RE/MAX Holdings Reports Second Quarter 2014 Results - WLOX.com - The News for South Mississippi

RE/MAX Holdings Reports Second Quarter 2014 Results

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SOURCE RE/MAX Holdings, Inc.

DENVER, Aug. 13, 2014 /PRNewswire/ -- 

Second Quarter 2014 Highlights

(As compared to the second quarter 2013 unless otherwise noted)

  • Agent count of 96,089, up 4.7%
  • Revenue of $42.3 million, up 7.8%
  • Adjusted EBITDA1 of $24.2 million, up 13.7%
  • Adjusted EBITDA1 margin of 57.2%, up from 54.2%
  • Adjusted basic and diluted earnings per share ("EPS") of $0.46 and $0.45, respectively  
  • Announced quarterly dividend of $0.0625 per share of Class A common stock

RE/MAX Holdings, Inc. (the "Company" or "RE/MAX") (NYSE: RMAX), one of the world's leading franchisors of real estate brokerage services, today announced operating results for the second quarter ended June 30, 2014.

RE/MAX, LLC Logo

"We continue to grow our network of highly productive agents, maintain our expense discipline and expand our margins," stated Margaret Kelly, Chief Executive Officer of RE/MAX. "Even with mixed trends in the housing market, the strength and resilience of our business model is evident in the performance of our key business drivers. We are encouraged by our ongoing momentum and we expect continued agent count growth and solid margins for the remainder of the year."

Second Quarter 2014 Operating Results

Agent Count

Total agent count grew by 4,280 agents or 4.7% to 96,089 agents compared to the second quarter of 2013. For the six months ended June 30, 2014, the Company grew agent count by 2,861 agents or 3.1%. In the United States ("U.S."), agent count increased by 2,934 agents or 5.5% to 56,262 agents compared to the prior year quarter.  In Canada, agent count decreased by 15 agents or 0.1% to 19,030 agents compared to the prior year quarter. Outside the U.S. and Canada, agent count increased by 1,361 agents or 7.0% to 20,797 agents compared to the prior year quarter.

Revenue

RE/MAX generated revenue of $42.3 million during the second quarter of 2014, a 7.8% increase compared to $39.2 million for the same period in 2013 driven by an increase in agent count and incremental revenue from the acquired Southwest and Central Atlantic regions. Recurring revenue streams, which include continuing franchise fees and annual dues, accounted for 60.7% of revenues in the second quarter of 2014 compared to 58.3% in the prior year quarter.  

Continuing franchise fees were $18.0 million, up $2.2 million or 13.8% over the prior year quarter primarily due to growth in agent count and additional revenue as a result of the acquisition of the Southwest and Central Atlantic regions in October 2013.

Revenue from annual dues was $7.6 million, up $0.6 million or 8.5% due to an increase in total agent count of 4,280 from the prior year quarter, of which 2,919 agents were located in the U.S. and Canada, and the January 1, 2014 increase in annual dues membership fee in the U.S. and Canada.

Revenue from broker fees was $8.0 million, up $1.2 million or 17.4% compared to the prior year quarter. The increase was driven by growth in agent count and additional revenue that resulted from the acquisition of the Southwest and Central Atlantic regions.

Franchise sales and other franchise revenue was $4.6 million, in-line with the prior year quarter.

Brokerage revenue, which principally represents fees assessed by the Company's owned brokerages for services provided to their affiliated real estate agents, was $4.1 million, a decrease of $0.9 million or 17.7% from the prior year quarter. The decrease was due to reduced management fee revenue recognized by our owned brokerage offices and a reduction in the number of closed transaction sides and home sales volume.  

Operating Expenses

Total operating expenses were $23.3 million in the second quarter of 2014, a decrease of $2.5 million or 9.5% compared to the prior year quarter. Selling, operating and administrative expenses were $19.5 million, down $2.5 million or 11.4% from the prior year quarter. Selling, operating and administrative expenses were 46.0% of revenue in the second quarter of 2014 compared to 56.0% in the prior year quarter. The reduction in operating expenses is primarily due to lower professional fees compared to the prior year quarter when the Company incurred expenses related to its initial public offering ("IPO"). Selling, operating and administrative expenses also decreased due to a reduction in rent expense as a result of increased sublease income at the corporate office and the renegotiation of certain leases at the Company's owned brokerage offices.

