RE/MAX Holdings (NYSE: RMAX) was founded in 1973, and the Denver-based franchisor has since then grown a sales force that now numbers more than 130,000 agents associated with more than 8,600 offices in more than 110 countries and territories.
The company says franchisees operating under its brand name have held the top position in combined market share in the U.S. and Canada -- home to about 83,000 of its agents -- since 1999 in terms of total residential transactions completed by agents.
RE/MAX also operates Motto Mortgage, a mortgage brokerage franchise it launched in 2016 as the first national mortgage brokerage franchise network of its kind. And it's growing fast.
RE/MAX makes its money from franchise fees, annual dues, broker fees, marketing funds fees, and franchise sales. While it had to make some concessions during the first months of the pandemic, it appears to have the record and balance sheet to point to a recovery and growth in the years ahead.
RE/MAX Holdings news
RE/MAX was on a roll until the pandemic hit, and its dominant position in one of the industries holding up relatively well -- residential real estate -- would seem to keep it poised to quickly recover.
From 2017 through 2019, RE/MAX grew annual total revenue from $193.7 million to $282.3 million, respectively. Net income also grew from $31.3 million to $46.9 million, and adjusted EBITDA jumped from $102.1 million to $103.5 million during that period.
Then the coronavirus arrived, bringing with it shutdowns that severely limited the ability of agents to show, sell, and close homes while the industry adjusted.
The results showed in the company's second-quarter 2020 report. Total revenue of $52.2 million was down 26.9% from the $71.4 million recorded in 2Q19, while net income was $3.5 million, less than half of the $8.6 million from the year-ago quarter.
Earnings per share were $0.19, also less than half of the $0.48 from 2Q19. Adjusted EBITDA was $18.9 million for the second quarter of 2020, a decrease of $11 million or 36.7% from the second quarter of 2019.
Much of the decline in income, the 2Q report said, was due to "temporary COVID-19-related financial-support initiatives as well as increased legal fees partially offset by the company's cost-savings measures."
In other words, these are temporary measures, assuming the pandemic eventually diminishes enough to allow business to resume to a new normal and those concessions to franchisees don't have to be offered once again.
The growth of Motto Mortgage
The company's creation of Motto Mortgage also appears to be timely and profitable. In August, Motto Franchising LLC announced the sale of its 200th franchise, including more than 60 sales during the trailing 12-month period ending June 30. The brand currently has more than 125 offices open in more than 30 states.
"The Motto Mortgage model not only creates an ancillary business for current real estate brokerage firms but also offers opportunities for mortgage professionals seeking to open their own businesses and independent investors interested in financial services," the company said in that news release.
Motto Mortgage also created a new revenue stream for RE/MAX itself. In the parent company's 2019 Annual Report, Motto's reported revenue grew almost 80% in 2019, and the number of open Motto offices increased more than 40%. That should be higher in the quarters ahead.
"The brand averaged one franchise sale per week from the October 2016 launch through the end of 2019, putting it in the top 5% of all emerging franchises, according to Franchise Grade based on a yearly analysis of over 2,800 franchise systems during the 36-month period ended December 31, 2018," RE/MAX said in the 2019 Annual Report.
RE/MAX also has recently boosted its commitment to the mortgage business with the September purchase of wemlo, an 18-month-old startup whose platform connects mortgage brokers, loan originators, borrowers, and mortgage processors.
Other real estate technology acquisitions
RE/MAX has been investing in technology to help keep its agent force engaged, committed, and producing revenue for themselves, their brokerages, and the company that franchises them.
That includes the 2018 acquisition of the booj platform, a customer relationship management (CRM) solution the company says provides a better customer experience by streamlining the work of agents from lead generation to post-close nurturing.
Then RE/MAX partnered with Photofy in 2019, providing a channel for agents to easily share graphics and videos with social media and text, and then committed to an app from First, a North Carolina tech company acquired by RE/MAX in December 2019 that analyzes an agent's personal contacts and identifies those most likely to sell in the coming months.
There are other acquisitions and partnerships, too, all geared toward creating a digital arsenal of integrated tools to help agents compete for and win sales.
RE/MAX Holdings stock price
RE/MAX declared a quarterly cash dividend of $0.22 per share on Aug. 5, continuing a steady stream of payouts and the highest since a special cash dividend of $1.50 in 2015. That $0.22 represents a yield of 2.44% at a midday Sept. 14 price of $35.69 a share.
RE/MAX stock had fallen to as low as $14.40 in the height of the pandemic market plunge but had since recovered by mid-September to near its 52-week high of $40.78.
The company went public in a $220 million IPO at $22 a share on Oct. 2, 2013, and since then peaked at just over $67 a share on Oct. 27, 2017.
The stock is well off that high, and given current conditions, RE/MAX said in its second-quarter presentation that it is not providing third-quarter guidance.
However, the company also said it wasn't planning to extend additional financial support to franchisees either. Given the hot residential sales and refinance market and its ability to generate income for both the RE/MAX and Motto Mortgage brands, that seems sound.
The company also is in good shape in terms of debt, with a cash balance of $84.5 million, $224.6 million in outstanding debt, and no revolving loans outstanding, all as of June 30, 2020. Its ratio of 1.6 times in net debt/adjusted EBITDA also speaks to a stable balance sheet that can underpin future share price growth if the market looks upon RE/MAX kindly.
The bottom line
Investors would have some good reasons to, indeed, look kindly upon RE/MAX. House prices and sales, after all, are rising, and commissions from those sales are the rivulets that help feed the revenue stream that eventually reaches the parent company of that powerful brand.
RE/MAX is a household name in residential real estate and has been for decades. Its vast network of agents and now its fast-growing mortgage brokerage franchise network -- which, all things being equal, offer an impressive infrastructure to independent brokers considering affiliations -- create a supply of referrals and new business that should help RE/MAX continue to hold up well as an enterprise and an investment.
In their second-quarter earnings press release, RE/MAX CEO Adam Contos noted the growth of Motto Mortgage and the stability of the parent brand's real estate agent force, saying, "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."
The company's resilience in the pandemic so far gives credence to that confident claim and makes RE/MAX an interesting candidate for investing in slow but steady growth and some dividend income.