RE/MAX Holdings Reports Fourth Quarter And Full Year 2013 Results

03/27/2014

DENVER, March 27, 2014 /PRNewswire/ --

Fourth Quarter 2013 Highlights

  • Revenue of $40.2 million, up 14.7% compared to the prior year quarter
  • Adjusted EBITDA1 of $18.5 million, up 3.7% compared to the prior year quarter
  • Adjusted EBITDA1 margin was 46.0% compared to 50.9% in the prior year quarter
  • Reported adjusted basic and diluted earnings per share ("EPS") of $0.32 and $0.31, respectively
  • Acquired the regional franchise rights in the Southwest and Central Atlantic regions
  • Successful completion of initial public offering ("IPO") in October 2013

Full Year 2013 Highlights

  • Total agent count at year-end was 93,228, up 4.7% compared to the prior year
  • Revenue of $158.9 million, up 10.6% compared to the prior year
  • Adjusted EBITDA1 was $77.3 million, up 15.8% compared to the prior year
  • Adjusted EBITDA1 margin was 48.6% for the full year compared to 46.5% in the prior year
  • Announced first quarterly dividend of $0.0625 per share of Class A common stock

RE/MAX Holdings, Inc. (the "Company" or "RE/MAX") (NYSE: RMAX), one of the world's leading franchisors of real estate brokerage services, today announced operating results for the fourth quarter and year ended December 31, 2013.

RE/MAX, LLC Logo.

"For the second year in a row, we grew agent count, revenue and our adjusted EBITDA margin from the prior year," stated Margaret Kelly, Chief Executive Officer of RE/MAX. "Our highly productive agents capitalized on the recovering housing market in 2013, enabling us to perform extremely well. In addition, we acquired regional franchise rights for the Southwest and Central Atlantic regions, consistent with our strategy to drive enhanced profitability."

Kelly continued, "At RE/MAX, we understand success is driven by people and relationships.  In 2014, we will continue our relentless efforts to provide our network of agents and brokers with innovative tools and ideas, so they are able to connect with more buyers and sellers.  We will also continue to promote the benefits of our agent-centric model to attract productive agents to the RE/MAX family."

Fourth Quarter and Full Year 2013 Operating Results

In 2013, RE/MAX grew total agent count by 4,220 agents or 4.7% to 93,228 at year-end compared to the prior year-end. Agent count, as of December 31, 2013, in the United States ("U.S.") and Canada increased by 2,744 agents or 3.9% to 73,413 compared to the prior year-end. Agent count outside the U.S. and Canada saw an increase of 1,476 agents or 8.0% to 19,815 agents compared to the prior year-end.

Revenue

RE/MAX generated revenue of $158.9 million during the full year 2013, representing a 10.6% increase compared to $143.7 million for the same period in 2012. Increased revenue was primarily attributable to growth in agent count and higher broker fee revenue due to a rise in commissions resulting from increased home sale transactions and prices. The Company also generated additional fee-based revenue as a result of the acquisitions of the RE/MAX of Texas region in December 2012 and the Southwest and Central Atlantic regions in October 2013. Revenue was $40.2 million for the fourth quarter 2013, up 14.7% from the same period in 2012 due to the same revenue drivers that increased full year 2013 revenue.

The Company's fixed recurring revenue streams, which include annual dues and continuing franchise fees, accounted for 59.2% of the Company's annual revenues in 2013 and 59.3% of 2012 revenues. Annual dues, which are fixed fees paid by agents directly to RE/MAX, rose 2.1% to $29.5 million compared to the prior year due to growth in agent count. Continuing franchise fees, a fixed fee per agent paid by each regional franchise owner in independent regions or each franchisee in Company-owned regions, were $64.5 million, up 14.4% over the prior year. The increase was primarily driven by the acquisition and subsequent growth of RE/MAX of Texas and the acquisitions of the Southwest and Central Atlantic regions which allowed RE/MAX to earn a greater portion of continuing franchise fees.

