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MarketScreener Homepage  >  Equities  >  Nyse  >  RE/MAX Holdings, Inc.    RMAX

RE/MAX HOLDINGS, INC.

(RMAX)
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RE/MAX : Reports Third Quarter 2019 Results

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10/31/2019 | 03:11pm EST

DENVER, Oct. 31, 2019 /PRNewswire/ --

Third Quarter 2019 Highlights

(Compared to third quarter 2018 unless otherwise noted)

  • Total agent count increased 3.5% to 128,258 agents
  • U.S. and Canada combined agent count decreased 1.9% to 84,067 agents
  • Total open Motto Mortgage franchises increased to 104 offices
  • Revenue of $71.5 million; excluding Marketing Funds revenue, decreased 2.5% to $53.5 million
  • Net income attributable to RE/MAX Holdings, Inc. of $9.2 million and earnings per diluted share (GAAP EPS) of $0.51
  • Adjusted EBITDA1 of $28.2 million, Adjusted EBITDA margin1 of 39.4% and Adjusted earnings per diluted share (Adjusted EPS1) of $0.61

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 September 30, 2019. 

"The successful launch of our booj technology platform, greater stability in U.S. agent count, continued double-digit growth in international agent count, and ongoing Motto Mortgage expansion were third-quarter highlights," stated Adam Contos, RE/MAX Holdings Chief Executive Officer. "We're starting to see positive traction from the multiple strategic moves we've made the past two years. And although it's still early, our recent performance coupled with the improving housing markets in both the U.S. and Canada gives us added confidence that we'll end 2019 with momentum."

Contos continued, "The release of the booj platform was a milestone event for RE/MAX. After months of anticipation, our brokers and agents are extremely pleased with the new technology, which will help them better connect with clients and establish a far more effective digital presence. The advantages they've been hearing about are now becoming real, and they will continue to see further evidence of this with agent, team and office websites, a modern new consumer app, and the refresh of remax.com. The booj launch has helped energize our brokers with a renewed focus on growing their businesses, which should prove impactful as we head toward 2020. On the Motto side, we see continued demand across multiple customer types along with an acceleration in open rates of recent franchisees. Many of our current franchisees are also enjoying the recent re-financing boom on top of steady purchase origination volume. We are pleased with how well Motto has grown through its first three years, and we continue to invest in its future growth and success."

Third Quarter 2019 Operating Results

Agent Count

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


















As of September 30,


Change






2019


2018


#


%

U.S.

62,548


64,290


(1,742)


(2.7)

Canada

21,519


21,408


111


0.5

Subtotal

84,067


85,698


(1,631)


(1.9)

Outside the U.S. & Canada

44,191


38,207


5,984


15.7

Total

128,258


123,905


4,353


3.5

Revenue

RE/MAX Holdings generated total revenue of $71.5 million in the third quarter of 2019, an increase of $16.7 million or 30.4% compared to $54.9 million in the third quarter of 2018. Revenue increased primarily due to the January 1, 2019 acquisition of the Marketing Funds. Recurring revenue streams, which consist of continuing franchise fees and annual dues, decreased $0.6 million compared to the third quarter of 2018 and accounted for 63.5% of revenue in the third quarter of 2019, excluding the Marketing Funds, compared to 63.1% in the comparable period in 2018.

Operating Expenses

Total operating expenses were $48.1 million for the third quarter of 2019. Excluding operating expenses from the Marketing Funds, third quarter 2019 operating expenses totaled $30.1 million, a decrease of $3.0 million or 9.0% compared to $33.1 million in the third quarter of 2018. Expenses decreased primarily due to lower selling, operating and administrative expenses.

Selling, operating and administrative expenses were $24.5 million in the third quarter of 2019, a decrease of $3.0 million or 10.9% compared to the third quarter of 2018 and represented 45.7% of revenue, excluding the Marketing Funds, compared to 50.1% in the prior-year period. Selling, operating and administrative expenses decreased primarily due to lower equity-based compensation and other personnel expenses and professional fees, partially offset by increases in training expenses for the booj technology platform and property tax expense as well as a less favorable fair value adjustment of our Motto contingent consideration liability. 

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $9.2 million for the third quarter of 2019, an increase of $1.0 million over the third quarter of 2018. Reported basic and diluted GAAP EPS were $0.51 for the third quarter of 2019 compared to $0.46 in the third quarter of 2018.  

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $28.2 million for the third quarter of 2019, a decrease of $1.3 million or 4.4% from the third quarter of 2018. Adjusted EBITDA decreased primarily due to lower organic revenue growth and additional training expenses related to the booj technology rollout, partially offset by lower costs for professional fees. Adjusted EBITDA margin was 39.4% in the third quarter of 2019 compared to 53.7% in the third quarter of 2018 and decreased primarily due to the acquisition of the Marketing Funds.

