50,069

 

Cash flows from investing activities:

             

Purchases of property, equipment and software

 

(2,026)

     

(1,108)

 

Proceeds from sale of property and equipment

 

5

     

18

 

Cost to sell assets

 

-

     

-

 

Capitalization of trademark costs

 

(122)

     

(232)

 

Acquisitions

 

-

     

(27,305)

 

Dispositions

 

100

     

-

 

Net cash used in investing activities

 

(2,043)

     

(28,627)

 

Cash flows from financing activities:

             

Proceeds from issuance of debt

 

-

     

230,000

 

Payments on debt

 

(16,816)

     

(234,658)

 

Debt issuance costs

 

-

     

(1,345)

 

Proceeds from issuance of Class A common stock in initial public offering

 

-

     

235,922

 

Payments of costs directly associated with issuance of Class A common stock

 

-

     

(5,972)

 

Purchase of Common Units from RMCO, LLC

 

-

     

(197,618)

 

Distributions to non-controlling unitholders

 

(22,197)

     

(27,614)

 

Dividends paid to Class A common stockholders

 

(2,901)

     

-

 

Payments on capital lease obligations

 

(204)

     

(266)

 

Excess tax benefit realized on delivery of vested restricted stock units and exercise of stock options

 

736

     

-

 

Cancellation of vested restricted stock units for required tax withholding

 

(1,781)

     

-

 

Proceeds from exercise of stock options

 

486

     

-

 

Net cash used in financing activities

 

(42,677)

     

(1,551)

 

Effect of exchange rate changes on cash

 

(165)

     

(17)

 

Net increase in cash and cash equivalents

 

18,824

     

19,874

 

Cash and cash equivalents, beginning of year

 

88,375

     

68,501

 

Cash and cash equivalents, end of year

$

107,199

   

$

88,375

 

Supplemental disclosures of cash flow information:

             

Cash paid for interest

$

8,880

   

$

13,769

 

Cash paid for income taxes

 

8,521

     

2,310

 

Schedule of non-cash investing and financing activities:

             

Establishment of deferred tax assets

$

917

   

$

69,711

 

Establishment of amounts payable under tax receivable agreements

 

436

     

68,840

 

Note receivable related to sale of assets of regional franchising operations

 

-

     

-

 

Capital leases for property and equipment

 

18

     

581

 

Tax distributions payable to non-controlling unitholders

 

-

     

2,552

 

 

TABLE 4

 

RE/MAX Holdings, Inc.
Agent Count
(Unaudited)

 
   
   

As of

 
   

December 31,

   

September 30,

   

June 30,

   

March 31,

   

December 31,

   

September 30,

   

June 30,

   

March 31,

   

December 31,

 
   

2014

   

2014

   

2014

   

2014

   

2013

   

2013

   

2013

   

2013

   

2012

 

Agent Count:

                                                                       

U.S.

                                                                       

Company-owned regions (1)

   

35,299

     

35,377

     

34,686

     

33,911

     

33,416

     

27,343

     

26,846

     

26,189

     

25,819

 

Independent regions (1)

   

21,806

     

21,804

     

21,576

     

21,375

     

21,075

     

26,879

     

26,482

     

26,030

     

25,984

 

U.S. Total

   

57,105

     

57,181

     

56,262

     

55,286

     

54,491

     

54,222

     

53,328

     

52,219

     

51,803

 

Canada

                                                                       

Company-owned regions

   

6,261

     

6,258

     

6,212

     

6,117

     

6,084

     

6,089

     

6,106

     

6,073

     

6,070

 

Independent regions

   

12,779

     

12,849

     

12,818

     

12,852

     

12,838

     

12,934

     

12,939

     

12,804

     

12,796

 

Canada Total

   

19,040

     

19,107

     

19,030

     

18,969

     

18,922

     

19,023

     

19,045

     

18,877

     

18,866

 

Outside U.S. and Canada

                                                                       

Company-owned regions

   

328

     

312

     

301

     

323

     

338

     

319

     

316

     

334

     

336

 

Independent regions

   

21,537

     

21,047

     

20,496

     

19,807

     

19,477

     

19,167

     

19,120

     

18,542

     

18,003

 

Outside U.S. and Canada Total

   

21,865

     

21,359

     

20,797

     

20,130

     

19,815

     

19,486

     

19,436

     

18,876

     

18,339

 

Total

   

98,010

     

97,647

     

96,089

     