RE/MAX also realized incremental growth through additional broker fee revenue as the housing market continued to recover and home sale transactions and prices increased.  Broker fees, the percentage fee paid on agent-generated transactions, grew 26.7% to $24.8 million compared to $19.6 million in the prior year, reflecting incremental revenue that RE/MAX realizes as home sale transactions increase.  Franchise sales and other franchise revenue increased $0.9 million or 4.2% to $23.6 million compared to the prior year primarily due to an increase in the sale of master franchise rights, including Japan for $1.0 million in the fourth quarter of 2013.

Brokerage revenue, which principally represents fees assessed by the Company's owned brokerages for services provided to their affiliated real estate agents, was $16.5 million, an increase of $0.3 million or 1.7% from the prior year.   

Operating Expenses

Total operating expenses were $111.8 million for the full year 2013, $13.7 million higher than 2012 mainly due to one-time IPO-related expenses, amortization expense associated with the acquisition of the Texas, Southwest and Central Atlantic regions, increased personnel costs associated with the acquisitions and the activities related to being a public company.

Total operating expenses for the three months ended December 31, 2013 were $30.6 million, an increase of $5.5 million from the same period in 2012 due to the same drivers that increased operating expense for the full year 2013.

Adjusted EBITDA

The Company's Adjusted EBITDA margin was 48.6% for the full year 2013 compared to 46.5% in the prior year. Adjusted EBITDA was $77.3 million in 2013, up 15.8% or $10.5 million from the prior year. The increase in both Adjusted EBITDA and Adjusted EBITDA margin was driven by revenue growth of $15.2 million attributable to agent growth, higher broker fee revenue and additional continuing franchise fees from the acquisition of the Texas, Southwest and Central Atlantic regions.

The Company's Adjusted EBITDA margin was 46.0% for the three months ended December 31, 2013 compared to 50.9% in the fourth quarter of 2012. Adjusted EBITDA was $18.5 million for the three months ended December 31, 2013, up 3.7% from the prior year period Adjusted EBITDA of $17.9 million.  The decrease in margin is primarily attributable to higher selling, operating and administrative expenses net of our one-time EBITDA Adjustments and increased foreign currency losses. A reconciliation of Adjusted EBITDA to net income is included in Table 5.

Net Income

Reported net income was $28.3 million for the full year 2013, a decrease of 15.2% or $5.1 million compared to the full year 2012 due primarily to increased interest expense and losses associated with the early extinguishment and refinancing of debt, one-time expenses related to the IPO, losses associated with foreign currency transactions and increased amortization expense associated with the acquisition of the Texas, Southwest and Central Atlantic regions.   Reported net income was $5.6 million for the fourth quarter 2013.  This compares to net income of $7.1 million for the same period in 2012.  The 21.6% decline in reported net income reflects increased amortization expense associated with the acquisitions of the Texas, Southwest and Central Atlantic regions and increased losses associated with foreign currency transactions.

Adjusted net income2 increased by 18.6% to $37.9 million for the full year 2013. Adjusted net income for the fourth quarter 2013 grew 8.2% to $9.4 million. This compares to $8.7 million of adjusted net income for the fourth quarter 2012. Adjusted basic and diluted EPS were $0.32 and $0.31, respectively, for the fourth quarter 2013.

Net income attributable to RE/MAX Holdings, Inc. was $1.5 million for the period from the IPO (October 7, 2013) through December 31, 2013. This amount excludes net income attributable to non-controlling interest. Reported basic and diluted EPS attributable to RE/MAX Holdings, Inc. were $0.13 and $0.12, respectively. Refer to Table 1 for the share counts used in the calculation of GAAP basic and diluted EPS attributable to RE/MAX Holdings, Inc.

Since RE/MAX did not become a public company until the fourth quarter of 2013, the ownership structure used to calculate adjusted EPS for the three months ended December 31, 2013 reflects RE/MAX owning 100% of RMCO. The actual RE/MAX ownership of RMCO is 39.56%.  Refer to Table 6 in this press release for a reconciliation of adjusted net income to net income and the share counts used in the adjusted basic and diluted EPS calculations.

