RE/MAX Holdings Reports First Quarter 2018 Results

DENVER - May 3, 2018 // PRNewswire // -

First Quarter 2018 Highlights

(Compared to first quarter 2017 unless otherwise noted)

  • Total agent count increased 6.2% to 120,821 agents
  • U.S. and Canada combined agent count increased 1.9% to 84,829 agents
  • Revenue increased 11.0% to $52.6 million
  • Net income attributable to RE/MAX Holdings, Inc. of $5.0 million and earnings per diluted share (GAAP EPS) of $0.28
  • Adjusted EBITDA1 of $22.8 million, Adjusted EBITDA margin1 of 43.4% and Adjusted earnings per diluted share (Adjusted EPS1) of $0.49

RE/MAX Holdings, Inc. (the "Company" or "RE/MAX Holdings") (NYSE: RMAX), parent company of RE/MAX, one of the world's leading franchisors of real estate brokerage services, and Motto Mortgage ("Motto"), an innovative mortgage brokerage franchise, today announced operating results for the quarter ended March 31, 2018.

"Steady performance across our primary operating drivers highlighted first quarter results," stated Adam Contos, Chief Executive Officer. "We grew our worldwide network by more than 7,000 agents year-over-year, we continued to expand Motto and, as previously announced, we made a bold and significant investment in our network by acquiring booj, a highly regarded real estate technology company. Strong attendance at our annual agent conference also favorably impacted the quarter."

Contos continued, "Two recently released major industry reports again confirmed our wide lead in per-agent productivity among large U.S. real estate brokerages. RE/MAX agents continue to be productive in virtually every market condition. When inventory is tight, multiple offers are common, and the competition for listings is fierce, our network of highly productive agents combined with our differentiated business model give us a built-in and unique competitive advantage. Homebuyers and sellers should not settle for anything less than an experienced, productive agent."

First Quarter 2018 Operating Results

Agent Count

The following table compares agent count as of March 31, 2018 and 2017:

As of March 31

 

Change

         

2018

 

2017

 

#

 

%

U.S.

63,612

 

62,441

 

1,171

 

1.9%

Canada

21,217

 

20,836

 

381

 

1.8%

Subtotal

84,829

 

83,277

 

1,552

 

1.9%

Outside the U.S. & Canada

35,992

 

30,527

 

5,465

 

17.9%

Total

120,821

 

113,804

 

7,017

 

6.2%

Revenue

RE/MAX Holdings generated total revenue of $52.6 million for the first quarter of 2018, an increase of $5.2 million or 11.0% compared to $47.4 million in the first quarter of 2017. Revenue increased 6.8% from organic growth, 3.7% from acquisitions, and 0.5% from foreign-currency movements. Organic growth was driven primarily by increased revenue from our annual agent conference, agent count increases, rising home prices, and Motto expansion.

Recurring revenue streams, which consist of continuing franchise fees and annual dues, increased $2.7 million or 8.8% over the first quarter of 2017 and accounted for 64.5% of revenue in the first quarter of 2018 compared to 65.8% in the comparable period in 2017.

Operating Expenses

Total operating expenses were $38.9 million for the first quarter of 2018, an increase of $6.3 million or 19.3% compared to the first quarter of 2017. Operating expenses increased principally due to higher selling, operating and administrative expenses, partially offset by reduced amortization expense.

Selling, operating and administrative expenses were $34.4 million in the first quarter of 2018, an increase of $7.7 million or 28.9% compared to the first quarter of 2017 and represented 65.3% of revenue compared to 56.2% in the prior-year period. Expenses increased primarily due to $2.1 million of expenses incurred in connection with the investigation by a special committee of our board of directors; severance expense of $1.8 million; the acquisition of booj; investments in Motto and the recently acquired Northern Illinois region; as well as an increase in expenses from our annual agent conference.

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $5.0 million for the first quarter of 2018, an increase of $0.4 million or 9.8% from the first quarter of 2017. The increase was due to contributions from multiple organic growth contributors – including agent count growth, increased revenue from our annual agent conference and rising home prices – and the acquisition of the Northern Illinois region, as well as reductions in our provision for taxes and amortization expense. These were partially offset by increased selling, operating and administrative expenses, as described above. Reported basic and diluted GAAP EPS were each $0.28 per share for the first quarter of 2018.