94,385

     

93,228

     

92,731

     

91,809

     

89,972

     

89,008

 

Net change in agent count compared to the prior period

   

363

     

1,558

     

1,704

     

1,157

     

497

     

922

     

1,837

     

964

         

 

   

(1)

As of December 31, 2014, September 30, 2014, June 30, 2014, March 31, 2014 and December 31, 2013, U.S. Company-owned Regions includes agents in the Southwest and Central Atlantic regions which converted from Independent regions to Company-owned regions in connection with the acquisitions of the business assets of HBN, Inc. ("HBN") and Tails, Inc. ("Tails") on October 7, 2013.  As of the acquisition date, the Southwest and Central Atlantic regions had a total of 5,918 agents. 

 

TABLE 5

RE/MAX Holdings, Inc. 
Adjusted EBITDA Reconciliation to Net Income
(Amounts in thousands, except percentages)
(Unaudited)

 
 

Three Months Ended December 31,

   

Year Ended December 31,

 
 

2014

   

2013

   

2014

   

2013

 

Consolidated:

                             

Net income (1)

$

7,617

   

$

5,600

   

$

43,979

   

$

28,252

 

Depreciation and amortization

 

3,799

     

4,078

     

15,316

     

15,166

 

Interest expense

 

2,288

     

2,594

     

9,295

     

14,647

 

Interest income

 

(108)

     

(97)

     

(313)

     

(321)

 

Provision for income taxes

 

1,818

     

1,111

     

9,948

     

2,844

 

EBITDA

 

15,414

     

13,286

     

78,225

     

60,588

 

(Gain) loss on sale or disposition of assets and sublease (2)

 

(63)

     

1,382

     

(340)

     

971

 

Loss on early extinguishment of debt (3)

 

-

     

-

     

178

     

1,798

 

Non-recurring equity-based compensation (4)

 

-

     

2,047

     

-

     

2,748

 

Non-cash straight-line rent expense (5)

 

198

     

213

     

812

     

1,183

 

Chairman executive compensation (6)

 

-

     

11

     

-

     

2,261

 

Acquisition integration costs (7)

 

163

     

246

     

313

     

495

 

Public offering related expenses (8)

 

-

     

1,079

     

-

     

6,995

 

Non-recurring severance and other related expenses (9)

 

4,617

     

-

     

4,617

     

-

 

Adjusted EBITDA

$

20,329

   

$

18,264

   

$

83,805

   

$

77,039

 

Adjusted EBITDA Margin

 

47.8

%

   

45.4

%

   

49.0

%

   

48.5

%

 

   

(1)

Consolidated net income excludes all adjustments associated with the non-controlling interest and presents the results of operations 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 for the entire period presented.

(2)

Represents (gains) losses on the sale or disposition of assets as well as (gains) losses on the sublease of a portion of the Company's corporate headquarters office building.

(3)

Represents losses incurred on early extinguishment of debt on the Company's 2013 Senior Secured Credit Facility and the Company's previous senior secured credit facility for the year ended December 31, 2014 and 2013 as well as losses incurred related to the entire repayment of the Company's previous senior secured credit facility during the year ended December 31, 2013.

(4)

Non-recurring equity-based compensation includes non-cash compensation expense recorded related to restricted stock units granted in connection with the IPO pursuant to the Company's 2013 Omnibus Incentive Plan during the three and twelve months ended December 31, 2013 as well as the non-cash compensation expense recorded related to unit options granted to certain employees pursuant to RMCO's 2011 Unit Option Plan during the year ended December 31, 2013.

(5)

Represents the non-cash charge to appropriately record rent expense on a straight-line basis over the term of the lease agreement taking into consideration escalation in monthly cash payments.

(6)

Represents the salaries the Company paid to David Liniger, the Company's Chief Executive Officer, Chairman and Co-Founder, and Gail Liniger, the Company's Vice Chair and Co-Founder. Such salaries have not been paid subsequent to the IPO, and will not be paid in future periods.

(7)

Acquisition integration costs include fees incurred in connection with the Company's acquisitions of certain assets of HBN and Tails in October 2013. Costs include legal, accounting and advisory fees as well as consulting fees for integration services.

(8)

Represents costs incurred in connection with the IPO.

