RE/MAX Holdings, Inc. Reports Fourth Quarter And Full-Year 2019 Results
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RE/MAX Holdings, Inc. Reports Fourth Quarter And Full-Year 2019 Results

DENVER, Feb. 20, 2020 // PRNewswire // -

Full-Year 2019 Highlights
(Compared to full-year 2018 unless otherwise noted)

  • Total agent count increased 5.3% to 130,889 agents
  • U.S. and Canada combined agent count increased 0.3% to 84,688 agents
  • Total open Motto Mortgage franchises increased 42.3% to 111 offices1
  • Total Revenue of $282.3 million; Revenue excluding the Marketing Funds decreased 1.2% to $210.0 million
  • Net income attributable to RE/MAX Holdings, Inc. of $25.0 million and earnings per diluted share (GAAP EPS) of $1.40
  • Adjusted EBITDA2 of $103.5 million, Adjusted EBITDA margin2 of 36.7% and Adjusted earnings per diluted share (Adjusted EPS1) of $2.20

Fourth Quarter 2019 Highlights
(Compared to fourth quarter 2018 unless otherwise noted)

  • Total Revenue of $68.2 million; Revenue excluding the Marketing Funds decreased 0.2% to $50.8 million
  • Net income attributable to RE/MAX Holdings, Inc. of $2.9 million and earnings per diluted share (GAAP EPS) of $0.16
  • Adjusted EBITDA2 of $22.5 million, Adjusted EBITDA margin2 of 33.0% and Adjusted earnings per diluted share (Adjusted EPS1) of $0.47

RE/MAX Holdings, Inc. (the "Company" or "RE/MAX Holdings") (NYSE: RMAX), parent company of RE/MAX, one of the world's leading franchisors of real estate brokerage services, and Motto Mortgage ("Motto"), an innovative mortgage brokerage franchise, today announced operating results for the full year and fourth quarter ended December 31, 2019.

"Recent RE/MAX recruiting initiatives and Motto marketing efforts generated positive results almost immediately, contributing to a bounce back in our U.S. agent count and record Motto Mortgage franchise sales, two of our key leading indicators, in the fourth quarter," stated Adam Contos, RE/MAX Holdings Chief Executive Officer. "Continued global agent count growth, contributions from the strategic initiatives we've undertaken and the investments we've made during the past two years, coupled with the relatively attractive housing markets in both the U.S. and Canada has us entering 2020 with momentum."

Contos continued, "The ongoing technology transformation at RE/MAX continues with the successful completion of the initial release of the booj Platform and the acquisition of First and its mobile app, which helps agents unlock the value of their network to drive more business. Our brokers and agents on the booj Platform are now able to connect better with clients and establish a more effective digital presence through compelling agent, team and office websites, a modern new consumer app, and the refresh of remax.com. On the Motto side, we see continued demand across multiple customer types alongside accelerating franchise sales. Interest in owning a Motto franchise remains high and we expect to surpass our 2019 franchise sales total in 2020."

Fourth Quarter 2019 Operating Results

Agent Count

The following table compares agent count as of December 31, 2019 and 2018:

         

As of December 31,

 

Change

         

2019

 

2018

 

#

 

%

U.S.

63,121

 

63,122

 

(1)

 

(0.0)

Canada

21,567

 

21,327

 

240

 

1.1

Subtotal

84,688

 

84,449

 

239

 

0.3

Outside the U.S. & Canada

46,201

 

39,831

 

6,370

 

16.0

Total

130,889

 

124,280

 

6,609

 

5.3

Revenue

RE/MAX Holdings generated total revenue of $68.2 million in the fourth quarter of 2019, an increase of $17.4 million or 34.1% compared to $50.8 million in the fourth quarter of 2018. Revenue increased primarily due to the January 1, 2019 acquisition of the Marketing Funds. Recurring revenue streams, which consist of continuing franchise fees and annual dues, decreased $0.5 million compared to the fourth quarter of 2018 and accounted for 66.6% of revenue (excluding the Marketing Funds) in the fourth quarter of 2019, compared to 67.4% in the comparable period in 2018.