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $22.8 million for the first quarter of 2018, an increase of $0.9 million or 4.1% compared to the first quarter of 2017. Adjusted EBITDA grew primarily due to contributions from the acquisition of the Northern Illinois region, agent count growth, increased revenue from our annual agent conference, and rising home prices, partially offset by severance expense, investment in Motto and the acquisition of booj. Adjusted EBITDA margin was 43.4% in the first quarter of 2018 compared to 46.3% in the first quarter of 2017.

Adjusted basic and diluted EPS were each $0.49 for the first quarter of 2018 and benefited from the enactment of the Tax Cuts and Jobs Act compared to the prior-year period. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended March 31, 2018 assumes RE/MAX Holdings owned 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX Holdings had in RMCO was 58.5% for the quarter ended March 31, 2018.

Balance Sheet

As of March 31, 2018, the Company had a cash balance of $30.1 million, a decrease of $20.7 million from December 31, 2017. As of March 31, 2018, RE/MAX had $228.5 million of term loans outstanding, net of an unamortized debt discount and issuance costs, down from $229.0 million as of December 31, 2017.

Dividend

On May 2, 2018, the Company's Board of Directors approved a quarterly cash dividend of $0.20 per share. The quarterly dividend is payable on May 30, 2018, to shareholders of record at the close of business on May 16, 2018.

Outlook

The Company's second quarter and full-year 2018 Outlook includes the expected impact of the acquisition of booj and assumes no further currency movements, acquisitions or divestitures.

For the second quarter of 2018, RE/MAX Holdings expects:

  • Agent count to increase 5.25% to 6.25% over second quarter 2017;
  • Revenue in a range of $52.0 million to $54.0 million; and
  • Adjusted EBITDA in a range of $26.0 million to $27.5 million.

For the full-year 2018, RE/MAX Holdings expects:

  • Agent count to increase 5.0% to 6.0% over 2017;
  • Revenue in a range of $213.0 million to $216.0 million; and
  • Adjusted EBITDA in a range of $103.5 million to $106.5 million.

The effective U.S. GAAP tax rate attributable to RE/MAX Holdings is estimated to be between 15% and 17% in 2018.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, May 4, 2018, beginning at 8:30 a.m. Eastern Time. Interested parties can access the conference call using the following dial-in numbers:

  • U.S.
    1-833-287-0798
  • Canada & International
    1-647-689-4457

Interested parties can access a live webcast through the Investor Relations section of the Company's website at investors.remax.com. Please dial-in or join the webcast 10 minutes before the start of the conference call. An archive of the webcast will be available on the Company's website for a limited time as well. For the RE/MAX Quarterly Update Q1 2018 infographic, visit http://rem.ax/2cYFT50.

Basis of Presentation

Unless otherwise noted, the results presented in this press release are consolidated and exclude adjustments attributable to the non-controlling interest.

Footnote:

1Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EPS are non-GAAP measures. These terms are defined at the end of this release. Please see Tables 5 and 6 appearing later in this release for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures.

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 120,000 agents provide RE/MAX a global reach of over 100 countries and territories. Nobody in the world sells more real estate than RE/MAX as measured by total residential transaction sides.

