NYSE RMAX Min 20 minute delay
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Volume 51,739
September 22, 2017

RE/MAX Holdings Reports First Quarter 2017 Results

05/04/2017

 

DENVER, May 4, 2017 /PRNewswire/ --

First Quarter 2017 Highlights
(Compared to first quarter 2016 unless otherwise noted)

  • Total agent count grew by 6.6% to 113,804 agents
  • U.S. and Canada combined agent count increased 3.9% to 83,277 agents
  • Revenue increased 12.4% to $48.2 million
  • Net income attributable to RE/MAX Holdings, Inc. of $4.9 million and earnings per diluted share (GAAP EPS) of $0.28
  • Adjusted EBITDA1 of $22.5 million, Adjusted EBITDA margin1 of 46.6% and Adjusted earnings per diluted share (Adjusted EPS1) of $0.40
  • Announced $0.18 quarterly dividend on May 3, 2017

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, 2017. 

"We started 2017 strong, underpinned by increasing agent count and double-digit revenue growth year-over-year," stated Dave Liniger, Chief Executive Officer and Co-Founder. "Our agent count increased more than 7,000 agents since March of last year, and, notably, our agent count outside the U.S. and Canada increased by 15 percent to over 30,000 agents.  RE/MAX is in over 100 countries and territories, a global presence unrivaled by our peers."

Liniger continued, "After acquiring six independent regions and launching Motto Mortgage last year, we are focused on successfully growing these strategic initiatives in 2017 and over the long term.  During the first quarter, we experienced healthy franchise sales and agent count growth in the acquired regions. We've also more than doubled our Motto franchise sales since our last earnings release in February. With the spring selling season off to a promising start, we look forward to continued success throughout the year."

First Quarter 2017 Operating Results

Agent Count

The following table compares agent count as of March 31, 2017 and 2016:










As of March 31


Change


2017


2016


#


%

U.S.

62,441


60,317


2,124


3.5%

Canada

20,836


19,819


1,017


5.1%

Subtotal

83,277


80,136


3,141


3.9%

Outside the U.S. & Canada

30,527


26,572


3,955


14.9%

Total

113,804


106,708


7,096


6.6%

 

Revenue

RE/MAX Holdings generated total revenue of $48.2 million for the first quarter of 2017, a $5.3 million or 12.4% increase compared to $42.9 million in the first quarter of 2016, primarily due to contributions from the acquired independent regions, agent count growth and fee increases in the Company-owned regions. 

Recurring revenue streams, which include continuing franchise fees and annual dues, increased $4.4 million or 16.4% over the first quarter of 2016 and accounted for 64.7% of revenue in the first quarter of 2017 compared to 62.5% in the prior-year period.

Operating Expenses

Total operating expenses were $32.8 million for the first quarter of 2017, an increase of $5.7 million or 21.1% compared to the first quarter of 2016. This increase was due to additional amortization expense from the acquired independent regions as well as increased selling, operating and administrative expenses, many of which related to the acquired independent regions and the initial investment in Motto.

Selling, operating and administrative expenses were $26.8 million in the first quarter of 2017, an increase of $3.6 million or 15.3% from the first quarter of 2016 and represented 55.6% of revenue compared to 54.1% in the prior-year period. The increase in operating expenses was primarily due to increased personnel costs, professional fees and other expenses, many of which related to the acquired independent regions and the initial investment in Motto.

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $4.9 million for the first quarter of 2017, essentially in-line with the first quarter of 2016. Net income increased primarily due to the contribution from acquired independent regions, agent count growth and fee increases in the Company-owned regions.  The increase was offset by higher amortization expense and operating expenses, largely related to investment in personnel and operations associated with the acquired independent regions and the startup of Motto, as well as a decrease in revenue from preferred marketing arrangements. Reported basic and diluted EPS attributable to RE/MAX Holdings were both $0.28 per share for the first quarter of 2017.

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $22.5 million for the first quarter of 2017, an increase of $1.5 million or 7.1% from the first quarter of 2016. Adjusted EBITDA increased primarily due to contributions from the acquired independent regions, agent count growth and fee increases in the Company-owned regions, partially offset by investment in personnel and operations related to the startup of Motto and a decrease in revenue from preferred marketing arrangements.  Adjusted EBITDA margin was 46.6% in the first quarter of 2017 compared to 49.0% in the first quarter of 2016.