Balance Sheet

The Company ended 2013 with a cash balance of $88.4 million, an increase of $19.9 million from December 31, 2012. In July 2013, RE/MAX borrowed $230.0 million at a lower interest rate to refinance and repay existing debt. As of December 31, 2013, the Company had $228.4 million of term loans outstanding, net of unamortized discount.

Dividend

In-line with the Company's capital allocation strategy, the Company's Board of Directors approved a quarterly dividend of $0.0625 per share of Class A common stock. The dividend is payable on April 18, 2014 to shareholders of record at the close of business on April 4, 2014.

Successful Initial Public Offering

The Company completed its IPO of 11.5 million shares of Class A common stock on October 7, 2013 at a price to the public of $22.00 per share, raising net proceeds of $224.9 million after deducting underwriting discounts and commissions and offering expenses. The net proceeds of the IPO were used to acquire regional franchise rights in the Southwest and Central Atlantic regions of the U.S., redeem all of the outstanding preferred equity interests in RMCO held by the private equity firm Weston Presidio and purchase common interests from Weston Presidio and the RE/MAX founding shareholders.

Basis of Presentation

Subsequent to the IPO, RE/MAX began to operate and control all of the business affairs of RMCO. As a result, RE/MAX began to consolidate RMCO on October 7, 2013, and because RE/MAX and RMCO are entities under common control, such consolidation has been reflected for all periods presented.  Unless otherwise noted, the results presented in this press release are consolidated and exclude adjustments attributable to the non-controlling interest.

These historical results do not purport to reflect what the results of operations of RE/MAX would have been had the IPO and related reorganization and other transactions occurred prior to such periods. For example, these historical results do not reflect the portion of RE/MAX's income attributable to the non-controlling interest or the provision for corporate income taxes on the income attributable to RE/MAX that we expect to record with respect to future periods.

Webcast and Conference Call

The Company will host a conference call for interested parties beginning at 5:00 p.m. Eastern Time on Thursday, March 27, 2014. Interested parties are able to access the conference call by dialing:  

Dial-In:

1-888-317-6016

International Dial-In: 

1-412-317-6016

Canada Dial-In: 

1-855-669-9657

Interested parties can access the live webcast through the Investor Relations section of the Company's website at www.remax.com. Please dial-in or join the webcast 10 minutes before the start of the conference call.

A replay of the call will be available approximately two hours after the end of the call on March 27, 2014 through April 4, 2014, by dialing 1-877-344-7529 (U.S.), 1-855-669-9658 (Canada) or 1-412-317-0088 (International) and entering the pass code 10041952. An archive of the webcast will be available on the Company's website for a limited time as well.

About the RE/MAX Network

RE/MAX was founded in 1973 by Dave and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. Over 93,000 agents provide RE/MAX a global reach of more than 90 countries. Nobody sells more real estate than RE/MAX.

RE/MAX, LLC, one of the world's leading franchisors of real estate brokerage services, is a wholly-owned subsidiary of RMCO, which is controlled and managed by RE/MAX Holdings, Inc. (NYSE: RMAX).

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995, including statements regarding outlook. Forward-looking statements may be identified by the use of words such as "anticipate," "believe," "intend," "expect," "estimate," "plan," "outlook," "project" and other similar words and expressions that predict or indicate future events or trends that are not statements of historical matters. These forward-looking statements include any statements regarding the Company's strategic and operational plans. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward looking statements. Such risks and uncertainties include, without limitation, (1) changes in business and economic activity in general, (2) changes in the real estate market, including changes due to interest rates and availability of financing, (3) our ability to attract and retain quality franchisees, (4) our franchisees' ability to recruit and retain agents, (5) changes in laws and regulations that may affect our business or the real estate market, (6) failure to maintain, protect and enhance the RE/MAX brand, as well as those risks and uncertainties described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the final prospectus relating to the Company's IPO included in the Company's registration statement on Form S-1  filed with the Securities and Exchange Commission ("SEC") and similar disclosures in subsequent reports filed with the SEC, which are available on the investor relations page of our website at www.remax.com and on the SEC website at www.sec.gov.  Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Except as required by law, the Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.  

