Preliminary Third Quarter 2021 Highlights (Compared to third quarter 2020 unless otherwise noted)
• Total Revenue increased 28.0% to $91.0 million • Revenue excluding the Marketing Funds increased 25.9% to $67.7 million, and was comprised of 6.9% organic growth1, 18.3% growth from acquisitions and 0.7% growth from foreign currency movements • Net loss attributable to RE/MAX Holdings, Inc. of $25.1 million and loss per diluted share (GAAP EPS) of $1.34 • Adjusted EBITDA2 of $35.0 million, Adjusted EBITDA margin2 of 38.4% and Adjusted earnings per diluted share (Adjusted EPS2) of $0.71 • Total agent count increased 4.6% to 140,936 agents • U.S. and Canada combined agent count increased 2.2% to 85,656 agents • Total open Motto Mortgage franchises increased 32.3% to 176 offices3
Operating Statistics as of October 31, 2021 (Compared to October 31, 2020 unless otherwise noted)
• Total agent count increased 3.8% to 141,399 agents • U.S. and Canada combined agent count increased 1.9% to 85,746 agents • Total open Motto Mortgage franchises increased 32.8% to 178 offices3
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 preliminary operating results for the third quarter ended September 30, 2021.
“We achieved record third quarter revenue, Adjusted EBITDA and Adjusted EPS driven by contributions from the largest Independent Region acquisition in our history, broad-based performance in our core operations, and a healthy housing market,” said Adam Contos, RE/MAX Holdings Chief Executive Officer. “Our performance reaffirmed that the investments we’ve made in recent years have significantly diversified and expanded our revenue and growth opportunities. Organic revenue growth excluding the Marketing Funds also was strong, up nearly 7% in the third quarter, with much of the incremental revenue translating into profit.
“Our two primary brands are vibrant and growing. The July acquisition of RE/MAX INTEGRA’s North American operations performed better than expected during the quarter and brought nearly 20,000 agents into our company-owned regions and overall, the RE/MAX network has grown by more than 6,000 agents year over year. Our Motto Mortgage footprint continues to increase as well, with healthy franchise sales and a year-over-year increase in open offices of more than 30%.
“Given the strength of the third quarter, we are again increasing our Adjusted EBITDA guidance for 2021, and we anticipate finishing the year on a high note. Looking further ahead, we are excited about our growth prospects in 2022 and beyond.”
Preliminary Third Quarter 2021 Operating Results Agent Count
The following compares agent count as of September 30, 2021 and 2020:
As of September 30, 2021: U.S. agent count: 62,007 Canada agent count: 23,649 Subtotal: 85,656 Outside the U.S. and Canada: 55,280 Total: 140,936
As of September 30, 2020: U.S. agent count: 62,304 Canada agent count: 21,498 Subtotal: 83,802 Outside the U.S. and Canada: 50,967 Total: 134,769
Preliminary Revenue RE/MAX Holdings generated total revenue of $91.0 million in the third quarter of 2021, an increase of $19.9 million, or 28.0%, compared to $71.1 million in the third quarter of 2020. Total revenue grew primarily due to incremental revenue from the RE/MAX INTEGRA North American regions acquisition, fewer agent recruiting initiatives versus the prior year, increased broker fees stemming from rising home prices, price increases and Motto growth. Recurring revenue streams, which consist of continuing franchise fees and annual dues, increased $8.5 million, or 25.6%, compared to the third quarter of 2020 and accounted for 61.2% of revenue (excluding the Marketing Funds) in the third quarter of 2021, almost even with last year’s 61.3%.
Preliminary Operating Expenses Total operating expenses were $128.6 million for the third quarter of 2021, an increase of $68.4 million, compared to $60.1 million in the third quarter of 2020. Third quarter total operating expenses increased primarily due to increased settlement and impairment charges and higher selling, operating and administrative expenses. Third quarter 2021 settlement and impairment charges were higher primarily due to the recognition of a $40.5 million loss on the effective settlement of the pre-existing master franchise contracts, which had royalty rates below the current market rate, in conjunction with the acquisition of RE/MAX INTEGRA’s North American regions. The loss represents the difference between previously contracted royalty rates and the current market rate. Also, third quarter 2020 selling, operating and administrative expenses were lower due to temporary COVID-19 costs savings measures.
Selling, operating and administrative expenses were $51.1 million in the third quarter of 2021, an increase of $22.9 million, or 81.1%, compared to the third quarter of 2020 and represented 75.4% of revenue, excluding the Marketing Funds, compared to 52.5% in the prior-year period. Selling, operating and administrative expenses increased primarily due to higher equity-based compensation expense related to acquisitions and the portion of the corporate bonus paid in stock; higher personnel costs from headcount increases largely from acquisitions, and the elimination of the corporate bonus and suspension of the 401(k) match in the prior year; an increase in acquisition-related expenses; increased investments in technology; and higher travel and events expenses compared to the prior year, partially offset by lower bad debt expense driven by improved collections.