RE/MAX, one of the world's leading franchisors of real estate brokerage services, and Motto Mortgage, an innovative mortgage brokerage franchise, are subsidiaries of RMCO LLC, 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 are often identified by the use of words such as "believe," "intend," "expect," "estimate," "plan," "outlook," "project," "anticipate," "may," "will," "would" and other similar words and expressions that predict or indicate future events or trends that are not statements of historical matters. Forward-looking statements include statements related to the Company's outlook for the second quarter and full-year 2018 (including expectations regarding agent count, revenue, Adjusted EBITDA and Adjusted EBITDA margins), the Company's estimated effective U.S. GAAP tax rate for 2018, dividends, housing market conditions, agent productivity, as well as other statements regarding the Company's strategic and operational plans and business models. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily accurately indicate the times at which such performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Such risks and uncertainties include, without limitation, (1) the impact of the findings and recommendations of the Special Committee on the Company and its management and operations, including reputational damage to the Company and the time and expenses incurred in implementing the recommendations of the Special Committee, (2) any legal proceedings or governmental or regulatory investigations or actions directly or indirectly related to the underlying matters of the Special Committee's internal investigation or other matters may result in adverse findings, the imposition of fines or other penalties, increased costs and expenses, and the diversion of management's time and resources to address such matters, any of which may have a material adverse effect on the Company, (3) the impact of recent changes to our senior management team, (4) the impact of disclosing previously undisclosed transactions between members of our management team, including the loan from David Liniger to Adam Contos, (5) the existence and identification of control deficiencies, including disclosure controls or internal controls over financial reporting, and any impact of such control deficiencies as well as the associated costs in remediating those control deficiencies, (6) changes in business and economic activity in general, (7) changes in the real estate market or interest rates and availability of financing, (8) the Company's ability to attract and retain quality franchisees, (9) the Company's franchisees' ability to recruit and retain real estate agents and mortgage loan originators, (10) changes in laws and regulations, (11) the Company's ability to enhance, market, and protect the RE/MAX and Motto Mortgage brands, (12) 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 Operations" in the most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") and similar disclosures in subsequent periodic and current reports filed with the SEC, which are available on the investor relations page of the Company's website at www.remax.com and on the SEC website at www.sec.gov. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Except as required by law, the Company does not intend, and undertakes no obligation, to update this information to reflect future events or circumstances.

TABLE 1

RE/MAX Holdings, Inc.

Condensed Consolidated Statements of Income

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

(Unaudited)

 
   

Three months ended 

   

March 31, 

       

2017

   

2018

 

As adjusted*

Revenue:

           

Continuing franchise fees

 

$

25,240

 

$

22,965

Annual dues

   

8,696

   

8,235

Broker fees

   

9,188

   

8,235

Franchise sales and other revenue

   

9,518

   

7,971

  Total revenue

   

52,642

   

47,406

Operating expenses:

           

Selling, operating and administrative expenses

   

34,368

   

26,654

Depreciation and amortization

   

4,575

   

5,995

Gain on sale or disposition of assets, net

   

(18)

   

(12)

  Total operating expenses

   

38,925

   

32,637

  Operating income

   

13,717

   

14,769

Other expenses, net:

           

Interest expense

   

(2,724)

   

(2,354)

Interest income

   

119

   

26

Foreign currency transaction losses

   

(83)

   

(23)

  Total other expenses, net

   

(2,688)

   

(2,351)

  Income before provision for income taxes

   

11,029

   

12,418

Provision for income taxes

   

(1,862)

   

(3,030)

  Net income

 

$

9,167

 

$

9,388

  Less: Net income attributable to non-controlling interest

   

4,184

   

4,848

  Net income attributable to RE/MAX Holdings, Inc.

 

$

4,983

 

$

4,540

             
             

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

           

Basic

 

$

0.28

 

$

0.26

Diluted

 

$

0.28

 

$

0.26

Weighted average shares of Class A common stock outstanding

           

Basic

   

17,709,095

   

17,662,842

Diluted

   

17,762,133

   

17,716,013

Cash dividends declared per share of Class A common stock

 

$

0.20

 

$

0.18

 

*Effective January 1, 2018, the Company adopted the new revenue recognition standard retrospectively. All 2017 financial results have been recast to reflect this change. See Note 3 to the Company's unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q.

 

TABLE 2

RE/MAX Holdings, Inc.

