UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2019.
OR
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☐ |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission file number 001-36101
RE/MAX Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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80-0937145 |
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(State or other jurisdiction of
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(I.R.S. Employer
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5075 South Syracuse Street
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80237 |
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(Address of principal executive offices) |
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(Zip Code) |
(303) 770-5531
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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Class A Common Stock, $0.0001 par value per share |
RMAX |
New York Stock Exchange, LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☒ |
Accelerated filer |
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Emerging growth company |
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Non-accelerated filer |
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Smaller reporting company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of outstanding shares of the registrant’s Class A common stock, par value $0.0001 per share, and Class B common stock, par value $0.0001, as of July 31, 2019 was 17,833,158 and 1, respectively.
TABLE OF CONTENTS
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7 |
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RE/MAX Holdings, Inc. Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26 |
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45 |
2
PART I. – FINANCIAL INFORMATION
Item 1. Financial Statements
RE/MAX HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
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June 30, |
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December 31, |
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2019 |
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2018 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
72,486 |
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$ |
59,974 |
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Restricted cash |
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23,627 |
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— |
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Accounts and notes receivable, current portion, less allowances of $9,774 and $7,980, respectively |
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32,206 |
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21,185 |
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Income taxes receivable |
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1,669 |
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533 |
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Other current assets |
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8,474 |
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5,855 |
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Total current assets |
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138,462 |
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87,547 |
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Property and equipment, net of accumulated depreciation of $14,117 and $13,280 respectively |
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5,643 |
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4,390 |
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Operating lease right of use assets |
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53,363 |
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— |
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Franchise agreements, net |
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95,407 |
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103,157 |
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Other intangible assets, net |
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23,478 |
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22,965 |
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Goodwill |
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150,812 |
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150,684 |
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Deferred tax assets, net |
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50,997 |
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53,698 |
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Other assets, net of current portion |
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5,687 |
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4,399 |
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Total assets |
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$ |
523,849 |
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$ |
426,840 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable |
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$ |
3,673 |
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$ |
1,890 |
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Accrued liabilities |
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48,937 |
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13,143 |
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Income taxes payable |
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11 |
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208 |
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Deferred revenue |
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25,571 |
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25,489 |
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Current portion of debt |
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2,637 |
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2,622 |
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Current portion of payable pursuant to tax receivable agreements |
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3,578 |
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3,567 |
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Operating lease liabilities |
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4,829 |
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— |
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Total current liabilities |
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89,236 |
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46,919 |
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Debt, net of current portion |
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224,090 |
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225,165 |
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Payable pursuant to tax receivable agreements, net of current portion |
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34,355 |
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37,220 |
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Deferred tax liabilities, net |
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313 |
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400 |
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Deferred revenue, net of current portion |
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19,121 |
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20,224 |
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Operating lease liabilities, net of current portion |
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58,578 |
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— |
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Other liabilities, net of current portion |
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6,231 |
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17,637 |
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Total liabilities |
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431,924 |
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347,565 |
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Commitments and contingencies (note 14) |
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Stockholders' equity: |
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Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 17,809,119 shares issued and outstanding as of June 30, 2019; 17,754,416 shares issued and outstanding as of December 31, 2018 |
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2 |
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2 |
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Class B common stock, par value $0.0001 per share, 1,000 shares authorized; 1 share issued and outstanding as of June 30, 2019 and December 31, 2018 |
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— |
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— |
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Additional paid-in capital |
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463,055 |
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460,101 |
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Retained earnings |
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26,595 |
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21,138 |
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Accumulated other comprehensive income, net of tax |
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397 |
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328 |
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Total stockholders' equity attributable to RE/MAX Holdings, Inc. |
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490,049 |
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481,569 |
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Non-controlling interest |
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(398,124) |
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(402,294) |
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Total stockholders' equity |
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91,925 |
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79,275 |
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Total liabilities and stockholders' equity |
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$ |
523,849 |
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$ |
426,840 |
See accompanying notes to unaudited condensed consolidated financial statements.
3
RE/MAX HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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Revenue: |
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Continuing franchise fees |
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$ |
24,894 |
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$ |
25,211 |
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$ |
49,850 |
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$ |
50,451 |
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Annual dues |
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8,819 |
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8,973 |
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17,673 |
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17,669 |
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Broker fees |
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13,459 |
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13,993 |
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22,047 |
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23,181 |
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Marketing Funds fees |
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18,060 |
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— |
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36,832 |
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— |
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Franchise sales and other revenue |
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6,149 |
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6,100 |
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16,157 |
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15,618 |
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Total revenue |
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71,381 |
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54,277 |
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142,559 |
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106,919 |
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Operating expenses: |
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Selling, operating and administrative expenses |
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25,726 |
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28,307 |
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59,250 |
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62,675 |
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Marketing Funds expenses |
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18,060 |
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— |
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36,832 |
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— |
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Depreciation and amortization |
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5,541 |
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5,069 |
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11,099 |
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9,644 |
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(Gain) loss on sale or disposition of assets, net |
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(16) |
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(13) |
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363 |
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(31) |
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Total operating expenses |
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49,311 |
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33,363 |
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107,544 |
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72,288 |
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Operating income |
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22,070 |
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20,914 |
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35,015 |
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34,631 |
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Other expenses, net: |
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Interest expense |
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(3,154) |
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(3,171) |
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(6,309) |
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(5,895) |
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Interest income |
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342 |
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98 |
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662 |
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217 |
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Foreign currency transaction gains (losses) |
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61 |
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(103) |
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116 |
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(186) |
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Total other expenses, net |
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(2,751) |
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(3,176) |
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(5,531) |
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(5,864) |
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Income before provision for income taxes |
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19,319 |
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17,738 |
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29,484 |
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28,767 |
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Provision for income taxes |
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(3,186) |
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(3,147) |
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(5,094) |
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(5,009) |
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Net income |
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$ |
16,133 |
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$ |
14,591 |
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$ |
24,390 |
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$ |
23,758 |
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Less: net income attributable to non-controlling interest (note 4) |
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7,563 |
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6,943 |
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11,411 |
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|
11,127 |
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Net income attributable to RE/MAX Holdings, Inc. |
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$ |
8,570 |
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$ |
7,648 |
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$ |
12,979 |
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$ |
12,631 |
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Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock |
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Basic |
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$ |
0.48 |
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$ |
0.43 |
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$ |
0.73 |
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$ |
0.71 |
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Diluted |
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$ |
0.48 |
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$ |
0.43 |
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$ |
0.73 |
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$ |
0.71 |
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Weighted average shares of Class A common stock outstanding |
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Basic |
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17,808,321 |
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17,746,042 |
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17,791,942 |
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17,727,671 |
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Diluted |
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17,833,958 |
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17,769,641 |
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17,825,880 |
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17,763,592 |
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Cash dividends declared per share of Class A common stock |
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$ |
0.21 |
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$ |
0.20 |
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$ |
0.42 |
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$ |
0.40 |
See accompanying notes to unaudited condensed consolidated financial statements.
4
RE/MAX HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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Net income |
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$ |
16,133 |
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$ |
14,591 |
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$ |
24,390 |
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$ |
23,758 |
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Change in cumulative translation adjustment |
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65 |
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(85) |
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134 |
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(167) |
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Other comprehensive income (loss), net of tax |
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65 |
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(85) |
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|
134 |
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(167) |
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Comprehensive income |
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16,198 |
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|
14,506 |
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|
24,524 |
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|
23,591 |
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Less: comprehensive income attributable to non-controlling interest |
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|
7,595 |
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6,912 |
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|
11,476 |
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|
11,057 |
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Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax |
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$ |
8,603 |
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$ |
7,594 |
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$ |
13,048 |
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$ |
12,534 |
See accompanying notes to unaudited condensed consolidated financial statements.
5
RE/MAX HOLDINGS, INC.
Condensed Consolidated Statement of Stockholders’ Equity
(In thousands, except share amounts)
(Unaudited)
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Accumulated other |
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Class A |
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Class B |
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Additional |
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comprehensive |
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Non- |
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Total |
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common stock |
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common stock |
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paid-in |
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Retained |
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income (loss), |
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controlling |
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stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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earnings |
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net of tax |
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interest |
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equity |
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Balances, January 1, 2018 |
|
17,696,991 |
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$ |
2 |
|
1 |
|
$ |
— |
|
$ |
451,199 |
|
$ |
8,400 |
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$ |
459 |
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$ |
(410,934) |
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$ |
49,126 |
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Net income |
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— |
|
|
— |
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— |
|
|
— |
|
|
— |
|
|
4,983 |
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|
— |
|
|
4,184 |
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|
9,167 |
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Distributions to non-controlling unitholders |
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— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,212) |
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|
(4,212) |
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Equity-based compensation expense and related dividend equivalents |
|
46,520 |
|
|
— |
|
— |
|
|
— |
|
|
1,268 |
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|
(48) |
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|
— |
|
|
— |
|
|
1,220 |
|
Dividends to Class A common stockholders |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(3,547) |
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|
— |
|
|
— |
|
|
(3,547) |
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Change in accumulated other comprehensive income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(43) |
|
|
(39) |
|
|
(82) |
|
Payroll taxes related to net settled restricted stock units |
|
(10,209) |
|
|
— |
|
— |
|
|
— |
|
|
(564) |
|
|
— |
|
|
— |
|
|
— |
|
|
(564) |
|
Balances, March 31, 2018 |
|
17,733,302 |
|
|
2 |
|
1 |
|
|
— |
|
|
451,903 |
|
|
9,788 |
|
|
416 |
|
|
(411,001) |
|
|
51,108 |
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
7,648 |
|
|
— |
|
|
6,943 |
|
|
14,591 |
|
Distributions to non-controlling unitholders |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,606) |
|
|
(3,606) |
|
Equity-based compensation expense and related dividend equivalents |
|
18,358 |
|
|
— |
|
— |
|
|
— |
|
|
2,162 |
|
|
(65) |
|
|
— |
|
|
— |
|
|
2,097 |
|
Dividends to Class A common stockholders |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(3,549) |
|
|
— |
|
|
— |
|
|
(3,549) |
|
Change in accumulated other comprehensive income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(54) |
|
|
(31) |
|
|
(85) |
|
Payroll taxes related to net settled restricted stock units |
|
(5,476) |
|
|
— |
|
— |
|
|
— |
|
|
(331) |
|
|
— |
|
|
— |
|
|
— |
|
|
(331) |
|
Other |
|
— |
|
|
— |
|
— |
|
|
|
|
|
311 |
|
|
— |
|
|
— |
|
|
— |
|
|
311 |
|
Balances, June 30, 2018 |
|
17,746,184 |
|
$ |
2 |
|
1 |
|
$ |
— |
|
$ |
454,045 |
|
$ |
13,822 |
|
$ |
362 |
|
$ |
(407,695) |
|
$ |
60,536 |
See accompanying notes to unaudited condensed consolidated financial statements.
