RE/MAX Holdings Reports Second Quarter 2019 Results

08/01/2019

DENVER, Aug. 1, 2019 /PRNewswire/ --

Second Quarter 2019 Highlights
(Compared to second quarter 2018 unless otherwise noted)

  • Total agent count increased 3.2% to 127,020 agents
  • U.S. and Canada combined agent count decreased 2.0% to 84,133 agents
  • Total open Motto Mortgage franchises increased to 98 offices
  • Revenue of $71.4 million; excluding Marketing Funds revenue, decreased 1.8% to $53.3 million
  • Net income attributable to RE/MAX Holdings, Inc. of $8.6 million and earnings per diluted share (GAAP EPS) of $0.48 
  • Adjusted EBITDA1 of $29.9 million, Adjusted EBITDA margin1 of 41.9% and Adjusted earnings per diluted share (Adjusted EPS1) of $0.65

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 June 30, 2019. 

"Continued Motto Mortgage expansion and healthy international RE/MAX growth helped offset lower revenue in the second quarter driven by ongoing uneven housing market conditions in the U.S. and Canada," stated Adam Contos, RE/MAX Holdings Chief Executive Officer. "Against this backdrop, we continue to leverage the strength of our business model to deliver profitable growth by prudently managing our cost structure while making the necessary strategic investments in our network, our value proposition and future growth opportunities."

Contos continued, "As we move through the second half of 2019, we remain cautiously optimistic that the U.S. housing market will show signs of improvement. Given lower interest rates, solid demand, and increasing inventory, the ingredients are there to spur increased home sales, but supply and affordability remain overhangs. However, to date the subdued market has persisted longer than we expected, and combined with the competitive environment, has impacted our overall U.S. agent count results and led us to adjust our performance expectations for the full year 2019. Looking ahead, we're very excited about the imminent launch and staged rollout of the next generation of RE/MAX technology. The release of the booj platform is truly a landmark event in the rich history of RE/MAX and one we believe will further extend our leadership position in providing highly productive agents with the very best tools, technology and training to make their businesses even more successful."

Second Quarter 2019 Operating Results

Agent Count

The following table compares agent count as of June 30, 2019 and 2018:


















As of June 30


Change






2019


2018


#


%

U.S.

62,700


64,495


(1,795)


(2.8)

Canada

21,433


21,366


67


0.3

Subtotal

84,133


85,861


(1,728)


(2.0)

Outside the U.S. & Canada

42,887


37,221


5,666


15.2

Total

127,020


123,082


3,938


3.2

Revenue

RE/MAX Holdings generated total revenue of $71.4 million in the second quarter of 2019, an increase of $17.1 million or 31.5% compared to $54.3 million in the second 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, were almost even compared to the second quarter of 2018 and accounted for 63.2% of revenue in the second quarter of 2019, excluding the Marketing Funds, compared to 63.0% in the comparable period in 2018.

Operating Expenses

Total operating expenses were $49.3 million for the second quarter of 2019. Excluding operating expenses from the Marketing Funds, second quarter 2019 operating expenses totaled $31.3 million, a decrease of $2.1 million or 6.3% compared to $33.4 million in the second quarter of 2018. Expenses decreased primarily due to lower selling, operating and administrative expenses partially offset by higher depreciation and amortization expenses.

Selling, operating and administrative expenses were $25.7 million in the second quarter of 2019, a decrease of $2.6 million or 9.1% compared to the second quarter of 2018 and represented 48.2% of revenue excluding the Marketing Funds compared to 52.2% in the prior-year period. Selling, operating and administrative expenses decreased primarily due to changes in equity-based compensation expense, lower legal expenses, partially offset by increases in property taxes and bad debt expense. 

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $8.6 million for the second quarter of 2019, an increase of $0.9 million over the second quarter of 2018. Reported basic and diluted GAAP EPS were $0.48 for the second quarter of 2019 compared to $0.43 in the second quarter of 2018.  

