PR Newswire | Aug 6, 2020 04:11PM EDT

08/06 15:10 CDT

RE/MAX Holdings, Inc. Reports Second Quarter 2020 Results DENVER, Aug. 6, 2020

DENVER, Aug. 6, 2020 /PRNewswire/ --

Second Quarter 2020 Highlights(Compared to second quarter 2019 unless otherwise noted)

* Total agent count increased 3.8% to 131,905 agents * U.S. and Canada combined agent count decreased 1.4% to 82,972 agents * Total open Motto Mortgage franchises increased 29.6% to 127 offices1 * Total Revenue of $52.2 million; Revenue excluding the Marketing Funds decreased 24.2% to $40.4 million * Net income attributable to RE/MAX Holdings, Inc. of $3.5 million and earnings per diluted share (GAAP EPS) of $0.19 * Adjusted EBITDA2 of $18.9 million, Adjusted EBITDA margin2 of 36.2% and Adjusted earnings per diluted share (Adjusted EPS2) of $0.38

Operating Statistics as of July 31, 2020(Compared to July 31, 2019 unless otherwise noted)

* Total agent count increased 4.4% to 132,687 agents * U.S. and Canada combined agent count decreased 1.1% to 83,131 agents * Total open Motto Mortgage franchises increased 25.7% to 127 offices1

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"), an innovative mortgage brokerage franchise, today announced operating results for the quarter ended June 30, 2020.

"The U.S. housing market began an encouraging rebound in June after COVID-19 interrupted 2020's promising start," stated Adam Contos, RE/MAX Holdings Chief Executive Officer. "We're well positioned to help our affiliates build on this positive momentum given the financial and structural strength of our business model, which to date has enabled us to keep staff intact and continue to expand our value proposition. In the field, our RE/MAX and Motto professionals have adapted to the current environment exceptionally well, leveraging technology and adhering to social distancing guidelines, to expertly guide consumers in a safe and largely virtual way."

Contos continued, "Our RE/MAX and Motto networks are finding opportunities to grow and build their businesses in this very demanding time. Motto posted its best second quarter of franchise sales yet, and its franchise sales on a trailing-twelve-month basis are the highest in its four-year history. On the RE/MAX side, global agent count continued to rise, while agent count in the U.S. and Canada stabilized in June and July. Our franchisees in both brands continue to demonstrate their local leadership by bringing productive agents and loan originators into our networks - and then helping those individuals get even better at what they do. Their recruiting efforts - supported by our programs and services - are critical to our ability to succeed in every kind of environment."

Second Quarter 2020 Operating Results

Agent Count

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



As of June 30, Change

2020 2019 # %

U.S. 61,677 62,700 (1,023)(1.6)

Canada 21,295 21,433 (138) (0.6)

Subtotal 82,972 84,133 (1,161)(1.4)

Outside the U.S. & Canada48,933 42,887 6,046 14.1

Total 131,905127,0204,885 3.8

Revenue

RE/MAX Holdings generated total revenue of $52.2 million in the second quarter of 2020, a decrease of $19.2 million or 26.9% compared to $71.4 million in the second quarter of 2019. Total revenue decreased primarily due to temporary COVID-19-related financial-support initiatives the Company introduced in April that reduced both continuing franchise fees and Marketing Funds fees, as well as reduced broker fees stemming from lower existing home sales. The COVID-19-related financial-support initiatives were limited to two months of relief in the second quarter. Recurring revenue streams, which consist of continuing franchise fees and annual dues, decreased $8.2 million compared to the second quarter of 2019 and accounted for 63.0% of revenue (excluding the Marketing Funds) in the second quarter of 2020, compared to 63.2% in the comparable period in 2019.