6
RE/MAX HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
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|
Six Months Ended June 30, |
||||
|
|
|
2019 |
|
2018 |
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
24,390 |
|
$ |
23,758 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
11,099 |
|
|
9,644 |
|
Bad debt expense |
|
|
2,560 |
|
|
823 |
|
Loss (gain) on sale or disposition of assets and sublease, net |
|
|
363 |
|
|
(141) |
|
Equity-based compensation expense |
|
|
5,847 |
|
|
3,424 |
|
Deferred income tax expense |
|
|
2,521 |
|
|
2,060 |
|
Fair value adjustments to contingent consideration |
|
|
345 |
|
|
80 |
|
Payments pursuant to tax receivable agreements |
|
|
(2,854) |
|
|
— |
|
Other, net |
|
|
685 |
|
|
567 |
|
Changes in operating assets and liabilities |
|
|
(11,973) |
|
|
(6,285) |
|
Net cash provided by operating activities |
|
|
32,983 |
|
|
33,930 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property, equipment and software and capitalization of trademark costs |
|
|
(7,378) |
|
|
(1,441) |
|
Acquisitions, net of cash acquired of $0 and $362, respectively |
|
|
— |
|
|
(25,888) |
|
Restricted cash acquired with the Marketing Funds acquisition |
|
|
28,495 |
|
|
— |
|
Other |
|
|
(1,200) |
|
|
— |
|
Net cash provided by (used in) investing activities |
|
|
19,917 |
|
|
(27,329) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Payments on debt |
|
|
(1,311) |
|
|
(1,554) |
|
Distributions paid to non-controlling unitholders |
|
|
(7,306) |
|
|
(7,818) |
|
Dividends and dividend equivalents paid to Class A common stockholders |
|
|
(7,522) |
|
|
(7,209) |
|
Payment of payroll taxes related to net settled restricted stock units |
|
|
(731) |
|
|
(895) |
|
Payment of contingent consideration |
|
|
— |
|
|
(50) |
|
Net cash used in financing activities |
|
|
(16,870) |
|
|
(17,526) |
|
Effect of exchange rate changes on cash |
|
|
109 |
|
|
(43) |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
36,139 |
|
|
(10,968) |
|
Cash, cash equivalents and restricted cash, beginning of year |
|
|
59,974 |
|
|
50,807 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
96,113 |
|
$ |
39,839 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
5,948 |
|
$ |
5,616 |
|
Net cash paid for income taxes |
|
$ |
3,885 |
|
$ |
3,741 |
|
Schedule of non-cash investing activities: |
|
|
|
|
|
|
|
Property, equipment, software and trademarks included in accounts payable and accrued liabilities |
|
$ |
547 |
|
$ |
259 |
See accompanying notes to unaudited condensed consolidated financial statements.
7
1. Business and Organization
RE/MAX Holdings, Inc. (“RE/MAX Holdings”) and its consolidated subsidiaries, including RMCO, LLC (“RMCO”), are referred to hereinafter as the “Company.”
The Company is a franchisor in the real estate industry, franchising real estate brokerages globally under the RE/MAX brand (“RE/MAX”) and mortgage brokerages within the United States (“U.S.”) under the Motto Mortgage brand. RE/MAX, founded in 1973, has over 125,000 agents operating in over 8,000 offices and a presence in more than 110 countries and territories. Motto Mortgage (“Motto”), founded in 2016, is the first nationally franchised mortgage brokerage in the U.S.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Condensed Consolidated Balance Sheet at December 31, 2018, which was derived from the audited consolidated financial statements at that date, and the unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements are presented on a consolidated basis and include the accounts of RE/MAX Holdings and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2019 and the results of its operations and comprehensive income, cash flows and changes in its stockholder’s equity for the three and six months ended June 30, 2019 and 2018. Interim results may not be indicative of full-year performance. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report on Form 10-K”).
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Segment Reporting
In January 2019, the Company acquired all of the regional and pan-regional advertising fund entities previously owned by its founder and Chairman of the Board of Directors, David Liniger. All of these entities, except for the Western Canada region, were then merged into a new entity called RE/MAX Marketing Fund (with the Western Canada fund, collectively, the “Marketing Funds”). See Note 6, Acquisitions for more information. As a result of the acquisition of the Marketing Funds, the Company added the Marketing Funds as a reportable segment as of January 1, 2019.
The Company operates under the following reportable segments:
| ● | RE/MAX Franchising – comprises the operations of the Company’s owned and independent global franchising operations under the RE/MAX brand name and corporate-wide shared services expenses. |
| ● | Marketing Funds – comprises the operations of the Company’s marketing campaigns designed to build and maintain brand awareness and support certain agent marketing technology. |
8
| ● | Other – comprises the operations of Motto Franchising and booj, which, due to quantitative insignificance, do not meet the criteria of a reportable segment. |
Principles of Consolidation
RE/MAX Holdings consolidates RMCO and records a non-controlling interest in the accompanying Condensed Consolidated Balance Sheets and records net income attributable to the non-controlling interest and comprehensive income attributable to the non-controlling interest in the accompanying Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income, respectively.
Revenue Recognition
The Company generates most of its revenue from contracts with customers. The Company’s franchise agreements offer the following benefits to the franchisee: common use and promotion of RE/MAX and Motto trademarks; distinctive sales and promotional materials; access to technology; standardized supplies and other materials used in RE/MAX and Motto offices; and recommended procedures for operation of RE/MAX or Motto offices. The Company concluded that these benefits are highly related and all a part of one performance obligation, a license of symbolic intellectual property that is billed through a variety of fees including franchise sales, continuing franchise fees, marketing funds fees, broker fees, and annual dues, described below. The Company has other performance obligations associated with contracts with customers in other revenue for training, marketing and events, and legacy booj customers. The method used to measure progress is over the passage of time for most streams of revenue. The following is a description of principal activities from which the Company generates its revenue.
Continuing Franchise Fees
Revenue from continuing franchise fees consists of fixed contractual fees paid monthly by franchisees based on the number of RE/MAX agents in the respective franchised region or office and the number of Motto offices open, reaching the full monthly billing once the Motto office has been open and operating for a year. This revenue is recognized in the month for which the fee is billed. This revenue is a usage-based royalty as it is dependent on the number of RE/MAX agents and number of Motto offices.
Marketing Funds Fees
Revenue from Marketing Funds fees consists of fixed contractual fees paid monthly by franchise owners and franchisees based on the number of RE/MAX agents in the respective franchised region or office or the number of Motto offices. These revenues are obligated to be used for marketing campaigns to build brand awareness and to support agent marketing technology. Amounts received into the Marketing Funds are recognized as revenue in the month for which the fee is billed. This revenue is a usage-based royalty as it is dependent on the number of RE/MAX agents or number of Motto offices.
All assets of the Marketing Funds are contractually restricted for the benefit of franchisees, and the Company recognizes an equal and offsetting liability on the Company’s balance sheet. Additionally, this results in recording an equal and offsetting amount of expenses against all revenues such that there is no impact to overall profitability of the Company from these revenues.
Annual Dues
Annual dues revenue consists of fixed contractual fees paid annually based on the number of RE/MAX agents. The Company defers the annual dues revenue when billed and recognizes the revenue ratably over the 12-month period to which it relates. Annual dues revenue is a usage-based royalty as it is dependent on the number of RE/MAX agents.
9
The activity in the Company’s deferred revenue for annual dues is included in “Deferred revenue” and “Deferred revenue, net of current portion” on the Condensed Consolidated Balance Sheets, and consists of the following in aggregate (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
New billings |
|
Revenue recognized(a) |
|
Balance at end
|
||||
|
Six months ended June 30, 2019 |
|
$ |
15,877 |
|
$ |
18,828 |
|
$ |
(17,673) |
|
$ |
17,032 |
|
(a) |
Revenue recognized related to the beginning balance was $4.5 million and $11.4 million for the three and six months ended June 30, 2019, respectively. |
Broker Fees
Revenue from broker fees represents fees received from the Company’s RE/MAX franchised regions or franchise offices that are based on a percentage of RE/MAX agents’ gross commission income on home sale transactions. Revenue from broker fees is recognized as a sales-based royalty and recognized in the month when a home sale transaction occurs. Motto franchisees do not pay any fees based on the number or dollar value of loans brokered.
Franchise Sales
Franchise sales comprises revenue from the sale or renewal of franchises. A fee is charged upon a franchise sale or renewal. Those fees are deemed to be a part of the license of symbolic intellectual property and are recognized as revenue over the contractual term of the franchise agreement, which is typically five years for RE/MAX and seven years for Motto. The activity in the Company’s franchise sales deferred revenue accounts consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
New billings |
|
Revenue recognized(a) |
|
Balance at end
|
||||
|
Six months ended June 30, 2019 |
|
$ |
27,560 |
|
$ |
3,283 |
|
$ |
(4,697) |
|
$ |
26,146 |
|
(a) |
Revenue recognized related to the beginning balance was $2.1 million and $4.4 million for the three and six months ended June 30, 2019, respectively. |
Commissions Related to Franchise Sales
Commissions paid on franchise sales are recognized as an asset and amortized over the contract life of the franchise agreement. The activity in the Company’s capitalized contract costs for commissions (which are included in “other current assets” and “other assets, net of current portion” on the Condensed Consolidated Balance Sheets) consist of the following (in thousands):
Other Revenue
Other revenue is primarily revenue from preferred marketing arrangements and event-based revenue from training and other programs. Revenue from preferred marketing arrangements involves both flat fees paid in advance as well as revenue sharing, both of which are generally recognized over the period of the arrangement and are recorded net as the Company does not control the good or service provided. Event-based revenue is recognized when the event occurs and until then is included in “Deferred revenue”. Other revenue also includes revenue from booj’s legacy operations for its external customers as booj continues to provide technology products and services, such as websites, mobile apps, reporting and site tools, to its legacy customers.
