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RE/MAX Holdings Reports Fourth Quarter And Full Year 2014 Results

March 12, 2015

DENVER, March 12, 2015 /PRNewswire/ --

Full Year 2014 Highlights
(Compared to full year 2013 unless otherwise noted)

  • Year-end agent count of 98,010, up 5.1%
  • Revenue grew by 7.6% to $171.0 million
  • Adjusted EBITDA1 was $83.8 million, up 8.8%
  • Adjusted EBITDA1 margin of 49.0%, up from 48.5%
  • Adjusted basic and diluted earnings per share ("EPS") of $1.54 and $1.51, respectively 
  • FX negatively impacted full year 2014 Adjusted EBITDA margin by 116 basis points and Adjusted basic and diluted EPS by approximately $0.03
  • Doubled regular quarterly dividend to $0.125 per share
  • Announced special dividend of $1.50 per share

Fourth Quarter 2014 Highlights
(Compared to the fourth quarter 2013 unless otherwise noted)

  • Revenue grew by 5.8% to $42.6 million
  • Adjusted EBITDA1 of $20.3 million, up 11.3%
  • Adjusted EBITDA1 margin of 47.8%, up from 45.4%
  • Adjusted basic and diluted EPS of $0.37 and $0.37, respectively 
  • FX negatively impacted Q4 Adjusted EBITDA margin by 240 basis points and Adjusted basic and diluted EPS by approximately $0.02

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 full-year ended December 31, 2014. 

"In 2014, we had our largest agent gain since 2006 as nearly 4,800 agents chose to join RE/MAX," stated Dave Liniger, Chief Executive Officer ("CEO") and Co-Founder of RE/MAX. "Our 2014 office franchise sales outpaced every year since 2010 and we expanded our Adjusted EBITDA margin to 49% despite foreign exchange headwinds. With a steadily improving housing market, we believe our agent-centric model will continue to attract more real estate professionals in 2015, allowing us to grow our global agent network by an estimated 4% to 5% over 2014."

Liniger continued, "One of the key strengths of our business model is our significant free cash flow generation, which allows us the capital flexibility to invest in growing the business and return capital to shareholders. Given the inherent stability of our business model and the strength of our balance sheet, our Board doubled our regular quarterly dividend to $0.125 per share and approved a special one-time dividend of $1.50 per share. Our focus is and will continue to be on allocating capital to create value for shareholders."

Full Year 2014 Operating Results

Agent Count

Total agent count grew by 4,782 agents to 98,010 agents or 5.1% compared to year-end 2013. In the United States ("U.S."), agent count increased by 2,614 agents to 57,105 agents or 4.8% compared to the prior year. Agent count in the U.S. Company-owned and Independent regions grew by 5.6% and 3.5%, respectively, compared to the prior year.  In Canada, agent count increased by 118 agents to 19,040 agents or 0.6% compared to the prior year. Outside the U.S. and Canada, agent count increased by 2,050 agents to 21,865 agents or 10.3% compared to the prior year.

Revenue

RE/MAX generated revenue of $171.0 million for the full-year 2014, a 7.6% increase compared to $158.9 million in 2013, driven by incremental revenue from the Southwest and Central Atlantic regions acquired in October 2013 and an increase in agent count. Recurring revenue streams, which include continuing franchise fees and annual dues, accounted for 60.5% of revenues in 2014 compared to 59.2% in the prior year. 

Revenue from continuing franchise fees was $72.7 million, up $8.2 million or 12.8% over the prior year primarily due to growth in agent count and incremental revenue that resulted from the acquisition of the Southwest and Central Atlantic regions.

Revenue from annual dues was $30.7 million, up $1.2 million or 4.1% compared to the prior year. The increase was due to 1) an increase in total agent count of 4,782 from the prior year, of which 2,732 agents were located in the U.S. and Canada, and 2) the January 1, 2014 increase in annual dues membership fees for the Company's U.S. and Canadian agents.

