RE/MAX Holdings Reports Second Quarter 2015 Results

DENVER, Aug. 6, 2015 // PRNewswire // --

Second Quarter 2015 Highlights

(Compared to the second quarter 2014 unless otherwise noted)

  • Agent count grew by 6.1% to 101,903 agents
  • Revenue grew by 4.7% to $44.3 million
  • Operating Income grew by 12.3% to $21.4 million
  • Adjusted EBITDA1  of $25.7 million, up 6.4%
  • Adjusted EBITDA1 margin of 57.9%, up from 57.0%
  • Adjusted basic and diluted earnings per share1 ("EPS") of $0.48 and $0.47, respectively
  • Declared quarterly dividend of $0.125 per share
  • Raising full-year agent count growth outlook to 5.0% to 5.5% from 4.0% to 5.0%

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, 2015.

"We continue to expand our network, gaining nearly 4,000 agents through the first half of the year," stated Dave Liniger, Chief Executive Officer and Co-Founder of RE/MAX. "The housing market continues to improve, with nine consecutive months of higher year-over-year sales of U.S. existing homes. While inventory remains constrained in many markets, recent sales activity indicates that more buyers and sellers are getting into the market. Given these positive trends, our strong agent recruiting initiatives and the addition of 513 agents in July, we are raising our full-year agent growth outlook to 5.0% to 5.5% over 2014."

Second Quarter 2015 Operating Results

Agent Count

Total agent count grew by 5,814 agents to 101,903 agents or 6.1% over the second quarter ended June 30, 2014. In the United States ("U.S."), agent count increased by 2,742 agents to 59,004 agents or 4.9%. Agent count in U.S. Company-owned and Independent regions grew by 5.4% and 4.1%, respectively. In Canada, agent count increased by 402 agents to 19,432 agents or 2.1% over the prior year quarter. Outside the U.S. and Canada, agent count increased by 2,670 agents to 23,467 agents or 12.8%. During the six months ended June 30, 2015, the Company grew total agent count by 3,893 agents or 4.0% compared to total agent count growth of 2,861 agents or 3.1% during the same period in 2014.

Revenue

RE/MAX generated total revenue of $44.3 million for the second quarter of 2015, a 4.7% increase compared to $42.3 million in the second quarter of 2014, primarily driven by increased revenue from broker fees and franchise sales.

Revenue from continuing franchise fees was $18.3 million, up $0.2 million or 1.4% compared to the prior year quarter primarily due to growth in agent count, offset by a decrease in aggregate fee revenue per agent partly due to fee waivers for certain new agents associated with the Company's Momentum agent development and recruiting program that began in the fourth quarter of 2014, and the divestiture of the Caribbean and Central America regions on December 31, 2014. The strength of the U.S. dollar compared to the Canadian dollar also negatively impacted revenue from continuing franchise fees during the quarter.

Revenue from annual dues was $7.9 million, up $0.2 million or 3.0% compared to the prior year quarter primarily due to an increase in total agent count of 5,814 from the prior year quarter, of which 3,144 agents were located in the U.S. and Canada.

Revenue from broker fees was $9.2 million, up $1.2 million or 15.4% compared to the prior year quarter. The increase was driven by growth in agent count and increased transaction activity due in part to improving market conditions.

Franchise sales and other franchise revenue was $5.5 million, up $0.9 million or 20.4% compared to the prior year quarter driven by an increase in revenue associated with global franchise sales and increased office franchise sales in the U.S.

Brokerage revenue was $3.4 million, a decrease of $0.7 million or 16.2% from the prior year quarter largely attributable to the sale of six previously owned brokerage offices to an existing RE/MAX franchisee in April 2015. The six offices had 270 agents at the time of the sale and are located in Maryland and Virginia.

Operating Expenses

Total operating expenses were $22.9 million for the second quarter of 2015, a decrease of $0.4 million or 1.6% compared to the prior year quarter. The reduction in total operating expenses was primarily due to the gain on sale of assets related to the sale of the six previously owned brokerage offices during the second quarter of 2015. Selling, operating and administrative expenses were $19.7 million, up $0.3 million or 1.3% from the prior year quarter. Selling, operating and administrative expenses were 44.6% of revenue in the second quarter compared to 46.0% in the prior year quarter.

Net Income

Reported net income was $16.1 million for the second quarter of 2015, an increase of $1.5 million or 10.7% compared to the prior year quarter. The increase was primarily due to higher operating income, partially offset by lower foreign currency transaction gains and a higher provision for income taxes.