Adjusted basic and diluted EPS were both $0.40 for the first quarter of 2017. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended March 31, 2017 assumes RE/MAX owned 100% of RMCO. The weighted average ownership RE/MAX had in RMCO was 58.4% for the three months ended March 31, 2017.

Balance Sheet

As of March 31, 2017, the Company had a cash balance of $64.6 million, an increase of $7.0 million from December 31, 2016. As of March 31, 2017, RE/MAX had $230.4 million of term loans outstanding, net of unamortized debt discount and issuance costs, essentially flat compared with $230.8 million as of December 31, 2016.

Dividend

On May 3, 2017, the Company's Board of Directors approved a quarterly cash dividend of $0.18 per share.  The quarterly dividend is payable on May 31, 2017, to shareholders of record at the close of business on May 17, 2017.

Outlook

The Company's second-quarter and full-year 2017 Outlook assumes no further currency movements, acquisitions or divestitures.

For the second quarter of 2017, RE/MAX Holdings expects:

  • Agent count to increase 5.0% to 6.0% over second quarter 2016;
  • Revenue in a range of $47.0 million to $48.5 million;
  • Selling, operating and administrative expenses in a range of 47.0% to 48.5% of second quarter 2017 revenue;
    • Higher Selling, operating and administrative expenses as a percentage of second quarter 2017 revenue are expected due to expenses from the acquired independent regions and investments in personnel and operations to support Motto's growth; and
  • Adjusted EBITDA margin in a range of 54.0% to 55.5% of second quarter 2017 revenue.

For the full-year 2017, RE/MAX Holdings expects:

  • Agent count to increase 4.0% to 5.0% over 2016;
  • Revenue in a range of $194.0 million to $197.0 million;
  • Selling, operating and administrative expenses in a range of 48.0% to 49.5% of 2017 revenue; and
  • Adjusted EBITDA margin in a range of 52.5% to 54.0% of 2017 revenue.

The effective U.S. GAAP tax rate attributable to RE/MAX is estimated to be between 23% and 25% in 2017.   

The Company changed the way it calculates certain Non-GAAP measures beginning in 2017.  The above Outlook reflects these changes.  For additional information on the changes, please see the Company's first quarter 2017 earnings presentation available on the Investor Relations section of the Company's website at investors.remax.com.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, May 5, 2017, beginning at 8:30 a.m. Eastern Time. Interested parties are able to access the conference call using the following dial-in numbers:

U.S.

1-877-201-0168

Canada & International

1-647-788-4901

 

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. 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 2017 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.

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 110,000 agents provide RE/MAX a global reach of over 100 countries and territories. Nobody 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, 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 "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 second quarter and full fiscal year, including expectations regarding agent count, revenue, SO&A (Selling, operating and administrative) expenses, and Adjusted EBITDA margin; the Company's focus in 2017 and over the long term on successfully growing its strategic initiatives related to its acquisition of six independent regions and the launch of Motto Mortgage; the Company's belief that the spring selling season is off to a promising start and the Company's expectation of continued success throughout the year; 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 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 real estate agents and mortgage loan originators, (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 and Motto Mortgage brands, (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 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 duty, to update this information to reflect future events or circumstances. 

1

Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EPS are Non-GAAP measures. These terms are defined elsewhere in this release.  Please see the schedules appearing later in this release for reconciliations of these Non-GAAP measures to the most directly comparable GAAP measures.  

 

TABLE 1

RE/MAX Holdings, Inc.

Consolidated Statements of Income

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

(Unaudited)










Three Months Ended March 31, 



2017


2016








Revenue:







Continuing franchise fees


$

22,965


$

18,907

Annual dues



8,235



7,904

Broker fees



8,235



7,201

Franchise sales and other franchise revenue



8,794



8,793

Brokerage revenue





112

Total revenue



48,229



42,917

Operating expenses:







Selling, operating and administrative expenses



26,794



23,232

Depreciation and amortization



5,995



3,721

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



(12)



107

Total operating expenses



32,777



27,060

Operating income



15,452



15,857

Other expenses, net:







Interest expense



(2,354)



(2,281)

Interest income



26



51

Foreign currency transaction (losses) gains



(23)



164

Loss on early extinguishment of debt





(136)

Total other expenses, net



(2,351)



(2,202)

Income before provision for income taxes



13,101



13,655

Provision for income taxes



(3,030)



(3,259)

Net income


$

10,071


$

10,396

Less: net income attributable to non-controlling interest



5,159



5,456

Net income attributable to RE/MAX Holdings, Inc.