Revenue from broker fees was $28.7 million, up $3.9 million or 15.6% compared to the prior year. The increase was driven by growth in agent count and incremental revenue that resulted from the acquisition of the Southwest and Central Atlantic regions.

Franchise sales and other franchise revenue was $23.4 million, down $0.1 million or 0.6% compared to the prior year driven by a decrease in regional and master franchise sales outside the U.S. and Canada. The decrease was partially offset by an increase in office franchise sales and renewals in U.S. Company-owned regions.

Brokerage revenue, which principally represents fees assessed by the Company's owned brokerages for services provided to their affiliated real estate agents, was $15.4 million, a decrease of $1.1 million or 6.4% from the prior year. The decrease was due to a reduction in the number of owned brokerage offices in the second quarter of 2013, which had a full year impact in 2014, and a reduction in closed transaction sides and home sales volume at the Company's owned brokerage offices. 

Operating Expenses

Total operating expenses were $107.1 million for the full-year 2014, a decrease of $4.6 million or 4.1% compared to the prior year. Selling, operating and administrative expenses were $91.8 million, down $4.4 million or 4.6% from the prior year. Selling, operating and administrative expenses were 53.7% of revenue for 2014 compared to 60.6% in the prior year. The reduction in operating expenses is primarily due to 1) lower professional fees compared to the prior year due to costs incurred in connection with the Company's initial public offering ("IPO") during 2013 and 2) lower rent expense due to a loss recorded in 2013 related to the sublease of office space at the Company's headquarters. The expense reduction was partially offset by one-time severance and other related expenses incurred in the fourth quarter of 2014 in connection with the retirement of the Company's former CEO and a re-organization to improve operating efficiencies at the corporate headquarters.   

Adjusted EBITDA

Adjusted EBITDA margin was 49.0% for 2014 compared to 48.5% in the prior year. Adjusted EBITDA was $83.8 million for 2014, up $6.8 million or 8.8% from the prior year. The increase in Adjusted EBITDA was largely driven by revenue growth attributable to an increase in agent count and incremental contributions from the acquired Southwest and Central Atlantic regions. The continued weakening of the Canadian dollar against the U.S. dollar and the effect of foreign currency transaction losses primarily related to cash held in Canadian dollars decreased Adjusted EBITDA margin by approximately 116 basis points for the year.  A reconciliation of Adjusted EBITDA to net income is included in Table 5.

Net Income

Reported net income was $44.0 million for 2014, an increase of $15.7 million or 55.7% compared to the prior year. The increase was primarily due to higher operating income and lower interest expense as a result of the Company's 2013 debt refinancing, partially offset by foreign currency transaction losses and a higher provision for income taxes.

Adjusted net income2 was $45.3 million for 2014, an increase of $8.2 million or 22.2% compared to the prior year. Adjusted basic and diluted EPS were $1.54 and $1.51 for 2014, respectively, compared to $1.26 and $1.24 for 2013, respectively. The weakening of the Canadian dollar against the U.S. dollar during 2014 negatively impacted 2014 Adjusted basic and diluted EPS by approximately $0.03.   

Net income attributable to RE/MAX Holdings, Inc. was $13.4 million for 2014. This amount excludes net income attributable to the non-controlling interest. Reported basic and diluted EPS attributable to RE/MAX Holdings, Inc. were $1.16 and $1.10, respectively. Refer to Table 1 for the share counts used in the calculation of basic and diluted EPS attributable to RE/MAX Holdings, Inc. in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").

The ownership structure used to calculate Adjusted basic and diluted EPS for the three months and twelve months ended December 31, 2014 contemplates RE/MAX owning 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX had of RMCO was 39.67% and 39.57% for the three months and twelve months ended December 31, 2014, respectively. 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

As of December 31, 2014, the Company had a cash balance of $107.2 million, an increase of $18.8 million from December 31, 2013. The Company had $211.7 million of term loans outstanding, net of unamortized discount as of December 31, 2014, down from $228.4 million as of December 31, 2013.

Dividend

The Company announced that its Board of Directors doubled the quarterly dividend to $0.125 per share and approved a special cash dividend of $1.50 per share. The aggregate payment of the special cash dividend will be approximately $45 million and will be funded through existing cash.