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $29.9 million for the second quarter of 2019, an increase of $1.1 million or 4.0% from the second quarter of 2018. Adjusted EBITDA increased primarily due to lower selling, operating and administrative expenses and the expansion of Motto, partially offset by lower organic revenue growth. Adjusted EBITDA margin was 41.9% in the second quarter of 2019 compared to 53.0% in the second quarter of 2018 and decreased primarily due to the acquisition of the Marketing Funds.

Adjusted basic and diluted EPS were each $0.65 for the second quarter of 2019, an increase of $0.03 per share compared to the second quarter of 2018. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended June 30, 2019 assumes RE/MAX Holdings owned 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX Holdings had in RMCO was 58.6% for the quarter ended June 30, 2019.

Balance Sheet

As of June 30, 2019, the Company had cash and cash equivalents of $72.5 million. The Company's cash and cash equivalents increased $12.5 million from December 31, 2018. As of June 30, 2019, the Company had $226.7 million of outstanding debt, net of an unamortized debt discount and issuance costs, a decrease of $1.1 million compared to $227.8 million as of December 31, 2018.

Dividend

On July 31, 2019, the Company's Board of Directors approved a quarterly cash dividend of $0.21 per share.  The quarterly dividend is payable on August 28, 2019, to shareholders of record at the close of business on August 14, 2019.

Outlook

The Company's third quarter and full-year 2019 Outlook assumes no further currency movements, acquisitions or divestitures.

For the third quarter of 2019, RE/MAX Holdings expects:

  • Agent count to increase 2.25% to 3.25% over third quarter 2018;
  • Revenue in a range of $69.0 million to $72.0 million (including revenue from the Marketing Funds in a range of $17.0 million to $18.0 million); and
  • Adjusted EBITDA in a range of $25.5 million to $27.5 million.

For the full-year 2019, RE/MAX Holdings is adjusting its guidance and now expects:

  • Agent count to increase 2.0% to 4.0% over full-year 2018;
  • Revenue in a range of $279.5 million to $283.5 million (including revenue from the Marketing Funds in a range of $71.5 million to $73.5 million), down from $287.0 million to $291.0 million (including revenue from the Marketing Funds in a range of $72.5 million to $74.5 million); and
  • Adjusted EBITDA in a range of $101.0 million to $104.0 million, down from $104.5 million to $107.5 million.

The effective U.S. GAAP tax rate attributable to RE/MAX Holdings is estimated to be between 17% and 19% in 2019.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, August 2, 2019, 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.

Footnote:

1 Adjusted 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 125,000 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.

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 third quarter and full year 2019; dividends; non-GAAP financial measures; estimated effective tax rates for 2019; housing and mortgage market conditions; economic and demographic trends; competition; potential transactions; future expansion of Motto Mortgage and such expansion's impact on revenue; statements regarding agent productivity; statements  regarding the timing and effects of the launch of the next generation of RE/MAX technology; statements regarding managing cost structure; statements regarding the Company's leadership position in the industry; 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, (8) fluctuations in foreign currency exchange rates, (9) the impact of recent changes to our senior management team, (10) the impact of the findings and recommendations of the previously disclosed Special Committee investigation on the Company and its management and operations, 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 


Year Ended 



June 30, 


June 30, 



2019


2018


2019


2018

Revenue:













Continuing franchise fees


$

24,894


$

25,211


$

49,850


$

50,451

Annual dues



8,819



8,973



17,673



17,669

Broker fees



13,459



13,993



22,047



23,181

Marketing Funds fees



18,060





36,832



Franchise sales and other revenue



6,149



6,100



16,157



15,618

Total revenue



71,381



54,277



142,559



106,919

Operating expenses:













Selling, operating and administrative expenses



25,726



28,307



59,250



62,675

Marketing Funds expenses



18,060





36,832



Depreciation and amortization



5,541



5,069



11,099



9,644

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



(16)



(13)



363



(31)