Condensed Consolidated Balance Sheets

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

(Unaudited)

 
       

December 31, 

   

March 31, 

 

2017

   

2018

 

As adjusted*

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

30,103

 

$

50,807

Accounts and notes receivable, current portion, less allowances of $7,690 and $7,223, respectively

   

21,121

   

20,284

Income taxes receivable

   

753

   

963

Other current assets

   

4,775

   

7,974

Total current assets

   

56,752

   

80,028

Property and equipment, net of accumulated depreciation of $12,318 and $12,326, respectively

   

3,040

   

2,905

Franchise agreements, net

   

114,782

   

119,349

Other intangible assets, net

   

16,106

   

8,476

Goodwill

   

154,196

   

135,213

Deferred tax assets, net

   

62,338

   

62,841

Other assets, net of current portion

   

4,063

   

4,023

Total assets

 

$

411,277

 

$

412,835

Liabilities and stockholders' equity

           

Current liabilities:

           

Accounts payable

 

$

1,036

 

$

517

Accrued liabilities

   

10,954

   

15,390

Income taxes payable

   

   

97

Tax and other distributions payable to non-controlling unitholders

   

1,691

   

Deferred revenue

   

24,848

   

25,268

Current portion of debt

   

2,350

   

2,350

Current portion of payable pursuant to tax receivable agreements

   

6,252

   

6,252

Total current liabilities

   

47,131

   

49,874

Debt, net of current portion

   

226,176

   

226,636

Payable pursuant to tax receivable agreements, net of current portion

   

46,923

   

46,923

Deferred tax liabilities, net

   

150

   

151

Deferred revenue, net of current portion

   

20,902

   

20,228

Other liabilities, net of current portion

   

18,887

   

19,897

Total liabilities

   

360,169

   

363,709

Commitments and contingencies

           

Stockholders' equity:

           

Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 17,733,302 shares issued and outstanding as of March 31, 2018; 17,696,991 shares issued and outstanding as of December 31, 2017

   

2

   

2

Class B common stock, par value $0.0001 per share, 1,000 shares authorized; 1 share issued and outstanding as of March 31, 2018 and December 31, 2017

   

   

Additional paid-in capital

   

451,903

   

451,199

Retained earnings

   

9,788

   

8,400

Accumulated other comprehensive income, net of tax

   

416

   

459

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

   

462,109

   

460,060

Non-controlling interest

   

(411,001)

   

(410,934)

Total stockholders' equity

   

51,108

   

49,126

Total liabilities and stockholders' equity

 

$

411,277

 

$

412,835

 

*Effective January 1, 2018, the Company adopted the new revenue recognition standard retrospectively. All 2017 financial results have been recast to reflect this change. See Note 3 to the Company's unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q.

 

TABLE 3

RE/MAX Holdings, Inc.

Condensed Consolidated Statements of Cash Flow

(Amounts in thousands)

(Unaudited)

 
   

Three Months Ended March 31, 

       

2017

   

2018

 

As adjusted*

Cash flows from operating activities:

           

Net income

 

$

9,167

 

$

9,388

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

           

Depreciation and amortization

   

4,575

   

5,995

Bad debt expense

   

464

   

343

Equity-based compensation expense

   

1,268

   

562

Deferred income tax expense

   

478

   

1,178

Fair value adjustments to contingent consideration

   

135

   

130

Payments pursuant to tax receivable agreements

   

   

(1,931)

Other, net

   

99

   

115

Changes in operating assets and liabilities

   

(2,614)

   

(1,685)

Net cash provided by operating activities

   

13,572

   

14,095

Cash flows from investing activities:

           

Purchases of property, equipment and software

   

(691)

   

(657)

Acquisitions

   

(26,250)

   

Net cash used in investing activities

   

(26,941)

   

(657)

Cash flows from financing activities:

           

Payments on debt

   

(592)

   

(592)

Distributions paid to non-controlling unitholders

   

(2,521)

   

(2,281)

Dividends and dividend equivalents paid to Class A common stockholders

   

(3,595)

   

(3,184)

Payment of payroll taxes related to net settled restricted stock units

   

(564)

   

(450)

Payment of contingent consideration

   

(50)

   

Net cash used in financing activities

   

(7,322)

   

(6,507)

Effect of exchange rate changes on cash

   

(13)

   

98

Net (decrease) increase in cash and cash equivalents

   

(20,704)

   

7,029

Cash and cash equivalents, beginning of year

   

50,807

   

57,609

Cash and cash equivalents, end of period

 

$

30,103

 

$

64,638

 

*Effective January 1, 2018, the Company adopted the new revenue recognition standard retrospectively. All 2017 financial results have been recast to reflect this change. See Note 3 to the Company's unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q.