(9)

Represents non-recurring severance and other related expenses of $3.3 million recognized for the retirement of the Company's former Chief Executive Officer on December 31, 2014, which includes $1.8 million of expenses related to continued salary, benefits and related payroll costs to be paid over a 36 month period beginning in the fourth quarter of 2015, $1.0 million of additional equity-based compensation expense for the accelerated vesting of certain restricted stock units and $0.5 million of expenses related to the one-time salary payment made on December 31, 2014. Non-recurring severance and other related expenses also includes one-time expenses of $1.3 million incurred for severance and outplacement services provided to former employees of the Company in connection with the restructuring plan implemented at the Company's corporate headquarters.

 

TABLE 6

 

RE/MAX Holdings, Inc. 
Adjusted Net Income and Adjusted Earnings per Share(1)
(Amounts in thousands, except share and per share amounts)
(Unaudited)

 
   
 

Three Months Ended December 31,

   

Year Ended December 31,

 
 

2014

   

2013

   

2014

   

2013

 

Consolidated:

                             

Net income

$

7,617

   

$

5,600

   

$

43,979

   

$

28,252

 

Amortization of franchise agreements

 

3,392

     

3,375

     

13,566

     

12,274

 

Non-controlling interest income tax expense & RE/MAX Holdings tax provision

 

1,818

     

1,111

     

9,948

     

2,844

 

Add-backs:

                             

(Gain) loss on sale or disposition of assets and sublease (2)

 

(63)

     

1,382

     

(340)

     

971

 

Loss on early extinguishment of debt (3)

 

-

     

-

     

178

     

1,798

 

Non-recurring equity-based compensation (4)

 

-

     

2,047

     

-

     

2,748

 

Non-cash straight-line rent expense (5)

 

198

     

213

     

812

     

1,183

 

Chairman executive compensation (6)

 

-

     

11

     

-

     

2,261

 

Acquisition integration costs (7)

 

163

     

246

     

313

     

495

 

Public offering related expenses (8)

 

-

     

1,079

     

-

     

6,995

 

Non-recurring severance and other related expenses (9)

 

4,617

     

-

     

4,617

     

-

 

Adjusted pre-tax net income

 

17,742

     

15,064

     

73,073

     

59,821

 

Less: Provision for income taxes at 38%

 

(6,742)

     

(5,724)

     

(27,768)

     

(22,732)

 

Adjusted net income

$

11,000

   

$

9,340

   

$

45,305

   

$

37,089

 
                               

Total basic pro forma shares outstanding

 

29,397,474

     

29,342,571

     

29,345,764

     

29,342,571

 

Total diluted pro forma shares outstanding

 

29,994,040

     

29,969,505

     

29,976,577

     

29,969,505

 
                               

Adjusted net income basic earnings per share (10):

$

0.37

   

$

0.32

   

$

1.54

   

$

1.26

 

Adjusted net income diluted earnings per share (10):

$

0.37

   

$

0.31

   

$

1.51

   

$

1.24

 

 

   

(1)

Excludes all adjustments associated with the non-controlling interest and presents the results of operations 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 for the entire period presented.

(2)

Represents (gains) losses on the sale or disposition of assets as well as (gains) losses on the sublease of a portion of the Company's corporate headquarters office building.

(3)

Represents losses incurred on early extinguishment of debt on the Company's 2013 Senior Secured Credit Facility and the Company's previous senior secured credit facility for the year ended December 31, 2014 and 2013 as well as losses incurred related to the entire repayment of the Company's previous senior secured credit facility during the year ended December 31, 2013.

(4)

Non-recurring equity-based compensation includes non-cash compensation expense recorded related to restricted stock units granted in connection with the IPO pursuant to the Company's 2013 Omnibus Incentive Plan during the three and twelve months ended December 31, 2013 as well as the non-cash compensation expense recorded related to unit options granted to certain employees pursuant to RMCO's 2011 Unit Option Plan during the year ended December 31, 2013.

(5)

Represents the non-cash charge to appropriately record rent expense on a straight-line basis over the term of the lease agreement taking into consideration escalation in monthly cash payments.

(6)

Represents the salaries the Company paid to David Liniger, the Company's Chief Executive Officer, Chairman and Co-Founder, and Gail Liniger, the Company's Vice Chair and Co-Founder. Such salaries have not been paid subsequent to the IPO, and will not be paid in future periods.

(7)

Acquisition integration costs include fees incurred in connection with the Company's acquisitions of certain assets of HBN and Tails in October 2013. Costs include legal, accounting and advisory fees as well as consulting fees for integration services.