Operating Expenses

Total operating expenses were $43.5 million for the second quarter of 2020, a decrease of $5.8 million, or 11.7%, compared to $49.3 million in the second quarter of 2019. Second quarter total operating expenses decreased primarily due to lower Marketing Fund expenses, partially offset by increased depreciation and amortization expenses. Marketing Fund expenses decreased primarily due to temporary COVID-19-related financial-support initiatives the Company introduced in April that reduced Marketing Funds fees. Excluding the Marketing Funds from operating expenses, second quarter 2020 operating expenses totaled $31.8 million, an increase of $0.5 million or 1.6% compared to $31.3 million in the second quarter of 2019.

Selling, operating and administrative expenses were $25.3 million in the second quarter of 2020, a decrease of $0.4 million or 1.4% compared to the second quarter of 2019 and, excluding the Marketing Funds, represented 62.7% of revenue, compared to 48.2% in the prior-year period. Selling, operating and administrative expenses decreased primarily due to cost-savings measures implemented in 2020 - including the elimination of the 2020 Company bonus and the temporary suspension of the Company's 401(k) match, as well as a reduction in travel and events spend -partially offset by increased legal fees and higher equity-based compensation expense.

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $3.5 million for the second quarter of 2020, a decrease of $5.1 million over the second quarter of 2019. Reported basic and diluted GAAP EPS were each $0.19 for the second quarter of 2020 compared to $0.48 in the second quarter of 2019.

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $18.9 million for the second quarter of 2020, a decrease of $11.0 million or 36.7% from the second quarter of 2019. Adjusted EBITDA decreased primarily due to lower revenue from temporary COVID-19-related financial-support initiatives as well as increased legal fees partially offset by the Company's cost-savings measures. Adjusted EBITDA margin was 36.2% in the second quarter of 2020 compared to 41.9% in the second quarter of 2019.

Adjusted basic and diluted EPS were each $0.38 for the second quarter of 2020 compared to $0.65 per share each for the second quarter of 2019. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended June 30, 2020 assumes RE/MAX Holdings owned 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX Holdings had in RMCO was 59.1% for the quarter ended June 30, 2020.

Balance Sheet

As of June 30, 2020, the Company had cash and cash equivalents of $84.5 million. The Company's cash and cash equivalents increased $1.5 million from December 31, 2019. As of June 30, 2020, the Company had $224.6 million of outstanding debt, net of an unamortized debt discount and issuance costs, a decrease of $1.1 million compared to $225.7 million as of December 31, 2019.

Dividend

On August 5, 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 September 2, 2020, to shareholders of record at the close of business on August 19, 2020.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, August 7, 2020, beginning at 8:30 a.m. Eastern Time. Interested parties can access the conference call using the link below:

http://www.directeventreg.com/registration/event/2491733

Interested parties can access a live webcast through the Investor Relations section of the Company's website at http://investors.remax.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:

1 Total 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".

2 Adjusted 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.

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(r) brand, and mortgage brokerages within the U.S. under the Motto(r) Mortgage brand. 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. Now with more than 130,000 agents across over 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 100 offices across more than 30 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: agent count; franchise sales; revenue; operating expenses; dividends; non-GAAP financial measures; housing and mortgage market conditions, including statements about the housing market rebounding; recruiting efforts; the Company's strategic and operating plans and business models; the impact of the COVID-19 pandemic and the ability of the Company and its franchisees to adapt to the challenges presented by the COVID-19 pandemic; the Company's financial and structural strength and ability to expand its value proposition; the ability of the RE/MAX and Motto networks to find opportunities to grow and build their businesses in this very demanding time; and the local leadership demonstrated by franchisees in both brands by bringing productive agents and loan originators into the Company's networks and helping those individuals get even better at what they do. 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 the global COVID-19 pandemic, which poses 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. The duration and magnitude of the impact from the COVID-19 pandemic depends on future developments that cannot be predicted at this time. The Company has already experienced significant disruption to its business as a result of the COVID-19 pandemic and such disruptions may continue. Notwithstanding any mitigation actions the Company has initiated and expects to continue as the crisis is ongoing, sustained material revenue declines relating to this crisis could impact the Company's financial condition, results of operations, stock price and ability to access the capital markets. Other important risks and uncertainties include, without limitation, (1) changes in the real estate market or interest rates and availability of financing, (2) changes in business and economic activity in general, (3) the Company's ability to attract and retain quality franchisees, (4) the Company's franchisees' ability to recruit and retain real estate agents and mortgage loan originators, (5) changes in laws and regulations, (6) the Company's ability to enhance, market, and protect the RE/MAX and Motto Mortgage brands, (7) the Company's ability to implement its technology initiatives, and (8) 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 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 obligation, to update this information to reflect future events or circumstances.