Operating Expenses

Total operating expenses were $58.2 million for the fourth quarter of 2019. Excluding the Marketing Funds from operating expenses, fourth quarter 2019 operating expenses totaled $40.8 million, an increase of $11.4 million or 38.6% compared to $29.4 million in the fourth quarter of 2018. Fourth quarter operating expenses increased primarily due to higher selling, operating and administrative expenses and a gain on reduction in tax receivable agreement that occurred in the fourth quarter of 2018.

Selling, operating and administrative expenses were $35.2 million in the fourth quarter of 2019, an increase of $5.1 million or 17.0% compared to the fourth quarter of 2018 and represented 69.3% of revenue (excluding the Marketing Funds), compared to 59.1% in the prior-year period. Selling, operating and administrative expenses increased primarily due to higher equity-based compensation expense, the unfavorable timing of certain annual regional events, and increased legal expenses.

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $2.9 million for the fourth quarter of 2019, a decrease of $3.3 million over the fourth quarter of 2018. Reported basic and diluted GAAP EPS were each $0.16 for the fourth quarter of 2019 compared to $0.35 in the fourth quarter of 2018.

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $22.5 million for the fourth quarter of 2019, a decrease of $0.8 million or 3.3% from the fourth quarter of 2018. Adjusted EBITDA decreased primarily due to increased legal and event costs coupled with flat revenue. Adjusted EBITDA margin was 33.0% in the fourth quarter of 2019 compared to 45.8% in the fourth quarter of 2018 and decreased primarily due to the acquisition of the Marketing Funds.

Adjusted basic and diluted EPS were each $0.47 for the fourth quarter of 2019, a decrease of $0.02 per share compared to the fourth quarter of 2018. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended December 31, 2019 assumes RE/MAX Holdings owned 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX Holdings had in RMCO was 58.7% for the quarter ended December 31, 2019.

Balance Sheet

As of December 31, 2019, the Company had cash and cash equivalents of $83.0 million. The Company's cash and cash equivalents increased $23.0 million from December 31, 2018. As of December 31, 2019, the Company had $225.7 million of outstanding debt, net of an unamortized debt discount and issuance costs, a decrease of $2.1 million compared to $227.8 million as of December 31, 2018.

Dividend

On February 19, 2020, the Company's Board of Directors approved a quarterly cash dividend of $0.22 per share of Class A common stock. The quarterly dividend is payable on March 18, 2020, to shareholders of record at the close of business on March 4, 2020.

Outlook

"Looking ahead, we plan to continue to make strategic investments like First that add value to and deepen our connection with our networks," said Karri Callahan, RE/MAX Holdings Chief Financial Officer. "We are excited by First's potential to be a popular and effective tool designed to improve the productivity of those RE/MAX agents who subscribe to it. As we transition off First's legacy customer base and on-board RE/MAX agents, we expect the acquisition to be dilutive to 2020 Adjusted EPS by $0.04 to $0.06 per share, and to be accretive to both 2021 Adjusted EBITDA margin and Adjusted EPS."

Callahan continued, "We also continue to invest in RE/MAX recruiting efforts and initial returns on this investment are encouraging as evidenced by our fourth quarter U.S. agent count improvement. Our fourth quarter recruiting campaign incentivized our RE/MAX broker-owners in part by waiving certain fees on newly recruited agents for a limited time. As a result, we estimate we will forgo $2 million to $3 million in non-Marketing Fund related revenue through the third quarter of this year. These financial incentives are an investment in our franchisees' and agents' businesses and reduce the barriers of changing affiliations."

For the first quarter of 2020, RE/MAX Holdings expects:

  • Agent count to increase 4.0% to 5.0% over first quarter 2019;
  • Revenue in a range of $68.0 million to $71.0 million (including revenue from the Marketing Funds in a range of $17.5 million to $18.5 million); and
  • Adjusted EBITDA in a range of $18.0 million to $20.0 million.