The regular quarterly dividend is payable on April 8, 2015 to shareholders of record at the close of business on March 25, 2015. The special cash dividend is payable on April 8, 2015 to shareholders of record at the close of business on March 23, 2015.

Outlook 

Revenue, selling, operating and administrative expenses and Adjusted EBITDA margin are subject to currency exchange rate fluctuations principally related to changes in the Canadian dollar to U.S. dollar exchange rate. In 2014, the Company generated 14% of its revenue in Canada and realized an average exchange of $0.90 U.S. for every $1.00 Canadian. The Company's 2015 outlook reflects an annualized estimated exchange rate of $0.78 U.S. for every $1.00 Canadian.

First Quarter 2015 Outlook:  

  • Agent count is estimated to increase by 4.5% to 5% over first quarter 2014;
  • Revenue is estimated to increase by 4% to 5% over first quarter 2014;
  • Selling, operating and administrative expenses are estimated to be 56% to 58% of first quarter 2015 revenue; and
  • Adjusted EBITDA margin is estimated to be in the 40% to 41% range.

The Company's expenses are higher and its Adjusted EBITDA margin is lower in the first quarter due to seasonality of the business and expenses associated with the Company's annual convention, which is an important agent and broker engagement and recruitment event.

Full-Year 2015 Outlook:    

  • Agent count is estimated to increase by 4% to 5% over 2014;
  • Revenue is estimated to increase by 3% to 4% over 2014;
  • Selling, operating and administrative expenses are estimated to be 50% to 52% of 2015 revenue;
  • Adjusted EBITDA margin is estimated to be in the 49% to 50% range; and
  • Project related operating and capital expenditures of $3.0 to $3.5 million and $2.0 to $2.5 million, respectively.

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.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, March 13, 2015, beginning at 8:30 a.m. Eastern Time. Interested parties are able to access the conference call using the following dial-in numbers:

U.S.

1-877-512-8755

Canada

1-855-669-9657

International

1-412-902-4144

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 one hour after the end of the call on March 13, 2015 through March 27, 2015, by dialing 1-877-344-7529 (U.S.), 1-855-669-9658 (Canada) or 1-412-317-0088 (International) and entering the pass code 10060939. 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 David and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. Over 98,000 agents provide RE/MAX a global reach of more than 95 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. 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 statements regarding the Company's outlook for the first quarter and full fiscal year, expectations regarding agent count and Adjusted EBITDA margins for its full fiscal year, the Company's belief that business fundamentals remain strong, as well as other 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) the Company's ability to attract and retain quality franchisees, (4) the Company's franchisees' ability to recruit and retain agents, (5) changes in laws and regulations that may affect the Company's business or the real estate market, (6) failure to maintain, protect and enhance the RE/MAX brand, (7) fluctuations in foreign currency exchange rates, as well as those risks and uncertainties described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the most recent Annual Report or Form 10-K 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 the Company's website at www.remax.com and on the SEC website at www.sec.gov.  Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Except as required by law, the Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances. 

1 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. As of December 31, 2014 RE/MAX actually owned 39.89% 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.
Consolidated Statements of Income
(Amounts in thousands, except share and per share amounts)



Three Months Ended December 31,

Year Ended December 31,

2014

2013

2014

2013

(Unaudited)








Revenue:









Continuing franchise fees

$

18,455

$

17,428

$

72,706

$

64,465

Annual dues

7,880


7,472


30,726


29,524

Broker fees

6,832


6,107


28,685


24,811

Franchise sales and other franchise revenue

5,505


5,751


23,440


23,574

Brokerage revenue

3,893


3,476


15,427


16,488

Total revenue

42,565


40,234


170,984


158,862

Operating expenses:














Selling, operating and administrative expenses

26,526


26,155


91,847


96,243

Depreciation and amortization

3,799


4,078


15,316


15,166

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

(13)


332


(14)


373

Total operating expenses

30,312


30,565


107,149


111,782

Operating income

12,253


9,669


63,835


47,080

Other expenses, net:














Interest expense

(2,288)


(2,594)


(9,295)


(14,647)

Interest income

108


97


313


321

Foreign currency transaction losses

(844)


(629)


(1,348)


(764)

Loss on early extinguishment of debt

-


-


(178)


(1,798)

Equity in earnings of investees

206


168


600


904

Total other expenses, net

(2,818)


(2,958)


(9,908)


(15,984)

Income before provision for income taxes

9,435


6,711


53,927


31,096

Provision for income taxes

(1,818)


(1,111)


(9,948)


(2,844)

Net income

$

7,617

$

5,600

$

43,979

$

28,252

Less: net income attributable to non-controlling interest

5,241


4,094


30,543


26,746

Net income attributable to RE/MAX Holdings, Inc.

$

2,376

$

1,506

$

13,436

$

1,506





















October 7, 2013 through December 31, 2013





October 7, 2013 through December 31, 2013

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














Basic

$

0.20

$

0.13

$

1.16

$

0.13

Diluted

$

0.19

$

0.12

$

1.10

$

0.12

Weighted average shares of Class A common stock outstanding














Basic

11,662,874


11,607,971


11,611,164


11,607,971

Diluted

12,259,440


12,234,905


12,241,977


12,234,905

Cash dividends declared per share of Class A common stock

$

0.0625

$

-

$

0.25

$

-

 

 

TABLE 2

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

December 31,

2014

2013

Assets






Current assets:






Cash and cash equivalents

$

107,199

$

88,375

Escrow cash - restricted

693


710

Accounts and notes receivable, current portion, less allowances of $4,495 and $4,122, respectively

16,641


15,980

Accounts receivable from affiliates

231


5

Income taxes receivable

765


-

Other current assets

5,237


5,010

 Total current assets

130,766


110,080

Property and equipment, net of accumulated depreciation of $19,993 and $19,400, respectively

2,661


2,583

Franchise agreements, net of accumulated amortization of $87,330 and $73,764, respectively

75,505


89,071

Other intangible assets, net of accumulated amortization of $8,550 and $7,912, respectively

2,725


2,486

Goodwill

72,463


72,781

Deferred tax assets, net

66,903


67,791

Investments in equity method investees

3,693


3,642

Debt issuance costs, net

1,896


2,353

Other assets

1,715


2,036

 Total assets

$

358,327

$

352,823

Liabilities and stockholders' equity






Current liabilities:






Accounts payable

$

561

$

731

Accounts payable to affiliates

1,114


1,017

Escrow liabilities

693


710

Accrued liabilities

9,380


9,344

Income taxes and tax distributions payable

189


3,000

Deferred revenue and deposits

17,142


15,821

Current portion of debt

9,460


17,300

Current portion of payable pursuant to tax receivable agreements

3,914


902

Other current liabilities

211


206

 Total current liabilities

42,664


49,031

Debt, net of current portion

202,213


211,104

Payable pursuant to tax receivable agreements, net of current portion

63,504


67,938

Deferred tax liabilities, net

190


195

Other liabilities, net of current portion

10,473


9,016

 Total liabilities

319,044


337,284

Commitments and contingencies






Stockholders' equity:






Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 11,768,041 shares issued and outstanding as of December 31, 2014; 11,607,971 shares issued and outstanding as of December 31, 2013

1


1

Class B common stock, par value $0.0001 per share, 1,000 shares authorized; 1 share issued and outstanding as of December 31, 2014 and 2013

-


-

Additional paid-in capital

241,882


239,086

Retained earnings

12,041


1,506

Accumulated other comprehensive income

886


1,371

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

254,810


241,964

Non-controlling interest

(215,527)


(226,425)

 Total stockholders' equity

39,283


15,539

 Total liabilities and stockholders' equity

$

358,327

$

352,823

 

 

TABLE 3

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

Year Ended December 31,

2014

2013

Cash flows from operating activities:






Net income

$

43,979

$

28,252

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






Depreciation and amortization

15,316


15,166

Bad debt expense

630


604

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

(14)