Depreciation and amortization expenses increased primarily due to incremental acquisition-related amortization expense and placing internally developed software into service.
Preliminary Net Income and GAAP EPS Net loss attributable to RE/MAX Holdings was $25.1 million for the third quarter of 2021 compared to net income of $3.6 million the third quarter of 2020. Reported basic and diluted GAAP loss per share were each $1.34, respectively, for the third quarter of 2021 compared to basic and diluted GAAP EPS of $0.20 each in the third quarter of 2020.
The effective income tax rate decreased to (1.9)% from 23.1% for the three months ended September 30, 2021 and 2020, respectively, primarily driven by the $40.5 million loss on contract settlement that has no tax provision.
Preliminary Adjusted EBITDA and Adjusted EPS Adjusted EBITDA was $35.0 million for the third quarter of 2021, an increase of $4.6 million or 15.2% from the third quarter of 2020. Adjusted EBITDA in the third quarter of 2021 increased principally due to contributions from the acquisition of RE/MAX INTEGRA’s North American regions, fewer agent recruiting initiatives in the current year, and higher broker fees revenue. Third quarter revenue increases were partially offset by higher personnel costs from headcount increases and the elimination of the corporate bonus and suspension of the 401(k) match in the prior year. Adjusted EBITDA margin was 38.4% in the third quarter of 2021, down compared to 42.7% in the third quarter of 2020.
Adjusted basic and diluted EPS were each $0.71 for the third quarter of 2021 compared to Adjusted basic and diluted EPS of $0.65 and $0.64, respectively, for the third quarter of 2020. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended September 30, 2021 assumes RE/MAX Holdings owned 100% of RMCO, LLC (“RMCO”). The weighted average ownership RE/MAX Holdings had in RMCO was 59.8% for the quarter ended September 30, 2021.
Preliminary Balance Sheet As of September 30, 2021, the Company had cash and cash equivalents of $119.4 million, an increase of $18.1 million from December 31, 2020. As of September 30, 2021, the Company had $453.0 million of outstanding debt, net of an unamortized debt discount and issuance costs, compared to $223.6 million as of December 31, 2020.
On July 21, 2021, RE/MAX Holdings announced RE/MAX, LLC amended and restated its Credit Agreement to raise $460 million in term loans and increase the capacity of the revolving facility to $50 million. RE/MAX, LLC used the proceeds from the amended Credit Agreement to repay existing indebtedness of approximately $224 million and to fund the $235 million acquisition of the RE/MAX INTEGRA North American regions.
Immaterial Corrections to Prior Period Financial Statements During the third quarter of 2021, in analyzing the purchase accounting with respect to the RE/MAX INTEGRA North American regions acquisition, the Company determined that a portion of the acquisition purchase price was attributable to a loss on the settlement of the pre-existing master franchise agreements in which the pre-acquisition royalty rates paid by RE/MAX INTEGRA were below the current market rate. This is in contrast to prior independent region acquisitions, where the Company allocated the entire purchase price to acquired assets, primarily goodwill and other identifiable intangible assets. The Company has determined this same conclusion applied to certain of its other independent regions acquired between 2007 and 2017 where the region paid a royalty rate below the current market rate prior to the acquisition. In these circumstances, the Company’s goodwill and identifiable intangible assets balances were overstated, resulting in generally overstated levels of intangible asset amortization expense subsequent to acquisition.
Accordingly, the Company corrected the relevant consolidated financial statements as of December 31, 2020 and for the unaudited three and nine month period ended September 30, 2020 within these preliminary consolidated financial statements. Management has evaluated the materiality of these misstatements based on an analysis of quantitative and qualitative factors and concluded they were not material to the prior period financial statements, individually or in aggregate.
However, in connection with this analysis and correction, the Company identified a material weakness in its internal control over financial reporting related to purchase accounting for certain historical acquisitions (the “Material Weakness”). As a result of the Material Weakness, the Company plans to amend its 2020 Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”) to reflect the conclusion by management that there was a Material Weakness. The Company also expects to receive an amended report on the Company’s internal control over financial reporting from KPMG LLP for inclusion in the amendment to its 2020 Annual Report. Once the amended 2020 Annual Report is complete, the Company will file its Quarterly Report on Form 10-Q for the third quarter of 2021 (the “Form 10-Q”). The Company is working to file its amended 2020 Annual Report and Form 10-Q as promptly as possible.