For the full-year 2020, RE/MAX Holdings expects:

  • Agent count to increase 3.0% to 5.0% over full-year 2019;
  • Revenue in a range of $285.5 million to $289.5 million (including revenue from the Marketing Funds in a range of $73.0 million to $75.0 million); and
  • Adjusted EBITDA in a range of $96.0 million to $99.0 million.

The Company's first quarter and full-year 2020 Outlook assumes no further currency movements, acquisitions or divestitures.

The effective U.S. GAAP tax rate attributable to RE/MAX Holdings is estimated to be between 18% and 20% in 2020.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, February 21, 2020, beginning at 8:30 a.m. Eastern Time. Interested parties can access the conference call using the following dial-in numbers:

  • 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.

Basis of Presentation

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

Footnotes:

1Total open Motto Mortgage franchises includes only "bricks and mortar" offices with a unique physical address with rights granted by a full franchise agreement with Motto Franchising, LLC and excludes any "virtual" offices or "branchises". A virtual office is a right granted by Motto to a franchisee to operate in an additional state. The rights for up to two virtual offices are granted to a Motto franchisee at the time of purchase; the virtual office concept allows that franchisee to take advantage of business opportunities in an additional, sometimes adjoining, state. There are no incremental franchise fees or monthly royalty fees directly associated with a virtual office. A branchise is a scaled down Motto franchise. Branchises are designed for an existing Motto franchise owner who desires to expand to an additional location where the franchisee is uncertain whether anticipated loan origination volume will support full franchise fees. Motto franchisees pay a reduced franchise fee and monthly royalty rate for a branchise.

2Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EPS are non-GAAP measures. These terms are defined at the end of this release. Please see Tables 5 and 6 appearing later in this release for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures.

About RE/MAX Holdings, Inc.

RE/MAX Holdings, Inc. (NYSE: RMAX) is one of the world's leading franchisors in the real estate industry, franchising real estate brokerages globally under the RE/MAX® brand, and mortgage brokerages within the U.S. under the Motto® Mortgage brand. RE/MAX was founded in 1973 by David and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. Now with more than 130,000 agents across over 110 countries and territories, nobody in the world sells more real estate than RE/MAX, as measured by total residential transaction sides. Dedicated to innovation and change in the real estate industry, RE/MAX launched Motto Franchising, LLC, a ground-breaking mortgage brokerage franchisor, in 2016. Motto Mortgage has grown to over 100 offices across more than 30 states.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the use of words such as "believe," "intend," "expect," "estimate," "plan," "outlook," "project," "anticipate," "may," "will," "would" and other similar words and expressions that predict or indicate future events or trends that are not statements of historical matters. Forward-looking statements include statements related to: agent count; franchise sales; revenue; operating expenses; the Company's outlook for the first quarter and full-year 2020; dividends; non-GAAP financial measures; estimated effective tax rates for 2020; housing and mortgage market conditions; economic and demographic trends; expansion of Motto Mortgage; the effectiveness of recruiting initiatives and marketing efforts; technology initiatives, including the booj technology platform and First technology; the Company's momentum in 2020; and the Company's strategic and operating plans and business models. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily accurately indicate the times at which such performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Such risks and uncertainties include, without limitation, (1) changes in the real estate market or interest rates and availability of financing, (2) changes in business and economic activity in general, (3) the Company's ability to attract and retain quality franchisees, (4) the Company's franchisees' ability to recruit and retain real estate agents and mortgage loan originators, (5) changes in laws and regulations, (6) the Company's ability to enhance, market, and protect the RE/MAX and Motto Mortgage brands, (7) the Company's ability to implement its technology initiatives, and (8) fluctuations in foreign currency exchange rates, and those risks and uncertainties described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission ("SEC") and similar disclosures in subsequent periodic and current reports filed with the SEC, which are available on the investor relations page of the Company's website at www.remax.com and on the SEC website at www.sec.gov. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Except as required by law, the Company does not intend, and undertakes no obligation, to update this information to reflect future events or circumstances.