 

TABLE 4

RE/MAX Holdings, Inc.

Agent Count

(Unaudited)

 
   

As of

   

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

   

2018

 

2017

 

2017

 

2017

 

2017

 

2016

 

2016

 

2016

Agent Count:

                               

U.S.

                               

Company-owned Regions (1)

 

49,760

 

49,411

 

47,397

 

47,252

 

46,708

 

46,240

 

39,790

 

39,493

Independent Regions (1)

 

13,852

 

13,751

 

16,152

 

15,997

 

15,733

 

15,490

 

22,451

 

22,142

U.S. Total

 

63,612

 

63,162

 

63,549

 

63,249

 

62,441

 

61,730

 

62,241

 

61,635

Canada

                               

Company-owned Regions

 

6,920

 

6,882

 

6,924

 

6,893

 

6,786

 

6,713

 

6,728

 

6,701

Independent Regions

 

14,297

 

14,230

 

14,236

 

14,160

 

14,050

 

13,959

 

13,828

 

13,635

Canada Total

 

21,217

 

21,112

 

21,160

 

21,053

 

20,836

 

20,672

 

20,556

 

20,336

     U.S. and Canada Total

 

84,829

 

84,274

 

84,709

 

84,302

 

83,277

 

82,402

 

82,797

 

81,971

Outside U.S. and Canada

                               

Independent Regions

 

35,992

 

34,767

 

32,859

 

31,968

 

30,527

 

29,513

 

28,391

 

27,989

     Outside U.S. and Canada Total

 

35,992

 

34,767

 

32,859

 

31,968

 

30,527

 

29,513

 

28,391

 

27,989

Total

 

120,821

 

119,041

 

117,568

 

116,270

 

113,804

 

111,915

 

111,188

 

109,960

__________________________

(1)

As of each quarter end since December 31, 2017, U.S. Company-owned Regions include agents in the Northern Illinois region, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of Northern Illinois, Inc. ("RE/MAX of Northern Illinois"), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the northern region of the state of Illinois, on November 15, 2017. As of the acquisition date, the Northern Illinois region had 2,266 agents. As of each quarter end since December 31, 2016, U.S. Company-owned Regions include agents in the Georgia, Kentucky/Tennessee and Southern Ohio regions, which converted from Independent Regions to Company-owned Regions in connection with the acquisition of certain assets of RE/MAX of Georgia, Inc., RE/MAX of Kentucky/Tennessee, Inc. and RE/MAX of Southern Ohio, Inc., collectively ("RE/MAX Regional Services"), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the states of Georgia, Kentucky and Tennessee and Southern Ohio, on December 15, 2016. As of the acquisition date, the Georgia, Kentucky/Tennessee and Southern Ohio regions had 3,963 agents. As of each quarter end since December 31, 2016, U.S. Company-owned Regions include agents in the New Jersey region, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of New Jersey, Inc. ("RE/MAX of New Jersey"), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the state of New Jersey, on December 1, 2016. As of the acquisition date, the New Jersey region had 3,008 agents.

 

TABLE 5

RE/MAX Holdings, Inc.

Adjusted EBITDA Reconciliation to Net Income

(Amounts in thousands, except percentages)

(Unaudited)

 
   

Three months ended 

 
   

March 31, 

 
       

2017

 
   

2018

 

As adjusted*

 

Net income

 

$

9,167

 

$

9,388

 

Depreciation and amortization

   

4,575

   

5,995

 

Interest expense

   

2,724

   

2,354

 

Interest income

   

(119)

   

(26)

 

Provision for income taxes

   

1,862

   

3,030

 

EBITDA

   

18,209

   

20,741

 

Gain on sale or disposition of assets and sublease, net (1)

   

(28)

   

(47)

 

Equity-based compensation expense

   

1,268

   

562

 

Acquisition related expense (2)

   

1,174

   

557

 

Special Committee Investigation expense (3)

   

2,086

   

 

Fair value adjustments to contingent consideration (4)

   

135

   

130

 

Adjusted EBITDA (5)

 

$

22,844

 

$

21,943

 

Adjusted EBITDA Margin (5)

   

43.4

%

 

46.3

%

_______________________

*Effective January 1, 2018, the Company adopted the new revenue recognition standard retrospectively. All 2017 financial results have been recast to reflect this change. See Note 3 to the Company's unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q.