Adjusted net income2  was $14.2 million for the second quarter of 2015, an increase of $0.9 million or 7.0% compared to the prior year quarter. Adjusted basic and diluted EPS were $0.48 and $0.47, respectively, for the second quarter of 2015, compared to $0.45 and $0.44 for the prior year quarter, respectively. The strength of the U.S. dollar compared to the Canadian dollar negatively impacted both Adjusted basic and diluted EPS by approximately $0.01 in the second quarter of 2015.

Net income attributable to RE/MAX Holdings, Inc. was $5.0 million for the second quarter of 2015. This amount excludes net income attributable to the non-controlling interest. Reported basic and diluted EPS attributable to RE/MAX Holdings, Inc. were $0.41 and $0.40, 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 ended June 30, 2015 assumes RE/MAX owning 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX had of RMCO was 40.81% for the three months ended June 30, 2015. Refer to Table 6 for a reconciliation of Adjusted net income to net income and the share counts used in the Adjusted basic and diluted EPS calculations.

Adjusted EBITDA

Adjusted EBITDA was $25.7 million for the second quarter of 2015, up $1.5 million or 6.4% from the prior year quarter. Adjusted EBITDA margin was 57.9% for the second quarter of 2015 compared to 57.0% in the prior year quarter, driven by higher revenue. This was offset by the strength of the U.S. dollar compared to the Canadian dollar, which decreased Adjusted EBITDA margin by approximately $0.6 million or 43 basis points for the second quarter of 2015. A reconciliation of Adjusted EBITDA to net income is included in Table 5.

Balance Sheet

As of June 30, 2015, the Company had a cash balance of $80.3 million, a decrease of $26.9 million from December 31, 2014. As announced on March 11, 2015, RE/MAX doubled its quarterly dividend to $0.125 per share and declared a special cash dividend of $1.50 per share. The aggregate payment for the special dividend, paid in April, was approximately $45.0 million and was funded through existing cash. The Company had $202.8 million of term loans outstanding, net of unamortized discount as of June 30, 2015, down from $211.7 million, net as of December 31, 2014.

Dividend

The Company's Board of Directors approved a quarterly dividend of $0.125 per share, which is payable on September 3, 2015 to shareholders of record at the close of business on August 20, 2015.

Outlook

Based on the Company's performance through the first six months of this year, the agent count increase in July and the sale of six of its owned brokerage offices in April of this year, RE/MAX is providing the following outlook for its third quarter and its full-year 2015:

Third Quarter 2015 Outlook:  

  • Agent count is estimated to increase by 4.75% to 5.25% over third quarter 2014;
  • Revenue is estimated to decrease by 1.0% to 1.5% over third quarter 2014;
    • Revenue would have increased by an estimated 1.0% to 1.5% over third quarter 2014 after adjusting for the sale of the six owned brokerage offices and the sale of the Caribbean and Central America regions;
  • Selling, operating and administrative expenses are estimated to be 50.0% to 51.0% of third quarter 2015 revenue; and
  • Adjusted EBITDA margin is estimated to be in the 51.0% to 52.0% range.

Full-Year 2015 Outlook:

  • Raising full-year agent count outlook to 5.0% to 5.5% from 4.0% to 5.0% over 2014;
  • Revenue is estimated to increase by 1.0% to 2.0% over 2014;
    • Revenue would have increased by an estimated 3.0% to 4.0% over 2014 after adjusting for the sale of the six owned brokerage offices and the sale of the Caribbean and Central America regions;
  • Selling, operating and administrative expenses are estimated to be 50.0% to 52.0% of 2015 revenue;
  • Adjusted EBITDA margin is estimated to be in the 49.0% to 50.0% range;
  • Total capital expenditures of $3.5 to $4.0 million
    • Includes project related capital expenditures of $2.0 to $2.5 million; and
  • Project related operating expenditures of approximately $3.0 million.

The Company's 2015 outlook reflects an annualized estimated exchange rate of $0.78 U.S. for every $1.00 Canadian.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, August 7, 2015, beginning at 8:00 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 are also able to 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.

A replay of the call will be available approximately one hour after the end of the call on August 7, 2015 through September 6, 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 10069538. 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.

