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Re/Max Revenues Up 11 Percent in 2013

Re/Max reports 11% increase in revenue

DENVER – Following its $225 million initial public offering in October of last year, Re/Max (NYSE:RMAX) on Thursday announced to the public its operating results for the fourth quarter of 2013 and the entire year. It disclosed that 40 percent of its $158 million in revenues came from franchise fees and that its 2013 revenues are up from 2012's $143 million.

RE/MAX grew agent count in the United States by 5.2 percent to 54,491 in 2013. That 2,688 increase in agents recruited includes both company territory and independent franchise-owned territories. Re/Max grew its worldwide agent number to 93,228, a rise of 4.7 percent.

"For the second year in a row, we grew agent count, revenue and our adjusted EBITDA margin from the prior year," stated Margaret Kelly, chief executive officer of RE/MAX. "Our highly productive agents capitalized on the recovering housing market in 2013, enabling us to perform extremely well. In addition, we acquired regional franchise rights for the Southwest and Central Atlantic regions, consistent with our strategy to drive enhanced profitability."

"New office sales and renewals are pretty steady," said David Metzger, Re/Max's chief operating and financial officer, explaining that revenue from franchisees is expected to stay fairly similar for 2014. "As we develop Japan and China, we'll see some growth," he added, although he doesn't anticipate them coming into play anytime soon. On the one hand, rich with cash from its initial public offering, the franchisor is looking to buy back independent franchise territories to add to its corporate territories. On the other, as it added franchise development sales employees, Re/Max managed to sell 710 franchises in 2013. "As the opportunities come up we will evaluate them," said the CFO to an analyst about regional franchises being within the company's scope. He added, "There's nothing that's hot right now."

However, little was said in the company's annual filing that allowed a peek into the financial health of its franchises, such as same franchised-office sales metrics. The discussion centered on what fees were added to the franchisor's top line. Annual dues, which are fixed fees paid by agents directly to RE/MAX, rose 2.1 percent to $29.5 million compared to the prior year, a result of growth in agent count. Continuing franchise fees, a fixed fee per agent paid by each regional franchise owner in independent regions or each franchisee in company-owned regions, were $64.5 million, up 14.4 percent over the prior year. The increase was primarily driven by the acquisition and subsequent growth of RE/MAX of Texas and the acquisitions of the Southwest and Central Atlantic regions, which allowed RE/MAX to earn a greater portion of continuing franchise fees.

An analyst asked whether Re/Max's franchise operations might be thinking about being more accommodating in their franchise fees because of the year's slow start. "The harsh weather has impacted existing sales and new home starts," replied Kelly, somewhat ducking the question. During extraordinarily tough times and acts of God, franchisors have been known to temporarily waive fees to help out distressed franchise owners. This winter was tough but not exactly that tough. The U.S. Commerce Department said new home sales declined 3.3 percent in February, which is normally a seasonably light part of the year, as the Northeast was battered by snowstorms. "We get anecdotal evidence from our franchisees," the CEO confirmed about hearing first-hand of the bitter winter's softening of home sales and its impact on franchisees. But she thinks there is a pent-up home purchasing demand that will correct for the weak winter as the months go forward.

Re/Max's chief executive said that the company wants to provide its network of agents with more tools to connect with more buyers and sellers. She was bullish on the growth in agents and sales in the United States, but saw Canada as rather flat for 2014. "We will also continue to promote the benefits of our agent-centric model to attract productive agents to the RE/MAX family," said Kelly.

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