10
Disaggregated Revenue
In the following table, segment revenue is disaggregated by geographical area for the three and six months ended June 30, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
|
U.S. |
|
$ |
41,689 |
|
$ |
43,343 |
|
$ |
83,424 |
|
$ |
86,695 |
|
Canada |
|
|
5,893 |
|
|
6,213 |
|
|
11,242 |
|
|
11,976 |
|
Global |
|
|
2,803 |
|
|
2,554 |
|
|
5,543 |
|
|
5,033 |
|
Total RE/MAX Franchising |
|
|
50,385 |
|
|
52,110 |
|
|
100,209 |
|
|
103,704 |
|
U.S. |
|
|
16,381 |
|
|
— |
|
|
33,053 |
|
|
— |
|
Canada |
|
|
1,500 |
|
|
— |
|
|
3,385 |
|
|
— |
|
Global |
|
|
179 |
|
|
— |
|
|
394 |
|
|
— |
|
Total Marketing Funds |
|
|
18,060 |
|
|
— |
|
|
36,832 |
|
|
— |
|
Other |
|
|
2,936 |
|
|
2,167 |
|
|
5,518 |
|
|
3,215 |
|
Total |
|
$ |
71,381 |
|
$ |
54,277 |
|
$ |
142,559 |
|
$ |
106,919 |
In the following table, segment revenue is disaggregated by owned or independent regions in the U.S. and Canada for the RE/MAX Franchising segment for the three and six months ended June 30, 2019 and 2018 (in thousands). The split between owned or independent regions is not material to the Marketing Funds or Other segments:
Transaction Price Allocated to the Remaining Performance Obligations
The following table includes estimated revenue by year expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining 6
|
|
2020 |
|
2021 |
|
2022 |
|
2023 |
|
2024 |
|
Thereafter |
|
Total |
||||||||
|
Annual dues |
|
$ |
12,615 |
|
$ |
4,417 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
17,032 |
|
Franchise sales |
|
|
3,737 |
|
|
6,512 |
|
|
5,162 |
|
|
3,693 |
|
|
2,193 |
|
|
1,108 |
|
|
3,741 |
|
|
26,146 |
|
Total |
|
$ |
16,352 |
|
$ |
10,929 |
|
$ |
5,162 |
|
$ |
3,693 |
|
$ |
2,193 |
|
$ |
1,108 |
|
$ |
3,741 |
|
$ |
43,178 |
11
Cash, Cash Equivalents and Restricted Cash
All cash held by the Marketing Funds is contractually restricted. The following table reconciles the amounts presented for cash, both unrestricted and restricted, in the Condensed Consolidated Balance Sheets to the amounts presented in the Condensed Consolidated Statements of Cash Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2019 |
|
2018 |
||
|
Cash and cash equivalents |
|
$ |
72,486 |
|
$ |
59,974 |
|
Restricted cash |
|
|
23,627 |
|
|
— |
|
Total cash, cash equivalents and restricted cash |
|
$ |
96,113 |
|
$ |
59,974 |
Services Provided to the Marketing Funds by RE/MAX Franchising
RE/MAX Franchising charges the Marketing Funds for various services it performs. These services are primarily comprised of (a) providing agent marketing technology, including customer relationship management tools, the www.remax.com website, agent and office websites, and mobile apps, (b) dedicated employees focused on marketing campaigns, and (c) various administrative services including accounting, tax and legal. Because these costs are ultimately paid by the Marketing Funds, they do not impact the net income of RE/MAX Holdings as the Marketing Funds have no reported net income.
Costs charged from RE/MAX Franchising to the Marketing Funds for the three and six months ended June 30, 2019 are as follows (in thousands):
Costs charged to the Marketing Funds for the three and six months ended June 30, 2018 are disclosed in Note 15, Related-Party Transactions.
Recently Adopted Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), which adjusts the classification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. ASU 2018-02 became effective for the Company on January 1, 2019. The standard is to be applied either in the period of adoption or retrospectively to each period affected by the Tax Cuts and Jobs Act. The Company completed the majority of its accounting for the tax effects of the Tax Cuts and Jobs Act as of December 31, 2017. The amendments of ASU 2018-02 did not have a significant impact on the Company’s consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with several subsequent amendments, which requires lessees to recognize the assets and liabilities that arise from operating and finance leases on the consolidated balance sheets, with a few exceptions. ASU 2016-02 became effective for the Company on January 1, 2019 and replaced the existing lease guidance in U.S. GAAP when it became effective. The Company did not retrospectively recast prior periods presented and instead adjusted assets and liabilities on January 1, 2019. In addition, the Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to forgo reassessing (a) whether a contract contains a lease, (b) lease classification, and (c) whether capitalized costs associated
12
with a lease are initial direct costs. The practical expedient was applied consistently to all the Company’s leases, including those for which the Company acts as the lessor. In addition, the Company elected the practical expedient relating to the combination of lease and non-lease components as a single lease component. The Company chose not to apply the hindsight practical expedient. The new lease guidance has been applied to all the Company’s leases as of January 1, 2019, which impacted how operating lease assets and liabilities were recorded within the Condensed Consolidated Balance Sheet, resulting in the recording of approximately $65.8 million of lease liabilities and approximately $55.6 million of right-of-use (“ROU”) assets on the Condensed Consolidated Balance Sheet. Deferred rent and sublease loss balances as of January 1, 2019 of approximately $9.3 million and approximately $2.4 million, respectively, and intangible assets of approximately $1.5 million were subsumed into the ROU asset at transition. Adoption of the new standard did not materially affect the Company’s consolidated net earnings and had no impact on cash flows. See Note 3, Leases, for more information.
New Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), with several subsequent amendments, which eliminates certain disclosure requirements for fair value measurements and requires new or modified disclosures. ASU 2018-13 is effective for the Company beginning January 1, 2020. Certain changes are applied retrospectively to each period presented and others are to be applied either in the period of adoption or prospectively. The Company believes the amendments of ASU 2018-13 will not have a significant impact on the Company’s consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. ASU 2017-04 is effective for annual and interim impairment tests beginning January 1, 2020 for the Company and is required to be adopted using a prospective approach. Early adoption is allowed for annual goodwill impairment tests performed on testing dates after January 1, 2017.
3. Leases
The Company leases corporate offices, a distribution center, billboards and certain equipment. As all franchisees are independently owned and operated, there are no leases recognized for any offices used by the Company’s franchisees. The leases have remaining lease terms ranging from less than a year up to 15 years, some of which include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years depending on the lease. Of these renewal options, the Company determined that none are reasonably certain to be exercised. All the Company’s material leases are classified as operating leases.
The Company has a lease for its corporate headquarters office building (the “Master Lease”) that expires in 2028. The Company may, at its option, extend the Master Lease for two renewal periods of 10 years. Under the terms of the Master Lease, the Company pays an annual base rent, which escalates 3% each year, including the first optional renewal period. The second optional renewal period resets to fair market rental value, and the rent escalates 3% each year until expiration. The Company pays for operating expenses in connection with the ownership, maintenance, operation, upkeep and repair of the leased space. The Master Lease is the Company’s only significant lease as of June 30, 2019.
The Company acts as the lessor for four sublease agreements on its corporate headquarters, consisting solely of operating leases, each of which include a renewal option for the lessee to extend the length of the lease. Renewal options for two of the sublease agreements are contingent upon renewal of the corporate headquarters lease, which is not reasonably certain to be exercised in 2028. As such, the Company determined these sublease renewal options are not reasonably certain to be exercised. Renewal options for the remaining two sublease agreements have already been exercised and will expire before the end of the corporate headquarters lease in 2028.
The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from any of its short-term leases. All leases with a term of 12 months or less at commencement, for which the Company is not reasonably certain to exercise available renewal options that would extend the lease term past 12 months, will be recognized on a straight-line basis over the lease term.
13
The Company used its Senior Secured Credit Facility interest rate to extrapolate a rate for each of its leases to calculate the present value of the lease liability and right-of-use asset. A summary of the Company’s lease cost is as follows (in thousands, except for weighted-averages):
| (a) | Includes approximately $1.8 million of variable lease cost. |
| (b) | Includes expenses associated with short-term leases of billboard advertisements and is included in “Marketing Funds expenses” on the Condensed Consolidated Statements of Income. |
Maturities under non-cancellable leases as of June 30, 2019 were as follows (in thousands):
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, maturities under non-cancellable leases as of December 31, 2018 were as follows (in thousands):
14
4. Non-controlling Interest
RE/MAX Holdings is the sole managing member of RMCO and operates and controls all of the business affairs of RMCO. The ownership of the common units in RMCO is summarized as follows:
The weighted average ownership percentages for the applicable reporting periods are used to calculate the net income attributable to RE/MAX Holdings. A reconciliation of “Income before provision for income taxes” to “Net Income attributable to RE/MAX Holdings, Inc.” and “Net Income attributable to non-controlling interest” in the accompanying Condensed Consolidated Statements of Income for the periods indicated is detailed as follows (in thousands, except for percentages):
| (a) | The weighted average ownership percentage of RMCO differs from the allocation of income before provision for income taxes between RE/MAX Holdings and the non-controlling interest due to certain relatively insignificant expenses recorded at RE/MAX Holdings. |
| (b) | The provision for income taxes attributable to RE/MAX Holdings is primarily comprised of U.S. federal and state income taxes on its proportionate share of the pass-through income from RMCO. It also includes RE/MAX Holdings’ share of taxes directly incurred by RMCO and its subsidiaries, related primarily to tax liabilities in certain foreign jurisdictions. |
| (c) | The provision for income taxes attributable to the non-controlling interest represents its share of taxes related primarily to tax liabilities in certain foreign jurisdictions directly incurred by RMCO or its subsidiaries. Because RMCO is a pass-through entity, there is no U.S. federal and state income tax provision recorded on the non-controlling interest. |
15
Distributions and Other Payments to Non-controlling Unitholders
Under the terms of RMCO’s fourth amended and restated limited liability company operating agreement (the “RMCO, LLC Agreement”), RMCO makes cash distributions to non-controlling unitholders on a pro-rata basis. The distributions paid or payable to non-controlling unitholders are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
||||
|
|
|
June 30, |
||||
|
|
|
2019 |
|
2018 |
||
|
Tax and other distributions |
|
$ |
2,031 |
|
$ |
2,794 |
|
Dividend distributions |
|
|
5,275 |
|
|
5,024 |
|
Total distributions to non-controlling unitholders |
|
$ |
7,306 |
|
$ |
7,818 |
5. Earnings Per Share and Dividends
Earnings Per Share
Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted EPS measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The treasury stock method is used to determine the dilutive potential of stock options and restricted stock units.
