RE/MAX Holdings Q3 2020 Financial Results

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”), the first national mortgage brokerage franchise brand in the U.S., today announced operating results for the quarter ended September 30, 2020.

“The continued execution of our strategy, coupled with the U.S. housing market’s remarkable run, drove our very encouraging results for the third quarter,” stated Adam Contos, RE/MAX Holdings Chief Executive Officer. “RE/MAX agent count in both the U.S. and Canada increased sequentially on a month-to-month basis during the third quarter, particularly in Company-owned regions, after stabilizing at the end of the second quarter. Agent count outside the U.S. and Canada surpassed the 50,000 mark during the quarter, and has now doubled in just five years. Many of our RE/MAX agents and brokers are reporting their best years ever, and our Motto Mortgage business also continues to show impressive growth, as its franchise sales through the first nine months of 2020 nearly matched the full-year total for 2019.”

Contos continued, “The strategic acquisitions of wemlo and Gadberry Group during the third quarter both tie directly into our strategy of adding value for the RE/MAX and Motto Mortgage networks while broadening and diversifying our revenue and growth opportunities. These acquisitions benefit our memberships, strengthen our technology and data core, and create promising commercial possibilities beyond our networks.”

Third Quarter 2020 Operating Results

Revenue

RE/MAX Holdings generated total revenue of $71.1 million in the third quarter of 2020, a decrease of $0.5 million, or 0.7%, compared to $71.5 million in the third quarter of 2019. Total revenue decreased primarily due to previously announced agent recruiting initiatives that reduced both continuing franchise fees and Marketing Funds fees, largely offset by increased broker fees stemming from higher existing home sales, incremental revenue from acquisitions, and Motto growth. Recurring revenue streams, which consist of continuing franchise fees and annual dues, decreased $1.0 million compared to the third quarter of 2019 and accounted for 61.3% of revenue (excluding the Marketing Funds) in the third quarter of 2020, compared to 63.5% in the comparable period in 2019.

Operating Expenses

Total operating expenses were $60.3 million for the third quarter of 2020, an increase of $12.2 million, or 25.3%, compared to $48.1 million in the third quarter of 2019. Third quarter total operating expenses increased primarily due to higher selling, operating and administrative expenses, a non-cash impairment charge and increased depreciation and amortization expenses, partially offset by lower Marketing Fund expenses. Excluding the Marketing Funds from operating expenses, third quarter 2020 operating expenses totaled $43.0 million, an increase of $12.9 million or 42.9% compared to $30.1 million in the third quarter of 2019.

Selling, operating and administrative expenses were $28.2 million in the third quarter of 2020, an increase of $3.7 million, or 15.3%, compared to the third quarter of 2019 and, excluding the Marketing Funds, represented 52.5% of revenue, compared to 45.7% in the prior-year period. Selling, operating and administrative expenses increased primarily due to higher equity-based compensation expense, increased personnel costs primarily from acquisitions, and higher legal fees, partially offset by cost-savings measures implemented in 2020, including a reduction in travel and events spend as well as the elimination of the 2020 Company bonus plan and the temporary suspension of the Company’s 401(k) match.

During the third quarter of 2020, the Company recorded a $7.9 million non-cash impairment charge related to its plans to sublease certain floors of the Company’s corporate headquarters at market rates below the Company’s current lease rate.

Agent Count

The following table compares agent count as of September 30, 2020 and 2019:

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $3.6 million for the third quarter of 2020, a decrease of $5.6 million compared to the third quarter of 2019. Reported basic and diluted GAAP EPS were $0.20 and $0.19, respectively, for the third quarter of 2020 compared to $0.51 each in the third quarter of 2019.

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $30.3 million for the third quarter of 2020, an increase of $2.2 million or 7.7% from the third quarter of 2019. Adjusted EBITDA increased primarily due to the Company’s cost-savings measures and Motto expansion, partially offset by increased headcount primarily from the acquisitions of wemlo and Gadberry Group. Adjusted EBITDA margin was 42.7% in the third quarter of 2020 compared to 39.4% in the third quarter of 2019.

Adjusted basic and diluted EPS were $0.65 and $0.64, respectively, for the third quarter of 2020 compared to adjusted diluted and basic EPS of $0.61 for the third quarter of 2019. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended September 30, 2020 assumes RE/MAX Holdings owned 100% of RMCO, LLC (“RMCO”). The weighted average ownership RE/MAX Holdings had in RMCO was 59.2% for the quarter ended September 30, 2020.

Balance Sheet

As of September 30, 2020, the Company had cash and cash equivalents of $89.1 million. The Company’s cash and cash equivalents increased $6.1 million from December 31, 2019. As of September 30, 2020, the Company had $224.1 million of outstanding debt, net of an unamortized debt discount and issuance costs, a decrease of $1.6 million compared to $225.7 million as of December 31, 2019.

Dividend

On November 4, 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 December 2, 2020, to shareholders of record at the close of business on November 18, 2020.

Outlook

The Company’s fourth quarter and full-year 2020 Outlook assumes no further currency movements, acquisitions or divestitures.

For the fourth quarter of 2020, RE/MAX Holdings expects:

• Agent count to increase 4.25% to 5.25% over fourth quarter 2019;
• Revenue in a range of $69.0 million to $72.0 million (including revenue from the Marketing Funds in a range of $17.5 million to $18.5 million); and
• Adjusted EBITDA in a range of $20.0 million to $23.0 million.

For the full-year 2020, RE/MAX Holdings expects:

• Agent count to increase 4.25% to 5.25% over full-year 2019;
• Revenue in a range of $262.5 million to $265.5 million (including revenue from the Marketing Funds in a range of $64.0 million to $65.0 million), and
• Adjusted EBITDA in a range of $88.5 million to $91.5 million.

The effective U.S. GAAP tax rate attributable to RE/MAX Holdings is estimated to be between 27% and 29% in 2020.