1 Non-GAAP measures. See Table 5 for a reconciliation of net income to Adjusted EBITDA. See the end of this press release for a definition of Non-GAAP measures.

2 Non-GAAP measure. Adjusted Net Income measure assumes RE/MAX owns 100% of RMCO, LLC ("RMCO"). RE/MAX actually owns 39.56% of RMCO. See Table 6 for a reconciliation of adjusted net income and adjusted EPS to net income. See the end of this press release for a definition of Non-GAAP measures. 

TABLE 1

 RE/MAX Holdings, Inc. and Subsidiaries

 Consolidated Statements of Income and Comprehensive Income 

(Unaudited) 

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


























Three months ended December 31,


Year ended December 31, 










2013


2012


2013


2012

















Revenue:














Continuing franchise fees




$           17,428


$             14,057


$           64,465


$            56,350


Annual dues




7,472


7,533


29,524


28,909


Broker fees




6,107


4,775


24,811


19,579


Franchise sales and other franchise revenue



5,751


4,826


23,574


22,629


Brokerage revenue




3,476


3,889


16,488


16,210






Total revenue




40,234


35,080


158,862


143,677

Operating expenses:












Selling, operating and administrative expenses



26,155


20,509


96,243


84,337


Depreciation and amortization




4,078


2,859


15,166


12,090


Loss on sale or disposition of assets, net



332


1,724


373


1,704






Total operating expenses




30,565


25,092


111,782


98,131






Operating income




9,669


9,988


47,080


45,546

Other expenses, net:












Interest expense




(2,594)


(2,912)


(14,647)


(11,686)


Interest income




97


79


321


286


Foreign currency transaction (losses) gains, net



(629)


(150)


(764)


208


Loss on early extinguishment of debt




-


-


(1,798)


(136)


Equity in earnings of investees




168


532


904


1,244






Total other expenses, net




(2,958)


(2,451)


(15,984)


(10,084)






Income before provision for income taxes


6,711


7,537


31,096


35,462

Provision for income taxes




(1,111)


(398)


(2,844)


(2,138)






Net income 




$             5,600


$               7,139


$           28,252


$            33,324






Less: net income attributable to non-controlling interest


4,094


7,139


26,746


33,324






Net income attributable to RE/MAX Holdings, Inc.


$             1,506


$                    -


$             1,506


$                  -

















Comprehensive income:












Net Income 




$             5,600


$               7,139


$           28,252


$            33,324


Change in cumulative translation adjustment



(192)


(30)


(376)


68


Reclassification of translation adjustment to loss on sale of assets


-


(223)


-


(223)






Other comprehensive loss




(192)


(253)


(376)


(155)






Comprehensive income 




5,408


6,886


27,876


33,169






Less: comprehensive income attributable to non-controlling interest

3,978


6,886


26,446


33,169






Comprehensive income attributable to RE/MAX Holdings, Inc.


$             1,430


$                    -


$             1,430


$                  -











 October 7, 2013 through December 31, 2013 







Net income attributable to RE/MAX Holdings, Inc. 



$             1,506







Earnings per share data:
















Basic (1)




$               0.13












Diluted (1)




$               0.12







Weighted average shares of Class A common stock outstanding














Basic




11,607,971












Diluted




12,234,905























(1)

RE/MAX consummated its initial public offering on October 7, 2013. Since that date, the Company has consolidated the results of RMCO due to its role as RMCO's managing member. Therefore, all income for the period prior to October 7, 2013 is entirely attributable to the non-controlling interest which existed prior to the initial public offering. As a result, in the computation of U.S. generally accepted accounting principles ("GAAP") earnings per share, only the net income attributable to the Company's controlling interest from the period subsequent to the initial public offering is considered. Additionally, the computation of weighted average basic and diluted shares of Class A common stock outstanding considers the outstanding shares from the date the Company's Class A common stock started trading on the New York Stock Exchange, October 2, 2013 through December 31, 2013.