Adjusted EBITDA

Adjusted EBITDA margin was 57.2% for the second quarter of 2014 compared to 54.2% in the prior year quarter. Adjusted EBITDA was $24.2 million in the second quarter of 2014, up 13.7% or $2.9 million from the prior year quarter. 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 increase was also attributable to lower selling, operating and administrative expenses and foreign currency transaction gains related primarily to cash held in Canadian dollars. A reconciliation of Adjusted EBITDA to net income is included in Table 5.

Net Income

Reported net income was $14.5 million for the second quarter of 2014, an increase of $5.0 million or 52.0% compared to the prior year quarter. The increase was primarily due to higher operating income, lower interest expense as a result of the Company's 2013 refinancing activity and gains associated with foreign currency transactions, partially offset by a higher provision for income taxes.

Adjusted net income2 was $13.4 million for the second quarter 2014, an increase of $2.7 million or 25.4% compared to the prior year quarter. Adjusted basic and diluted EPS were $0.46 and $0.45, respectively for the second quarter 2014.

Net income attributable to RE/MAX Holdings, Inc. was $4.4 million for the second quarter of 2014. This amount excludes net income attributable to non-controlling interest. Reported basic and diluted EPS attributable to RE/MAX Holdings, Inc. were $0.38 and $0.36, respectively. Refer to Table 1 for the share counts used in the calculation of U.S. GAAP basic and diluted EPS attributable to RE/MAX Holdings, Inc.

The ownership structure used to calculate adjusted basic and diluted EPS for the three and six months ended June 30, 2014 reflects RE/MAX owning 100% of RMCO, LLC ("RMCO"). The actual RE/MAX ownership of RMCO was 39.50% at June 30, 2014. 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 June 30, 2014, the Company had a cash balance of $84.6 million, a decrease of $3.8 million from December 31, 2013. The Company made an excess cash flow payment of $14.6 million on its term loan in April of 2014. The Company had $212.7 million of term loans outstanding, net of unamortized discount as of June 30, 2014, down from $228.4 million as of December 31, 2013.

Dividend

The Company's Board of Directors approved a quarterly dividend of $0.0625 per share of Class A common stock. The dividend is payable on September 3, 2014 to shareholders of record at the close of business on August 20, 2014.

Outlook

Based on the Company's performance during the first and second quarters of this year and its belief in a measured and sustainable housing recovery, the Company is providing the following outlook for its third quarter 2014 and re-confirming its full-year outlook for 2014:

Third Quarter 2014 Outlook:

  • Agent count is estimated to increase by 4% to 5% over third quarter 2013,
  • Revenue is estimated to increase by 7% to 8% over third quarter 2013,
  • Selling, operating and administrative expenses are estimated to be 48% to 50% of revenue; and
  • Adjusted EBITDA margin is estimated to be in the 50% to 52% range.

Full-Year 2014 Outlook:

  • Agent count is estimated to increase by 4% to 5% over 2013,
  • Revenue is estimated to increase by 6% to 7% over 2013,
  • Selling, operating and administrative expenses are estimated to be 52% to 54% of revenue; and
  • Adjusted EBITDA margin is estimated to be in the 47% and 49% range.

Revenue, Selling, operating and administrative expenses and Adjusted EBITDA margin are subject to fluctuations in the Canadian dollar to U.S. dollar exchange rate.

Basis of Presentation

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

These historical results do not purport to reflect what the results of operations of RE/MAX would have been had the IPO and related reorganization and other transactions occurred prior to such periods.

Webcast and Conference Call

The Company will host a conference call for interested parties today, August 13, 2014, beginning at 5:00 p.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 August 13, 2014 through August 28, 2014, by dialing 1-877-344-7529 (U.S.), 1-855-669-9658 (Canada) or 1-412-317-0088 (International) and entering the pass code 10049898. 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 96,000 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, including statements regarding outlook for the third quarter 2014 and full fiscal year 2014. 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 expectation of continued agent growth and solid margins for the balance of the year, its belief in a measured and sustainable recovery, as well as any statements regarding the Company's strategic and operational plans. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward looking statements. Such risks and uncertainties include, without limitation, (1) changes in business and economic activity in general, (2) changes in the real estate market, including changes due to interest rates and availability of financing, (3) 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, 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 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. RE/MAX actually owns 39.50% 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.