Total operating expenses



49,311



33,363



107,544



72,288

Operating income



22,070



20,914



35,015



34,631

Other expenses, net:













Interest expense



(3,154)



(3,171)



(6,309)



(5,895)

Interest income



342



98



662



217

Foreign currency transaction gains (losses)



61



(103)



116



(186)

Total other expenses, net



(2,751)



(3,176)



(5,531)



(5,864)

Income before provision for income taxes



19,319



17,738



29,484



28,767

Provision for income taxes



(3,186)



(3,147)



(5,094)



(5,009)

Net income


$

16,133


$

14,591


$

24,390


$

23,758

Less: net income attributable to non-controlling interest



7,563



6,943



11,411



11,127

Net income attributable to RE/MAX Holdings, Inc.


$

8,570


$

7,648


$

12,979


$

12,631



























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













Basic


$

0.48


$

0.43


$

0.73


$

0.71

Diluted


$

0.48


$

0.43


$

0.73


$

0.71

Weighted average shares of Class A common stock outstanding













Basic



17,808,321



17,746,042



17,791,942



17,727,671

Diluted



17,833,958



17,769,641



17,825,880



17,763,592

Cash dividends declared per share of Class A common stock


$

0.21


$

0.20


$

0.42


$

0.40














 

TABLE 2

RE/MAX Holdings, Inc.

Condensed Consolidated Balance Sheets

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

(Unaudited)










June 30,


December 31,



2019


2018

Assets







Current assets:







Cash and cash equivalents


$

72,486


$

59,974

Restricted cash



23,627



Accounts and notes receivable, current portion, less allowances of $9,774 and $7,980, respectively



32,206



21,185

Income taxes receivable



1,669



533

Other current assets



8,474



5,855

Total current assets



138,462



87,547

Property and equipment, net of accumulated depreciation of $14,117 and $13,280 respectively



5,643



4,390

Operating lease right of use assets



53,363



Franchise agreements, net



95,407



103,157

Other intangible assets, net



23,478



22,965

Goodwill



150,812



150,684

Deferred tax assets, net



50,997



53,698

Other assets, net of current portion



5,687



4,399

Total assets


$

523,849


$

426,840

Liabilities and stockholders' equity







Current liabilities:







Accounts payable


$

3,673


$

1,890

Accrued liabilities



48,937



13,143

Income taxes payable



11



208

Deferred revenue



25,571



25,489

Current portion of debt



2,637



2,622

Current portion of payable pursuant to tax receivable agreements



3,578



3,567

Operating lease liabilities



4,829



Total current liabilities



89,236



46,919

Debt, net of current portion



224,090



225,165

Payable pursuant to tax receivable agreements, net of current portion



34,355



37,220

Deferred tax liabilities, net



313



400

Deferred revenue, net of current portion



19,121



20,224

Operating lease liabilities, net of current portion



58,578



Other liabilities, net of current portion



6,231



17,637

Total liabilities



431,924



347,565

Commitments and contingencies







Stockholders' equity:







Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 17,809,119 shares issued and outstanding as of June 30, 2019; 17,754,416 shares issued and outstanding as of December 31, 2018



2



2

Class B common stock, par value $0.0001 per share, 1,000 shares authorized; 1 share issued and outstanding as of June 30, 2019 and December 31, 2018





Additional paid-in capital



463,055



460,101

Retained earnings



26,595



21,138

Accumulated other comprehensive income, net of tax



397



328

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



490,049



481,569

Non-controlling interest



(398,124)



(402,294)

Total stockholders' equity



91,925



79,275

Total liabilities and stockholders' equity


$

523,849


$

426,840

 

TABLE 3

RE/MAX Holdings, Inc.