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 100,000 agents provide RE/MAX a global reach of nearly 100 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 third quarter and full fiscal year, including expectations regarding agent count and Adjusted EBITDA margins for its third quarter and full fiscal year, the Company's optimism for agent recruitment and improving market conditions, 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 Table 6 for a reconciliation of net income to Adjusted net income and related calculation of Adjusted EPS. 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. As of June 30, 2015, RE/MAX actually owned 41.01% 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.

Condensed Consolidated Statements of Income

(Amounts in thousands, except share and per share amounts)

(Unaudited)

                         
   

Three Months Ended June 30,

 

Six Months Ended June 30,

   

2015

    

2014

    

2015

    

2014

Revenue:

                       

Continuing franchise fees

 

$

18,268

 

$

18,024

 

$

35,928

 

$

35,728

Annual dues

   

7,875

   

7,643

   

15,677

   

15,149

Broker fees

   

9,247

   

8,016

   

15,667

   

13,574

Franchise sales and other franchise revenue

   

5,485

   

4,554

   

13,911

   

12,463

Brokerage revenue

   

3,402

   

4,062

   

7,301

   

7,265

Total revenue

   

44,277

   

42,299

   

88,484

   

84,179

Operating expenses:

                       

Selling, operating and administrative expenses

   

19,730

   

19,475

   

44,801

   

44,762

Depreciation and amortization

   

3,808

   

3,812

   

7,619

   

7,750

Gain on sale or disposition of assets, net

   

(617)

   

-

   

(615)

   

(1)

Total operating expenses

   

22,921

   

23,287

   

51,805

   

52,511

Operating income

   

21,356

   

19,012

   

36,679

   

31,668

Other expenses, net:

                       

Interest expense

   

(2,301)

   

(2,286)

   

(5,110)

   

(4,752)

Interest income

   

33

   

66

   

100

   

147

Foreign currency transaction gains (losses)

   

37

   

836

   

(1,384)

   

307

Loss on early extinguishment of debt

   

   

(178)

   

(94)

   

(178)

Equity in earnings of investees

   

390

   

188

   

602

   

129

Total other expenses, net

   

(1,841)

   

(1,374)

   

(5,886)

   

(4,347)

Income before provision for income taxes

   

19,515

   

17,638

   

30,793

   

27,321

Provision for income taxes

   

(3,457)

   

(3,129)

   

(5,605)

   

(5,014)

Net income

 

$

16,058

 

$

14,509

 

$

25,188

 

$

22,307

Less: net income attributable to non-controlling interest

   

11,088

   

10,132

   

17,500

   

15,519

Net income attributable to RE/MAX Holdings, Inc.

 

$

4,970

 

$

4,377

 

$

7,688

 

$

6,788

                         

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

                       

Basic

 

$

0.41

 

$

0.38

 

$

0.64

 

$

0.59

Diluted

 

$

0.40

 

$

0.36

 

$

0.62

 

$

0.55

Weighted average shares of Class A common stock outstanding

                       

Basic

   

12,225,678

   

11,593,885

   

12,022,769

   

11,600,889

Diluted

   

12,399,527

   

12,230,014

   

12,346,834

   

12,238,189

Cash dividends declared per share of Class A common stock

 

$

0.1250

 

$

0.0625

 

$

1.7500

 

$

0.1250

                         

 

TABLE 2

RE/MAX Holdings, Inc.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

(Unaudited)

           
 

June 30, 

 

December 31, 

 

2015

    

2014

Assets

         

Current assets:

         

Cash and cash equivalents

$

80,276

 

$

107,199

Escrow cash - restricted

 

95

   

693

Accounts and notes receivable, current portion, less allowances of $4,794 and $4,495, respectively

 

19,455

   

16,641

Accounts receivable from affiliates

 

-

   

231

Income taxes receivable

 

1,340

   

765

Other current assets

 

3,839

   

5,237

Total current assets

 

105,005

   

130,766

Property and equipment, net of accumulated depreciation of $19,184 and $19,993, respectively

 

2,645

   

2,661

Franchise agreements, net of accumulated amortization of $94,039 and $87,330, respectively

 

68,722

   

75,505

Other intangible assets, net of accumulated amortization of $8,751 and $8,550, respectively

 

3,450

   

2,725

Goodwill

 

72,247

   

72,463

Deferred tax assets, net

 

65,382

   

66,903

Investments in equity method investees

 

3,878

   

3,693

Debt issuance costs, net

 

1,681

   

1,896

Other assets

 

2,068

   

1,715

Total assets

$

325,078

 