(8)

Represents costs incurred in connection with the IPO.

(9)

Represents non-recurring severance and other related expenses of $3.3 million recognized for the retirement of the Company's former Chief Executive Officer on December 31, 2014, which includes $1.8 million of expenses related to continued salary, benefits and related payroll costs to be paid over a 36 month period beginning in the fourth quarter of 2015, $1.0 million of additional equity-based compensation expense for the accelerated vesting of certain restricted stock units and $0.5 million of expenses related to the one-time salary payment made on December 31, 2014. Non-recurring severance and other related expenses also includes one-time expenses of $1.3 million incurred for severance and outplacement services provided to former employees of the Company in connection with the restructuring plan implemented at the Company's corporate headquarters.

(10)

Adjusted net income basic and diluted earnings per share are pro-forma for the three and twelve months ended December 31, 2013 since RE/MAX Holdings was not a public company until October 7, 2013.

 

TABLE 7

RE/MAX Holdings, Inc. 
Pro Forma Shares Outstanding
(Unaudited)

 
 

Three Months Ended December 31,

   

Year Ended December 31,

 
 

2014

   

2013

   

2014

   

2013

 

Total basic weighted average shares outstanding:

                             

Weighted average shares of Class A common stock outstanding

 

11,662,874

     

11,607,971

     

11,611,164

     

11,607,971

 

Remaining equivalent weighted average shares of stock outstanding on a pro forma basis assuming RE/MAX Holdings owned 100% of RMCO

 

17,734,600

     

17,734,600

     

17,734,600

     

17,734,600

 

Total basic pro forma weighted average shares outstanding

 

29,397,474

     

29,342,571

     

29,345,764

     

29,342,571

 
                               

Total diluted weighted average shares outstanding:

                             

Weighted average shares of Class A common stock outstanding

 

11,662,874

     

11,607,971

     

11,611,164

     

11,607,971

 

Remaining equivalent weighted average shares of stock outstanding on a pro forma basis assuming RE/MAX Holdings owned 100% of RMCO

 

17,734,600

     

17,734,600

     

17,734,600

     

17,734,600

 

Dilutive effect of stock options(1)

 

542,623

     

597,895

     

578,888

     

597,895

 

Dilutive effect of unvested restricted stock units(1)

 

53,943

     

29,039

     

51,925

     

29,039

 

Total diluted pro forma weighted average shares outstanding

 

29,994,040

     

29,969,505

     

29,976,577

     

29,969,505

 

 

   

(1)

In accordance with the treasury stock method

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, net and the provision for income taxes, each of which is presented in the Company's 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-recurring equity based compensation, non-cash straight-line rent expense, salaries paid to David Liniger, the Company's Chief Executive Officer, Chairman and Co-Founder, and Gail Liniger, the Company's Vice Chair and Co-Founder, that the Company discontinued subsequent to the completion of the IPO, professional fees and certain non-recurring expenses incurred in connection with the IPO, acquisition integration costs and non-recurring severance and other related charges incurred in connection with the restructuring plan designed to improve operating efficiencies at the Company's corporate headquarters and the retirement of the Company's former Chief Executive Officer on December 31, 2014. During the third quarter of 2014, the Company revised its definition of Adjusted EBITDA to no longer adjust for recurring equity-based compensation expense. During the fourth quarter of 2014, the Company revised its definition of Adjusted EBITDA to adjust for non-recurring severance charges that were recorded during the fourth quarter of 2014. Adjusted EBITDA in prior periods has been revised to reflect this change for consistency of presentation.

RE/MAX defines Adjusted net income as net income, excluding the impact of amortization expense related to the Company's franchise agreements, non-controlling interest income tax expense and RE/MAX Holdings tax provision, loss or gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, non-recurring equity-based compensation, non-cash straight-line rent expense, salaries paid to David and Gail Liniger that the Company discontinued subsequent to the completion of the IPO, acquisition integration costs, expenses incurred in connection with the IPO, and non-recurring severance and other related expenses incurred in connection with the restructuring plan designed to improve operating efficiencies at the Company's corporate headquarters and the retirement of the Company's former Chief Executive Officer onDecember 31, 2014, but reflects income taxes and is presented 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 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 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 does 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 does not reflect the cash requirements to pay RIHI, Inc. and Weston Presidio, L.P. pursuant to the tax receivable agreement 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 first 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 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.

SOURCE RE/MAX Holdings, Inc.

###

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