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)

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










Three months ended June 30,


Six months ended June 30,


2014


2013


2014


2013

Revenue:








Continuing franchise fees

$      18,024


$ 15,839


$      35,728


$ 30,944

Annual dues

7,643


7,044


15,149


14,597

Broker fees

8,016


6,827


13,574


11,500

Franchise sales and other franchise revenue

4,554


4,594


12,463


12,747

Brokerage revenue

4,062


4,937


7,265


8,528

Total revenue

42,299


39,241


84,179


78,316

Operating expenses:








Selling, operating and administrative expenses

19,475


21,992


44,762


47,983

Depreciation and amortization

3,812


3,707


7,750


7,432

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

-


45


(1)


44

Total operating expenses

23,287


25,744


52,511


55,459

Operating income

19,012


13,497


31,668


22,857

Other expenses, net:








Interest expense

(2,286)


(3,411)


(4,752)


(6,925)

Interest income

66


68


147


142

Foreign currency transaction gains (losses)

836


(345)


307


(416)

Loss on early extinguishment of debt

(178)


-


(178)


(134)

Equity in earnings of investees

188


316


129


462

Total other expenses, net

(1,374)


(3,372)


(4,347)


(6,871)

Income before provision for income taxes

17,638


10,125


27,321


15,986

Provision for income taxes

(3,129)


(577)


(5,014)


(1,031)

Net income

$      14,509


$   9,548


$      22,307


$ 14,955

Less: net income attributable to non-controlling interest

10,132


9,548


15,519


14,955

Net income attributable to RE/MAX Holdings, Inc.

$        4,377


$        -


$        6,788


$        -

Comprehensive income:








Net income

$      14,509


$   9,548


$      22,307


$ 14,955

Change in cumulative translation adjustment

186


(190)


9


(298)

Other comprehensive income (loss)

186


(190)


9


(298)

Comprehensive income

14,695


9,358


22,316


14,657

Less: comprehensive income attributable to non-controlling interest

10,244


9,358


15,524


14,657

Comprehensive income attributable to RE/MAX Holdings, Inc.

$        4,451


$        -


$        6,792


$        -

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





Basic

$          0.38




$          0.59



Diluted

$          0.36




$          0.55



Weighted average shares of Class A common stock outstanding








Basic

11,593,885




11,600,889



Diluted

12,230,014




12,238,189



Cash dividends declared per share of Class A common stock

$      0.0625




$      0.1250



 


TABLE 2


RE/MAX Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

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






June 30,
2014


December 31,
2013

Assets




Current assets:




Cash and cash equivalents

$   84,620


$       88,375

Escrow cash - restricted

1,003


710

Accounts and notes receivable, current portion, less allowances of $4,413 and $4,122, respectively

19,228


15,980

Accounts receivable from affiliates

-


5

Income taxes receivable

1,194


-

Other current assets

3,244


5,010

Total current assets

109,289


110,080

Property and equipment, net of accumulated depreciation of $19,961 and $19,400, respectively

2,585


2,583

Franchise agreements, net of accumulated amortization of $80,547 and $73,764, respectively

82,288


89,071

Other intangible assets, net of accumulated amortization of $8,267 and $7,912, respectively

2,244


2,486

Goodwill

72,793


72,781

Deferred tax assets, net

66,564


67,791

Investments in equity method investees

3,611


3,642

Debt issuance costs, net

2,051


2,353

Other assets

1,941


2,036

 Total assets

$ 343,366


$     352,823

Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$        996


$            731

Accounts payable to affiliates

1,059


1,017

Escrow liabilities

1,003


710

Accrued liabilities

7,501


9,344

Income taxes and tax distributions payable

162


3,000

Deferred revenue and deposits

17,483


15,821

Current portion of debt

10,877


17,300

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

902


902

Other current liabilities

207


206

 Total current liabilities

40,190


49,031

Debt, net of current portion

201,844


211,104

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

67,938


67,938

Deferred revenue, net of current portion

117


234

Deferred tax liabilities, net

203


195

Other liabilities, net of current portion

8,914


8,782

 Total liabilities

319,206


337,284

Commitments and contingencies




Stockholders' equity:




Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 11,577,452 shares issued and outstanding as of June 30, 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 June 30, 2014 and December 31, 2013

-


-

Additional paid-in capital

238,725


239,086

Retained earnings

6,845


1,506

Accumulated other comprehensive income

1,380


1,371

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

246,951


241,964

Non-controlling interest

(222,791)


(226,425)

 Total stockholders' equity

24,160


15,539

 Total liabilities and stockholders' equity

$ 343,366


$     352,823

 

TABLE 3


RE/MAX Holdings, Inc.