TABLE 1

RE/MAX Holdings, Inc.

Condensed Consolidated Statements of Income

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

(Unaudited)

                         
   

Three Months Ended
December 31, 

 

Year Ended
December 31,

   

2019

 

2018

 

2019

 

2018

Revenue:

                       

Continuing franchise fees

 

$

24,910

 

$

25,158

 

$

99,928

 

$

101,104

Annual dues

   

8,901

   

9,119

   

35,409

   

35,894

Broker fees

   

10,651

   

10,202

   

45,990

   

46,871

Marketing Funds fees

   

17,433

   

   

72,299

   

Franchise sales and other revenue

   

6,298

   

6,362

   

28,667

   

28,757

Total revenue

   

68,193

   

50,841

   

282,293

   

212,626

Operating expenses:

                       

Selling, operating and administrative expenses

   

35,162

   

30,043

   

118,890

   

120,179

Marketing Funds expenses

   

17,433

   

   

72,299

   

Depreciation and amortization

   

5,629

   

5,426

   

22,323

   

20,678

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

   

(11)

   

104

   

342

   

63

Gain on reduction in tax receivable agreement liability

   

   

(6,145)

   

   

(6,145)

Total operating expenses

   

58,213

   

29,428

   

213,854

   

134,775

Operating income

   

9,980

   

21,413

   

68,439

   

77,851

Other expenses, net:

                       

Interest expense

   

(2,831)

   

(3,106)

   

(12,229)

   

(12,051)

Interest income

   

372

   

279

   

1,446

   

676

Foreign currency transaction gains (losses)

   

43

   

(150)

   

109

   

(312)

Total other expenses, net

   

(2,416)

   

(2,977)

   

(10,674)

   

(11,687)

Income before provision for income taxes

   

7,564

   

18,436

   

57,765

   

66,164

Provision for income taxes

   

(2,362)

   

(7,507)

   

(10,909)

   

(16,342)

Net income

 

$

5,202

 

$

10,929

 

$

46,856

 

$

49,822

Less: net income attributable to non-controlling interest

   

2,314

   

4,695

   

21,816

   

22,939

Net income attributable to RE/MAX Holdings, Inc.

 

$

2,888

 

$

6,234

 

$

25,040

 

$

26,883

                         

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

                       

Basic

 

$

0.16

 

$

0.35

 

$

1.41

 

$

1.52

Diluted

 

$

0.16

 

$

0.35

 

$

1.40

 

$

1.51

Weighted average shares of Class A common stock outstanding

                       

Basic

   

17,837,386

   

17,748,745

   

17,812,065

   

17,737,649

Diluted

   

17,978,431

   

17,771,180

   

17,867,752

   

17,767,499

Cash dividends declared per share of Class A common stock

 

$

0.21

 

$

0.20

 

$

0.84

 

$

0.80

TABLE 2

RE/MAX Holdings, Inc.

Condensed Consolidated Balance Sheets

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

(Unaudited)

             
   

As of December 31,

   

2019

 

2018

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

83,001

 

$

59,974

Restricted cash

   

20,600

   

Accounts and notes receivable, current portion, less allowances of $12,538 and $7,980, respectively

   

28,644

   

21,185

Income taxes receivable

   

896

   

533

Other current assets

   

9,638

   

5,855

Total current assets

   

142,779

   

87,547

Property and equipment, net of accumulated depreciation of $14,940 and $13,280, respectively

   

5,444

   

4,390

Operating lease right of use assets

   

51,129

   

Franchise agreements, net

   

87,670

   

103,157

Other intangible assets, net

   

32,315

   

22,965

Goodwill

   

159,038

   

150,684

Deferred tax assets, net

   

52,595

   

53,852

Income taxes receivable, net of current portion

   

1,690

   