 

(1)

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

(2)

Acquisition related expense includes legal costs incurred in connection with our acquisition and integration of certain assets of Tails, Inc. ("Tails") in October 2013, expenses related to the acquisitions of certain independent regions during 2016 (New Jersey, Georgia, Kentucky/Tennessee and Southern Ohio), RE/MAX of Northern Illinois in 2017 and booj in 2018. Costs include legal, accounting and advisory fees and consulting fees for integration services.

(3)

Special Committee Investigation expense relates to costs incurred in relation to the previously-disclosed investigation by the special committee of independent directors of actions of certain members of our senior management.

(4)

Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liability related to the acquisition of Full House Mortgage Connection, Inc. ("Full House").

(5)

Non-GAAP measure. See the end of this press release for definitions of non-GAAP measures.

 

TABLE 6

RE/MAX Holdings, Inc.

Adjusted Net Income and Adjusted Earnings per Share

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

(Unaudited)

 
   

Three months ended 

   

March 31, 

       

2017

   

2018

 

As adjusted*

Net income

 

$

9,167

 

$

9,388

Amortization of acquired intangible assets

   

3,930

   

5,423

Provision for income taxes

   

1,862

   

3,030

Add-backs:

           

Gain on sale or disposition of assets and sublease (1)

   

(28)

   

(47)

Equity-based compensation expense

   

1,268

   

562

Acquisition related expense (2)

   

1,174

   

557

Special Committee Investigation expense (3)

   

2,086

   

Fair value adjustments to contingent consideration (4)

   

135

   

130

Adjusted pre-tax net income

   

19,594

   

19,043

Less: Provision for income taxes at 24% and 38%, respectively

   

(4,703)

   

(7,236)

Adjusted net income (5)

 

$

14,891

 

$

11,807

             

Total basic pro forma shares outstanding

   

30,268,695

   

30,222,442

Total diluted pro forma shares outstanding

   

30,321,733

   

30,275,613

             

Adjusted net income basic earnings per share (5)

 

$

0.49

 

$

0.39

Adjusted net income diluted earnings per share (5)

 

$

0.49

 

$

0.39

_________________________

*Effective January 1, 2018, the Company adopted the new revenue recognition standard retrospectively. All 2017 financial results have been recast to reflect this change. See Note 3 to the Company's unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q.

 

(1)

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

(2)

Acquisition related expense includes legal costs incurred in connection with our acquisition and integration of certain assets of Tails in October 2013, expenses related to the acquisitions of certain independent regions during 2016 (New Jersey, Georgia, Kentucky/Tennessee and Southern Ohio), RE/MAX of Northern Illinois in 2017 and booj in 2018. Costs include legal, accounting and advisory fees and consulting fees for integration services.

(3)

Special Committee Investigation expense relates to costs incurred in relation to the previously-disclosed investigation by the special committee of independent directors of actions of certain members of our senior management.

(4)

Fair value adjustments to contingent consideration include costs recognized for changes in the estimated fair value of the contingent consideration liability related to the acquisition of Full House. 

(5)

Non-GAAP measure. See the end of this press release for definitions of non-GAAP measures.

 

TABLE 7

RE/MAX Holdings, Inc.