The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations (in thousands, except share and per share information):
Outstanding Class B common stock does not share in the earnings of RE/MAX Holdings and is therefore not a participating security. Accordingly, basic and diluted net income per share of Class B common stock has not been presented.
16
Dividends
Dividends declared and paid quarterly per share on all outstanding shares of Class A common stock were as follows (in thousands, except share and per share information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||||||||||||||||||
|
|
|
2019 |
|
2018 |
||||||||||||||||||
|
|
|
Date paid |
|
Per share |
|
Amount paid
|
|
Amount paid
|
|
Date paid |
|
Per share |
|
Amount paid
|
|
Amount paid
|
||||||
|
Dividend declared during quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
March 20, 2019 |
|
$ |
0.21 |
|
$ |
3,740 |
|
$ |
2,638 |
|
March 21, 2018 |
|
$ |
0.20 |
|
$ |
3,547 |
|
$ |
2,512 |
|
June 30 |
|
May 29, 2019 |
|
|
0.21 |
|
|
3,739 |
|
|
2,638 |
|
May 30, 2018 |
|
|
0.20 |
|
|
3,549 |
|
|
2,512 |
|
|
|
|
|
$ |
0.42 |
|
$ |
7,479 |
|
$ |
5,276 |
|
|
|
$ |
0.40 |
|
$ |
7,096 |
|
$ |
5,024 |
On July 31, 2019, the Company’s Board of Directors declared a quarterly dividend of $0.21 per share on all outstanding shares of Class A common stock, which is payable on August 28, 2019 to stockholders of record at the close of business on August 14, 2019.
6. Acquisitions
Marketing Funds
On January 1, 2019, the Company acquired all of the regional and pan-regional advertising fund entities previously owned by its founder and Chairman of the Board of Directors, David Liniger, for a nominal amount. As in the past, the Marketing Funds are contractually obligated to use the funds collected to support both regional and pan-regional marketing campaigns designed to build and maintain brand awareness and to support the Company’s agent marketing technology. The Company does not plan for the use of the funds to change because of this acquisition and consolidation. The acquisitions of the Marketing Funds are part of the Company’s succession plan, and ownership of the Marketing Funds by the franchisor is a common structure. Fees incurred with the acquisition of the Marketing Funds were not material for the three and six months ended June 30, 2019 and the year ended December 31, 2018.
The total assets equal the total liabilities of the Marketing Funds and beginning January 1, 2019, are reflected in the condensed consolidated financial statements of the Company. The Company also began recognizing revenue from the amounts collected, which substantially increased its revenues and expenses.
The following table summarizes the Company’s allocation of the purchase price to the fair value of assets acquired and liabilities assumed (in thousands):
The Company finalized its accounting for the acquisition of the Marketing Funds during the three months ended June 30, 2019. The Marketing Funds constitutes a business and was accounted for using the fair value acquisition method. The total purchase price was allocated to the assets acquired based on their estimated fair values.
17
Booj, LLC
On February 26, 2018, RE/MAX, LLC acquired all membership interests in booj using $26.3 million in cash generated from operations, plus up to approximately $10.0 million in equity-based compensation to be earned over time, which will be accounted for as compensation expense in the future (see Note 12, Equity-Based Compensation for additional information). RE/MAX, LLC acquired booj in order to deliver core technology solutions designed for and with RE/MAX affiliates.
The following table summarizes the Company’s allocation of the purchase price to the fair value of assets acquired and liabilities assumed (in thousands):
The Company finalized its accounting for the acquisition of booj during the year ended December 31, 2018. Booj constitutes a business and was accounted for using the fair value acquisition method. The total purchase price was allocated to the assets acquired based on their estimated fair values. The largest intangible assets acquired were valued using an income approach which utilizes Level 3 inputs and are being amortized over a weighted-average useful life using the straight-line method. The excess of the total purchase price over the fair value of the identifiable assets acquired was recorded as goodwill. The goodwill is attributable to expected synergies and projected long-term revenue growth for the RE/MAX network. All of the goodwill recognized is tax deductible.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the acquisition of booj had occurred on January 1, 2017 and the acquisition of the Marketing Funds had occurred January 1, 2018. The historical financial information has been adjusted to give effect to events that are (1) directly attributed to the acquisitions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the acquisitions had actually occurred on such dates, nor of the results that may be obtained in the future.
18
7. Intangible Assets and Goodwill
The following table provides the components of the Company’s intangible assets (in thousands, except weighted average amortization period in years):
| (a) | As of June 30, 2019, and December 31, 2018, capitalized software development costs of $7.4 million and $4.5 million, respectively, were related to technology projects not yet complete and ready for their intended use and thus were not subject to amortization. |
| (b) | Other consists of customer relationships and a favorable market lease, both obtained in connection with the acquisition of booj. The favorable market lease was subsumed into “Operating lease right of use assets” on the accompanying Condensed Consolidated Balance Sheet upon adopting the new lease standard on January 1, 2019. See Note 2, Summary of Significant Accounting Policies for additional information. |
Amortization expense for the three months ended June 30, 2019 and 2018 was $5.1 million and $4.7 million, respectively. Amortization expense for the six months ended June 30, 2019 and 2018 was $10.3 million and $9.1 million, respectively.
As of June 30, 2019, the estimated future amortization expense for the next five years related to intangible assets is as follows (in thousands):
|
|
|
|
|
|
As of June 30, 2019: |
|
|
|
|
Remainder of 2019 |
|
$ |
18,969 |
|
2020 |
|
$ |
22,271 |
|
2021 |
|
$ |
21,462 |
|
2022 |
|
$ |
18,312 |
|
2023 |
|
$ |
14,157 |
The following table presents changes to goodwill for the period from January 1, 2019 to June 30, 2019 (in thousands), by segment:
19
8. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
| (a) | Consists primarily of liabilities recognized to reflect the contractual restriction that all funds collected in the Marketing Funds must be spent for designated purposes. See Note 2, Summary of Significant Accounting Policies for additional information. As previously noted, the Marketing Funds were acquired on January 1, 2019. |
9. Debt
Debt, net of current portion, consists of the following (in thousands):
| (a) | Includes financing assumed with the acquisition of booj. As of June 30, 2019, the carrying value of this financing approximates the fair value. |
Maturities of debt are as follows (in thousands):
|
|
|
|
|
|
As of June 30, 2019: |
|
|
|
|
Remainder of 2019 |
|
$ |
1,315 |
|
2020 |
|
|
2,704 |
|
2021 |
|
|
2,350 |
|
2022 |
|
|
2,350 |
|
2023 |
|
|
220,313 |
|
|
|
$ |
229,032 |
Senior Secured Credit Facility
On December 15, 2016, RMCO and RE/MAX, LLC, a wholly owned subsidiary of RMCO, entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto (the “Senior Secured Credit Facility”). The Senior Secured Credit Facility consists of a $235.0 million term loan facility which matures on December 15, 2023 and a $10.0 million revolving loan facility which must be repaid on December 15, 2021. As of June 30, 2019, the Company had no revolving loans outstanding under its Senior Secured Credit Facility. As of June 30, 2019, the interest rate on the term loan facility was 5.15%.
20
10. Fair Value Measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, the Company follows a three-tier fair value hierarchy, which is described in detail in the 2018 Annual Report on Form 10-K.
A summary of the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 is as follows (in thousands):
The Company is required to pay additional purchase consideration totaling eight percent of gross receipts collected by Motto each year (the “Revenue Share Year”) through September 30, 2026, with no limitation as to the maximum payout. The fair value of the contingent purchase consideration represents the forecasted discounted cash payments that the Company expects to pay. Increases or decreases in the fair value of the contingent purchase consideration can result from changes in discount rates as well as the timing and amount of forecasted revenues. The forecasted revenue growth assumption that is most sensitive is the assumed franchise sales count for which the forecast assumes between 50 and 80 franchises sold annually. This assumption is based on historical sales and an assumption of growth over time. A 10% reduction in the number of franchise sales would decrease the liability by $0.3 million. A 1% change to the discount rate applied to the forecast would change the liability by approximately $0.3 million. The Company measures this liability each reporting period and recognizes changes in fair value, if any, in “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income.
The table below presents a reconciliation of this liability for the period from January 1, 2019 to June 30, 2019 (in thousands):
|
|
|
|
|
|
Balance at January 1, 2019 |
|
$ |
5,070 |
|
Fair value adjustments |
|
|
345 |
|
Balance at June 30, 2019 |
|
$ |
5,415 |
The following table summarizes the carrying value and fair value of the Senior Secured Credit Facility as of June 30, 2019 and December 31, 2018 (in thousands):
11. Income Taxes
The “Provision for income taxes” in the accompanying Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018 is based on an estimate of the Company’s annualized effective income tax rate.
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted which includes significant changes to the U.S. Corporate tax system. The Company will continue to evaluate tax planning opportunities as well as monitor any changes that might be contained in the final regulations related to TCJA. Such final regulations are expected in 2019.
21
12. Equity-Based Compensation
Employee stock-based compensation expense, net of the amount capitalized in internally developed software, is as follows (in thousands):
| (a) | Includes expense recognized and costs capitalized in connection with the awards granted to booj employees and former owners at the time of acquisition. |
| (b) | Expense recognized for performance-based awards is re-assessed each quarter based on expectations of achievement against the performance conditions. As of June 30, 2019, certain conditions were no longer deemed probable of being met, primarily for awards that must achieve a certain amount of revenue over a three-year performance period, and the cumulative expense previously recognized was reversed in the current period. |
| (c) | In 2019, the Company revised its annual bonus plan so that a portion of the bonus for most employees will be settled in shares if the Company meets certain performance metrics. The share amounts to be issued will be determined based on the stock price at the time of vesting in early 2020. These amounts are recognized as “Accrued liabilities” in the accompanying Condensed Consolidated Balance Sheet and are not included in “Additional paid-in capital” until shares are issued. |
Time-based Restricted Stock Units
The following table summarizes equity-based compensation activity related to time-based RSUs as of and for the six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
Time-based
|
|
Weighted average
|
|
|
Balance, January 1, 2019 |
|
298,610 |
|
$ |
51.97 |
|
Granted |
|
158,342 |
|
$ |
38.61 |
|
Shares vested (including tax withholding) (a) |
|
(66,918) |
|
$ |
46.66 |
|
Forfeited |
|
(5,844) |
|
$ |
46.41 |
|
Balance, June 30, 2019 |
|
384,190 |
|
$ |
47.48 |
| (a) | Pursuant to the terms of the 2013 Incentive Plan, RSUs withheld by the Company for the payment of the employee's tax withholding related to an RSU vesting are added back to the pool of shares available for future awards. |
At June 30, 2019, there was $13.2 million of total unrecognized time-based RSU expense, all of which is related to unvested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 2.15 years for time-based restricted stock units.