1,379

Other assets, net of current portion

   

9,692

   

4,399

Total assets

 

$

542,352

 

$

428,373

Liabilities and stockholders' equity

           

Current liabilities:

           

Accounts payable

 

$

2,983

 

$

1,890

Accrued liabilities

   

60,163

   

13,143

Income taxes payable

   

6,854

   

208

Deferred revenue

   

25,663

   

25,489

Current portion of debt

   

2,648

   

2,622

Current portion of payable pursuant to tax receivable agreements

   

3,583

   

3,567

Operating lease liabilities

   

5,102

   

Total current liabilities

   

106,996

   

46,919

Debt, net of current portion

   

223,033

   

225,165

Payable pursuant to tax receivable agreements, net of current portion

   

33,640

   

37,220

Deferred tax liabilities, net

   

293

   

400

Income taxes payable, net of current portion

   

   

5,794

Deferred revenue, net of current portion

   

18,763

   

20,224

Operating lease liabilities, net of current portion

   

55,959

   

Other liabilities, net of current portion

   

5,292

   

17,637

Total liabilities

   

443,976

   

353,359

Commitments and contingencies

           

Stockholders' equity:

           

Class A common stock, par value $.0001 per share, 180,000,000 shares authorized; 17,838,233 shares issued and outstanding as of December 31, 2019; 17,754,416 shares issued and outstanding as of December 31, 2018

   

2

   

2

Class B common stock, par value $.0001 per share, 1,000 shares authorized; 1 share issued and outstanding as of December 31, 2019 and December 31, 2018

   

   

Additional paid-in capital

   

466,945

   

460,101

Retained earnings

   

30,525

   

20,559

Accumulated other comprehensive income, net of tax

   

414

   

328

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

   

497,886

   

480,990

Non-controlling interest

   

(399,510)

   

(405,976)

Total stockholders' equity

   

98,376

   

75,014

Total liabilities and stockholders' equity

 

$

542,352

 

$

428,373

 

TABLE 3

RE/MAX Holdings, Inc.

Condensed Consolidated Statements of Cash Flow

(Amounts in thousands)

(Unaudited)

             
   

Year Ended December 31, 

   

2019

 

2018

Cash flows from operating activities:

           

Net income

 

$

46,856

 

$

49,822

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

           

Depreciation and amortization

   

22,323

   

20,678

Bad debt expense

   

4,964

   

2,257

Loss (gain) on sale or disposition of assets and sublease, net

   

342

   

(139)

Equity-based compensation expense

   

10,934

   

9,176

Deferred income tax expense

   

2,310

   

9,556

Fair value adjustments to contingent consideration

   

241

   

(1,289)

Payments pursuant to tax receivable agreements

   

(3,556)

   

(6,305)

Non-cash change in tax receivable agreement liability

   

   

(6,145)

Other, net

   

910

   

1,082

Changes in operating assets and liabilities

           

Accounts and notes receivable, current portion

   

(5,614)

   

(3,241)

Advances from/to affiliates

   

   

581

Other current and noncurrent assets

   

(6,084)

   

2,170

Other current and noncurrent liabilities

   

6,737

   

(3,466)

Income taxes receivable/payable

   

178

   

1,099

Deferred revenue, current and noncurrent

   

(1,566)

   

228

Net cash provided by operating activities

   

78,975

   

76,064

Cash flows from investing activities:

           

Purchases of property, equipment and capitalization of software

   

(13,226)

   

(7,787)

Acquisitions, net of cash acquired of $55 and $362, respectively

   

(14,945)

   

(25,888)

Restricted cash acquired with the Marketing Funds acquisition

   

28,495

   

Other

   

(1,200)

   

Net cash used in investing activities

   

(876)

   

(33,675)

Cash flows from financing activities:

           

Payments on debt

   

(2,622)

   

(3,171)

Distributions paid to non-controlling unitholders

   

(15,430)

   

(14,559)

Dividends and dividend equivalents paid to Class A common stockholders

   