Pro Forma Shares Outstanding

(Unaudited)

 
   

Three months ended 

   

March 31, 

   

2018

 

2017

Total basic weighted average shares outstanding:

       

Weighted average shares of Class A common stock outstanding

 

17,709,095

 

17,662,842

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

 

12,559,600

 

12,559,600

Total basic pro forma weighted average shares outstanding

 

30,268,695

 

30,222,442

         

Total diluted weighted average shares outstanding:

       

Weighted average shares of Class A common stock outstanding

 

17,709,095

 

17,662,842

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

 

12,559,600

 

12,559,600

Dilutive effect of unvested restricted stock units (1)

 

53,038

 

53,171

Total diluted pro forma weighted average shares outstanding

 

30,321,733

 

30,275,613

__________________________

(1)

In accordance with the treasury stock method.

 

TABLE 8

RE/MAX Holdings, Inc.

Free Cash Flow & Unencumbered Cash

(Unaudited)

 
   

Three months ended  March 31, 

   

2018

   

2017

Cash flow from operations

$

13,572

 

$

14,095

Less: Purchases of property, equipment and software

 

(691)

   

(640)

Free cash flow (1)

 

12,881

   

13,455

           

Free cash flow

 

12,881

   

13,455

Less:  Tax/Other non-dividend distributions to RIHI

 

(9)

   

(20)

Free cash flow after tax/non-dividend distributions to RIHI (1)

 

12,872

   

13,435

           

Free cash flow after tax/non-dividend distributions to RIHI

 

12,872

   

13,435

Less:  Quarterly debt principal payments

 

(588)

   

(588)

Unencumbered cash generated (1)

$

12,284

 

$

12,847

           

Summary

         

Cash flow from operations

$

13,572

 

$

14,095

Free cash flow

$

12,881

 

$

13,455

Free cash flow after tax/non-dividend distributions to RIHI

$

12,872

 

$

13,435

Unencumbered cash generated

$

12,284

 

$

12,847

           

Adjusted EBITDA

$

22,844

 

$

21,943

Free cash flow as % of Adjusted EBITDA

 

56.4%

   

61.3%

Free cash flow less distributions to RIHI as % of Adjusted EBITDA

 

56.3%

   

61.2%

Unencumbered cash generated as % of Adjusted EBITDA

 

53.8%

   

58.5%

___________________________

(1)

  Non-GAAP measure. See the end of this press release for definitions of non-GAAP measures.

Non-GAAP Financial Measures

The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures of financial measures that are not in accordance with U.S. GAAP, such as Adjusted EBITDA and the ratios related thereto, Adjusted net income, Adjusted basic and diluted earnings per share (Adjusted EPS) and Free cash flow. These measures are derived on the basis of methodologies other than in accordance with U.S. GAAP.

The Company defines Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest expense, interest income and the provision for income taxes, each of which is presented in the unaudited condensed consolidated financial statements included earlier in this press release), adjusted for the impact of the following items that are either non-cash or that the Company does not consider representative of its ongoing operating performance: loss or gain on sale or disposition of assets and sublease, equity-based compensation expense, acquisition related expenses, special committee investigation expenses, expense or income related to changes in the estimated fair value measurement of contingent consideration, and other non-recurring items. The Company now adjusts for expense or income related to changes in the estimated fair value measurement of contingent consideration as it is a noncash item that the Company believes is not reflective of operating performance. Adjusted EBITDA was revised in prior periods to reflect this change for consistency in presentation.

Because Adjusted EBITDA and Adjusted EBITDA margin omit certain non-cash items and other non-recurring cash charges or other items, the Company believes that each measure is less susceptible to variances that affect its operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items. The Company presents Adjusted EBITDA and the related Adjusted EBITDA margin because the Company believes they are useful as supplemental measures in evaluating the performance of its operating businesses and provides greater transparency into the Company's results of operations. The Company's management uses Adjusted EBITDA and Adjusted EBITDA margin as factors in evaluating the performance of the business.

Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analyzing the Company's results as reported under U.S. GAAP. Some of these limitations are:

  • these measures do not reflect changes in, or cash requirements for, the Company's working capital needs;
  • these measures do not reflect the Company's interest expense, or the cash requirements necessary to service interest or principal payments on its debt;
  • these measures do not reflect the Company's income tax expense or the cash requirements to pay its taxes;
  • these measures do not reflect the cash requirements to pay dividends to stockholders of the Company's Class A common stock and tax and other cash distributions to its non-controlling unitholders;
  • these measures do not reflect the cash requirements to pay RIHI Inc. and Oberndorf pursuant to the tax receivable agreements;
  • 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;
  • although equity-based compensation is a non-cash charge, the issuance of equity-based awards may have a dilutive impact on earnings per share; and
  • other companies may calculate these measures differently so similarly named measures may not be comparable.