TABLE 1

RE/MAX Holdings, Inc. Condensed Consolidated Statements of Income (In thousands, except share and per share amounts) (Unaudited)



Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

Revenue:

Continuing franchise $16,738 $24,894 $40,881 $49,850 fees

Annual dues 8,745 8,819 17,666 17,673

Broker fees 10,426 13,459 19,870 22,047

Marketing Funds fees 11,765 18,060 29,287 36,832

Franchise sales and 4,533 6,149 14,775 16,157 other revenue

Total revenue 52,207 71,381 122,479 142,559

Operating expenses:

Selling, operating and administrative 25,348 25,710 60,025 59,613 expenses

Marketing Funds 11,765 18,060 29,287 36,832 expenses

Depreciation and 6,412 5,541 12,722 11,099 amortization

Total operating 43,525 49,311 102,034 107,544 expenses

Operating income 8,682 22,070 20,445 35,015

Other expenses, net:

Interest expense (2,187) (3,154) (4,869) (6,309)

Interest income 34 342 303 662

Foreign currency transaction gains 101 61 (169) 116 (losses)

Total other expenses, (2,052) (2,751) (4,735) (5,531) net

Income before provision for income 6,630 19,319 15,710 29,484 taxes

Provision for income (706) (3,186) (4,496) (5,094) taxes

Net income $5,924 $16,133 $11,214 $24,390

Less: net income attributable to 2,435 7,563 5,094 11,411 non-controlling interest

Net income attributable to RE/ $3,489 $8,570 $6,120 $12,979 MAX Holdings, Inc.



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

Basic $0.19 $0.48 $0.34 $0.73

Diluted $0.19 $0.48 $0.34 $0.73

Weighted average shares of Class A common stock outstanding

Basic 18,123,963 17,808,321 18,049,114 17,791,942

Diluted 18,146,886 17,833,958 18,090,259 17,825,880

Cash dividends declared per share of$0.22 $0.21 $0.44 $0.42 Class A common stock

TABLE 2

RE/MAX Holdings, Inc. Condensed Consolidated Balance Sheets (In thousands, except share and per share amounts) (Unaudited)



June 30, December 31,

2020 2019

Assets

Current assets:

Cash and cash equivalents $84,545 $83,001

Restricted cash 14,752 20,600

Accounts and notes receivable, current portion, less allowances of $15,112 and 29,732 28,644 $12,538, respectively

Income taxes receivable 639 896

Other current assets 9,773 9,638

Total current assets 139,441 142,779

Property and equipment, net of accumulated depreciation of $15,914 and $14,940, 5,124 5,444 respectively

Operating lease right of use assets 48,787 51,129

Franchise agreements, net 79,933 87,670

Other intangible assets, net 27,628 32,315

Goodwill 161,814 159,038

Deferred tax assets, net 50,169 52,595

Income taxes receivable, net of current portion 1,690 1,690

Other assets, net of current portion 13,126 9,692

Total assets $527,712 $542,352

Liabilities and stockholders' equity

Current liabilities:

Accounts payable $4,225 $2,983

Accrued liabilities 44,442 60,163

Income taxes payable 8,210 6,854

Deferred revenue 25,362 25,663

Current portion of debt 2,566 2,648

Current portion of payable pursuant to tax receivable agreements 6,478 3,583

Operating lease liabilities 5,381 5,102

Total current liabilities 96,664 106,996

Debt, net of current portion 222,051 223,033

Payable pursuant to tax receivable agreements, net of current portion 30,745 33,640

Deferred tax liabilities, net 351 293

Deferred revenue, net of current portion 17,905 18,763

Operating lease liabilities, net of current portion 53,197 55,959

Other liabilities, net of current portion 4,642 5,292

Total liabilities 425,555 443,976

Commitments and contingencies

Stockholders' equity:

Class A common stock, par value $.0001 per share, 180,000,000 shares authorized; 18,123,963 and 17,838,233 shares issued and outstanding as of 2 2 June 30, 2020 and December 31, 2019, respectively

Class B common stock, par value $.0001 per share, 1,000 shares authorized; 1 - - share issued and outstanding as of June 30, 2020 and December 31, 2019

Additional paid-in capital 473,451 466,945

Retained earnings 28,385 30,525

Accumulated other comprehensive income, net of tax 440 414

Total stockholders' equity attributable to RE/MAX Holdings, Inc. 502,278 497,886

Non-controlling interest (400,121) (399,510)

Total stockholders' equity 102,157 98,376

Total liabilities and stockholders' equity $527,712 $542,352

TABLE 3

RE/MAX Holdings, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)



Six Months Ended June 30,

2020 2019

Cash flows from operating activities:

Net income $11,214 $24,390

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

Depreciation and amortization 12,722 11,099

Bad debt expense 3,860 2,560

Equity-based compensation expense 4,933 5,847

Deferred income tax expense 1,099 2,521

Fair value adjustments to contingent (355) 345 consideration

Other, net 229 1,048

Changes in operating assets and liabilities (17,379) (14,827)

Net cash provided by operating activities 16,323 32,983

Cash flows from investing activities:

Purchases of property, equipment and (3,102) (7,378) capitalization of software

Restricted cash acquired with the Marketing Funds - 28,495 acquisition

Other - (1,200)

Net cash (used in) provided by investing (3,102) 19,917 activities

Cash flows from financing activities:

Payments on debt (1,322) (1,311)

Distributions paid to non-controlling unitholders (5,566) (7,306)

Dividends and dividend equivalents paid to Class (8,262) (7,522) A common stockholders

Payments related to tax withholding for (2,268) (731) share-based compensation

Net cash used in financing activities (17,418) (16,870)

Effect of exchange rate changes on cash (107) 109

Net (decrease) increase in cash, cash equivalents (4,304) 36,139 and restricted cash

Cash, cash equivalents and restricted cash, 103,601 59,974 beginning of year

Cash, cash equivalents and restricted cash, end $99,297 $96,113 of period

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,September 30,

2020 2020 2019 2019 2019 2019 2018 2018

Agent Count:

U.S.

Company-Owned Regions 47,886 48,840 49,267 48,576 48,748 48,904 49,318 50,342

Independent Regions 13,791 13,828 13,854 13,972 13,952 13,760 13,804 13,948

U.S. Total 61,677 62,668 63,121 62,548 62,700 62,664 63,122 64,290

Canada

Company-Owned Regions 6,102 6,217 6,338 6,402 6,510 6,549 6,702 6,858

Independent Regions 15,193 15,306 15,229 15,117 14,923 14,818 14,625 14,550

Canada Total 21,295 21,523 21,567 21,519 21,433 21,367 21,327 21,408

U.S. and Canada Total 82,972 84,191 84,688 84,067 84,133 84,031 84,449 85,698

Outside U.S. and Canada

Independent Regions 48,933 47,625 46,201 44,191 42,887 41,501 39,831 38,207

Outside U.S. and Canada Total48,933 47,625 46,201 44,191 42,887 41,501 39,831 38,207