(15,074)

   

(14,306)

Payment of payroll taxes related to net settled restricted stock units

   

(1,110)

   

(895)

Payment of contingent consideration

   

(306)

   

(221)

Net cash used in financing activities

   

(34,542)

   

(33,152)

Effect of exchange rate changes on cash

   

70

   

(70)

Net increase in cash, cash equivalents and restricted cash

   

43,627

   

9,167

Cash, cash equivalents and restricted cash, beginning of year

   

59,974

   

50,807

Cash, cash equivalents and restricted cash, end of period

 

$

103,601

 

$

59,974

 

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,

 
   

2019

 

2019

 

2019

 

2019

 

2018

 

2018

 

2018

 

2018

 

Agent Count:

                                 

U.S.

                                 

Company-owned Regions

 

49,267

 

48,576

 

48,748

 

48,904

 

49,318

 

50,342

 

50,432

 

49,760

 

Independent Regions

 

13,854

 

13,972

 

13,952

 

13,760

 

13,804

 

13,948

 

14,063

 

13,852

 

U.S. Total

 

63,121

 

62,548

 

62,700

 

62,664

 

63,122

 

64,290

 

64,495

 

63,612

 

Canada

                                 

Company-owned Regions

 

6,338

 

6,402

 

6,510

 

6,549

 

6,702

 

6,858

 

6,915

 

6,920

 

Independent Regions

 

15,229

 

15,117

 

14,923

 

14,818

 

14,625

 

14,550

 

14,451

 

14,297

 

Canada Total

 

21,567

 

21,519

 

21,433

 

21,367

 

21,327

 

21,408

 

21,366

 

21,217

 

     U.S. and Canada Total

 

84,688

 

84,067

 

84,133

 

84,031

 

84,449

 

85,698

 

85,861

 

84,829

 

Outside U.S. and Canada

                                 

Independent Regions

 

46,201

 

44,191

 

42,887

 

41,501

 

39,831

 

38,207

 

37,221

 

35,992

 

     Outside U.S. and Canada Total

 

46,201

 

44,191

 

42,887

 

41,501

 

39,831

 

38,207

 

37,221

 

35,992

 

Total

 

130,889

 

128,258

 

127,020

 

125,532

 

124,280

 

123,905

 

123,082

 

120,821

 

 

TABLE 5

RE/MAX Holdings, Inc.

Adjusted EBITDA Reconciliation to Net Income

 (Amounts in thousands, except percentages)

(Unaudited)

                           
   

Three Months Ended 

 

Year Ended 

 
   

December 31, 

 

December 31, 

 

(Amounts in 000s)

 

2019

 

2018

 

2019

 

2018

 

Net income

 

$

5,202

 

$

10,929

 

$

46,856

 

$

49,822

 

Depreciation and amortization

   

5,629

   

5,426

   

22,323

   

20,678

 

Interest expense

   

2,831

   

3,106

   

12,229

   

12,051

 

Interest income

   

(372)

   

(279)

   

(1,446)

   

(676)

 

Provision for income taxes

   

2,362

   

7,507

   

10,909

   

16,342

 

EBITDA

   

15,652

   

26,689

   

90,871

   

98,217

 

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

   

(11)

   

7

   

342

   

(139)

 

Equity-based compensation expense (1)

   

6,074

   

3,035

   

10,934

   

9,176

 

Acquisition-related expense (2)

   

859

   

6

   

1,127

   

1,634

 

Gain on reduction in tax receivable agreement liability (3)

   

   

(6,145)

   

   

(6,145)

 

Special Committee investigation and remediation expense (4)

   

   

101

   

   

2,862

 

Fair value adjustments to contingent consideration (5)

   

(89)

   

(429)

   

241

   

(1,289)

 

Adjusted EBITDA (6)

 

$

22,485

 

$

23,264

 

$

103,515

 

$

104,316

 

Adjusted EBITDA Margin (6)

   

33.0

%

 

45.8

%

 

36.7

%

 

49.1

%

_________________________
(1) For the three months ended December 31, 2019, modification of awards granted for certain booj work deliverables resulted in the entire fair value of the awards being recognized in expense as compared to the prior comparative period.