373

Loss on early extinguishment of debt

178


1,798

Equity in earnings of investees

(600)


(904)

Distributions received from equity investees

549


1,162

Equity-based compensation

2,002


2,995

Non-cash interest expense

365


859

Deferred income tax expense

1,865


402

Changes in operating assets and liabilities:






Accounts and notes receivable, current portion

(1,466)


(585)

Advances from/to affiliates

(161)


57

Other current and noncurrent assets

100


(1,245)

Other current and noncurrent liabilities

858


1,574

Deferred revenue and deposits

1,094


(439)

Payment pursuant to Tax Receivable Agreement

(986)


-

Net cash provided by operating activities

63,709


50,069

Cash flows from investing activities:






Purchases of property, equipment and software

(2,026)


(1,108)

Proceeds from sale of property and equipment

5


18

Cost to sell assets

-


-

Capitalization of trademark costs

(122)


(232)

Acquisitions

-


(27,305)

Dispositions

100


-

Net cash used in investing activities

(2,043)


(28,627)

Cash flows from financing activities:






Proceeds from issuance of debt

-


230,000

Payments on debt

(16,816)


(234,658)

Debt issuance costs

-


(1,345)

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

(22,197)


(27,614)

Dividends paid to Class A common stockholders

(2,901)


-

Payments on capital lease obligations

(204)


(266)

Excess tax benefit realized on delivery of vested restricted stock units and exercise of stock options

736


-

Cancellation of vested restricted stock units for required tax withholding

(1,781)


-

Proceeds from exercise of stock options

486


-

Net cash used in financing activities

(42,677)


(1,551)

Effect of exchange rate changes on cash

(165)


(17)

Net increase in cash and cash equivalents

18,824


19,874

Cash and cash equivalents, beginning of year

88,375


68,501

Cash and cash equivalents, end of year

$

107,199

$

88,375

Supplemental disclosures of cash flow information:






Cash paid for interest

$

8,880

$

13,769

Cash paid for income taxes

8,521


2,310

Schedule of non-cash investing and financing activities:






Establishment of deferred tax assets

$

917

$

69,711

Establishment of amounts payable under tax receivable agreements

436


68,840

Note receivable related to sale of assets of regional franchising operations

-


-

Capital leases for property and equipment

18


581

Tax distributions payable to non-controlling unitholders

-


2,552

 

 

TABLE 4

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




As of


December 31,

September 30,

June 30,

March 31,

December 31,

September 30,

June 30,

March 31,

December 31,


2014

2014

2014

2014

2013

2013

2013

2013

2012

Agent Count:



































U.S.



































Company-owned regions (1)

35,299


35,377


34,686


33,911


33,416


27,343


26,846


26,189


25,819

Independent regions (1)

21,806


21,804


21,576


21,375


21,075


26,879


26,482


26,030


25,984

U.S. Total

57,105


57,181


56,262


55,286


54,491


54,222


53,328


52,219


51,803

Canada



































Company-owned regions

6,261


6,258


6,212


6,117


6,084


6,089


6,106


6,073


6,070

Independent regions

12,779


12,849


12,818


12,852


12,838


12,934


12,939


12,804


12,796

Canada Total

19,040


19,107


19,030


18,969


18,922


19,023


19,045


18,877


18,866

Outside U.S. and Canada



































Company-owned regions

328


312


301


323


338


319


316


334


336

Independent regions

21,537


21,047


20,496


19,807


19,477


19,167


19,120


18,542


18,003

Outside U.S. and Canada Total

21,865


21,359


20,797


20,130


19,815


19,486


19,436


18,876


18,339

Total

98,010


97,647


96,089


94,385


93,228


92,731


91,809


89,972


89,008

Net change in agent count compared to the prior period

363


1,558


1,704


1,157


497


922


1,837


964






(1)

As of December 31, 2014, September 30, 2014, June 30, 2014, March 31, 2014 and December 31, 2013, U.S. Company-owned Regions includes agents in the Southwest and Central Atlantic regions which converted from Independent regions to Company-owned regions in connection with the acquisitions of the business assets of HBN, Inc. ("HBN") and Tails, Inc. ("Tails") on October 7, 2013.  As of the acquisition date, the Southwest and Central Atlantic regions had a total of 5,918 agents. 

