Fueled by its best agent growth in a decade and continuing strengthening of the housing market, Re/Max Holdings Inc. announced strong revenue and operating income results for the third quarter and raised its full-year outlook for both agent count and adjusted EBITDA (earnings before interest, taxes, deductions and amortization).
The global franchisor of real estate brokerage services in the United States, Canada and 95 other countries said in its Q3 earnings call today that total agent count at the end of the quarter was 103,491 agents, a 6-percent increase over the agent count it reported in the same quarter last year.
Thanks to higher operating income and lower foreign currency transaction losses, net income increased 8.1 percent year-over-year to $15.2 million. Adjusted net income increased 7.9 percent year-over-year to $13.9 million. Adjusted basic and diluted earnings per share (EPS) were both 46 cents, compared to the 44 cents and 43 cents, respectively, seen in Q3 2014.
Agent count up
In the United States, agent count increased 4.5 percent to 59,779 agents. Agent count in U.S. company-owned and independent regions grew by 5 percent and 3.8 percent, respectively.
In Canada, agent count increased 2.1 percent year-over-year to 19,506 agents. Outside of the United States and Canada, agent count increased 13.3 percent to 24,206 agents.
For the nine months ending Sept. 30, total agent count grew 5.6 percent to 5,481 agents, compared to the 4.7-percent growth to 4,419 in the same period of 2014.
David Liniger
Dave Liniger, CEO and chairman of the board — who co-founded the Denver-based company with his wife Gail in 1973 — attributed the increase in agent count to Re/Max’s Momentum education and training program for franchise owners, “which helps them understand the best way to grow their business,” he said.
“We’re seeing them shift their priorities from controlling expenses to growing their brokerages,” he said.
However, Liniger said the company expects agent recruitment and retention to slow down during the fourth quarter, which is typically a weak seasonal month for most real estate companies.
Raising its outlook for full-year agent count growth from 5.6 percent to 5.8 percent, Re/Max will foster continued agent count growth through next year by waiving franchise fees for three months. Annual dues will not increase, but franchise fees in some company-owned regions will increase by $5 per month starting in July 2016, Liniger said.
Revenue increases
Agent count growth contributed to the revenue increases in several units. Re/Max reported $18.9 million in revenue from continuing franchise fees, a 2.1-percent increase over Q3 2014. That figure may have been larger but was offset by the fee waivers Re/Max offered certain new agents, the divestiture of the Caribbean and Central America regions last December and the strength of the U.S. dollar compared to the Canadian dollar.
Revenue from annual dues was $8 million, a 4.1-percent increase compared to Q3 2014. Revenue from broker fees was $9.3 million, up 12.6 compared to the prior-year quarter.
Franchise fees and broker fees helped Re/Max generate $45.1 million in total revenue in Q3, a 2-percent increase over the same quarter last year. The modest increase was partially offset by lower brokerage revenue.
Franchise sales and other franchise revenue was $5.6 million, up 2.8 percent compared to Q3 2014. Only brokerage revenue took a hit, falling 23.9 percent year-over-year to $3.3 million, which the company attributed to the sale of six previously owned brokerage offices to an existing Re/Max franchisee in April.
Operating expenses
Total operating expenses increased 0.7 percent year-over-year to $24.5 million, primarily due to higher personnel-related costs and commissions paid in conjunction with franchise sales. Selling, operating and administrative expenses comprised 45.9 percent of revenue, compared to Q3 2014’s to 46.5 percent.
Adjusted EBITDA was $25.1 million, a 7.5-percent increase from Q3 2014. Adjusted EBITDA margin was 55.7 percent compared to Q3 2014’s 52.8 percent.
Re/Max finished up the quarter with a cash balance of $95.4 million, a decrease of $11.8 million from the end of last year, reflecting the aggregate payment of approximately $45 million made in April for a special dividend of $1.50 per share. The company had $202.4 million of term loans outstanding, down from $211.7 million since the end of last year.
Q4/full-year projections
Based on these results, Re/Max upped both its Q4 and full-year outlook slightly. At the end of Q4, the company projects that revenue will decrease by 4.5 percent to 5 percent; selling, operating and administrative expenses will be between 51 percent and 53 percent; and adjusted EBITDA margin will be in the 48-percent to 49-percent range.
By the end of 2015, full-year agent count is projected to hit between 5.6 percent to 5.8 percent; revenue will increase by 1 percent to 2 percent; selling, operating and administrative expenses will be about 49 percent to 51 percent; adjusted EBITDA margin will be about 50 percent to 51 percent; and total capital expenditures will be in the range of $3.5 million to $4 million.
Going forward, Liniger said RE/MAX will focus on giving its agents and brokers more technology tools, which he said will be “focused almost entirely on lead generation,” as well as improving mobile applications and giving agents access to an improved design center where they can prepare brochures and other marketing materials.
Commenting on how the implementation of the Consumer Financial Protection Bureau’s long-awaited “Know Before You Owe” rule has impacted the company’s business since it took effect on Oct. 3, as well as the uncertain regulatory environment regarding marketing service agreements with settlement service providers, Liniger said, “I don’t think we will see much difference in what we’re going to be doing. We’ve been following these developments as they progressed for the last couple of years. We are in compliance, as are most of our competitors. The industry will adjust and make the system work.”