$

358,327

Liabilities and stockholders' equity

         

Current liabilities:

         

Accounts payable

$

192

 

$

561

Accounts payable to affiliates

 

1,199

   

1,114

Escrow liabilities

 

95

   

693

Accrued liabilities

 

9,611

   

9,380

Income taxes payable

 

112

   

189

Deferred revenue and deposits

 

18,900

   

17,142

Current portion of debt

 

12,381

   

9,460

Current portion of payable pursuant to tax receivable agreements

 

3,914

   

3,914

Other current liabilities

 

343

   

211

Total current liabilities

 

46,747

   

42,664

Debt, net of current portion

 

190,466

   

202,213

Payable pursuant to tax receivable agreements, net of current portion

 

63,504

   

63,504

Deferred tax liabilities, net

 

184

   

190

Other liabilities, net of current portion

 

10,392

   

10,473

Total liabilities

 

311,293

   

319,044

Commitments and contingencies (note 12)

         

Stockholders' equity:

         

Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 12,329,110 shares issued and outstanding as of June 30, 2015; 11,768,041 shares issued and outstanding as of December 31, 2014

 

1

   

1

Class B common stock, par value $0.0001 per share, 1,000 shares authorized; 1 share issued and outstanding as of June 30, 2015 and December 31, 2014

 

   

Additional paid-in capital

 

246,923

   

241,882

(Accumulated deficit) retained earnings

 

(1,183)

   

12,041

Accumulated other comprehensive income

 

127

   

886

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

 

245,868

   

254,810

Non-controlling interest

 

(232,083)

   

(215,527)

Total stockholders' equity

 

13,785

   

39,283

Total liabilities and stockholders' equity

$

325,078

 

$

358,327

 

TABLE 3

RE/MAX Holdings, Inc.

Condensed Consolidated Statements of Cash Flow

(Amounts in thousands)

(Unaudited)

           
 

Six Months Ended June 30,

 

2015

    

2014

Cash flows from operating activities:

         

Net income

$

25,188

 

$

22,307

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

         

Depreciation and amortization

 

7,619

   

7,750

Bad debt expense

 

487

   

305

Gain on sale or disposition of assets, net

 

(615)

   

(1)

Loss on early extinguishment of debt

 

94

   

178

Equity-based compensation

 

668

   

332

Non-cash interest expense

 

209

   

186

Deferred income tax expense and other

 

1,083

   

1,313

Changes in operating assets and liabilities:

         

Accounts and notes receivable, current portion

 

(3,516)

   

(3,542)

Advances from/to affiliates

 

333

   

(12)

Other current and noncurrent assets

 

567

   

1,854

Other current and noncurrent liabilities

 

113

   

(2,777)

Deferred revenue and deposits

 

1,976

   

1,549

Net cash provided by operating activities

 

34,206

   

29,442

Cash flows from investing activities:

         

Purchases of property, equipment and software

 

(919)

   

(702)

Proceeds from sale of property and equipment

 

11

   

1

Capitalization of trademark costs

 

(41)

   

(58)

Disposition

 

20

   

Cost to sell assets

 

(71)

   

Net cash used in investing activities

 

(1,000)

   

(759)

Cash flows from financing activities:

         

Payments on debt

 

(8,360)

   

(15,740)

Capitalized debt amendment costs

 

(555)

   

Distributions paid to non-controlling unitholders

 

(34,357)

   

(14,437)

Dividends paid to Class A common stockholders

 

(20,912)

   

(1,449)

Payments on capital lease obligations

 

(154)

   

(103)

Proceeds from exercise of stock options

 

2,013

   

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

 

2,361

   

125

Cancellation of vested restricted stock units for required tax withholding

 

   

(818)

Net cash used in financing activities

 

(59,964)

   

(32,422)

Effect of exchange rate changes on cash

 

(165)

   

(16)

Net decrease in cash and cash equivalents

 

(26,923)

   

(3,755)

Cash and cash equivalents, beginning of year

 

107,199

   

88,375

Cash and cash equivalents, end of period

$

80,276

 

$

84,620

Supplemental disclosures of cash flow information:

         

Cash paid for interest and debt amendment costs

$

4,901

 

$

4,507

Cash paid for income taxes

 

2,367

   

4,197

Schedule of non-cash investing and financing activities:

         

Note receivable received as consideration for sale of brokerage operations assets

$

430

 

$

Capital leases for property and equipment

 

412

   

18

Increase in accounts payable for capitalization of trademark costs and purchases of property, equipment and software

 

459

   

50

 

TABLE 4

RE/MAX Holdings, Inc.