Condensed Consolidated Statements of Cash Flow

(Unaudited)

(Amounts in thousands)



Six months ended June 30,


2014


2013

Cash flows from operating activities:




Net income

$ 22,307


$ 14,955

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

Depreciation and amortization

7,750


7,432

Bad debt expense

305


265

Loss on early extinguishment of debt

178


134

Equity-based compensation

332


701

Non-cash interest expense

186


571

Other

1,312


246

Changes in operating assets and liabilities:




Accounts and notes receivable, current portion

(3,542)


(2,414)

Advances to/from affiliates

(12)


249

Other current and noncurrent assets

1,854


675

Other current and noncurrent liabilities

(2,777)


496

Deferred revenue and deposits

1,549


145

Net cash provided by operating activities

29,442


23,455

Cash flows from investing activities:




Purchases of property, equipment and software

(702)


(482)

Proceeds from sale of property and equipment

1


3

Capitalization of trademark costs

(58)


(91)

Net cash used in investing activities

(759)


(570)

Cash flows from financing activities:




Payments on debt

(15,740)


(9,300)

Distributions to non-controlling unitholders

(14,437)


(20,683)

Dividends to Class A common stockholders

(1,449)


-

Payments on capital lease obligations

(103)


(158)

Deferred offering costs

-


(2,511)

Excess tax benefit realized on delivery of vested restricted stock units

125


-

Tax withholding payment for vested restricted stock units upon delivery

(818)


-

Net cash used in financing activities

(32,422)


(32,652)

Effect of exchange rate changes on cash

(16)


(152)

Net decrease in cash and cash equivalents

(3,755)


(9,919)

Cash and cash equivalents, beginning of year

88,375


68,501

Cash and cash equivalents, end of period

$ 84,620


$ 58,582

Supplemental disclosures of cash flow information:




Cash paid for interest

$   4,507


$   6,374

Cash paid for income taxes

4,197


1,149

Schedule of non-cash investing and financing activities:



Capital leases for property and equipment

$        18


$      160

 

TABLE 4


RE/MAX Holdings, Inc.

Agent Count

(Unaudited)



As of


June 30, 


March 31, 


December 31, 


September 30, 


June 30, 


March 31, 


December 31, 


2014


2014


2013


2013


2013


2013


2012

Agent Count:














U.S.














Company-owned regions(1)

34,686


33,911


33,416


27,343


26,846


26,189


25,819

Independent regions (1)

21,576


21,375


21,075


26,879


26,482


26,030


25,984

U.S. Total

56,262


55,286


54,491


54,222


53,328


52,219


51,803

Canada














Company-owned regions 

6,212


6,117


6,084


6,089


6,106


6,073


6,070

Independent regions

12,818


12,852


12,838


12,934


12,939


12,804


12,796

Canada Total

19,030


18,969


18,922


19,023


19,045


18,877


18,866

Outside U.S. and Canada














Company-owned regions 

301


323


338


319


316


334


336

Independent regions

20,496


19,807


19,477


19,167


19,120


18,542


18,003

Outside U.S. and Canada Total

20,797


20,130


19,815


19,486


19,436


18,876


18,339

Total

96,089


94,385


93,228


92,731


91,809


89,972


89,008

 

(1)

As of 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 (1)

(Unaudited)

(Amounts in thousands)



Three months ended
June 30, 


Six Months ended
June 30, 


2014


2013


2014


2013









Consolidated:








Net income 

$      14,509


$  9,548


$22,307


$14,955

Depreciation and amortization

3,812


3,707


7,750


7,432

Interest expense

2,286


3,411


4,752


6,925

Interest income

(66)


(68)


(147)


(142)

Provision for income taxes

3,129


577


5,014


1,031

EBITDA

23,670


17,175


39,676


30,201

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

(47)


(105)


(225)


(248)

Loss on early extinguishment of debt (3)

178


-


178


134

Equity-based compensation (4)

74


321


332


701

Non-cash straight-line rent expense (5)

270


371


417


710

Chairman executive compensation (6)

-


750


-


1,500

Acquisition integration costs (7)

45


222


63


222

Public offering related expenses (8)

-


2,533


-


3,480

Adjusted EBITDA

$      24,190


$21,267


$40,441


$36,700

 

(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 on the sale or disposition of assets, as well as the gain 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 senior secured credit facility.

(4)

Equity-based compensation includes non-cash compensation expense recorded related to unit options granted to employees pursuant to RMCO's 2011 Unit Option Plan during the three and six months ended June 30, 2013, as well as the non-cash compensation expense recorded related to restricted stock units granted in connection with the IPO pursuant to RE/MAX Holdings, Inc. 2013 Stock Omnibus Plan during the three and six months ended June 30, 2014.

(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 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 acquisition 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.

 

TABLE 6


RE/MAX Holdings, Inc.