(2) Acquisition-related expense includes legal, accounting, advisory and consulting fees incurred in connection with the acquisition and integration of acquired companies.

(3) Gain on reduction in tax receivable agreement liability is a result of the Tax Cuts and Jobs Act enacted in December 2017 and further clarified in 2018.

(4) Special Committee investigation and remediation expense relates to costs incurred in relation to the previously disclosed investigation by the special committee of independent directors of actions of certain members of our senior management and the implementation of the remediation plan.

(5) Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liability.

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

 

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

 

Year Ended

   

December 31,

 

December 31,

(Amounts in 000s)

 

2019

 

2018

 

2019

 

2018

Net income

 

$

5,202

 

$

10,929

 

$

46,856

 

$

49,822

Amortization of acquired intangible assets

   

4,459

   

4,466

   

17,848

   

17,502

Provision for income taxes

   

2,362

   

7,507

   

10,909

   

16,342

Add-backs:

                       

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

   

(11)

   

7

   

342

   

(139)

Equity-based compensation expense (1)

   

6,074

   

3,035

   

10,934

   

9,176

Acquisition-related expense (2)

   

859

   

6

   

1,127

   

1,634

Gain on reduction in tax receivable agreement liability (3)

   

   

(6,145)

   

   

(6,145)

Special Committee investigation and remediation expense (4)

   

   

101

   

   

2,862

Fair value adjustments to contingent consideration (5)

   

(89)

   

(429)

   

241

   

(1,289)

Adjusted pre-tax net income

   

18,856

   

19,477

   

88,257

   

89,765

Less: Provision for income taxes at 24%

   

(4,525)

   

(4,675)

   

(21,182)

   

(21,544)

Adjusted net income (6)

 

$

14,331

 

$

14,802

 

$

67,075

 

$

68,221

                         

Total basic pro forma shares outstanding

   

30,396,986

   

30,308,345

   

30,371,665

   

30,297,249

Total diluted pro forma shares outstanding

   

30,538,031

   

30,330,780

   

30,427,352

   

30,327,099

                         

Adjusted net income basic earnings per share (6)

 

$

0.47

 

$

0.49

 

$

2.21

 

$

2.25

Adjusted net income diluted earnings per share (6)

 

$

0.47

 

$

0.49

 

$

2.20

 

$

2.25

 

_________________________

(1)

For the three months ended December 31, 2019, modification of awards granted for certain booj work deliverables resulted in the entire fair value of the awards being recognized in expense as compared to the prior comparative period.

(2)

Acquisition-related expense includes legal, accounting, advisory and consulting fees incurred in connection with the acquisition and integration of acquired companies.

(3)

Gain on reduction in tax receivable agreement liability is a result of the Tax Cuts and Jobs Act enacted in December 2017 and further clarified in 2018.

(4)

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

(5)

Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liability. 

(6)

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

TABLE 7

RE/MAX Holdings, Inc.

Pro Forma Shares Outstanding

(Unaudited)

                 
   

Three Months Ended

 

Year Ended

   

December 31,

 

December 31,

   

2019

 

2018

 

2019

 

2018

Total basic weighted average shares outstanding:

               

Weighted average shares of Class A common stock outstanding

 

17,837,386

 

17,748,745

 

17,812,065

 

17,737,649

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

 

12,559,600

 

12,559,600

Total basic pro forma weighted average shares outstanding

 

30,396,986

 

30,308,345

 

30,371,665

 

30,297,249

                 

Total diluted weighted average shares outstanding:

               

Weighted average shares of Class A common stock outstanding

 

17,837,386

 

17,748,745

 

17,812,065

 

17,737,649

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

 

12,559,600

 

12,559,600

Dilutive effect of unvested restricted stock units (1)

 

141,045

 

22,435

 

55,687

 

29,850

Total diluted pro forma weighted average shares outstanding

 

30,538,031

 

30,330,780

 

30,427,352

 

30,327,099

 

_________________________

(1)

In accordance with the treasury stock method.