Agent Count

(Unaudited)

                           
 

As of

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

2015

 

2015

 

2014

 

2014

 

2014

 

2014

 

2013

Agent Count:

                         

U.S.

                         

Company-owned regions 

36,545

 

35,845

 

35,299

 

35,377

 

34,686

 

33,911

 

33,416

Independent regions

22,459

 

22,100

 

21,806

 

21,804

 

21,576

 

21,375

 

21,075

U.S. Total

59,004

 

57,945

 

57,105

 

57,181

 

56,262

 

55,286

 

54,491

Canada

                         

Company-owned regions

6,440

 

6,327

 

6,261

 

6,258

 

6,212

 

6,117

 

6,084

Independent regions

12,992

 

12,834

 

12,779

 

12,849

 

12,818

 

12,852

 

12,838

Canada Total

19,432

 

19,161

 

19,040

 

19,107

 

19,030

 

18,969

 

18,922

Outside U.S. and Canada

                         

Company-owned regions (1)

 

 

328

 

312

 

301

 

323

 

338

Independent regions (1)

23,467

 

22,849

 

21,537

 

21,047

 

20,496

 

19,807

 

19,477

Outside U.S. and Canada Total

23,467

 

22,849

 

21,865

 

21,359

 

20,797

 

20,130

 

19,815

Total

101,903

 

99,955

 

98,010

 

97,647

 

96,089

 

94,385

 

93,228

Net change in agent count compared to the prior period

1,948

 

1,945

 

363

 

1,558

 

1,704

 

1,157

 

497

 

____________________________

(1)

As of June 30, 2015 and March 31, 2015, Independent Regions outside of the U.S. and Canada include 328 agents in the Caribbean and Central America regions which converted from Company-owned Regions to Independent Regions in connection with the regional franchising agreements we entered into with new independent owners of the Caribbean and Central America regions on January 1, 2015.

 

TABLE 5

RE/MAX Holdings, Inc.

Adjusted EBITDA Reconciliation to Net Income

(Amounts in thousands, except percentages)

(Unaudited)

                       
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2015

   

2014

    

2015

    

2014

Consolidated:

                     

Net income (1)

$

16,058

 

$

14,509

 

$

25,188

 

$

22,307

Depreciation and amortization

 

3,808

   

3,812

   

7,619

   

7,750

Interest expense

 

2,301

   

2,286

   

5,110

   

4,752

Interest income

 

(33)

   

(66)

   

(100)

   

(147)

Provision for income taxes

 

3,457

   

3,129

   

5,605

   

5,014

EBITDA

 

25,591

   

23,670

   

43,422

   

39,676

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

 

(664)

   

(47)

   

(707)

   

(225)

Loss on early extinguishment of debt (3)

 

-

   

178

   

94

   

178

Non-cash straight-line rent expense (4)

 

249

   

270

   

480

   

417

Non-recurring severance and other related expenses (5)

 

588

   

-

   

1,039

   

-

Acquisition integration and professional fees expense (6)

 

(106)

   

45

   

77

   

63

Adjusted EBITDA

$

25,658

 

$

24,116

 

$

44,405

 

$

40,109

Adjusted EBITDA Margin

 

57.9%

   

57.0%

   

50.2%

   

47.6%

                       

FX impact on Adjusted EBITDA (7)

                     

Foreign currency transaction (gains) losses

$

(37)

 

$

(836)

 

$

1,384

 

$

(307)

FX impact on operating income

 

651

   

313

   

1,223

   

581

Adjusted EBITDA adjusted for FX

$

26,272

 

$

23,593

 

$

47,012

 

$

40,383

Adjusted EBITDA Margin adjusted for FX (8)

 

58.4%

   

55.3%

   

52.3%

   

47.6%

 

__________________________________

(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 losses (gains) on the sale or disposition of assets as well as the losses (gains) 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 for the three and six months ended June 30, 2015 and 2014.

(4)

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.

(5)

Represents non-recurring severance and other related expenses recognized for certain employees who were terminated during the three and six months ended June 30, 2015 as a result of the retirement of our former Chief Executive Officer on December 31, 2014 and subsequent organizational changes implemented during 2015, and a retirement agreement entered into by the Company's President Emeritus on May 4, 2015.

