Although its quarterly income showed some shrinkage quarter-over-quarter, the robust agent count growth at Re/Max has helped the company continue to expand its footprint in the U.S. and around the world.
Re/Max had an excellent second quarter of 2016 in terms of increasing its number of agent operatives. The company’s quarterly earnings report showed that agent count increased 7.9 percent 109,960 agents.
The company’s operating expenses decreased 1 percent from the previous year’s second quarter to $22.7 million. Revenue decreased 2 percent year-over-year from the second quarter of 2015 to $43.4 million.
The total agent count at Re/Max grew 7.9 percent to 109,960 agents.
“Robust agent-count growth led to solid second quarter results. Combined agent-count growth in the U.S. and Canada, where revenue per agent is the highest in our global network, was at the high end of our expectations, while international agent-count growth exceeded our estimates,” said Dave Liniger, CEO and co-founder of Re/Max, in a press release.
Re/Max’s $43.4 million revenue was down, but it would have showed an increase of 5.3 percent after adjusting for the sale of the company-owned brokerage offices.
Operating expenses were down only slightly (1 percent), and net income also dropped from $16.05 million down to $14.38 million from the prior-year quarter.
Revenue was generated from:
- $19.84 million came from continued franchise fees, up $1.7 million from previous year.
- $8.04 million came from annual dues, up less than $200,000 from the previous year.
- $10.38 million came from broker fees, an increase of $1.1 million from the previous year.
- $5.1 million came from franchise sales and other franchise revenue, down $300,000 from the previous year.
Revenue growth across the board is attributed to to agent-count growth in the U.S. and Canada. Re/Max made an acquisition in February 2016 in New York and Alaska, which also contributed to the revenue.
“I am pleased to announce that we obtained the necessary approval to begin selling franchises in New York and we’ve already made our first sales. The New York region, which we re-acquired in the first quarter, represents a multi-year, above average growth opportunity,” Liniger said in an earnings conference call on August 5. He added that Re/Max will only sell “a handful” of franchises in New York this year.
“It generally takes the new owner four to six months to open their office and then another few months before they see agent-count growth.” He does not expect incremental agent growth from New York this year.
The recurring revenue streams, such as franchise fees and annual dues, accounted for 64 percent of the revenue, up from last year’s 59 percent share.
Selling, operating and administrative expenses dropped 4.5 percent to $18.8 million. These expenses represent 43.4 percent of revenue compared to 44.6 percent in the 2015’s second quarter.
“The entire Re/Max team — agents, franchisees and the staff at headquarters — continues to focus on growing the highest quality real estate network in the world. With a strong brand, our highly productive network, a steadily improving U.S. housing market and consistent execution of our strategic plan, we are well positioned for continued success in the second half of the year,” Liniger said in the same release.
Third quarter 2016 outlook
- Agent count is expected to increase 5.5 percent to 6.0 percent over third quarter 2015, driven by strong agent growth outside the U.S. and Canada
- Revenue is expected to slightly increase in a range of $43.5 million to $44.5 million
- Selling, operating and administrative expenses are expected to increase in a range of 46.5 percent to 47.5 percent of third quarter 2016 revenue
- Project-related operating expenditures in a range of $750 thousand to $1.0 million;
Adjusted EBITDA (earnings before income, taxes, debt and amortizations) margin in a range of 54.0 percent to 55.0 percent - Capital expenditures in a range of $1.0 million to $1.5 million
- Project-related capital expenditures in a range of $750,000 to $1.0 million.
Re/Max is reiterating its Full-Year 2016 Outlook:
- Agent count is expected to increase 5.5 percent to 6.5 percent over 2015, up from 4.0 percent to 5.0 percent and driven by strong agent growth outside the U.S. and Canada
- Revenue in a range of $169.8 million to $171.6 million;
Selling, operating and administrative expenses in a range of 48.0 percent to 49.0 percent of 2016 revenue - Project-related operating expense in a range of $3.5 million to $4.0 million, down from $4.0 million to $4.5 million
- Adjusted EBITDA margin in a range of 51.5 percent to 53.0 percent
- Total estimated capital expenditures of $3.5 million to $4.0 million
- Project-related capital expenditures in a range of $2.0 million to $2.5 million.
Liniger answered questions at the end of the conference about his views on the homeownership rate.
“We’re now at a 50-year low, and I think that is going to reverse itself very quickly. First-time buyers are starting to buy again and traditionally it’s 40 percent of the business, right now it’s 33 percent of the business, so it’s up-ticking. The problem for most people is finding affordable housing in the lower price ranges to get their foot in the door,” he said.