22
Performance-based Restricted Stock Units
The following table summarizes equity-based compensation activity related to performance-based RSUs as of and for the six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
Performance-based
|
|
Weighted average
|
|
|
Balance, January 1, 2019 |
|
179,615 |
|
$ |
55.75 |
|
Granted (a) |
|
93,028 |
|
$ |
41.37 |
|
Shares vested |
|
(5,620) |
|
$ |
56.59 |
|
Forfeited |
|
(30,716) |
|
$ |
52.97 |
|
Balance, June 30, 2019 |
|
236,307 |
|
$ |
39.24 |
| (a) | Represents the total participant target award. |
At June 30, 2019, there was $4.3 million of total unrecognized performance-based RSU expense, all of which is related to unvested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 2.06 years for performance-based RSUs.
After giving effect to all outstanding awards (assuming maximum achievement of performance goals for performance-based awards), there were 2,187,446 additional shares available for the Company to grant as of June 30, 2019.
13. Leadership Changes and the New Service Model
On February 9, 2018, the Company announced the retirement of the Company’s President. The Company entered into a Separation Agreement with the President, and pursuant to the terms of this agreement, the Company incurred a total cost of $1.8 million which was recorded to “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income during the quarter ended March 31, 2018, which is being paid over a 39-month period.
In addition, the Company announced a new service model in early 2019 designed to deliver more value to franchisees, as well as support franchisee growth and professional development (the “New Service Model”). In connection with the New Service Model, the Company incurred approximately $2.1 million in total expenses related to severance and outplacement services provided to certain former employees of the Company, of which $0.7 million in expense was recognized for the three months ended March 31, 2019 and the remainder was recognized in 2018. These expenses are included in “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income. All of the above costs were attributable to the RE/MAX Franchising reportable segment.
14. Commitments and Contingencies
There have been no material changes to the Company’s commitments and contingencies as of the date of this report, outside of the ordinary course of business, since reporting in the Company’s 2018 Form 10-K.
The Company has a contingent consideration arrangement to pay additional purchase consideration based on Motto’s future gross receipts, through September 30, 2026. See Note 10, Fair Value Measurements for additional information.
The Company is subject to litigation claims arising in the ordinary course of business. The Company believes that it has adequately accrued for legal matters in accordance with the requirements of GAAP. The Company records litigation accruals for legal matters which are both probable and estimable and for related legal costs as incurred. The Company does not reduce these liabilities for potential insurance or third-party recoveries.
23
Management of the Company believes that no such litigation matters involving a reasonably possible chance of loss will, individually or in the aggregate, result in a material adverse effect on the Company's financial condition, results of operations and cash flows.
15. Related-Party Transactions
The majority stockholders of RIHI, specifically the Company’s current Chairman and Co-Founder and the Company’s Vice Chair and Co-Founder have made and continue to make a golf course they own available to the Company for business purposes. The Company used the golf course and related facilities for business purposes at minimal charge during the six months ended June 30, 2019 and 2018. Additionally, the Company recorded expense of $0.3 million for the value of the benefits provided to Company personnel and others for the complimentary use of the golf course during each of the six months ended June 30, 2019 and 2018, with an offsetting increase in additional paid in capital.
The Company provides services, such as accounting, legal, marketing, technology, human resources and public relations services, to certain affiliated entities (primarily the Company’s affiliated marketing funds prior to the acquisition of the Marketing Funds on January 1, 2019), and it allows these companies to share its leased office space. During the three and six months ended June 30, 2018, the total amount allocated for services rendered and rent for office space provided on behalf of affiliated entities was $0.9 million and $1.9 million, respectively. As of January 1, 2019, the affiliated marketing funds are included in the consolidated financial statements (see Note 6, Acquisitions for additional information), and therefore, are no longer considered related parties.
16. Segment Information
The Company has two reportable segments: RE/MAX Franchising and the Marketing Funds. The category Other consists of the Motto Franchising and booj operating segments. Management evaluates the operating results of its segments based upon revenue and adjusted earnings before interest, the provision for income taxes, depreciation and amortization and other non-cash and non-recurring cash charges or other items (“Adjusted EBITDA”). The Company’s presentation of Adjusted EBITDA may not be comparable to similar measures used by other companies. The accounting policies of the reportable segments are the same as those described in Note 2, Summary of Significant Accounting Policies.
The following table presents revenue from external customers by segment for the three and six months ended June 30, 2019 and 2018 (in thousands):
24
The following table presents a reconciliation of Adjusted EBITDA by segment to income before provision for income taxes for the three and six months ended June 30, 2019 and 2018 (in thousands):
| (a) | As the revenue for the Marketing Funds are contractually restricted for the benefit of franchisees and the Company has an equal and offsetting amount of expenses such that there is no impact to overall profitability of the Company, there is no Adjusted EBITDA for the Marketing Funds. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for more information on the Company’s presentation of Adjusted EBITDA and a reconciliation of the differences between the Company’s Adjusted EBITDA and net income, which is the most comparable GAAP measure for operating performance. |
| (b) | Acquisition-related expense includes legal, accounting, advisory and consulting fees incurred in connection with the acquisition and integration of acquired companies. |
| (c) | Special Committee investigation and remediation expense relates to costs incurred in relation to the previously disclosed investigation by the special committee of independent directors of actions of certain members of our senior management and the implementation of the remediation plan. |
| (d) | Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liability. See Note 10, Fair Value Measurements for additional information. |
| (a) |
25
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of our operations should be read together with the condensed consolidated financial statements and the related notes of RE/MAX Holdings, Inc. included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and the related notes of RE/MAX Holdings, Inc. included in our most recent Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report on Form 10-K”).
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These 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; financial outlook; our plans regarding dividends; non-GAAP financial measures; housing and mortgage market condition and trends; economic and demographic trends; competition; the anticipated benefits of the development and release of booj technology and other technology initiatives; our anticipated sources and uses of liquidity including for potential reacquisitions of Independent Regions in the U.S. and Canada as well as additional acquisitions or investments in complementary business, services and technologies; the Company’s strategic and operating plans and business models including our plans to re-invest in our business; and our Board of Directors and management structure.
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 materiality from those expressed in or suggested by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our 2018 Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not intend, and we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
The results of operations discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are those of RE/MAX Holdings, Inc. (“RE/MAX Holdings”) and its consolidated subsidiaries, including RMCO, LLC and its consolidated subsidiaries (“RMCO”), collectively, the “Company,” “we,” “our” or “us.”
Business Overview
We are one of the world’s leading franchisors in the real estate industry, franchising real estate brokerages globally under the RE/MAX brand (“RE/MAX”) and mortgage brokerages within the U.S. under the Motto Mortgage brand (“Motto”). RE/MAX and Motto are 100% franchised – we do not own any of the brokerages that operate under these brands. Although we partner with our franchisees to assist them in growing their brokerages, they fund the cost of developing their businesses. As a result, we maintain a low fixed-cost structure, which combined with our recurring, fee-based models, enables us to capitalize on the economic benefits of the franchising model, yielding high margins and significant cash flow.
On February 26, 2018, we acquired Active Website, LLC, (“booj”), a real estate technology company, in order to deliver core technology solutions designed for and with RE/MAX affiliates. In January 2019, the Company acquired all of the regional and pan-regional advertising fund entities previously owned by its founder and Chairman of the Board of Directors, David Liniger. All of these entities, except for the Western Canada region, were then merged into a new entity called RE/MAX Marketing Fund (with the Western Canada fund, collectively, the “Marketing Funds”). This acquisition
26
resulted in two reportable segments: RE/MAX Franchising and the Marketing Funds. The Company recognizes an equal and offsetting amount of expenses to revenue for the Marketing Funds such that there is no impact to overall profitability of the Company. As such, segment results specific to the Marketing Funds are not discussed below.
Financial and Operational Highlights – Three Months Ended June 30, 2019
(Compared to three months ended June 30, 2018, unless otherwise noted)
| ● | Total agent count grew by 3.2% to 127,020 agents. |
| ● | U.S. and Canada combined agent count decreased 2.0% to 84,133 agents. |
| ● | Revenue of $71.4 million, up 31.5% from the prior year. Excluding the acquisition of the Marketing Funds, revenue decreased $1.0 million from the prior year. |
| ● | Net income attributable to RE/MAX Holdings, Inc. of $8.6 million. |
| ● | Adjusted EBITDA of $29.9 million and Adjusted EBITDA margin of 41.9%. Adjusted EBITDA margin decreased considerably from the prior year because of the acquisition of the Marketing Funds, which increased revenue significantly, but had no impact to Adjusted EBITDA. |
During the three months ended June 30, 2019, we grew our total agent count 3.2% as compared to the three months ended June 30, 2018 led by strong growth in international markets. Intense competition and the subdued housing markets in both the U.S. and Canada continued to pressure agent count in those markets where we experienced a combined decline of 2.0% from the prior year quarter. Our Motto Mortgage business continued to expand with 98 open franchises as of June 30, 2019. Despite a 2.6% decline in U.S. existing home sales according to the Federal Reserve Economic Data observations (“FRED”), our agent-centric business model and differentiated revenue streams only experienced a 1.8% decline in revenue, excluding the Marketing Funds, during the three months ended June 30, 2019 compared to the prior year period. We also maintain a low fixed-cost structure which yields high margins and significant cash flow. The expansion of Motto Mortgage, the favorable timing of certain expenses and the prudent management of our cost structure resulted in approximately 300bps of Adjusted EBITDA margin expansion, excluding the impact of the acquisition of the Marketing Funds, during the three months ended June 30, 2019 compared to the prior year period. Lastly, we continue to invest strategically and meaningfully in our network, our value proposition and future growth opportunities. We expect to begin introducing the powerful, fully integrated booj technology platform that has been custom-built for RE/MAX’s unique entrepreneurial culture in the third quarter of 2019 in our U.S. Company-owned regions. Beginning next year, we plan to offer the booj platform to participating Independent U.S. regions and to Canada. Ultimately, we plan to offer the platform throughout our global network. We plan to continue to innovate and release ongoing updates to the platform including the deployment of an enhanced consumer facing app and www.remax.com experience.