 


 


TABLE 2

 

RE/MAX Holdings, Inc. and Subsidiaries

 Consolidated Balance Sheets

(Unaudited)

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








 December 31, 2013 


 December 31, 2012 

Assets




 Current assets:





Cash and cash equivalents

$          88,375


$         68,501


Escrow cash - restricted

710


780


Accounts and notes receivable, current portion, less allowances of $4,122 and $3,913, respectively

15,980


15,034


Accounts receivable from affiliates

5


55


Other current assets

5,010


2,707


 Total current assets

110,080


87,077






Property and equipment, net of accumulated depreciation of $19,400 and $20,426, respectively

2,583


3,332

Franchise agreements, net of accumulated amortization of $73,764 and $61,489, respectively

89,071


78,338

Other intangible assets, net of accumulated amortization of $7,912 and $7,053, respectively

2,486


2,821

Goodwill

72,781


71,039

Deferred tax assets, net

67,791


-

Investments in equity method investees

3,642


3,900

Debt issuance costs, net

2,353


2,930

Other assets

2,036


1,979


 Total assets

$         352,823


$       251,416





Liabilities, redeemable preferred units and stockholders' equity/members' deficit




 Current liabilities:





Accounts payable

$               731


$             530


Accounts payable to affiliates

1,017


2,385


Escrow liabilities

710


780


Accrued liabilities

9,344


9,397


Income taxes and tax distribution payable

3,000


400


Deferred revenue and deposits

15,821


15,996


Current portion of debt

17,300


10,600


Current portion of payable to related parties pursuant to tax receivable agreements

902


-


Other current liabilities

206


234


             Total current liabilities

49,031


40,322






Debt, net of current portion

211,104


221,726

Payable to related parties pursuant to tax receivable agreements, net of current portion

67,938


-

Deferred revenue, net of current portion

234


514

Deferred tax liabilities, net

195


309

Other liabilities, net of current portion

8,782


6,914


 Total liabilities

337,284


269,785






Commitments and contingencies









Redeemable preferred units:





Class A preferred units, at estimated redemption value (no par value, none authorized, issued or outstanding as of December 31, 2013; 150,000 units authorized, issued and outstanding as of December 31, 2012; liquidation preference of $0 and $49,500 as of December 31, 2013 and 2012, respectively)

-


78,400

Stockholders' equity/members' deficit:





Class B common units (no par value, noneauthorized, issued or outstanding as of December 31, 2013; 900,000 units authorized and 847,500 units issued and outstanding as of December 31, 2012)

-


(98,516)


Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 11,607,971 shares issued and outstanding as of December 31, 2013; none authorized, issued or outstanding as of December 31, 2012

1


-


Class B common stock, par value $0.0001 per share, 1,000 shares authorized; 1 share issued and outstanding as of December 31, 2013; none authorized, issued or outstanding as of December 31, 2012

-


-


Additional paid-in capital

239,086


-


Retained earnings

1,506


-


Accumulated other comprehensive income

1,371


1,747


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

241,964


(96,769)


Non-controlling interest

(226,425)


-


       Total stockholders' equity/members' deficit

15,539


(96,769)


           Total liabilities, redeemable preferred units and stockholders' equity/members' deficit

$         352,823


$       251,416


 


 


TABLE 3

RE/MAX Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)




























Year Ended December 31,








2013


2012











Cash flows from operating activities:






Net income




$ 28,252


$ 33,324


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






Depreciation and amortization


15,166


12,090



Bad debt expense



604


611



Loss on sale or disposition of assets


373


1,704



Loss on early extinguishment of debt


1,798


136



Equity in earnings of investees


(904)


(1,244)



Distributions received from equity investees


1,162


861



Equity-based compensation


2,995


1,089



Non-cash interest expense


859


936



Deferred income tax expense


402


85



Changes in operating assets and liabilities:








Accounts and notes receivable


(585)


(1,041)




Advances to affiliates



57


252




Other current and noncurrent assets


(1,245)


(740)