$

4,912


$

4,940















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







Basic


$

0.28


$

0.28

Diluted


$

0.28


$

0.28

Weighted average shares of Class A common stock outstanding







Basic



17,662,842



17,584,351

Diluted



17,716,013



17,638,667

Cash dividends declared per share of Class A common stock


$

0.18


$

0.15

 


TABLE 2

RE/MAX Holdings, Inc.

Consolidated Balance Sheets

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

(Unaudited)










March 31, 


December 31, 



2017


2016

Assets







Current assets:







Cash and cash equivalents


$

64,638


$

57,609

Accounts and notes receivable, current portion, less allowances of $5,934 and $5,535, respectively



20,406



19,419

Other current assets



2,968



4,186

Total current assets



88,012



81,214

Property and equipment, net of accumulated depreciation of $12,399 and $12,196, respectively



2,745



2,691

Franchise agreements, net



103,780



109,140

Other intangible assets, net



9,496



9,811

Goodwill



126,660



126,633

Deferred tax assets, net



104,565



105,770

Other assets, net of current portion



1,817



1,894

Total assets


$

437,075


$

437,153

Liabilities and stockholders' equity







Current liabilities:







Accounts payable


$

1,097


$

855

Accounts payable to affiliates



204



145

Accrued liabilities



7,993



13,268

Income taxes payable



1,159



379

Tax and other distributions payable to non-controlling unitholders



3,568



Deferred revenue and deposits



17,757



16,306

Current portion of debt



2,350



2,350

Current portion of payable pursuant to tax receivable agreements



11,331



13,235

Total current liabilities



45,459



46,538

Debt, net of current portion



228,010



228,470

Payable pursuant to tax receivable agreements, net of current portion



85,574



85,574

Deferred tax liabilities, net



136



133

Other liabilities, net of current portion



15,942



15,729

Total liabilities



375,121



376,444

Commitments and contingencies







Stockholders' equity:







Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 17,683,429 shares issued and outstanding as of March 31, 2017; 17,652,548 shares issued and outstanding as of December 31, 2016



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, 2017 and December 31, 2016





Additional paid-in capital



447,113



447,001

Retained earnings



18,536



16,808

Accumulated other comprehensive income (loss), net of tax



16



(28)

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



465,667



463,783

Non-controlling interest



(403,713)



(403,074)

Total stockholders' equity



61,954



60,709

Total liabilities and stockholders' equity


$

437,075


$

437,153

 

TABLE 3

RE/MAX Holdings, Inc.

Consolidated Statements of Cash Flow

(Amounts in thousands)

(Unaudited)










Three Months Ended March 31, 



2017


2016

Cash flows from operating activities:







Net income


$

10,071


$

10,396

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







Depreciation and amortization



5,995



3,721

Bad debt expense



343



146

Loss on early extinguishment of debt





136

Equity-based compensation expense



562



766

Deferred income tax expense



1,178



1,153

Fair value adjustments to contingent consideration



130



Other, net



115



222

Changes in operating assets and liabilities



(4,299)



(4,062)

Net cash provided by operating activities



14,095



12,478

Cash flows from investing activities:







Purchases of property, equipment and software



(640)



(1,389)

Capitalization of trademark costs



(17)



(13)

Acquisitions, net of cash acquired of $0 and $131, respectively





(8,369)

Other investing activity, net





54

Net cash used in investing activities



(657)



(9,717)

Cash flows from financing activities:







Payments on debt



(588)



(13,247)

Distributions paid to non-controlling unitholders



(2,281)



(1,884)

Dividends paid to Class A common stockholders



(3,184)



(2,638)

Payments on capital lease obligations



(4)



(27)

Payment of payroll taxes related to net settled restricted stock units



(450)



Net cash used in financing activities



(6,507)



(17,796)

Effect of exchange rate changes on cash



98



496

Net increase (decrease) in cash and cash equivalents



7,029



(14,539)

Cash and cash equivalents, beginning of year



57,609



110,212

Cash and cash equivalents, end of period


$

64,638


$

95,673

 

TABLE 4

RE/MAX Holdings, Inc.