27
Selected Operating and Financial Highlights
For comparability purposes, the following tables set forth our agent count, Motto open offices, franchise sales and results of operations for the periods presented in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The period-to-period comparison of agent count, Motto open offices, franchise sales and financial results is not necessarily indicative of future performance.
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
||||
|
|
|
June 30, |
|
||||
|
|
|
2019 |
|
2018 |
|
||
|
Total agent count growth |
|
|
3.2 |
% |
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
Agent Count: |
|
|
|
|
|
|
|
|
U.S. |
|
|
62,700 |
|
|
64,495 |
|
|
Canada |
|
|
21,433 |
|
|
21,366 |
|
|
U.S. and Canada Total |
|
|
84,133 |
|
|
85,861 |
|
|
Outside U.S. and Canada |
|
|
42,887 |
|
|
37,221 |
|
|
Network-wide agent count |
|
|
127,020 |
|
|
123,082 |
|
|
|
|
|
|
|
|
|
|
|
Motto open offices |
|
|
98 |
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
RE/MAX franchise sales (a) |
|
|
368 |
|
|
455 |
|
|
Motto franchise sales |
|
|
17 |
|
|
23 |
|
| (a) | Includes franchise sales in the U.S., Canada and global regions. |
| (a) | See “—Non-GAAP Financial Measures” for further discussion of Adjusted EBITDA and Adjusted EBITDA margin and a reconciliation of the differences between Adjusted EBITDA and net income, which is the most comparable U.S. generally accepted accounting principles (“U.S. GAAP”) measure for operating performance. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue. Adjusted EBITDA margins decreased considerably from the prior year because of the acquisition of the Marketing Funds, which increased revenue significantly, but had no impact to Adjusted EBITDA. |
28
Results of Operations
Comparison of the Three Months Ended June 30, 2019 and 2018
Revenue
A summary of the components of our revenue for the three months ended June 30, 2019 and 2018 is as follows (in thousands except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
|
|||||||
|
|
|
June 30, |
|
Favorable/(Unfavorable) |
|
|||||||
|
|
|
2019 |
|
2018 |
|
$ |
|
% |
|
|||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing franchise fees |
|
$ |
24,894 |
|
$ |
25,211 |
|
$ |
(317) |
|
(1.3) |
% |
|
Annual dues |
|
|
8,819 |
|
|
8,973 |
|
|
(154) |
|
(1.7) |
% |
|
Broker fees |
|
|
13,459 |
|
|
13,993 |
|
|
(534) |
|
(3.8) |
% |
|
Marketing Funds fees |
|
|
18,060 |
|
|
— |
|
|
18,060 |
|
n/m |
|
|
Franchise sales and other revenue |
|
|
6,149 |
|
|
6,100 |
|
|
49 |
|
0.8 |
% |
|
Total revenue |
|
$ |
71,381 |
|
$ |
54,277 |
|
$ |
17,104 |
|
31.5 |
% |
n/m – not meaningful
Consolidated revenue increased $17.1 million, or 31.5%, due to acquisitions of the Marketing Funds, which added $18.1 million, or 33.3%, partially offset by a decrease in organic revenue of $0.8 million, or 1.4%, and foreign currency movements of $0.2 million, or 0.4%.
Continuing Franchise Fees
Revenue from continuing franchise fees decreased primarily due to agent count decreases in the U.S. and Company-owned regions in Canada and was partially offset by Motto expansion.
Annual Dues
Revenue from annual dues decreased primarily due to agent count declines.
Broker Fees
Revenue from broker fees decreased primarily due to lower total transactions per agent given the 2.6% decline in U.S. existing home sales according to FRED, partially offset by rising home prices.
Marketing Funds fees
Revenue from the Marketing Funds fees increased due to the acquisition of the Marketing Funds on January 1, 2019.
Franchise Sales and Other Revenue
Franchise sales and other revenue was relatively flat compared to the prior year period.
29
Operating Expenses
A summary of the components of our operating expenses for the three months ended June 30, 2019 and 2018 is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
|
|||||||
|
|
|
June 30, |
|
Favorable/(Unfavorable) |
|
|||||||
|
|
|
2019 |
|
2018 |
|
$ |
|
% |
|
|||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, operating and administrative expenses |
|
$ |
25,726 |
|
$ |
28,307 |
|
$ |
2,581 |
|
9.1 |
% |
|
Marketing Funds expenses |
|
|
18,060 |
|
|
— |
|
|
(18,060) |
|
n/m |
|
|
Depreciation and amortization |
|
|
5,541 |
|
|
5,069 |
|
|
(472) |
|
(9.3) |
% |
|
(Gain) on sale or disposition of assets, net |
|
|
(16) |
|
|
(13) |
|
|
3 |
|
(23.1) |
% |
|
Total operating expenses |
|
$ |
49,311 |
|
$ |
33,363 |
|
$ |
(15,948) |
|
(47.8) |
% |
|
Percent of revenue |
|
|
69.1 |
% |
|
61.5 |
% |
|
|
|
|
|
n/m – not meaningful
Selling, operating and administrative expenses consisted of personnel costs, professional fee expenses, rent and related facility operations expense (including losses on subleases in the prior year) and other expenses. Other expenses within selling, operating and administrative expenses include certain marketing and production costs that are not paid by the Marketing Funds, including travel and entertainment costs, and costs associated with our annual conventions in the U.S. and other events.
A summary of the components of our selling, operating and administrative expenses for the three months ended June 30, 2019 and 2018 is as follows (in thousands, except percentages):
Total selling, operating and administrative expenses decreased as follows:
| ● | Personnel costs decreased primarily due to a reduction in technology investment costs, reduced stock compensation expense, and various other savings in personnel costs. |
| ● | Professional fees decreased primarily due to costs incurred in 2018 related to legal fees, primarily related to an investigation by a special committee of our Board of Directors (the “Special Committee”). These costs did not recur in 2019. |
| ● | Other selling, operating and administrative expenses increased primarily due to increases in property tax expense (driven by an increase in the assessed value of our corporate headquarters) and bad debt expense, partially offset by a decrease in costs associated with our events. |
30
Marketing Funds Expenses
Marketing Funds expenses increased due to the acquisition of the Marketing Funds on January 1, 2019. The Company recognizes an equal and offsetting amount of expenses to revenue such that there is no impact to overall profitability of the Company.
Depreciation and Amortization
Depreciation and amortization expense decreased primarily due to amortization expense related to intangibles acquired in connection with the acquisition of booj in 2018. See Note 6, Acquisitions to the accompanying unaudited condensed consolidated financial statements for additional information.
Other Expenses, Net
A summary of the components of our other expenses, net for the three months ended June 30, 2019 and 2018 is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
|
|||||||
|
|
|
June 30, |
|
Favorable/(Unfavorable) |
|
|||||||
|
|
|
2019 |
|
2018 |
|
$ |
|
% |
|
|||
|
Other expenses, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
(3,154) |
|
$ |
(3,171) |
|
$ |
17 |
|
0.5 |
% |
|
Interest income |
|
|
342 |
|
|
98 |
|
|
244 |
|
n/m |
|
|
Foreign currency transaction gains (losses) |
|
|
61 |
|
|
(103) |
|
|
164 |
|
n/m |
|
|
Total other expenses, net |
|
$ |
(2,751) |
|
$ |
(3,176) |
|
$ |
425 |
|
13.4 |
% |
|
Percent of revenue |
|
|
3.9 |
% |
|
5.9 |
% |
|
|
|
|
|
n/m – not meaningful
Other expenses, net decreased primarily due to an increase in interest income and foreign currency gains that were primarily a result of fluctuations of the Canadian dollar against the U.S. dollar.
Provision for Income Taxes
Our effective income tax rate decreased to 16.5% from 17.7% for the three months ended June 30, 2019 and 2018, respectively, primarily due to differences in treatment of foreign income and taxes. Our effective income tax rate depends on many factors, including a rate benefit attributable to the fact that the portion of RMCO’s earnings attributable to the non-controlling interests are not subject to corporate-level taxes because RMCO is classified as a partnership for U.S. federal income tax purposes and therefore is treated as a “flow-through entity,” as well as annual changes in state and foreign income tax rates. See Note 4, Non-controlling Interest to the accompanying unaudited condensed consolidated financial statements for further details on the allocation of income taxes between RE/MAX Holdings and the non-controlling interest.
Adjusted EBITDA
See “—Non-GAAP Financial Measures” for our definition of Adjusted EBITDA and for further discussion of our presentation of Adjusted EBITDA as well as a reconciliation of Adjusted EBITDA to net income, which is the most comparable GAAP measure for operating performance.
Adjusted EBITDA was $29.9 million for the three months ended June 30, 2019, an increase of $1.1 million from the comparable prior year period. Adjusted EBITDA increased primarily due to lower costs for personnel and legal expenses and expansion of Motto, partially offset by slightly lower organic revenue growth.
31
Comparison of the Six Months Ended June 30, 2019 and 2018
Revenue
A summary of the components of our revenue for the six months ended June 30, 2019 and 2018 is as follows (in thousands except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Change |
|
|||||||
|
|
|
June 30, |
|
Favorable/(Unfavorable) |
|
|||||||
|
|
|
2019 |
|
2018 |
|
$ |
|
% |
|
|||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing franchise fees |
|
$ |
49,850 |
|
$ |
50,451 |
|
$ |
(601) |
|
(1.2) |
% |
|
Annual dues |
|
|
17,673 |
|
|
17,669 |
|
|
4 |
|
n/m |
|
|
Broker fees |
|
|
22,047 |
|
|
23,181 |
|
|
(1,134) |
|
(4.9) |
% |
|
Marketing Funds fees |
|
|
36,832 |
|
|
— |
|
|
36,832 |
|
n/m |
|
|
Franchise sales and other revenue |
|
|
16,157 |
|
|
15,618 |
|
|
539 |
|
3.5 |
% |
|
Total revenue |
|
$ |
142,559 |
|
$ |
106,919 |
|
$ |
35,640 |
|
33.3 |
% |
Consolidated revenue increased $35.6 million, or 33.3%, due to acquisitions of the Marketing Funds and booj, which added $37.9 million, or 35.5%, partially offset by a decrease in organic revenue of $1.9 million, or 1.7%, and foreign currency movements of $0.4 million, or 0.4%.
