RE/MAX Holdings, Inc. reports first quarter 2020 results
First Quarter 2020 Highlights
(Compared to first quarter 2019 unless otherwise noted)
• Total agent count increased 5.0% to 131,816 agents (as previously disclosed)
• U.S. and Canada combined agent count increased 0.2% to 84,191 agents (as previously disclosed)
• Total open Motto Mortgage franchises increased 34.1% to 118 offices1(as previously disclosed)
• Total Revenue of $70.3 million; Revenue excluding the Marketing Funds increased 0.7% to $52.8 million
• Net income attributable to RE/MAX Holdings, Inc. of $2.6 million and earnings per diluted share (GAAP EPS) of $0.15
• Adjusted EBITDA2 of $19.5 million, Adjusted EBITDA margin2 of 27.8% and Adjusted earnings per diluted share (Adjusted EPS2) of $0.39
Operating Statistics as of April 30, 2020
(Compared to April 30, 2019 unless otherwise noted)
• Total agent count increased 4.0% to 131,134 agents
• U.S. and Canada combined agent count decreased 0.8% to 83,374 agents
• Total open Motto Mortgage franchises increased 35.6% to 122 offices1
RE/MAX Holdings, Inc. (the “Company” or “RE/MAX Holdings”) (NYSE: RMAX), parent company of RE/MAX, one of the world’s leading franchisors of real estate brokerage services, and Motto Mortgage (“Motto”), an innovative mortgage brokerage franchise, today announced operating results for the quarter ended March 31, 2020.
“The housing market experienced a strong start to 2020, but that momentum was unfortunately interrupted by the COVID-19 pandemic,” stated Adam Contos, RE/MAX Holdings Chief Executive Officer. “In the current environment, the health and well-being of our employees, affiliates, home buyers and sellers and the communities in which they live remain our top priority. Thanks to investments in our business this past year, our employees are working productively from home, delivering valuable service and support to our networks. Real estate professionals, using technology and adhering to social distancing guidelines, are effectively leading consumers through the buying or selling process in a safe and largely virtual way. What has become clear is the expertise of a skilled real estate professional has never been more important.”
Contos continued, “We have ample reason to be confident in our ability to navigate through this challenging environment. We have the advantages of strong brands, a resilient business model, a healthy balance sheet, two highly entrepreneurial networks – including one that virtually spans the globe – and an extremely skilled headquarters staff. We’ve experienced economic downturns before, and the lessons we’ve learned will help us through this one. We continue to invest in the success of our affiliates – providing financial support, maintaining our brand presence, and developing relevant new tools, training and technology. The goal: helping our people emerge from this crisis in a position of strength.”
First Quarter 2020 Operating Results
The following compares agent count as of March 31, 2020 and 2019:
As of March 31, 2020:
• U.S. agent count: 62,668
• Canada agent count: 21,523
• Subtotal: 84,191
• Outside the U.S. & Canada: 47,625
• Total: 131,816
As of March 31, 2019:
• U.S. agent count: 62,664
• Canada agent count: 21,367
• Subtotal: 84,031
• Outside the U.S. & Canada: 41,501
• Total: 125,532
RE/MAX Holdings generated total revenue of $70.3 million in the first quarter of 2020, a decrease of $0.9 million or 1.3% compared to $71.2 million in the first quarter of 2019. Total revenue decreased primarily due to agent recruiting initiatives that reduced both continuing franchise fees and Marketing Funds fees, partially offset by an increase in broker fees and the growth of Motto. Recurring revenue streams, which consist of continuing franchise fees and annual dues, decreased $0.7 million compared to the first quarter of 2019 and accounted for 62.7% of revenue (excluding the Marketing Funds) in the first quarter of 2020, compared to 64.5% in the comparable period in 2019.
Total operating expenses were $58.5 million for the first quarter of 2020. First quarter total operating expenses increased primarily due to higher selling, operating and administrative expenses and depreciation and amortization expenses, partially offset by lower Marketing Fund expenses. Excluding the Marketing Funds from operating expenses, first quarter 2020 operating expenses totaled $41.0 million, an increase of $1.5 million or 3.9% compared to $39.5 million in the first quarter of 2019.