 

 

TABLE 5

RE/MAX Holdings, Inc.
Adjusted EBITDA Reconciliation to Net Income
(Amounts in thousands, except percentages)
(Unaudited)

Three Months Ended December 31,

Year Ended December 31,

2014

2013

2014

2013

Consolidated:














Net income (1)

$

7,617

$

5,600

$

43,979

$

28,252

Depreciation and amortization

3,799


4,078


15,316


15,166

Interest expense

2,288


2,594


9,295


14,647

Interest income

(108)


(97)


(313)


(321)

Provision for income taxes

1,818


1,111


9,948


2,844

EBITDA

15,414


13,286


78,225


60,588

(Gain) loss on sale or disposition of assets and sublease (2)

(63)


1,382


(340)


971

Loss on early extinguishment of debt (3)

-


-


178


1,798

Non-recurring equity-based compensation (4)

-


2,047


-


2,748

Non-cash straight-line rent expense (5)

198


213


812


1,183

Chairman executive compensation (6)

-


11


-


2,261

Acquisition integration costs (7)

163


246


313


495

Public offering related expenses (8)

-


1,079


-


6,995

Non-recurring severance and other related expenses (9)

4,617


-


4,617


-

Adjusted EBITDA

$

20,329

$

18,264

$

83,805

$

77,039

Adjusted EBITDA Margin

47.8

%

45.4

%

49.0

%

48.5

%

(1)

Consolidated net income excludes all adjustments associated with the non-controlling interest and presents the results of operations 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 for the entire period presented.

(2)

Represents (gains) losses on the sale or disposition of assets as well as (gains) losses on the sublease of a portion of the Company's corporate headquarters office building.

(3)

Represents losses incurred on early extinguishment of debt on the Company's 2013 Senior Secured Credit Facility and the Company's previous senior secured credit facility for the year ended December 31, 2014 and 2013 as well as losses incurred related to the entire repayment of the Company's previous senior secured credit facility during the year ended December 31, 2013.

(4)

Non-recurring equity-based compensation includes non-cash compensation expense recorded related to restricted stock units granted in connection with the IPO pursuant to the Company's 2013 Omnibus Incentive Plan during the three and twelve months ended December 31, 2013 as well as the non-cash compensation expense recorded related to unit options granted to certain employees pursuant to RMCO's 2011 Unit Option Plan during the year ended December 31, 2013.

(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 salaries the Company paid to David Liniger, the Company's Chief Executive Officer, Chairman and Co-Founder, and Gail Liniger, the Company's 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 the Company's acquisitions of certain assets of HBN and Tails in October 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.

(9)

Represents non-recurring severance and other related expenses of $3.3 million recognized for the retirement of the Company's former Chief Executive Officer on December 31, 2014, which includes $1.8 million of expenses related to continued salary, benefits and related payroll costs to be paid over a 36 month period beginning in the fourth quarter of 2015, $1.0 million of additional equity-based compensation expense for the accelerated vesting of certain restricted stock units and $0.5 million of expenses related to the one-time salary payment made on December 31, 2014. Non-recurring severance and other related expenses also includes one-time expenses of $1.3 million incurred for severance and outplacement services provided to former employees of the Company in connection with the restructuring plan implemented at the Company's corporate headquarters.