Preliminary Financial Information The preliminary financial results and other information set forth in this press release related to the Company’s third quarter of 2021 are unaudited preliminary numbers, which are subject to change. These results and information have not been reviewed by an independent registered public accounting firm. As a result of the preliminary nature of the financial information set forth in this press release, changes to the financial results may need to be incorporated into the Company’s financial statements in the event of subsequent information obtained by the Company after the date of this press release. The Company would be obligated to continue to adjust its financial results for the third quarter of 2021 to account for subsequent activities (Type 1 subsequent events) occurring after the issuance of this press release. As a result, the Company’s final results and financial information for the third quarter to be reported in the Company’s delayed Form 10-Q might vary in material respects from the preliminary financial information included in this press release.
Dividend On November 3, 2021, the Company’s Board of Directors approved a quarterly cash Dividend of $0.23 per share of Class A common stock. The quarterly Dividend is payable on December 1, 2021, to shareholders of record at the close of business on November 17, 2021.
Outlook The Company’s fourth quarter and full-year 2021 Outlook assumes no further currency movements, acquisitions or divestitures.
For the fourth quarter of 2021, the Company expects: • Agent count to increase 2.5% to 3.5% over fourth quarter 2020; • Revenue in a range of $86.0 million to $90.0 million (including revenue from the Marketing Funds in a range of $22.0 million to $24.0 million); and •Adjusted EBITDA in a range of $27.5 million to $30.5 million.
For the full-year 2021, the Company is reducing its agent count range due to slower-than-expected global growth, changing its revenue range, and increasing its Adjusted EBITDA range due to better-than-expected third quarter results. The Company expects: • Agent count to increase 2.5% to 3.5% over full-year 2020, down from 5.0% to 6.0%; • Revenue in a range of $326.5 million to $330.5 million (including revenue from the Marketing Funds in a range of $81.5 million to $83.5 million), changed from $321.0 million to $336.0 million (including revenue from the Marketing Funds in a range of $80.5 million to $83.5 million); and • Adjusted EBITDA in a range of $116.0 million to $119.0 million, up from $113.0 million to $118.0 million.
Webcast and Conference Call The Company will host a conference call for interested parties on Tuesday, November 23, 2021, beginning at 8:30 a.m. Eastern Time. Interested parties can access the conference call using the link below:
https://conferencingportals.com/event/tTSuEepd
Interested parties can access a live webcast through the Investor Relations section of the Company’s website at http://investors.remaxholdings.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.
Footnotes:
1The Company defines organic revenue growth as revenue growth from continuing operations excluding Marketing Funds, revenue from acquisitions, and foreign currency movements. The Company defines revenue from acquisitions as the revenue generated from the date of an acquisition to its first anniversary (excluding Marketing Funds revenue related to acquisitions where applicable).
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.
3Total 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”.
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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 Dave 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 140,000 agents in over 8,600 offices across more than 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 175 offices across almost 40 states.
Forward-Looking Statements This press release includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the use of words such as “believe,” “intend,” “expect,” “estimate,” “plan,” “outlook,” “project,” “anticipate,” “may,” “will,” “would” and other similar words and expressions that predict or indicate future events or trends that are not statements of historical matters. Forward-looking statements include statements related to: the preliminary financial results for the third quarter of 2021; the timing of the Company’s announcement of its third quarter 2021 results and filing of the Form 10-Q; the belief that the misstatements were not material to the Company’s previously issued financial statements; the expectation of receiving an updated opinion from KPMG; the expectation and timing of amending the Company’s 2020 Annual Report; agent count; franchise sales; revenue; operating expenses; the Company’s outlook for the fourth quarter and full year 2021; non-GAAP financial measures; housing and mortgage market conditions; the benefits of recent acquisitions including statements about acquisitions diversifying and expanding revenue and growth opportunities; the Company’s growth prospects; statements regarding the resolution of the previously reported accounting errors; and the Company’s strategic and operating plans and business models. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily accurately indicate the times at which such performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. These risks and uncertainties include, without limitation, (1) that the preliminary results for the third quarter of 2021 are preliminary and subject to change pending the completion of the Company’s quarterly closing process and review, (2) that the Company’s review of the immaterial corrections to prior periods and the Material Weakness is ongoing, (3) the timing of the Company’s review of the matters described above cannot currently be predicted, (4) that additional adjustments may be identified, the impact of which could be material (5) the global COVID-19 pandemic, which continues to pose 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, (6) changes in the real estate market or interest rates and availability of financing, (7) changes in business and economic activity in general, (8) the Company’s ability to attract and retain quality franchisees, (9) the Company’s franchisees’ ability to recruit and retain real estate agents and mortgage loan originators, (10) changes in laws and regulations, (11) the Company’s ability to enhance, market, and protect its brands, including the RE/MAX and Motto Mortgage brands, (12) the Company’s ability to implement its technology initiatives, and (13) 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 remaxholdings.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.
Investor Contact: Andy Schulz (303) 796-3287 aschulz@remax.com
Media Contact: Kerry McGovern (303) 796-3283 kmcgovern@remax.com
To access appendix tables, download a PDF of the press release via the Media Tray.