Total 131,905 131,816 130,889 128,258 127,020 125,532 124,280 123,905

TABLE 5

RE/MAX Holdings, Inc. Adjusted EBITDA Reconciliation to Net Income (In thousands, except percentages) (Unaudited)



Three Months Ended Six Months Ended

June 30, June 30,

(Amounts in 000s) 2020 2019 2020 2019

Net income $5,924 $16,133 $11,214 $24,390

Depreciation and amortization 6,412 5,541 12,722 11,099

Interest expense 2,187 3,154 4,869 6,309

Interest income (34) (342) (303) (662)

Provision for income taxes 706 3,186 4,496 5,094

EBITDA 15,195 27,672 32,998 46,230

(Gain) loss on sale or disposition of assets (11) (16) (22) 363

Equity-based compensation expense 2,747 1,796 4,933 5,847

Acquisition-related expense^ (1) 328 15 894 87

Gain on reduction in tax receivable agreement liability 500 - - -

Fair value adjustments to contingent consideration ^(2) 150 415 (355) 345

Adjusted EBITDA ^(3) $18,909 $29,882 $38,448 $52,872

Adjusted EBITDA Margin ^(3) 36.2 % 41.9 % 31.4 % 37.1 %

Acquisition-related expense includes legal, accounting, advisory and(1) consulting fees incurred in connection with the acquisition and integration of acquired companies.

Fair value adjustments to contingent consideration include amounts(2) recognized for changes in the estimated fair value of the contingent consideration liability.

(3) Non-GAAP measure. See the end of this press release for definitions of non-GAAP measures.

TABLE 6

RE/MAX Holdings, Inc. Adjusted Net Income and Adjusted Earnings per Share (In thousands, except share and per share amounts) (Unaudited)



Three Months Ended Six Months Ended

June 30, June 30,

(Amounts in 000s) 2020 2019 2020 2019

Net income $5,924 $16,133 $11,214 $24,390

Amortization of acquired intangible assets 4,849 4,466 9,698 8,931

Provision for income taxes 706 3,186 4,496 5,094

Add-backs:

(Gain) loss on sale or disposition of assets (11) (16) (22) 363

Equity-based compensation expense 2,747 1,796 4,933 5,847

Acquisition-related expense ^(1) 328 15 894 87

Gain on reduction in tax receivable agreement liability 500 - - -

Fair value adjustments to contingent consideration ^(2) 150 415 (355) 345

Adjusted pre-tax net income 15,193 25,995 30,858 45,057

Less: Provision for income taxes at 24% ^(3) (3,646) (6,239) (7,406) (10,814)

Adjusted net income ^(4) $11,547 $19,756 $23,452 $34,243



Total basic pro forma shares outstanding 30,683,563 30,367,921 30,608,714 30,351,542

Total diluted pro forma shares outstanding 30,706,486 30,393,558 30,649,859 30,385,480



Adjusted net income basic earnings per share ^(4) $0.38 $0.65 $0.77 $1.13

Adjusted net income diluted earnings per share ^(4) $0.38 $0.65 $0.77 $1.13

Acquisition-related expense includes legal, accounting, advisory and(1) consulting fees incurred in connection with the acquisition and integration of acquired companies.

Fair value adjustments to contingent consideration include amounts(2) recognized for changes in the estimated fair value of the contingent consideration liability.

24% is the combined federal and state statutory rate and is an estimate of our long-term tax rate assuming the full exchange of all outstanding non-controlling interests for Class A common stock. It excludes the impacts of (a) our partnership structure, (b) unusual, non-recurring tax matters,(3) such as the conversion of First to an LLC, and (c) lower income for 2020 due to the pandemic, which is causing distorted impacts to differences between tax and GAAP accounting, and causing certain foreign taxes to be nondeductible in 2020 when they otherwise have been and we expect will be again in the future.

(4) Non-GAAP measure. See the end of this press release for definitions of non-GAAP measures.