Adjusted basic and diluted EPS were each $0.61 for the third quarter of 2019, a decrease of $0.02 per share compared to the third quarter of 2018. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended September 30, 2019 assumes RE/MAX Holdings owned 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX Holdings had in RMCO was 58.7% for the quarter ended September 30, 2019.

Balance Sheet

As of September 30, 2019, the Company had cash and cash equivalents of $87.8 million. The Company's cash and cash equivalents increased $27.8 million from December 31, 2018. As of September 30, 2019, the Company had $226.2 million of outstanding debt, net of an unamortized debt discount and issuance costs, a decrease of $1.6 million compared to $227.8 million as of December 31, 2018.

Dividend

On October 30, 2019, the Company's Board of Directors approved a quarterly cash dividend of $0.21 per share.  The quarterly dividend is payable on November 27, 2019, to shareholders of record at the close of business on November 13, 2019.

Outlook

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

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

  • Agent count to increase 3.0% to 4.0% over fourth quarter 2018;
  • Revenue in a range of $66.5 million to $69.5 million (including revenue from the Marketing Funds in a range of $17.5 million to $18.5 million); and
  • Adjusted EBITDA in a range of $21.0 million to $23.0 million.

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

  • Agent count to increase 3.0% to 4.0% over full-year 2018, changed from 2.0% to 4.0%;
  • Revenue in a range of $280.5 million to $283.5 million (including revenue from the Marketing Funds in a range of $72.0 million to $74.0 million), changed from $279.5 million to $283.5 million (including revenue from the Marketing Funds in a range of $71.5 million to $73.5 million); and
  • Adjusted EBITDA in a range of $102.0 million to $104.0 million, changed from $101.0 million to $104.0 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, November 1, 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 fourth 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; expansion of Motto Mortgage; the booj technology platform, including agent, team and office websites, consumer app and refresh of remax.com; 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 

September 30, 


Nine Months Ended

September 30, 



2019


2018


2019


2018

Revenue:













Continuing franchise fees


$

25,168


$

25,495


$

75,018


$

75,946

Annual dues



8,835



9,106



26,508



26,775

Broker fees



13,292



13,488



35,339



36,669

Marketing Funds fees



18,034





54,866



Franchise sales and other revenue



6,212



6,777



22,369



22,395

Total revenue



71,541



54,866



214,100



161,785

Operating expenses:













Selling, operating and administrative expenses



24,478



27,461



83,728



90,136

Marketing Funds expenses



18,034





54,866



Depreciation and amortization



5,595



5,608



16,694



15,252

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



(10)



(10)



353



(41)

Total operating expenses



48,097



33,059



155,641



105,347

Operating income



23,444



21,807



58,459



56,438

Other expenses, net:













Interest expense



(3,089)



(3,050)



(9,398)



(8,945)

Interest income



412



180



1,074



397

Foreign currency transaction gains (losses)



(50)



24



66



(162)

Total other expenses, net



(2,727)



(2,846)



(8,258)



(8,710)

Income before provision for income taxes



20,717



18,961



50,201



47,728

Provision for income taxes



(3,453)



(3,420)



(8,547)



(8,429)

Net income


$

17,264


$

15,541


$

41,654


$

39,299

Less: net income attributable to non-controlling interest



8,091



7,402



19,502



18,529

Net income attributable to RE/MAX Holdings, Inc.


$

9,173


$

8,139


$

22,152


$

20,770



























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













Basic


$

0.51


$

0.46


$

1.24


$

1.17

Diluted


$

0.51


$

0.46


$

1.24


$

1.17

Weighted average shares of Class A common stock outstanding













Basic



17,826,332



17,746,184



17,803,708



17,733,910

Diluted



17,840,158



17,771,212



17,830,942



17,767,638

Cash dividends declared per share of Class A common stock


$

0.21


$

0.20


$

0.63


$

0.60














 

TABLE 2

RE/MAX Holdings, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
(Unaudited)










September 30,

2019


December 31,

2018

Assets







Current assets:







Cash and cash equivalents


$

87,763


$

59,974

Restricted cash



19,118



Accounts and notes receivable, current portion, less allowances of $11,273 and $7,980, respectively



30,722



21,185

Income taxes receivable



1,508



533

Other current assets



12,165



5,855

Total current assets



151,276



87,547

Property and equipment, net of accumulated depreciation of $14,572 and $13,280, respectively



5,462



4,390

Operating lease right of use assets



52,258



Franchise agreements, net



91,538



103,157

Other intangible assets, net



24,946



22,965

Goodwill



150,776



150,684

Deferred tax assets, net



49,971



53,698

Other assets, net of current portion



5,506



4,399

Total assets


$

531,733


$

426,840

Liabilities and stockholders' equity







Current liabilities:







Accounts payable


$

3,428


$

1,890

Accrued liabilities



51,129



13,143

Income taxes payable



143



208

Deferred revenue



24,996



25,489

Current portion of debt



2,645



2,622

Current portion of payable pursuant to tax receivable agreements



3,578



3,567

Operating lease liabilities



4,957



Total current liabilities



90,876



46,919

Debt, net of current portion



223,556



225,165

Payable pursuant to tax receivable agreements, net of current portion



34,355



37,220

Deferred tax liabilities, net



328



400

Deferred revenue, net of current portion



18,851



20,224

Operating lease liabilities, net of current portion



57,280



Other liabilities, net of current portion



6,077



17,637

Total liabilities



431,323



347,565

Commitments and contingencies







Stockholders' equity:







Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 17,835,719
shares issued and outstanding as of September 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 September 30, 2019 and December 31, 2018





Additional paid-in capital



462,245



460,101

Retained earnings



31,992



21,138

Accumulated other comprehensive income, net of tax



379



328

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



494,618



481,569

Non-controlling interest



(394,208)



(402,294)

Total stockholders' equity



100,410



79,275

Total liabilities and stockholders' equity


$

531,733


$

426,840

 

TABLE 3

RE/MAX Holdings, Inc.
Condensed Consolidated Statements of Cash Flow
(Amounts in thousands)
(Unaudited)










Nine Months Ended September 30,



2019


2018

Cash flows from operating activities:







Net income


$

41,654


$

39,299

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







Depreciation and amortization



16,694



15,252

Bad debt expense



3,420



1,257

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



353



(146)

Equity-based compensation expense



4,860



6,141

Deferred income tax expense



3,630



3,503

Fair value adjustments to contingent consideration



330



(860)

Payments pursuant to tax receivable agreements



(2,854)



(5,047)

Other, net



840



902

Changes in operating assets and liabilities



(13,740)



(3,279)

Net cash provided by operating activities



55,187



57,022

Cash flows from investing activities:







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



(10,093)



(5,316)

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



17,202



(31,204)

Cash flows from financing activities:







Payments on debt



(1,964)



(2,382)

Distributions paid to non-controlling unitholders



(11,460)



(11,259)

Dividends and dividend equivalents paid to Class A common stockholders



(11,298)



(10,758)

Payment of payroll taxes related to net settled restricted stock units



(836)



(895)

Payment of contingent consideration





(50)

Net cash used in financing activities



(25,558)



(25,344)

Effect of exchange rate changes on cash



76



(18)

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



46,907



456

Cash, cash equivalents and restricted cash, beginning of year



59,974



50,807

Cash, cash equivalents and restricted cash, end of period


$

106,881


$

51,263

 

TABLE 4

RE/MAX Holdings, Inc.
Agent Count
(Unaudited)























As of





September 30,

2019


June 30,

2019


March 31,

2019


December 31,

2018


September 30,

2018


June 30,

2018


March 31,

2018


December 31,

2017


Agent Count:



















U.S.


















Company-owned Regions (1)



48,576


48,748


48,904


49,318


50,342


50,432


49,760


49,411


Independent Regions (1)



13,972


13,952


13,760


13,804


13,948


14,063


13,852


13,751


U.S. Total



62,548


62,700


62,664


63,122


64,290


64,495


63,612


63,162


Canada



















Company-owned Regions



6,402


6,510


6,549


6,702


6,858


6,915


6,920


6,882


Independent Regions



15,117


14,923


14,818


14,625


14,550


14,451


14,297


14,230


Canada Total



21,519


21,433


21,367


21,327


21,408


21,366


21,217


21,112


     U.S. and Canada Total



84,067


84,133


84,031


84,449


85,698


85,861


84,829


84,274


Outside U.S. and Canada



















Independent Regions



44,191


42,887


41,501


39,831


38,207


37,221


35,992


34,767


     Outside U.S. and Canada Total



44,191


42,887


41,501


39,831


38,207


37,221


35,992


34,767


Total



128,258


127,020


125,532


124,280


123,905


123,082


120,821


119,041


____________________

(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 

September 30, 


Nine Months Ended 
September 30, 


(Amounts in 000s)

2019


2018


2019


2018


Net income

$

17,264


$

15,541


$

41,654


$

39,299


Depreciation and amortization


5,595



5,608



16,694



15,252


Interest expense


3,089



3,050



9,398



8,945


Interest income


(412)



(180)



(1,074)



(397)


Provision for income taxes


3,453



3,420



8,547



8,429


EBITDA


28,989



27,439



75,219



71,528


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


(10)



(5)



353



(146)


Equity-based compensation expense (1)


(987)



2,717



4,860



6,141


Acquisition-related expense (2)


181



141



268



1,628


Special Committee investigation and remediation expense (3)




111





2,761


Fair value adjustments to contingent consideration (4)


(15)



(940)



330



(860)


Adjusted EBITDA (5)

$

28,158


$

29,463


$

81,030


$

81,052


Adjusted EBITDA Margin (5)


39.4

%


53.7

%


37.8

%


50.1

%















____________________

(1)

For the three and nine months ended September 30, 2019, the Company reversed expense for performance awards for certain booj work deliverables as well as for certain revenue performance awards. The booj delivery date was extended to December 31, 2019.