Condensed Consolidated Statements of Cash Flow

(Amounts in thousands)

(Unaudited)










Six Months Ended June 30,



2019


2018

Cash flows from operating activities:







Net income


$

24,390


$

23,758

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







Depreciation and amortization



11,099



9,644

Bad debt expense



2,560



823

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



363



(141)

Equity-based compensation expense



5,847



3,424

Deferred income tax expense



2,521



2,060

Fair value adjustments to contingent consideration



345



80

Payments pursuant to tax receivable agreements



(2,854)



Other, net



685



567

Changes in operating assets and liabilities



(11,973)



(6,285)

Net cash provided by operating activities



32,983



33,930

Cash flows from investing activities:







Purchases of property and equipment and capitalization of developed software and trademark costs



(7,378)



(1,441)

Acquisitions, net of cash acquired of $0 and $362, respectively





(25,888)

Restricted cash acquired with the Marketing Funds acquisition



28,495



Other



(1,200)



Net cash provided by (used in) investing activities



19,917



(27,329)

Cash flows from financing activities:







Payments on debt



(1,311)



(1,554)

Distributions paid to non-controlling unitholders



(7,306)



(7,818)

Dividends and dividend equivalents paid to Class A common stockholders



(7,522)



(7,209)

Payment of payroll taxes related to net settled restricted stock units



(731)



(895)

Payment of contingent consideration





(50)

Net cash used in financing activities



(16,870)



(17,526)

Effect of exchange rate changes on cash



109



(43)

Net increase (decrease) in cash, cash equivalents and restricted cash



36,139



(10,968)

Cash, cash equivalents and restricted cash, beginning of year



59,974



50,807

Cash, cash equivalents and restricted cash, end of period


$

96,113


$

39,839

 

TABLE 4

RE/MAX Holdings, Inc.

Agent Count

(Unaudited)




As of



June 30,


March 31,


December 31,


September 30,


June 30,


March 31,


December 31,


September 30,



2019


2019


2018


2018


2018


2018


2017


2017

Agent Count:

















U.S.

















Company-owned Regions (1)


48,748


48,904


49,318


50,342


50,432


49,760


49,411


47,397

Independent Regions (1)


13,952


13,760


13,804


13,948


14,063


13,852


13,751


16,152

U.S. Total


62,700


62,664


63,122


64,290


64,495


63,612


63,162


63,549

Canada

















Company-owned Regions


6,510


6,549


6,702


6,858


6,915


6,920


6,882


6,924

Independent Regions


14,923


14,818


14,625


14,550


14,451


14,297


14,230


14,236

Canada Total


21,433


21,367


21,327


21,408


21,366


21,217


21,112


21,160

     U.S. and Canada Total


84,133


84,031


84,449


85,698


85,861


84,829


84,274


84,709

Outside U.S. and Canada

















Independent Regions


42,887


41,501


39,831


38,207


37,221


35,992


34,767


32,859

     Outside U.S. and Canada Total


42,887


41,501


39,831


38,207


37,221


35,992


34,767


32,859

Total


127,020


125,532


124,280


123,905


123,082


120,821


119,041


117,568

_________________________________

(1)

As of each quarter end since December 31, 2017, U.S. Company-owned Regions include agents in the Northern Illinois region, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of Northern Illinois, Inc., including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the northern region of the state of Illinois, on November 15, 2017. As of the acquisition date, the Northern Illinois region had 2,266 agents.

 

TABLE 5

RE/MAX Holdings, Inc.

Adjusted EBITDA Reconciliation to Net Income

 (Amounts in thousands, except percentages)

(Unaudited)



Three Months Ended 


Six Months Ended 



June 30, 


June 30, 


(Amounts in 000s)

2019


2018


2019


2018


Net income

$

16,133


$

14,591


$

24,390


$

23,758


Depreciation and amortization


5,541



5,069



11,099



9,644


Interest expense


3,154



3,171



6,309



5,895


Interest income


(342)



(98)



(662)



(217)


Provision for income taxes


3,186



3,147



5,094



5,009


EBITDA


27,672



25,880



46,230



44,089


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


(16)



(113)



363



(141)


Equity-based compensation expense


1,796



2,156



5,847



3,424


Acquisition-related expense (1)


15



313



87



1,487


Special Committee investigation and remediation expense (2)




564





2,650


Fair value adjustments to contingent consideration (3)


415



(55)



345



80


Adjusted EBITDA (4)

$

29,882


$

28,745


$

52,872


$

51,589


Adjusted EBITDA Margin (4)


41.9

%


53.0

%


37.1

%


48.3

%














________________________

(1)

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

(2)

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.