Agent Count

(Unaudited)
















As of



March 31,


December 31,


September 30,


June 30,


March 31,


December 31,



2017


2016


2016


2016


2016


2015

Agent Count:













U.S.













Company-owned Regions (1)


46,708


46,240


39,790


39,493


38,469


37,250

Independent Regions (1)


15,733


15,490


22,451


22,142


21,848


22,668

U.S. Total


62,441


61,730


62,241


61,635


60,317


59,918

Canada













Company-owned Regions


6,786


6,713


6,728


6,701


6,580


6,553

Independent Regions


14,050


13,959


13,828


13,635


13,239


13,115

Canada Total


20,836


20,672


20,556


20,336


19,819


19,668

     U.S. and Canada Total


83,277


82,402


82,797


81,971


80,136


79,586

Outside U.S. and Canada













Independent Regions


30,527


29,513


28,391


27,989


26,572


25,240

     Outside U.S. and Canada Total


30,527


29,513


28,391


27,989


26,572


25,240

Total


113,804


111,915


111,188


109,960


106,708


104,826














(1)

As of 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 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.  As of each quarter end since June 30, 2016, U.S. Company-owned Regions include agents in the Alaska region, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of Alaska, Inc. ("RE/MAX of Alaska"), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the state of Alaska, on April 1, 2016.  As of the acquisition date, the Alaska region had 245 agents.  In addition, as of each quarter end since March 31, 2016, U.S. Company-owned Regions include agents in the New York 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 York, Inc. ("RE/MAX of New York"), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the state of New York, on February 22, 2016.  As of the acquisition date, the New York region had 869 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


2016









Net income

$

10,071


$

10,396


Depreciation and amortization


5,995



3,721


Interest expense


2,354



2,281


Interest income


(26)



(51)


Provision for income taxes


3,030



3,259


EBITDA


21,424



19,606


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


(47)



23


Loss on early extinguishment of debt




136


Equity-based compensation expense


562



766


Public offering related expenses (2)




193


Acquisition related expenses (3)


557



284


Adjusted EBITDA (4)

$

22,496


$

21,008


Adjusted EBITDA Margin (4)


46.6

%


49.0

%








(1)

Represents (gains) losses 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)

Represents costs incurred for compliance services performed during the three months ended March 31, 2016 in connection with the issuance of shares of Class A common stock as a result of the RIHI, Inc. ("RIHI") redemption of 5,175,000 common units in RMCO during the fourth quarter of 2016 (the "Secondary Offering").

(3)

Acquisition-related expenses include fees incurred in connection with the Company's acquisition and integration of certain assets of Tails, Inc. ("Tails") in October 2013, RE/MAX of New York, RE/MAX of Alaska, RE/MAX of New Jersey, and RE/MAX Regional Services (collectively, the "2016 Acquired Regions") and Motto.  Costs include legal, accounting and advisory fees as well as consulting fees for integration services.

(4)

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


2016








Net income


$

10,071


$

10,396

Amortization of franchise agreements



5,423



3,441

Provision for income taxes



3,030



3,259

Add-backs:







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



(47)



23

Loss on early extinguishment of debt





136

Equity-based compensation expense



562



766

Public offering related expenses (2)





193

Acquisition related expenses (3)



557



284

Adjusted pre-tax net income



19,596



18,498

Less: Provision for income taxes at 38%



(7,446)



(7,029)

Adjusted net income (4)


$

12,150


$

11,469








Total basic pro forma shares outstanding



30,222,442



30,143,951

Total diluted pro forma shares outstanding



30,275,613



30,198,267








Adjusted net income basic earnings per share (4)


$

0.40


$

0.38

Adjusted net income diluted earnings per share (4)


$

0.40


$

0.38








(1)

Represents (gains) losses 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)

Represents costs incurred for compliance services performed during the three months ended March 31, 2016 in connection with the Secondary Offering.

(3)

Acquisition-related expenses include fees incurred in connection with the Company's acquisition and integration of certain assets of Tails in October 2013, the 2016 Acquired Regions and Motto.  Costs include legal, accounting and advisory fees as well as consulting fees for integration services.