(2)

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

(3)

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.

(4)

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

(5)

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

 

TABLE 6

RE/MAX Holdings, Inc.
Adjusted Net Income and Adjusted Earnings per Share
(Amounts in thousands, except share and per share amounts)
(Unaudited)
















Three Months Ended

September 30,


Nine Months Ended

September 30,

(Amounts in 000s)

2019


2018


2019


2018

Net income


$

17,264


$

15,541


$

41,654


$

39,299

Amortization of acquired intangible assets



4,459



4,841



13,390



13,036

Provision for income taxes



3,453



3,420



8,547



8,429

Add-backs:













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



(10)



(5)



353



(146)

Equity-based compensation expense (1)



(987)



2,717



4,860



6,141

Acquisition-related expense (2)



181



141



268



1,628

Special Committee investigation and remediation expense (3)





111





2,761

Fair value adjustments to contingent consideration (4)



(15)



(940)



330



(860)

Adjusted pre-tax net income



24,345



25,826



69,402



70,288

Less: Provision for income taxes at 24%



(5,843)



(6,198)



(16,656)



(16,869)

Adjusted net income (5)


$

18,502


$

19,628


$

52,746


$

53,419














Total basic pro forma shares outstanding



30,385,932



30,305,784



30,363,308



30,293,510

Total diluted pro forma shares outstanding



30,399,758



30,330,812



30,390,542



30,327,238














Adjusted net income basic earnings per share (5)


$

0.61


$

0.65


$

1.74


$

1.76

Adjusted net income diluted earnings per share (5)


$

0.61


$

0.65


$

1.74


$

1.76














____________________

(1)

For the three and nine months ended September 30, 2019, the Company reversed expense for performance awards for certain booj work deliverables as well as for certain revenue performance awards. The booj delivery date was extended to December 31, 2019.

(2)

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

(3)

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.

(4)

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

(5)

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

 

TABLE 7

RE/MAX Holdings, Inc.
Pro Forma Shares Outstanding
(Unaudited)












Three Months Ended

September 30,


Nine Months Ended

September 30,



2019


2018


2019


2018

Total basic weighted average shares outstanding:









Weighted average shares of Class A common stock outstanding


17,826,332


17,746,184


17,803,708


17,733,910

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


30,385,932


30,305,784


30,363,308


30,293,510










Total diluted weighted average shares outstanding:









Weighted average shares of Class A common stock outstanding


17,826,332


17,746,184


17,803,708


17,733,910

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)


13,826


25,028


27,234


33,728

Total diluted pro forma weighted average shares outstanding


30,399,758


30,330,812


30,390,542


30,327,238

____________________

(1)

In accordance with the treasury stock method.

 

TABLE 8

RE/MAX Holdings, Inc.
Free Cash Flow & Unencumbered Cash
(Unaudited)








September 30,


2019


2018

Cash flow from operations

$

55,187


$

57,022

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


(10,093)



(5,316)

Decreases in restricted cash of the Marketing Funds (1)


9,377



-

Free cash flow (2)


54,471



51,706







Free cash flow


54,471



51,706

Less: Tax/Other non-dividend distributions to RIHI


(3,547)



(3,723)

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


50,924



47,983







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


50,924



47,983

Less: Debt principal payments


(1,964)



(2,348)

Unencumbered cash generated (2)

$

48,960


$

45,635







Summary






Cash flow from operations

$

55,187


$

57,022

Free cash flow

$

54,471


$

51,706

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

$

50,924


$

47,983

Unencumbered cash generated

$

48,960


$

45,635







Adjusted EBITDA

$

81,030


$

81,052

Free cash flow as % of Adjusted EBITDA


67.2%



63.8%

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


62.8%



59.2%

Unencumbered cash generated as % of Adjusted EBITDA


60.4%



56.3%

____________________

(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 either (a) a decrease in cash flow from operations or (b) an incremental amount of purchases of property and equipment and capitalization of developed software) so as to remove the impact of changes in restricted cash in determining free cash flow.

(2)

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

Non-GAAP Financial Measures

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

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

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

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

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

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

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

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

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

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

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

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

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

Cision
View original content:http://www.prnewswire.com/news-releases/remax-holdings-reports-third-quarter-2019-results-300949347.html

SOURCE RE/MAX Holdings, Inc.


© PRNewswire 2019
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