(6)

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

(7)

As compared to the prior year period on a constant currency basis.

(8)

Revenue adjusted for the impact of foreign exchange and used to calculate the Adjusted EBITDA margin adjusted for FX is equal to $45.0 million and $42.6 million for the second quarter of 2015 and 2014, respectively, and $89.9 million and $84.9 million for the six months ended June 30, 2015 and 2014, respectively.

 

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 June 30,

 

Six Months Ended June 30,

 
   

2015

 

2014

 

2015

 

2014

 

Consolidated:

                         

Net income (1)

 

$

16,058

 

$

14,509

 

$

25,188

 

$

22,307

 

Amortization of franchise agreements

   

3,392

   

3,392

   

6,783

   

6,783

 

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

   

3,457

   

3,129

   

5,605

   

5,014

 

Add-backs:

                         

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

   

(664)

   

(47)

   

(707)

   

(225)

 

Loss on early extinguishment of debt (3)

   

   

178

   

94

   

178

 

Non-cash straight-line rent expense (4)

   

249

   

270

   

480

   

417

 

Non-recurring severance and other related expenses (5)

   

588

   

   

1,039

   

 

Acquisition integration and professional fees expense (6)

   

(106)

   

45

   

77

   

63

 

Adjusted pre-tax net income

   

22,974

   

21,476

   

38,559

   

34,537

 

Less: Provision for income taxes at 38%

   

(8,730)

   

(8,161)

   

(14,652)

   

(13,124)

 

Adjusted net income

 

$

14,244

 

$

13,315

 

$

23,907

 

$

21,413

 
                           

Total basic pro forma shares outstanding

   

29,960,278

   

29,328,485

   

29,757,369

   

29,335,489

 

Total diluted pro forma shares outstanding

   

30,134,127

   

29,964,614

   

30,081,434

   

29,972,789

 
                           

Adjusted net income basic earnings per share:

 

$

0.48

 

$

0.45

 

$

0.80

 

$

0.73

 

Adjusted net income diluted earnings per share:

 

$

0.47

 

$

0.44

 

$

0.79

 

$

0.71

 

 

_________________________________

(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 losses (gains) on the sale or disposition of assets as well as the losses (gains) 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 for the three and six months ended June 30, 2015 and 2014.

(4)

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.

(5)

Represents non-recurring severance and other related expenses recognized for certain employees who were terminated during the three and six months ended June 30, 2015 as a result of the retirement of our former Chief Executive Officer on December 31, 2014 and subsequent organizational changes implemented during 2015, and a retirement agreement entered into by the Company's President Emeritus on May 4, 2015.

(6)

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

 

TABLE 7

RE/MAX Holdings, Inc.

Pro Forma Shares Outstanding

(Unaudited)

                 
   

Three Months Ended June 30, 

 

Six Months Ended June 30, 

   

2015

 

2014

 

2015

 

2014

Total basic weighted average shares outstanding:

               

Weighted average shares of Class A common stock outstanding

 

12,225,678

 

11,593,885

 

12,022,769

 

11,600,889

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

 

29,960,278

 

29,328,485

 

29,757,369

 

29,335,489

                 

Total diluted weighted average shares outstanding:

               

Weighted average shares of Class A common stock outstanding

 

12,225,678

 

11,593,885

 

12,022,769

 

11,600,889

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)

 

146,638

 

587,906

 

301,928

 

590,953

Dilutive effect of unvested restricted stock units(1)

 

27,211

 

48,223

 

22,137

 

46,347

Total diluted pro forma weighted average shares outstanding

 

30,134,127

 

29,964,614

 

30,081,434

 

29,972,789

 

________________________

(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 condensed 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-cash straight-line rent expense, non-recurring severance and other related expenses and acquisition integration and professional fees expense. During the third quarter of 2014, the Company revised its definition of Adjusted EBITDA to no longer adjust for recurring equity-based compensation expense. Adjusted EBITDA in prior periods has been revised to reflect this change for consistency of presentation. During the fourth quarter of 2014, the Company revised its definition of Adjusted EBITDA to adjust for non-recurring severance and other related expenses.

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-cash straight-line rent expense, non-recurring severance and other related expenses, and acquisition integration and professional fees expense, 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 its 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 and Adjusted net income do 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 and Adjusted net income do not reflect the cash requirements to pay RIHI, Inc. and Oberndorf Investments LLC pursuant to the tax receivable agreements 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 third 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 loss or 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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