RE/MAX Holdings, Inc. provided an update on the COVID-19 impact to the company’s operations, announcing an expansion of its financial support in advance of the company’s first-quarter earnings release expected to be issued on May 6, 2020.
“Although we entered 2020 with momentum, the growing and rapidly evolving COVID-19 pandemic is increasingly impacting the worldwide housing market and our operations,” said Adam Contos, RE/MAX Holdings CEO, in a statement. “Factors such as social distancing, governmental stay-at-home orders, variances in whether real estate is designated as an essential service, and growing health and economic concerns are slowing the amount of homebuying, selling and borrowing activity typical at this point in the year.”
In the U.S. and Canada, many transactions initiated in the early stages of the health crisis were able to close, contributing to relatively strong March housing statistics; however, the pipeline of new housing activity has been increasingly compromised. As a result, near-term housing results are anticipated to decline materially, which is expected to negatively affect the company’s financial and operating performance during the second quarter and for the foreseeable future. The magnitude and duration of the impact from COVID-19, especially on consumer behaviors, are unknown and therefore cannot be reasonably estimated at this time.
On March 19, the company announced several initiatives including enhanced training, and providing productivity and other tools at a reduced cost or for free to help its affiliates manage their businesses through this unprecedented environment. As conditions have become more challenging, the company is now offering additional financial support to RE/MAX and Motto Mortgage franchisees to assist them with either cost reduction or cash flow relief.
The circumstances and impact related to COVID-19 vary by location and as a result, the needs of the company’s affiliates differ. Therefore, the company’s expanded financial support offers its franchisees in company-owned regions in the U.S. and Canada the option of either 1) a 50 percent waiver of certain monthly fees for the next two months under certain circumstances or 2) the deferral of certain monthly fees for the next two months on an interest-free basis.
“We remain committed to providing best-in-class solutions to assist our affiliates at a time when they need to pivot and adjust quickly to constantly changing conditions and I am incredibly proud of our team’s efforts in this regard,” added Contos. “We continue to actively monitor the situation and evaluate the best way to support our affiliates and their businesses during this time.”
The company’s 100-percent franchised business model, primarily recurring revenue streams and strong balance sheet provide financial flexibility to navigate challenging conditions. To further help ensure that it continues to be as well positioned as possible, the company plans to implement cost savings measures that are expected to reduce second quarter non-marketing fund expenses by approximately $6.0 million to $7.0 million. Anticipated cost savings include the elimination of the 2020 company bonus, the temporary suspension of the company’s 401(k) match, travel and events, and the implementation of a hiring freeze.
The company also expects the marketing funds to reduce expenses during the second quarter. The marketing funds are subsidiaries that collect fees, the use of which is restricted per the terms of the company’s franchise agreements. The company plans to defer approximately $2.25 million to $2.75 million of capital expenditures originally expected to be incurred during the second quarter. The company continues to assess its capital allocation priorities as well as manage its expenses and capital expenditure programs judiciously. As of December 31, 2019, the company had cash and cash equivalents of $83.0 million and restricted cash of $20.6 million for its Marketing Funds. Additional financial details are provided in a Form 8-K expected to be filed with the Securities and Exchange Commission contemporaneously with the issuance of this release.
“The strength of our brands, the resiliency and geographic breadth of our professional and entrepreneurial networks, and the hard work and dedication of our employees give us confidence in our ability to overcome current challenges,” said Contos. “With almost 50 years of experience successfully steering through myriad business cycles and market conditions, we believe that, together, with kindness, caring and empathy, we can manage through this historic event and flourish on the other side.”
For more information, please visit www.remax.com.