Selling, operating and administrative expenses were $34.7 million in the first quarter of 2020, an increase of $0.8 million or 2.3% compared to the first quarter of 2019 and, excluding the Marketing Funds, represented 65.7% of revenue, compared to 64.7% in the prior-year period. Selling, operating and administrative expenses increased primarily due to higher bad debt expense, incremental expenses from the First acquisition, technology investments and increased legal expenses, partially offset by lower equity-based compensation expense and elimination of the corporate bonus.
Net Income and GAAP EPS
Net income attributable to RE/MAX Holdings was $2.6 million for the first quarter of 2020, a decrease of $1.8 million over the first quarter of 2019. Reported basic and diluted GAAP EPS were each $0.15 for the first quarter of 2020 compared to $0.25 in the first quarter of 2019.
Adjusted EBITDA and Adjusted EPS
Adjusted EBITDA was $19.5 million for the first quarter of 2020, a decrease of $3.5 million or 15.0% from the first quarter of 2019. Adjusted EBITDA decreased primarily due to increased bad debt expense and incremental net expenses from the First acquisition partially offset by the elimination of the corporate bonus. Adjusted EBITDA margin was 27.8% in the first quarter of 2020 compared to 32.3% in the first quarter of 2019.
Adjusted basic and diluted EPS were each $0.39 for the first quarter of 2020, a decrease of $0.09 per share compared to the first quarter of 2019. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended March 31, 2020 assumes RE/MAX Holdings owned 100% of RMCO, LLC (“RMCO”). The weighted average ownership RE/MAX Holdings had in RMCO was 58.9% for the quarter ended March 31, 2020.
As of March 31, 2020, the Company had cash and cash equivalents of $80.9 million. The Company’s cash and cash equivalents decreased $2.1 million from December 31, 2019. As of March 31, 2020, the Company had $225.2 million of outstanding debt, net of an unamortized debt discount and issuance costs, a decrease of $0.5 million compared to $225.7 million as of December 31, 2019.
On May 5, 2020, the Company’s Board of Directors approved a quarterly cash dividend of $0.22 per share of Class A common stock. The quarterly dividend is payable on June 2, 2020, to shareholders of record at the close of business on May 19, 2020.
Webcast and Conference Call
The Company will host a conference call for interested parties on Thursday, May 7, 2020, beginning at 8:30 a.m. Eastern Time. Interested parties can access the conference call using the following dial-in numbers:
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.
1 Total open Motto Mortgage franchises includes only “bricks and mortar” offices with a unique physical address with rights granted by a full franchise agreement with Motto Franchising, LLC and excludes any “virtual” offices or “branchises”.
2Adjusted 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.
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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 130,000 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. Motto Mortgage has grown to over 100 offices across more than 30 states.
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; dividends; non-GAAP financial measures; housing and mortgage market conditions; the Company’s strategic and operating plans and business models; the impact of the COVID-19 pandemic and the ability of the Company and its franchisees to navigate the challenges presented by the COVID-19 pandemic; investments in the success of franchisees, including financial support; the Company’s ability to implement its planned expense reductions and the benefits thereof; the importance of skilled real estate professionals; the advantages of the Company’s strong brands, resilient business model, healthy balance sheet, two highly entrepreneurial networks and extremely skilled headquarters staff; and the Company’s continued investment in the success of its affiliates. 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. These risks and uncertainties include the global COVID-19 pandemic, which poses significant and widespread risks to the Company’s business, including the Company’s agents, loan originators, franchisees and employees, as well as home buyers and sellers. The Company has offered financial support to its franchisees during this time, but the Company is unable to estimate the effectiveness of that support or the ultimate effect of such support on its results of operations and financial condition. The duration and magnitude of the impact from the COVID-19 pandemic depends on future developments that cannot be predicted at this time. The Company has already experienced significant disruption to its business as a result of the COVID-19 pandemic and such disruptions may continue, particularly if ongoing mitigation actions by government authorities remain in place for a significant amount of time. Notwithstanding any mitigation actions the Company has initiated and expects to continue as the crisis is ongoing, sustained material revenue declines relating to this crisis could impact the Company’s financial condition, results of operations, stock price and ability to access the capital markets. Other important 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, and (8) fluctuations in foreign currency exchange rates, 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.