TABLE 8

RE/MAX Holdings, Inc.

Free Cash Flow & Unencumbered Cash

(Unaudited)

           
 

Year Ended

 

December 31,

 

2019

 

2018

Cash flow from operations

$

78,975

 

$

76,064

Less: Purchases of property, equipment and capitalization of software

 

(13,226)

   

(7,787)

Decreases in restricted cash of the Marketing Funds (1)

 

7,895

   

-

Free cash flow (2)

 

73,644

   

68,277

           

Free cash flow

 

73,644

   

68,277

Less: Tax/Other non-dividend distributions to RIHI

 

(4,880)

   

(4,511)

Free cash flow after tax/non-dividend distributions to RIHI (2)

 

68,764

   

63,766

           

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

 

68,764

   

63,766

Less: Debt principal payments

 

(2,622)

   

(3,126)

Unencumbered cash generated (2)

$

66,142

 

$

60,640

           

Summary

         

Cash flow from operations

$

78,975

 

$

76,064

Free cash flow (2)

$

73,644

 

$

68,277

Free cash flow after tax/non-dividend distributions to RIHI (2)

$

68,764

 

$

63,766

Unencumbered cash generated (2)

$

66,142

 

$

60,640

           

Adjusted EBITDA

$

103,515

 

$

104,316

Free cash flow as % of Adjusted EBITDA (2)

 

71.1%

   

65.5%

Free cash flow less distributions to RIHI as % of Adjusted EBITDA (2)

 

66.4%

   

61.1%

Unencumbered cash generated as % of Adjusted EBITDA (2)

 

63.9%

   

58.1%

 

_________________________

(1)

In January 2019, the Company acquired all of the regional and pan-regional advertising fund entities previously owned by its founder and Chairman of the Board of Directors, David Liniger, collectively, the "Marketing Funds". Beginning January 1, 2019, all assets and liabilities of the Marketing Funds are reflected in the consolidated financial statements of the Company, including approximately $28.5 million of restricted cash. This line reflects any subsequent changes in the restricted cash balance since the initial acquisition date (which under GAAP reflects as either (a) a decrease in cash flow from operations or (b) an incremental amount of purchases of property and equipment and capitalization of developed software) so as to remove the impact of changes in restricted cash in determining free cash flow.

(2)

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

Non-GAAP Financial Measures

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

The Company defines Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest expense, interest income and the provision for income taxes, each of which is presented in the unaudited condensed consolidated financial statements included earlier in this press release), adjusted for the impact of the following items that are either non-cash or that the Company does not consider representative of its ongoing operating performance: loss or gain on sale or disposition of assets and sublease, equity-based compensation expense, acquisition-related expense, Special Committee investigation and remediation expense, gain on reduction in tax receivable agreement liability, expense or income related to changes in the estimated fair value measurement of contingent consideration, and other non-recurring items.

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

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

  • 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 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 expense, among others. The exclusion of these charges and costs in future periods will have a significant impact on the Company's Adjusted EBITDA. The Company is not able to provide a reconciliation of the Company's non-GAAP financial guidance to the corresponding U.S. GAAP measures without unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and costs.

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

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

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

  • 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 and any changes in restricted cash of the Marketing Funds, all as reported under GAAP, and quantifies how much cash a company has to pursue opportunities that enhance shareholder value. The restricted cash of the Marketing Funds is limited in use for the benefit of franchisees and any impact to free cash flow is removed. The Company believes free cash flow is useful to investors as a supplemental measure as it calculates the cash flow available for working capital needs, re-investment opportunities, potential independent region and strategic acquisitions, dividend payments or other strategic uses of cash.

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

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

SOURCE RE/MAX Holdings, Inc.

###

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