Current and noncurrent liabilities


1,574


2,238




Deferred revenue



(439)


958





Net cash provided by operating activities


50,069


51,259

Cash flows from investing activities:






Purchases of property, equipment and software


(1,108)


(1,610)


Proceeds from sale of property and equipment


18


32


Cost to sell assets



-


(106)


Capitalization of trademark costs


(232)


(206)


Acquisitions




(27,305)


(45,500)





Net cash used in investing activities


(28,627)


(47,390)

Cash flows from financing activities:






Proceeds from issuance of debt


230,000


45,000


Payments on debt



(234,658)


(8,386)


Debt issuance costs



(1,345)


(697)


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

235,922


-


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

(5,972)


-


Purchase of Common Units from RMCO, LLC


(197,618)


-


Distributions to non-controlling unitholders


(27,614)


(9,603)


Payments on capital lease obligations


(266)


(361)





Net cash used in financing activities


(1,551)


25,953

Effect of exchange rate changes on cash


(17)


68





Net increase in cash and cash equivalents


19,874


29,890

Cash and cash equivalents, beginning of year


68,501


38,611

Cash and cash equivalents, end of year


$ 88,375


$ 68,501

Supplemental disclosures of cash flow information:






Cash paid for interest



$ 13,769


$ 10,688


Cash paid for income taxes


2,310


2,008

Schedule of non-cash activities:






Initial establishment of deferred tax assets


$ 69,711


$ -


Initial establishment of amounts payable under tax receivable agreements and related accretion

68,840


-


Note receivable related to sale of assets of regional franchising operations

-


217


Capital leases for property and equipment


581


40


Tax distributions payable to non-controlling unitholders


2,552


-

 


 

TABLE 4

RE/MAX Holdings, Inc. and Subsidiaries

Agent Count

(Unaudited)




As of December 31,




2013


2012


2011



Agent Count:








U.S.








Company-owned regions

33,416

(1)

25,819

(2)

21,050



Independent regions

21,075


25,984


30,102



U.S. Total

54,491


51,803


51,152



Canada








Company-owned regions

6,084


6,070


5,976



Independent regions

12,838


12,796


12,594



Canada Total

18,922


18,866


18,570



Outside U.S. and Canada








Company-owned regions

338


336


1,276



Independent regions

19,477


18,003

(3)

16,478



Outside U.S. and Canada Total

19,815


18,339


17,754



Total

93,228


89,008


87,476



Net change in agent count compared to the prior period

4,220


1,532


-2,152


















(1)

As of December 31, 2013, U.S. Company-owned Regions include 5,991 agents in the Southwest and Central Atlantic regions which converted from Independent Regions to Company-owned regions in connection with the acquisition of the business assets of HBN and Tails on October 7, 2013. As of the acquisition date, the Southwest and Central Atlantic regions had 5,918 agents.

(2)

As of December 31, 2012, U.S. Company-owned Regions include 4,214 agents in the Texas region which converted from an Independent Region to a Company-owned Region in connection with the acquisition of RE/MAX of Texas on December 31, 2012.

(3)

As of December 31, 2012, Independent Regions outside of the U.S. and Canada include 863 agents in the Australia and New Zealand regions which converted from Company-owned Regions to Independent Regions in connection with the divestiture of the Australia and New Zealand regions during the fourth quarter of 2012.

 

 









TABLE 5

RE/MAX Holdings, Inc. and Subsidiaries

Adjusted EBITDA Reconciliation to Net Income (1)

(Unaudited)

(Amounts in thousands)










Three months ended December 31,


Year ended December 31,


2013


2012


2013


2012









Consolidated:








Net income

$ 5,600


$ 7,139


$ 28,252


$ 33,324

Depreciation and amortization

4,078


2,859


15,166


12,090

Interest expense

2,594


2,912


14,647


11,686

Interest income

(97)


(79)


(321)


(286)

Provision for income taxes

1,111


398


2,844


2,138

EBITDA

13,286


13,229


60,588


58,952

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

1,383


1,794


971


1,352

Loss on early extinguishment of debt (3)