 

 

TABLE 6

RE/MAX Holdings, Inc.
Adjusted Net Income and Adjusted Earnings per Share(1)
(Amounts in thousands, except share and per share amounts)
(Unaudited)



Three Months Ended December 31,

Year Ended December 31,

2014

2013

2014

2013

Consolidated:














Net income

$

7,617

$

5,600

$

43,979

$

28,252

Amortization of franchise agreements

3,392


3,375


13,566


12,274

Non-controlling interest income tax expense & RE/MAX Holdings tax provision

1,818


1,111


9,948


2,844

Add-backs:














(Gain) loss on sale or disposition of assets and sublease (2)

(63)


1,382


(340)


971

Loss on early extinguishment of debt (3)

-


-


178


1,798

Non-recurring equity-based compensation (4)

-


2,047


-


2,748

Non-cash straight-line rent expense (5)

198


213


812


1,183

Chairman executive compensation (6)

-


11


-


2,261

Acquisition integration costs (7)

163


246


313


495

Public offering related expenses (8)

-


1,079


-


6,995

Non-recurring severance and other related expenses (9)

4,617


-


4,617


-

Adjusted pre-tax net income

17,742


15,064


73,073


59,821

Less: Provision for income taxes at 38%

(6,742)


(5,724)


(27,768)


(22,732)

Adjusted net income

$

11,000

$

9,340

$

45,305

$

37,089
















Total basic pro forma shares outstanding

29,397,474


29,342,571


29,345,764


29,342,571

Total diluted pro forma shares outstanding

29,994,040


29,969,505


29,976,577


29,969,505
















Adjusted net income basic earnings per share (10):

$

0.37

$

0.32

$

1.54

$

1.26

Adjusted net income diluted earnings per share (10):

$

0.37

$

0.31

$

1.51

$

1.24


(1)

Excludes all adjustments associated with the non-controlling interest and presents the results of operations 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 for the entire period presented.

(2)

Represents (gains) losses on the sale or disposition of assets as well as (gains) losses on the sublease of a portion of the Company's corporate headquarters office building.

(3)

Represents losses incurred on early extinguishment of debt on the Company's 2013 Senior Secured Credit Facility and the Company's previous senior secured credit facility for the year ended December 31, 2014 and 2013 as well as losses incurred related to the entire repayment of the Company's previous senior secured credit facility during the year ended December 31, 2013.

(4)

Non-recurring equity-based compensation includes non-cash compensation expense recorded related to restricted stock units granted in connection with the IPO pursuant to the Company's 2013 Omnibus Incentive Plan during the three and twelve months ended December 31, 2013 as well as the non-cash compensation expense recorded related to unit options granted to certain employees pursuant to RMCO's 2011 Unit Option Plan during the year ended December 31, 2013.

(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 salaries the Company paid to David Liniger, the Company's Chief Executive Officer, Chairman and Co-Founder, and Gail Liniger, the Company's 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 the Company's acquisitions of certain assets of HBN and Tails in October 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.

(9)

Represents non-recurring severance and other related expenses of $3.3 million recognized for the retirement of the Company's former Chief Executive Officer on December 31, 2014, which includes $1.8 million of expenses related to continued salary, benefits and related payroll costs to be paid over a 36 month period beginning in the fourth quarter of 2015, $1.0 million of additional equity-based compensation expense for the accelerated vesting of certain restricted stock units and $0.5 million of expenses related to the one-time salary payment made on December 31, 2014. Non-recurring severance and other related expenses also includes one-time expenses of $1.3 million incurred for severance and outplacement services provided to former employees of the Company in connection with the restructuring plan implemented at the Company's corporate headquarters.

(10)

Adjusted net income basic and diluted earnings per share are pro-forma for the three and twelve months ended December 31, 2013 since RE/MAX Holdings was not a public company until October 7, 2013.

 

 

TABLE 7

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

Three Months Ended December 31,

Year Ended December 31,

2014

2013

2014

2013

Total basic weighted average shares outstanding:














Weighted average shares of Class A common stock outstanding

11,662,874


11,607,971


11,611,164


11,607,971

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

17,734,600


17,734,600


17,734,600


17,734,600

Total basic pro forma weighted average shares outstanding

29,397,474


29,342,571


29,345,764


29,342,571
















Total diluted weighted average shares outstanding:














Weighted average shares of Class A common stock outstanding

11,662,874


11,607,971


11,611,164


11,607,971

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

17,734,600


17,734,600


17,734,600


17,734,600

Dilutive effect of stock options(1)

542,623


597,895


578,888


597,895

Dilutive effect of unvested restricted stock units(1)

53,943


29,039


51,925


29,039

Total diluted pro forma weighted average shares outstanding

29,994,040


29,969,505


29,976,577


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 financial measures that are not in accordance with U.S. GAAP, 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 U.S. GAAP.