(4)

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, 



2017


2016

Total basic weighted average shares outstanding:





Weighted average shares of Class A common stock outstanding


17,662,842


17,584,351

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


30,222,442


30,143,951






Total diluted weighted average shares outstanding:





Weighted average shares of Class A common stock outstanding


17,662,842


17,584,351

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 stock options (1)



15,635

Dilutive effect of unvested restricted stock units (1)


53,171


38,681

Total diluted pro forma weighted average shares outstanding


30,275,613


30,198,267






(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,



2017



2016







Cash flow from operations

$

14,095


$

12,478

Less: Capital expenditures


(640)



(1,389)

Free cash flow (1)


13,455



11,089







Free cash flow


13,455



11,089

Less:  Tax/Other non-dividend distributions to RIHI


(20)



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


13,435



11,089







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


13,435



11,089

Less:  Quarterly debt principal payments


(588)



(520)

Less:  Annual excess cash flow (ECF) payment




(12,727)

Unencumbered cash generated (1)

$

12,847


$

(2,158)







Summary






Cash flow from operations

$

14,095


$

12,478

Free cash flow

$

13,455


$

11,089

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

$

13,435


$

11,089

Unencumbered cash generated

$

12,847


$

(2,158)







Adjusted EBITDA

$

22,496


$

21,008

Free cash flow as % of Adjusted EBITDA


59.8%



52.8%

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


59.7%



52.8%

Unencumbered cash generated as % of Adjusted EBITDA


57.1%



-10.3%







(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 in the Quarterly Report on Form 10-Q), adjusted for the impact of the following items that the Company does not consider representative of its ongoing operating performance: loss or gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, professional fees and certain expenses incurred in connection with the Secondary Offering, acquisition-related expenses and equity-based compensation expense. During the first quarter of 2017, the Company revised its definition of Adjusted EBITDA to better reflect the performance of our business and comply with SEC guidance. The Company now adjusts for equity-based compensation expense and no longer adjusts for straight-line rent expense and severance-related expenses.  Adjusted EBITDA was revised in prior periods to reflect this change for consistency in presentation.

Because Adjusted EBITDA omits certain non-cash items and other non-recurring cash charges or other items, the Company believes that it 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 and is more reflective of other factors that affect its operating performance. The Company presents Adjusted EBITDA because the Company believes it is useful as a supplemental measure in evaluating the performance of the operating businesses and provides greater transparency into the Company's results of operations. The Company's management uses Adjusted EBITDA as a factor in evaluating the performance of the business.

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

  • this measure does not reflect changes in, or cash requirements for, the Company's working capital needs;
  • this measure does not reflect the Company's interest expense, or the cash requirements necessary to service interest or principal payments on its debt;
  • this measure does not reflect the Company's income tax expense or the cash requirements to pay its taxes;
  • this measure does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
  • this measure does 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; 
  • this measure does 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; and
  • other companies may calculate this measure differently so similarly named measures may not be comparable.

Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenue.

Adjusted net income is defined as net income 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 franchise agreements, gain on sale or disposition of assets and sub-lease, loss on early debt extinguishment, public-offering related expenses, acquisition-related expenses and equity-based compensation expense).

Adjusted basic and diluted earnings per share (Adjusted EPS) are defined as Adjusted net income (as defined above) divided by pro forma basic and diluted weighted average shares, as applicable.

Free cash flow is defined as operating cash flow minus capital expenditures. Free cash flow after tax and non-dividend distributions to RIHI is defined as free cash flow minus tax and other non-dividend distributions paid to RIHI to enable RIHI to satisfy its income tax obligations. Unencumbered cash generated is defined as free cash flow after tax and non-dividend distributions to RIHI minus quarterly debt principal payments minus annual excess cash flow payment on debt, as applicable.

The Company's Adjusted EBITDA margin guidance does not include certain charges and costs. The adjustments to EBITDA margin in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA margin 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 margin. 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.

 

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SOURCE RE/MAX Holdings, Inc.

Investor Contact: Andy Schulz, (303) 796-3287, aschulz@remax.com; Media Contact: Jason Lindaman, (303) 796-3546, jlindaman@remax.com
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