-


-


1,798


136

Equity-based compensation (4)

2,294


1,089


2,995


1,089

Non-cash straight-line rent expense (5)

212


656


1,183


1,879

Chairman executive compensation (6)

11


750


2,261


3,000

Acquisition integration costs (7)

246


336


495


336

Public offering related expenses (8)

1,079


-


6,995


-

Adjusted EBITDA

$ 18,511


$ 17,854


$ 77,286


$ 66,744









(1)

Excludes all adjustments associated with the non-controlling interest and presents the results of operations as if all ownership of RMCO was converted to shares of RE/MAX Holdings, Inc. Class A common shares for the entire period presented.

(2)

Represents losses on the sale or disposition of assets as well as the loss on the sublease of a portion of our corporate headquarters office building.

(3)

Represents losses incurred on early extinguishment of debt on our Senior Secured Credit Facility.

(4)

Equity-based compensation includes non-cash compensation expense recorded related to unit options granted to employees pursuant to RMCO's 2011 Unit Option Plan during the years ended December 31, 2013 and 2012 as well as the non-cash compensation expense recorded related to restricted stock units granted in connection with the IPO pursuant to our 2013 Stock Incentive Plan.

(5)

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

(6)

Represents the annual salaries we paid to David Liniger, our Chairman and Co-Founder, and Gail Liniger, our Vice Chair and Co-Founder. Such salaries have not been paid subsequent to the IPO and will not be paid in future periods.

(7)

Acquisition integration costs include fees incurred in connection with our acquisition of the Texas region in December 2012 and the Southwest and Central Atlantic regions in December 2013. Costs include legal, accounting and advisory fees as well as consulting fees for integration services.

(8)

Represents costs incurred in connection with the IPO.

 

 


TABLE 6

RE/MAX Holdings, Inc. and Subsidiaries

Adjusted Net Income and Adjusted Earnings per Share(1)

 (Unaudited)

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

 










Three months ended December 31, 


Year ended December 31, 


2013


2012


2013


2012









Consolidated:








Net income 

$      5,600


$7,139


$28,252


$33,324

Amortization of Franchise Agreements

3,376


2,054


12,274


9,080

Canadian tax expense & RE/MAX Holdings Tax Provision

1,111


398


2,844


2,138

One-time add-backs:








   Interest charges incurred to refinance debt (2)

64


-


1,982


-

   Loss on sale or disposition of assets and sublease (3)

1,383


1,794


971


1,352

   Loss on early extinguishment of debt (4)

-


-


1,798


136

   Equity-based compensation (5)

2,294


1,089


2,995


1,089

   Non-cash straight-line rent expense (6)

212


656


1,183


1,879

   Chairman executive compensation (7)

11


750


2,261


3,000

   Acquisition integration costs (8)

246


336


495


336

   Public offering related expenses (9)

1,079


-


6,995


-

Adjusted pre-tax net income

15,376


14,216


62,050


52,334

Less: Provision for income taxes at 39%

(5,997)


(5,544)


(24,200)


(20,410)

Adjusted net income

9,379


8,672


37,850


31,924









Total basic pro forma shares outstanding

29,342,571







Total diluted pro forma shares outstanding

29,969,505















Adjusted Net Income Basic Earnings per Share:

$        0.32







Adjusted Net Income Diluted Earnings per Share:

$        0.31























(1)

Excludes all adjustments associated with the non-controlling interest and presents the results of operations as if all ownership of RMCO was converted to shares of RE/MAX Holdings, Inc. Class A common shares for the entire period presented.

(2)

In connection with the repayment of debt of the pre-existing debt facility during the year ended December 31, 2013, $1,982,000 paid to third parties was expensed as incurred.

(3)

Represents losses on the sale or disposition of assets as well as the loss on the sublease of a portion of our corporate headquarters office building.

(4)

Represents losses incurred on early extinguishment of debt on the Senior Secured Credit Facility.