RE/MAX defines Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest expense, net and the provision for income taxes, each of which is presented in the Company's consolidated financial statements included elsewhere in this press release), adjusted for the impact of the following items that the Company does not consider representative of the Company's ongoing operating performance: loss or gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, non-recurring equity based compensation, non-cash straight-line rent expense, salaries paid to David Liniger, the Company's Chief Executive Officer, Chairman and Co-Founder, and Gail Liniger, the Company's Vice Chair and Co-Founder, that the Company discontinued subsequent to the completion of the IPO, professional fees and certain non-recurring expenses incurred in connection with the IPO, acquisition integration costs and non-recurring severance and other related charges incurred in connection with the restructuring plan designed to improve operating efficiencies at the Company's corporate headquarters and the retirement of the Company's former Chief Executive Officer on December 31, 2014. During the third quarter of 2014, the Company revised its definition of Adjusted EBITDA to no longer adjust for recurring equity-based compensation expense. During the fourth quarter of 2014, the Company revised its definition of Adjusted EBITDA to adjust for non-recurring severance charges that were recorded during the fourth quarter of 2014. Adjusted EBITDA in prior periods has been revised to reflect this change for consistency of presentation.

RE/MAX defines Adjusted net income as net income, excluding the impact of amortization expense related to the Company's franchise agreements, non-controlling interest income tax expense and RE/MAX Holdings tax provision, loss or gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, non-recurring equity-based compensation, non-cash straight-line rent expense, salaries paid to David and Gail Liniger that the Company discontinued subsequent to the completion of the IPO, acquisition integration costs, expenses incurred in connection with the IPO, and non-recurring severance and other related expenses incurred in connection with the restructuring plan designed to improve operating efficiencies at the Company's corporate headquarters and the retirement of the Company's former Chief Executive Officer on December 31, 2014, but reflects income taxes and is presented 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 tax rates. The estimated effective tax rate was 38%.

Because Adjusted EBITDA and Adjusted net income omit certain non-cash items and other non-recurring cash charges or other items, the Company feels that these metrics are less susceptible to variances that affect the Company's operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items and is more reflective of other factors that affect the Company's operating performance. The Company presents Adjusted EBITDA and Adjusted net income because it believes the metrics are useful as supplemental measures in evaluating the performance of the Company's operating businesses and provide 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 the results the Company 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 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 the Company's interest expense, or the cash requirements necessary to service interest or principal payments on the Company's debt;
  • Adjusted EBITDA does not reflect the Company's income tax expense or the cash requirements to pay the Company's taxes;
  • Adjusted EBITDA does not reflect the cash requirements to pay dividends to shareholders of the Company's Class A common stock and tax and other cash distributions to non-controlling unitholders;
  • Adjusted EBITDA does not reflect the cash requirements to pay RIHI, Inc. and Weston Presidio, L.P. pursuant to the tax receivable agreement entered into at the time of the IPO; and
  • other companies may calculate these measures differently, so they may not be comparable.

With respect to the Company's outlook with respect to Adjusted EBITDA margin for the first quarter and the full fiscal year 2015, the Company is not able to provide a reconciliation of this non-GAAP financial measure to U.S. GAAP because it does not provide specific guidance for the various reconciling non-cash items and other non-recurring cash and non-cash charges, such as gain on sale or disposition of assets and sublease and loss on early extinguishment of debt, among others. Certain items that impact these measures have not yet occurred, are out of the Company's control or cannot be reasonably predicted, and as a result, reconciliation of these non-GAAP guidance measures to U.S. GAAP is not available without unreasonable effort.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/remax-holdings-reports-fourth-quarter-and-full-year-2014-results-300049909.html

SOURCE RE/MAX Holdings, Inc.

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