The Company's Adjusted EBITDA guidance does not include certain charges and costs. The adjustments to EBITDA in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA in prior quarters, such as gain on sale or disposition of assets and sublease and acquisition related expenses, among others. The exclusion of these charges and costs in future periods will have a significant impact on the Company's Adjusted EBITDA. The Company is not able to provide a reconciliation of the Company's non-GAAP financial guidance to the corresponding U.S. GAAP measures without unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and costs.

Adjusted net income is calculated as Net income attributable to RE/MAX Holdings, assuming the full exchange of all outstanding non-controlling interests for shares of Class A common stock as of the beginning of the period (and the related increase to the provision for income taxes after such exchange), plus primarily non-cash items and other items that management does not consider to be useful in assessing the Company's operating performance (e.g., amortization of acquired intangible assets, gain on sale or disposition of assets and sub-lease, special committee investigation expense, acquisition-related expenses and equity-based compensation expense).

Adjusted basic and diluted earnings per share (Adjusted EPS) are calculated as Adjusted net income (as defined above) divided by pro forma (assuming the full exchange of all outstanding non-controlling interests) basic and diluted weighted average shares, as applicable.

When used in conjunction with GAAP financial measures, Adjusted net income and Adjusted EPS are supplemental measures of operating performance that management believes are useful measures to evaluate the Company's performance relative to the performance of its competitors as well as performance period over period. By assuming the full exchange of all outstanding non-controlling interests, management believes these measures:

  • facilitate comparisons with other companies that do not have a low effective tax rate driven by a non-controlling interest on a pass-through entity;
  • facilitate period over period comparisons because they eliminate the effect of changes in Net income attributable to RE/MAX Holdings, Inc. driven by increases in its ownership of RMCO, LLC, which are unrelated to the Company's operating performance; and
  • eliminate primarily non-cash and other items that management does not consider to be useful in assessing the Company's operating performance.

Free cash flow is calculated as cash flows from operations less capital expenditures, both as reported under GAAP, and quantifies how much cash a company has to pursue opportunities that enhance shareholder value. The Company believes free cash flow is useful to investors as a supplemental measure as it calculates the cash flow available for working capital needs, re-investment opportunities, potential independent region and strategic acquisitions, dividend payments or other strategic uses of cash.

Free cash flow after tax and non-dividend distributions to RIHI is calculated as free cash flow less tax and other non-dividend distributions paid to RIHI (the non-controlling interest holder) to enable RIHI to satisfy its income tax obligations. Similar payments would be made by the Company directly to federal and state taxing authorities as a component of the Company's consolidated provision for income taxes if a full exchange of non-controlling interests occurred in the future. As a result and given the significance of the Company's ongoing tax and non-dividend distribution obligations to its non-controlling interest, free cash flow after tax and non-dividend distributions, when used in conjunction with GAAP financial measures, provides a meaningful view of cash flow available to the Company to pursue opportunities that enhance shareholder value.

Unencumbered cash generated is calculated as free cash flow after tax and non-dividend distributions to RIHI less quarterly debt principal payments less annual excess cash flow payment on debt, as applicable. Given the significance of the Company's excess cash flow payment on debt, when applicable, unencumbered cash generated, when used in conjunction with GAAP financial measures, provides a meaningful view of the cash flow available to the Company to pursue opportunities that enhance shareholder value after considering its debt service obligations.

Contacts:

Andy Schulz
Investor Relations
(303) 796-3287
aschulz@remax.com

Andrea Riggs
Media Relations
(303) 796-3916
ariggs@remax.com

Cision View original content:http://www.prnewswire.com/news-releases/remax-holdings-reports-first-quarter-2018-results-300642254.html

SOURCE RE/MAX Holdings, Inc.

###

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