Continuing Franchise Fees
Revenue from continuing franchise fees decreased primarily due to agent count decreases in the U.S. and Company-owned regions in Canada and was partially offset by Motto expansion.
Annual Dues
Revenue from annual dues was flat due to a fee increase from July 1, 2017 offsetting the impact of agent count declines.
Broker Fees
Revenue from broker fees decreased primarily due to lower total transactions per agent given the 4.2% decline in U.S. existing home sales according to FRED, partially offset by rising home prices.
Marketing Funds fees
Revenue from the Marketing Funds fees increased due to the acquisition of the Marketing Funds on January 1, 2019.
Franchise Sales and Other Revenue
Franchise sales and other revenue increased primarily due to the acquisition of booj, offset by declines in event-based revenue from our annual convention in the U.S. and lower amounts of revenue from our preferred marketing arrangements.
32
Operating Expenses
A summary of the components of our operating expenses for the six months ended June 30, 2019 and 2018 is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Change |
|
|||||||
|
|
|
June 30, |
|
Favorable/(Unfavorable) |
|
|||||||
|
|
|
2019 |
|
2018 |
|
$ |
|
% |
|
|||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, operating and administrative expenses |
|
$ |
59,250 |
|
$ |
62,675 |
|
$ |
3,425 |
|
5.5 |
% |
|
Marketing Funds expenses |
|
|
36,832 |
|
|
— |
|
|
(36,832) |
|
n/m |
|
|
Depreciation and amortization |
|
|
11,099 |
|
|
9,644 |
|
|
(1,455) |
|
(15.1) |
% |
|
Loss (gain) on sale or disposition of assets, net |
|
|
363 |
|
|
(31) |
|
|
(394) |
|
n/m |
|
|
Total operating expenses |
|
$ |
107,544 |
|
$ |
72,288 |
|
$ |
(35,256) |
|
(48.8) |
% |
|
Percent of revenue |
|
|
75.4 |
% |
|
67.6 |
% |
|
|
|
|
|
Selling, operating and administrative expenses consisted of personnel costs, professional fee expenses, rent and related facility operations expense (including losses on subleases in the prior year) and other expenses. Other expenses within selling, operating and administrative expenses include certain marketing and production costs that are not paid by the Marketing Funds, including travel and entertainment costs, and costs associated with our annual conventions in the U.S. and other events.
A summary of the components of our selling, operating and administrative expenses for the six months ended June 30, 2019 and 2018 is as follows (in thousands, except percentages):
Total selling, operating and administrative expenses decreased as follows:
| ● | Personnel costs increased primarily due to costs to support booj’s operations assisting its legacy customers. |
| ● | Professional fees decreased primarily due to costs incurred in 2018 related to an investigation by a special committee of our Board of Directors (the “Special Committee”) of $2.3 million and legal fees, primarily related to the settlement of the Tails litigation. These costs did not recur in 2019. |
| ● | Other selling, operating and administrative expenses increased primarily due to increases in property tax expense (driven by an increase in the assessed value of our corporate headquarters) and bad debt expense and investments in technology, partially offset by a decrease in advertising expense. |
33
Marketing Funds Expenses
Marketing Funds expenses increased due to the acquisition of the Marketing Funds on January 1, 2019. The Company recognizes an equal and offsetting amount of expenses to revenue such that there is no impact to overall profitability of the Company.
Depreciation and Amortization
Depreciation and amortization expense increased primarily due to amortization expense related to intangibles acquired in connection with the acquisition of booj in 2018. See Note 6, Acquisitions to the accompanying unaudited condensed consolidated financial statements for additional information.
Other Expenses, Net
A summary of the components of our other expenses, net for the six months ended June 30, 2019 and 2018 is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Change |
|
|||||||
|
|
|
June 30, |
|
Favorable/(Unfavorable) |
|
|||||||
|
|
|
2019 |
|
2018 |
|
$ |
|
% |
|
|||
|
Other expenses, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
(6,309) |
|
$ |
(5,895) |
|
$ |
(414) |
|
(7.0) |
% |
|
Interest income |
|
|
662 |
|
|
217 |
|
|
445 |
|
n/m |
|
|
Foreign currency transaction gains (losses) |
|
|
116 |
|
|
(186) |
|
|
302 |
|
n/m |
|
|
Total other expenses, net |
|
$ |
(5,531) |
|
$ |
(5,864) |
|
$ |
333 |
|
5.7 |
% |
|
Percent of revenue |
|
|
3.9 |
% |
|
5.5 |
% |
|
|
|
|
|
Other expenses, net decreased due to an increase in interest income and foreign currency gains that were primarily a result of fluctuations of the Canadian dollar against the U.S. dollar, partially offset by an increase in interest expense due to an increase in interest rates on our Senior Secured Credit Facility (as defined below).
Provision for Income Taxes
Our effective income tax rate decreased to 17.3% from 17.4% for the six months ended June 30, 2019 and 2018, respectively. Our effective income tax rate depends on many factors, including a rate benefit attributable to the fact that the portion of RMCO’s earnings attributable to the non-controlling interests are not subject to corporate-level taxes because RMCO is classified as a partnership for U.S. federal income tax purposes and therefore is treated as a “flow-through entity,” as well as annual changes in state and foreign income tax rates. See Note 4, Non-controlling Interest to the accompanying unaudited condensed consolidated financial statements for further details on the allocation of income taxes between RE/MAX Holdings and the non-controlling interest.
Adjusted EBITDA
See “—Non-GAAP Financial Measures” for our definition of Adjusted EBITDA and for further discussion of our presentation of Adjusted EBITDA as well as a reconciliation of Adjusted EBITDA to net income, which is the most comparable GAAP measure for operating performance.
Adjusted EBITDA was $52.9 million for the six months ended June 30, 2019, an increase of $1.3 million from the comparable prior year period. Adjusted EBITDA increased primarily due to severance costs incurred in the prior year period and continued Motto growth, partially offset by an increase in bad debt expense.
34
Non-GAAP Financial Measures
The Securities and Exchange Commission (“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. These measures are derived on the basis of methodologies other than in accordance with U.S. GAAP.
We define 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 our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance: loss or gain on sale or disposition of assets and sublease, equity-based compensation expense, acquisition-related expense, Special Committee investigation and remediation expense, expense or income related to changes in the estimated fair value measurement of contingent consideration and other non-recurring items.
Because Adjusted EBITDA omits certain non-cash items and other non-recurring cash charges or other items, we believe that it is less susceptible to variances that affect our operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items. We present Adjusted EBITDA, and the related Adjusted EBITDA margin, because we believe they are useful as supplemental measures in evaluating the performance of our operating businesses and provides greater transparency into our results of operations. Our management uses Adjusted EBITDA and Adjusted EBITDA margin as factors in evaluating the performance of our business.
Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider these measures either in isolation or as a substitute for analyzing our results as reported under U.S. GAAP. Some of these limitations are:
| ● | these measures do not reflect changes in, or cash requirements for, our working capital needs; |
| ● | these measures do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments on our debt; |
| ● | these measures do not reflect our income tax expense or the cash requirements to pay our taxes; |
| ● | these measures do not reflect the cash requirements to pay dividends to stockholders of our Class A common stock and tax and other cash distributions to our non-controlling unitholders; |
| ● | these measures do not reflect the cash requirements pursuant to the Tax Receivable Agreements (“TRAs”); |
| ● | 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. |
35
A reconciliation of Adjusted EBITDA to net income for the three and six months ended June 30, 2019 and 2018 is set forth in the following table (in thousands):
| (a) | Acquisition-related expense includes legal, accounting, advisory and consulting fees incurred in connection with the acquisition and integration of acquired companies. |
| (b) | Special Committee investigation and remediation expense relates to costs incurred in relation to the previously disclosed investigation by the special committee of independent directors of actions of certain members of our senior management and the implementation of the remediation plan. |
| (c) | Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liability. See Note 10, Fair Value Measurements to the accompanying unaudited condensed consolidated financial statements for additional information. |
Liquidity and Capital Resources
Overview of Factors Affecting Our Liquidity
Our liquidity position is affected by the growth of our agent base and conditions in the real estate market. In this regard, our short-term liquidity position from time to time has been, and will continue to be, affected by the number of agents in the RE/MAX network among other factors. Our cash flows are primarily related to the timing of:
| (i) | cash receipt of revenues; |
| (ii) | payment of selling, operating and administrative expenses, including costs to grow Motto; |
| (iii) | cash consideration for acquisitions and acquisition-related expenses; |
| (iv) | principal payments and related interest payments on our Senior Secured Credit Facility; |
| (v) | investments in technology; |
| (vi) | dividend payments to stockholders of our Class A common stock; |
| (vii) | distributions and other payments to non-controlling unitholders pursuant to the terms of RMCO’s fourth amended and restated limited liability company operating agreement (“the RMCO, LLC Agreement”); |
| (viii) | corporate tax payments paid by the Company; and |
| (ix) | payments to the TRA parties pursuant to the TRAs. |
We have satisfied these needs primarily through our existing cash balances, cash generated by our operations and funds available under our Senior Secured Credit Facility.
36
Financing Resources
RMCO and RE/MAX, LLC, a wholly owned subsidiary of RMCO, have a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto (the “Senior Secured Credit Facility”), as more fully described in the 2018 Annual Report on Form 10-K. The Senior Secured Credit Facility provided to RE/MAX, LLC $235.0 million in term loans and a $10.0 million revolving facility.
The Senior Secured Credit Facility restricts the aggregate acquisition consideration for permitted acquisitions, in a situation in which RE/MAX, LLC would not be in pro forma compliance with a 3.5:1.0 total leverage ratio (based on how such term is defined therein), to $100.0 million in any fiscal year. The Senior Secured Credit Facility also provides for incremental facilities, subject to lender participation, as long as the total leverage ratio (calculated as net debt to EBITDA as defined therein) remains below 4.00:1.00.
As of June 30, 2019, RE/MAX, LLC had $226.2 million of term loans outstanding, net of an unamortized discount and issuance costs, $0.5 million of long-term financing assumed with the acquisition of booj and no revolving loans outstanding under our Senior Secured Credit Facility. As of June 30, 2019, the interest rate on the term loan facility was 5.15%. If any loan or other amounts are outstanding under the revolving line of credit, the Senior Secured Credit Facility requires compliance with a leverage ratio and an interest coverage ratio.