(5)

Equity-based compensation includes non-cash compensation expense recorded related to unit options granted to employees pursuant to the 2011 Unit Option Plan during the years ended December 31, 2013 and 2012 as well as the non-cash compensation expense recorded related to restricted stock units granted in connection with the IPO pursuant to the 2013 Stock Incentive Plan.

(6)

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

(7)

Represents the annual salaries we paid to David Liniger, our Chairman and Co-Founder, and Gail Liniger, our Vice Chair and Co-Founder. Such salaries have not been paid subsequent to the IPO and will not be paid in future periods.

(8)

Acquisition integration costs include fees incurred in connection with our acquisition of the Texas region in December 2012 and the Southwest and Central Atlantic regions in October 2013. Costs include legal, accounting and advisory fees as well as consulting fees for integration services.

(9)

Represents costs incurred in connection with the IPO.

 


 

TABLE 7

RE/MAX Holdings, Inc. and Subsidiaries

Pro Forma Shares Outstanding

(Unaudited)  




Three months ended
December 31, 2013

Total basic pro forma shares outstanding:



Shares of Class A common stock issued and sold in IPO

11,500,000


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

17,734,600


Vested restricted stock units granted to certain employees in connection with IPO

107,971


Total basic pro forma shares outstanding

29,342,571




Total diluted pro forma shares outstanding:



Shares of Class A common stock issued and sold in IPO

11,500,000


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

17,734,600


Vested restricted stock units granted to certain employees in connection with IPO

107,971


Dilutive effect of stock options (1)

597,895


Dilutive effect of the restricted stock units (1)

29,039


Total diluted pro forma shares outstanding

29,969,505






(1)

In accordance with the treasury stock method

 

Non-GAAP Financial Measures

The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures of non-GAAP financial measures, such as Adjusted EBITDA and Adjusted Net Income and the ratios related thereto. These measures are derived on the basis of methodologies other than in accordance with GAAP.

RE/MAX defines Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest expense, net and income taxes, each of which is presented in our consolidated financial statements included elsewhere in this press release), adjusted for the impact of the following items that we do not consider representative of our ongoing operating performance: loss on sale or disposition of assets and sublease, loss on early extinguishment of debt, equity-based compensation, non-cash straight-line rent expense, salaries paid to David and Gail Liniger, the Company's Chairman and Vice Chair, respectively, that the Company discontinued subsequent to the completion of the IPO, expenses incurred in connection with the IPO and acquisition transaction costs.

RE/MAX defines adjusted net income as net income, excluding the impact of amortization expense related to the Company's franchise agreements, charges incurred related to the early extinguishment of debt, loss on sale or disposition of assets and sublease, equity based compensation, salaries paid to David and Gail Liniger, that the Company discontinued subsequent to the completion of the IPO, expenses incurred in connections with the IPO, and acquisition transaction costs and reflects income taxes as if all outstanding common units of RMCO were exchanged for or converted into shares of the Company's Class A common stock on a one-for-one basis. Assuming the full exchange and conversion, all income of RMCO is treated as if it were allocated to RE/MAX, and the adjusted provision for income taxes represents an estimate of income tax expense at an effective rate reflecting assumed federal, state, and local income taxes. The estimated effective tax rate was 39%.

Because Adjusted EBITDA and Adjusted Net Income omit certain non-cash items and other infrequent cash charges, the Company feels that these metrics are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and other infrequent cash charges and is more reflective of other factors that affect the Company's operating performance. The Company presents Adjusted EBITDA and Adjusted Net Income because it believes they are useful as supplemental measures in evaluating the performance of the Company's 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 their business.

Adjusted EBITDA and Adjusted Net Income have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyzing results RE/MAX reported under GAAP. Some of these limitations are:

  • —these measures do not reflect changes in, or cash requirements for, our working capital needs;
  • —these measures do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
  • —although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements;
  • —Adjusted EBITDA does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
  • —Adjusted EBITDA does not reflect our income tax expense or the cash requirements to pay our taxes; and
  • —other companies may calculate these measures differently, so they may not be comparable.

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SOURCE RE/MAX Holdings, Inc.

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