(3)

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

(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


Six Months Ended



June 30,


June 30,

(Amounts in 000s)


2019


2018


2019


2018

Net income


$

16,133


$

14,591


$

24,390


$

23,758

Amortization of acquired intangible assets



4,466



4,265



8,931



8,195

Provision for income taxes



3,186



3,147



5,094



5,009

Add-backs:













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



(16)



(113)



363



(141)

Equity-based compensation expense



1,796



2,156



5,847



3,424

Acquisition-related expense (1)



15



313



87



1,487

Special Committee investigation and remediation expense (2)





564





2,650

Fair value adjustments to contingent consideration (3)



415



(55)



345



80

Adjusted pre-tax net income



25,995



24,868



45,057



44,462

Less: Provision for income taxes at 24%



(6,239)



(5,968)



(10,814)



(10,671)

Adjusted net income (4)


$

19,756


$

18,900


$

34,243


$

33,791














Total basic pro forma shares outstanding



30,367,921



30,305,642



30,351,542



30,287,271

Total diluted pro forma shares outstanding



30,393,558



30,329,241



30,385,480



30,323,192














Adjusted net income basic earnings per share (4)


$

0.65


$

0.62


$

1.13


$

1.12

Adjusted net income diluted earnings per share (4)


$

0.65


$

0.62


$

1.13


$

1.11














________________________

(1)

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

(2)

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.

(3)

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

(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


Six Months Ended



June 30,


June 30,



2019


2018


2019


2018

Total basic weighted average shares outstanding:









Weighted average shares of Class A common stock outstanding


17,808,321


17,746,042


17,791,942


17,727,671

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


30,367,921


30,305,642


30,351,542


30,287,271










Total diluted weighted average shares outstanding:









Weighted average shares of Class A common stock outstanding


17,808,321


17,746,042


17,791,942


17,727,671

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)


25,637


23,599


33,938


35,921

Total diluted pro forma weighted average shares outstanding


30,393,558


30,329,241


30,385,480


30,323,192

______________________________

(1)

In accordance with the treasury stock method.

 

TABLE 8

RE/MAX Holdings, Inc.

Free Cash Flow & Unencumbered Cash

(Unaudited)



June 30,


2019


2018

Cash flow from operations

$

32,983


$

33,930

Less: Purchases of property and equipment and capitalization of developed software and trademark costs


(7,378)



(1,441)

Decreases (increases) in restricted cash of the Marketing Funds (1)


4,868



-

Free cash flow (2)


30,473



32,489







Free cash flow


30,473



32,489

Less: Tax/Other non-dividend distributions to RIHI


(2,031)



(2,794)

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


28,442



29,695







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


28,442



29,695

Less: Debt principal payments


(1,311)



(1,537)

Unencumbered cash generated (2)

$

27,131


$

28,158







Summary






Cash flow from operations

$

32,983


$

33,930

Free cash flow

$

30,473


$

32,489

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

$

28,442


$

29,695

Unencumbered cash generated

$

27,131


$

28,158







Adjusted EBITDA

$

52,872


$

51,589

Free cash flow as % of Adjusted EBITDA


57.6%



63.0%

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


53.8%



57.6%

Unencumbered cash generated as % of Adjusted EBITDA


51.3%



54.6%

_______________________

(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 condensed 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 a decrease in cash flow from operations for the six months ended June 30, 2019) 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 cash flow from operations due to this change is excluded from free cash flow. 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.

 

Cision View original content:http://www.prnewswire.com/news-releases/remax-holdings-reports-second-quarter-2019-results-300895213.html

SOURCE RE/MAX Holdings, Inc.

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