Adjusted Net Income and Adjusted Earnings per Share(1)

 (Unaudited)

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










Three months ended June 30, 


Six months ended June 30, 


2014


2013


2014


2013









Consolidated:








Net income 

$      14,509


$        9,548


$      22,307


$14,955

Amortization of franchise agreements

3,392


2,966


6,783


5,932

Canadian tax expense & RE/MAX Holdings tax provision

3,129


577


5,014


1,031

Add-backs:








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

(47)


(105)


(225)


(248)

Loss on early extinguishment of debt (3)

178


-


178


134

Equity-based compensation (4)

74


321


332


701

Non-cash straight-line rent expense (5)

270


371


417


710

Chairman executive compensation (6)

-


750


-


1,500

Acquisition integration costs (7)

45


222


63


222

Public offering related expenses (8)

-


2,533


-


3,480

Adjusted pre-tax net income

21,550


17,183


34,869


28,417

Less: Provision for income taxes at 38%

(8,189)


(6,530)


(13,250)


(10,798)

Adjusted net income

$      13,361


$      10,653


$      21,619


$17,619









Total basic pro forma shares outstanding

29,328,485




29,335,489



Total diluted pro forma shares outstanding

29,964,614




29,972,789











Adjusted net income basic earnings per share:

$          0.46




$          0.74



Adjusted net income diluted earnings per share:

$          0.45




$          0.72



(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 on the sale or disposition of assets, as well as the gain 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 senior secured credit facility.

(4)

Equity-based compensation includes non-cash compensation expense recorded related to unit options granted to employees pursuant to RMCO's 2011 Unit Option Plan during the three and six months ended June 30, 2013, as well as the non-cash compensation expense recorded related to restricted stock units granted in connection with the IPO pursuant to RE/MAX Holdings, Inc. 2013 Stock Omnibus Plan during the three and six months ended June 30, 2014.

(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 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 acquisition 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.

 

TABLE 7


RE/MAX Holdings, Inc.

Pro Forma Shares Outstanding

(Unaudited)




Three months

ended
June 30, 2014


Six months

ended
June 30, 2014

Total basic weighted average shares outstanding:





Weighted average shares of Class A common stock outstanding

11,593,885


11,600,889


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


Total basic pro forma weighted average shares outstanding

29,328,485


29,335,489






Total diluted weighted average shares outstanding:





Weighted average shares of Class A common stock outstanding

11,593,885


11,600,889


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


Dilutive effect of stock options(1)

587,906


590,953


Dilutive effect of unvested restricted stock units(1)

48,223


46,347


Total diluted pro forma weighted average shares outstanding

29,964,614


29,972,789

(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. generally accepted accounting principles ("U.S. GAAP") financial measures, such as Adjusted EBITDA and Adjusted Net Income and the ratios related thereto. These measures are derived on the basis of methodologies other than in accordance with 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 condensed consolidated financial statements included elsewhere in this press release), adjusted for the impact of the following items that we do not consider representative of the Company's ongoing operating performance: gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, equity-based compensation, non-cash straight-line rent expense, salaries paid to David and Gail Liniger, the Company's Chairman and Vice Chair, respectively, that the Company discontinued subsequent to the completion of the IPO, professional fees and non-recurring expenses incurred in connection with the IPO and acquisition integration costs.

RE/MAX defines Adjusted Net Income as net income, excluding the impact of amortization expense related to the Company's franchise agreements, charges incurred related to the early extinguishment of debt, gain on sale or disposition of assets and sublease, equity-based compensation, salaries paid to David and Gail Liniger, that the Company discontinued subsequent to the completion of the IPO, expenses incurred in connection with the IPO, and acquisition integration costs and reflects income taxes, as if all outstanding common units of RMCO were exchanged for or converted into shares of the Company's Class A common stock on a one-for-one basis. Assuming the full exchange and conversion, all income of RMCO is treated as if it were allocated to RE/MAX, and the adjusted provision for income taxes represents an estimate of income tax expense at an effective rate reflecting assumed federal, state, and local income taxes. The estimated effective tax rate was 38%.

Because Adjusted EBITDA and Adjusted Net Income omit certain non-cash items and other non-recurring cash charges, 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 results RE/MAX 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 and distributions to non-controlling unitholders; 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 third quarter and the full fiscal year 2014, 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 charges, such as gain on sale or disposition of assets and sublease, loss on early extinguishment of debt and equity-based compensation, 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 this non-GAAP guidance measures to U.S. GAAP is not available without unreasonable effort.

©2012 PR Newswire. All Rights Reserved.

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