TABLE 7

RE/MAX Holdings, Inc. Pro Forma Shares Outstanding (Unaudited)





Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Total basic weighted average shares outstanding:

Weighted average shares of Class A common stock 18,123,96317,808,32118,049,11417,791,942outstanding

Remaining equivalent weighted average shares of stock outstanding on a pro forma 12,559,60012,559,60012,559,60012,559,600basis assuming RE/MAX Holdings owned 100% of RMCO

Total basic pro forma weighted average shares 30,683,56330,367,92130,608,71430,351,542outstanding



Total diluted weighted average shares outstanding:

Weighted average shares of Class A common stock 18,123,96317,808,32118,049,11417,791,942outstanding

Remaining equivalent weighted average shares of stock outstanding on a pro forma 12,559,60012,559,60012,559,60012,559,600basis assuming RE/MAX Holdings owned 100% of RMCO

Dilutive effect of unvested 22,923 25,637 41,145 33,938 restricted stock units ^(1)

Total diluted pro forma weighted average shares 30,706,48630,393,55830,649,85930,385,480outstanding

(1) In accordance with the treasury stock method.

TABLE 8

RE/MAX Holdings, Inc. Free Cash Flow & Unencumbered Cash (Unaudited)



Six months ended

June 30,

2020 2019

Cash flow from operations $16,323 $32,983

Less: Purchases of property, equipment and capitalization of software (3,102) (7,378)

Decreases in restricted cash of the Marketing Funds ^(1) 5,848 4,868

Free cash flow ^(2) 19,069 30,473



Free cash flow 19,069 30,473

Less: Tax/Other non-dividend distributions to RIHI (40) (2,031)

Free cash flow after tax/non-dividend distributions to RIHI^ (2) 19,029 28,442



Free cash flow after tax/non-dividend distributions to RIHI 19,029 28,442

Less: Debt principal payments (1,322) (1,311)

Unencumbered cash generated^ (2) $17,707 $27,131



Summary

Cash flow from operations $16,323 $32,983

Free cash flow ^(2) $19,069 $30,473

Free cash flow after tax/non-dividend distributions to RIHI ^(2) $19,029 $28,442

Unencumbered cash generated ^(2) $17,707 $27,131



Adjusted EBITDA $38,448 $52,872

Free cash flow as % of Adjusted EBITDA ^(2) 49.6% 57.6%

Free cash flow less distributions to RIHI as % of Adjusted EBITDA ^(2) 49.5% 53.8%

Unencumbered cash generated as % of Adjusted EBITDA ^(2) 46.1% 51.3%

This line reflects any subsequent changes in the restricted cash balance (which under GAAP reflects as either (a) an increase or decrease in cash(1) flow from operations or (b) an incremental amount of purchases of property and equipment and capitalization of developed software) so as to remove the impact of changes in restricted cash in determining free cash flow.

(2) Non-GAAP measure. See the end of this press release for definitions of non-GAAP measures.

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. GAAP, such as Adjusted EBITDA and the ratios related thereto, Adjusted net income, Adjusted basic and diluted earnings per share (Adjusted EPS) and free cash flow. These measures are derived on the basis of methodologies other than in accordance with U.S. GAAP.

The Company defines Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest expense, interest income and the provision for income taxes, each of which is presented in the unaudited condensed consolidated financial statements included earlier in this press release), adjusted for the impact of the following items that are either non-cash or that the Company does not consider representative of its ongoing operating performance: loss or gain on sale or disposition of assets and sublease, equity-based compensation expense, acquisition-related expense, gain on reduction in tax receivable agreement liability, expense or income related to changes in the estimated fair value measurement of contingent consideration, and other non-recurring items.

Because Adjusted EBITDA and Adjusted EBITDA margin omit certain non-cash items and other non-recurring cash charges or other items, the Company believes that each measure is less susceptible to variances that affect its operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items. The Company presents Adjusted EBITDA and the related Adjusted EBITDA margin because the Company believes they are useful as supplemental measures in evaluating the performance of its operating businesses and provides greater transparency into the Company's results of operations. The Company's management uses Adjusted EBITDA and Adjusted EBITDA margin as factors in evaluating the performance of the business.

Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analyzing the Company's results as 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 the Company's interest expense, or the cash requirements necessary to service interest or principal payments on its debt; * these measures do not reflect the Company's income tax expense or the cash requirements to pay its taxes; * these measures do not reflect the cash requirements to pay dividends to stockholders of the Company's Class A common stock and tax and other cash distributions to its non-controlling unitholders; * these measures do not reflect the cash requirements pursuant to the tax receivable agreements; * 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; * although equity-based compensation is a non-cash charge, the issuance of equity-based awards may have a dilutive impact on earnings per share; and * other companies may calculate these measures differently so similarly named measures may not be comparable.

Adjusted net income is calculated as Net income attributable to RE/MAX Holdings, assuming the full exchange of all outstanding non-controlling interests for shares of Class A common stock as of the beginning of the period (and the related increase to the provision for income taxes after such exchange), plus primarily non-cash items and other items that management does not consider to be useful in assessing the Company's operating performance (e.g., amortization of acquired intangible assets, gain on sale or disposition of assets and sub-lease, acquisition-related expense and equity-based compensation expense).

Adjusted basic and diluted earnings per share (Adjusted EPS) are calculated as Adjusted net income (as defined above) divided by pro forma (assuming the full exchange of all outstanding non-controlling interests) basic and diluted weighted average shares, as applicable.

When used in conjunction with GAAP financial measures, Adjusted net income and Adjusted EPS are supplemental measures of operating performance that management believes are useful measures to evaluate the Company's performance relative to the performance of its competitors as well as performance period over period. By assuming the full exchange of all outstanding non-controlling interests, management believes these measures:

* facilitate comparisons with other companies that do not have a low effective tax rate driven by a non-controlling interest on a pass-through entity; * facilitate period over period comparisons because they eliminate the effect of changes in Net income attributable to RE/MAX Holdings, Inc. driven by increases in its ownership of RMCO, LLC, which are unrelated to the Company's operating performance; and * eliminate primarily non-cash and other items that management does not consider to be useful in assessing the Company's operating performance.

Free cash flow is calculated as cash flows from operations less capital expenditures and any changes in restricted cash of the Marketing Funds, all as reported under GAAP, and quantifies how much cash a company has to pursue opportunities that enhance shareholder value. The restricted cash of the Marketing Funds is limited in use for the benefit of franchisees and any impact to free cash flow is removed. The Company believes free cash flow is useful to investors as a supplemental measure as it calculates the cash flow available for working capital needs, re-investment opportunities, potential independent region and strategic acquisitions, dividend payments or other strategic uses of cash.

Free cash flow after tax and non-dividend distributions to RIHI is calculated as free cash flow less tax and other non-dividend distributions paid to RIHI (the non-controlling interest holder) to enable RIHI to satisfy its income tax obligations. Similar payments would be made by the Company directly to federal and state taxing authorities as a component of the Company's consolidated provision for income taxes if a full exchange of non-controlling interests occurred in the future. As a result and given the significance of the Company's ongoing tax and non-dividend distribution obligations to its non-controlling interest, free cash flow after tax and non-dividend distributions, when used in conjunction with GAAP financial measures, provides a meaningful view of cash flow available to the Company to pursue opportunities that enhance shareholder value.

Unencumbered cash generated is calculated as free cash flow after tax and non-dividend distributions to RIHI less quarterly debt principal payments less annual excess cash flow payment on debt, as applicable. Given the significance of the Company's excess cash flow payment on debt, when applicable, unencumbered cash generated, when used in conjunction with GAAP financial measures, provides a meaningful view of the cash flow available to the Company to pursue opportunities that enhance shareholder value after considering its debt service obligations.

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SOURCE RE/MAX Holdings, Inc.