Sources and Uses of Cash
As of June 30, 2019, and December 31, 2018, we had $72.5 million and $60.0 million, respectively of cash and cash equivalents, of which approximately $0.9 million and $1.1 million were denominated in foreign currencies, respectively.
The following table summarizes our cash flows from operating, investing, and financing activities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
||||
|
|
|
June 30, |
|
|
|
||||
|
|
|
2019 |
|
2018 |
|
Change |
|||
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
32,983 |
|
$ |
33,930 |
|
$ |
(947) |
|
Investing activities |
|
|
19,917 |
|
|
(27,329) |
|
|
47,246 |
|
Financing activities |
|
|
(16,870) |
|
|
(17,526) |
|
|
656 |
|
Effect of exchange rate changes on cash |
|
|
109 |
|
|
(43) |
|
|
152 |
|
Net change in cash, cash equivalents and restricted cash |
|
$ |
36,139 |
|
$ |
(10,968) |
|
$ |
47,107 |
Operating Activities
During the six months ended June 30, 2019, cash provided by operating activities decreased primarily as a result of:
| ● | a decrease in restricted cash of the Marketing Funds of $4.9 million, partially offset by; |
| ● | a net payment in February 2018 of $2.6 million to satisfy the terms of a litigation settlement that occurred in the prior year period; and |
| ● | an Adjusted EBITDA increase of $1.3 million. |
Investing Activities
During the six months ended June 30, 2019, cash provided by investing activities was primarily the result of restricted cash acquired in connection with the acquisition of the Marketing Funds, partially offset by investments in software. During the same period in 2018, cash used by investing activities was primarily due to the acquisition of booj. See Note 6, Acquisitions to the accompanying unaudited condensed consolidated financial statements for more information.
37
Financing Activities
During the six months ended June 30, 2019 cash used in financing activities increased primarily due to our Board of Directors declaring a dividend of $0.21 per share on all outstanding shares of Class A common stock during the first and second quarters of 2019 compared to a dividend of $0.20 per share on all outstanding shares of Class A common stock during the first and second quarters of 2018.
Capital Allocation Priorities
Liquidity
Our objective is to maintain a strong liquidity position. We have existing cash balances, cash flows from operating activities, access to our revolving line of credit and incremental facilities under our Senior Secured Credit Facility available to support the needs of our business.
Acquisitions
As part of our growth strategy we may pursue reacquisitions of Independent Regions in the U.S. and Canada as well as additional acquisitions or investments in complementary businesses, services and technologies that would provide access to new markets or customers, or otherwise complement our existing operations. We would fund any such growth with existing cash balances, funds generated from operations and access to our revolving line of credit and incremental facilities under our Senior Secured Credit Facility.
Capital Expenditures
The total aggregate amount for purchases of property and equipment and capitalization of developed software and trademark costs was $7.4 million and $1.4 million during the six months ended June 30, 2019 and 2018, respectively. These amounts primarily relate to investments in technology. In order to expand our technology, we plan to continue to re-invest in our business in order to improve operational efficiencies and enhance the tools and services provided to the franchisees and agents in our network. Total capital expenditures for 2019 are expected to be between $12.0 million and $14.0 million as a result of increased investments in technology. See Financial and Operational Highlights above for additional information.
Dividends
Our Board of Directors declared and paid quarterly cash dividends of $0.21 per share on all outstanding shares of Class A common stock during the first and second quarters of 2019, as disclosed in Note 5, Earnings Per Share and Dividends to the accompanying unaudited condensed consolidated financial statements. On July 31, 2019, our Board of Directors declared a quarterly cash dividend of $0.21 per share on all outstanding shares of Class A common stock, which is payable on August 28, 2019 to stockholders of record at the close of business on August 14, 2019. The declaration of additional future dividends, and, if declared, the amount of any such future dividend, will be subject to our actual future earnings and capital requirements and will be at the discretion of our Board of Directors; however, we currently intend to continue to pay a cash dividend on shares of Class A common stock on a quarterly basis.
38
Distributions and Other Payments to Non-controlling Unitholders by RMCO
Distributions and other payments pursuant to the RMCO, LLC Agreement and TRAs in the six months ended June 30, 2019 and 2018 were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
||||
|
|
|
June 30, |
||||
|
|
|
2019 |
|
2018 |
||
|
Distributions and other payments pursuant to the RMCO, LLC Agreement: |
|
|
|
|
|
|
|
Required distributions for taxes and pro rata distributions as a result of distributions to RE/MAX Holdings in order to satisfy its estimated tax liabilities |
|
$ |
2,031 |
|
$ |
2,794 |
|
Dividend distributions |
|
|
5,275 |
|
|
5,024 |
|
Total distributions to RIHI |
|
|
7,306 |
|
|
7,818 |
|
Payments pursuant to the TRAs |
|
|
2,854 |
|
|
— |
|
Total distributions to RIHI and TRA payments |
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$ |
10,160 |
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$ |
7,818 |
Commitments and Contingencies
Our management does not believe there are any matters involving us that could result, individually or in the aggregate, in a material adverse effect on our financial condition, results of operations and cash flows.
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements as of June 30, 2019.
Critical Accounting Judgments and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements and accompanying notes. Actual results could differ from those estimates. Our Critical Accounting Judgments and Estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Judgments and Estimates” in our 2018 Annual Report on Form 10-K for which there were no material changes, included:
| ● | Goodwill |
| ● | Franchise Agreements and Other Intangible Assets |
| ● | Purchase Accounting for Acquisitions |
| ● | Contingent Consideration |
| ● | Income Tax Accounting |
| ● | Deferred Tax Assets and TRA Liability |
| ● | General Litigation Matters |
New Accounting Pronouncements
There have been no new accounting pronouncements not yet effective that we believe have a significant impact, or potential significant impact, to our consolidated financial statements.
39
Item 3. Quantitative and Qualitative Disclosures About Market Risks
We have operations both within the U.S. and globally and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate, foreign exchange and inflation risks, as well as risks relating to changes in the general economic conditions in the countries where we conduct business. Our investment strategy has been to invest in financial instruments that are highly liquid and mature within three months from the date of purchase. We do not currently use derivative instruments to mitigate the impact of our market risk exposures nor do we use derivatives for trading or speculative purposes.
Interest Rate Risk
We are subject to interest rate risk in connection with borrowings under our Senior Secured Credit Facility which bear interest at variable rates. At June 30, 2019, $228.5 million in term loans were outstanding under our Senior Secured Credit Facility. We currently do not engage in any interest rate hedging activity, but given our variable rate borrowings, we monitor interest rates and if appropriate, may engage in hedging activity prospectively. The interest rate on our Senior Secured Credit Facility is currently based on LIBOR, subject to a floor of 0.75%, plus an applicable margin of 2.75%. As of June 30, 2019, the interest rate was 5.15%. If LIBOR rises, then each hypothetical 0.25% increase would result in additional annual interest expense of $0.6 million. To mitigate a portion of this risk, we invest our cash balances in short-term investments that earn interest at variable rates.
Currency Risk
We have a network of global franchisees in over 110 countries and territories. Fluctuations in exchange rates of the U.S. dollar against foreign currencies can result, and have resulted, in fluctuations in (a) revenue and operating income due to a portion of our revenue being denominated in foreign currencies and (b) foreign exchange transaction gains and losses due primarily to cash and accounts receivable balances denominated in foreign currencies, with the Canadian dollar representing the most significant exposure. We currently do not engage in any foreign exchange hedging activity of our revenues but may do so in the future; however, we actively convert cash balances into U.S. dollars to mitigate currency risk on cash positions. During the three and six months ended June 30, 2019, a hypothetical 5% strengthening/weakening in the value of the U.S. dollar compared to the Canadian dollar would have resulted in a decrease/increase to operating income of approximately $0.3 million and $0.5 million, respectively.
40
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that as of June 30, 2019 our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during our second quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
41
PART II. – OTHER INFORMATION
Item 1. Legal Proceedings
In March and April of 2019, three putative class action complaints were filed against National Association of Realtors (“NAR”), Realogy Holdings Corp., HomeServices of America, Inc, RE/MAX Holdings, and Keller Williams Realty, Inc. The first was filed on March 6, 2019, by plaintiff Christopher Moehrl in the Northern District of Illinois. The second was filed on April 15, 2019, by plaintiff Sawbill Strategies, Inc., also in the Northern District of Illinois. These two actions have now been consolidated. A third action was filed by plaintiffs Joshua Sitzer and Amy Winger in the Western District of Missouri. The complaints make substantially similar allegations and seek substantially similar relief. The plaintiffs allege that a NAR rule requires brokers to make a blanket, non-negotiable offer of buyer broker compensation when listing a property, resulting in inflated costs to sellers in violation of federal antitrust law. They further allege that certain defendants use their agreements with franchisees to require adherence to the NAR rule in violation of federal antitrust law. Amended complaints add allegations regarding buyer steering and non-disclosure of buyer-broker compensation to the buyer. Additionally, plaintiffs Joshua Sitzer and Amy Winger allege violations of the Missouri Merchandising Practices Act. By agreement, RE/MAX, LLC was substituted for RE/MAX Holdings as defendant in the actions. Among other requested relief, plaintiffs seek damages against the defendants and an injunction enjoining defendants from requiring sellers to pay the buyer broker. We intend to vigorously defend against all claims.
From time to time we are involved in litigation, claims and other proceedings relating to the conduct of our business. Such litigation and other proceedings may include, but are not limited to, actions relating to intellectual property, commercial arrangements, franchising arrangements, brokerage disputes, vicarious liability based upon conduct of individuals or entities outside of our control including franchisees and independent agents, and employment law claims. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur. Often these cases raise complex factual and legal issues, which are subject to risks and uncertainties and which could require significant time and resources from management. Although we do not believe any currently pending litigation will have a material adverse effect on our business, financial condition or operations, there are inherent uncertainties in litigation and other claims and regulatory proceedings and such pending matters could result in unexpected expenses and liabilities and might materially adversely affect our business, financial condition or operations, including our reputation.
Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, please see “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Annual Report on Form 10-K”) and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (the “Quarterly Report on Form 10-Q”). There have been no material changes to the risk factors as disclosed in our 2018 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q.
42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
43
Item 6. Exhibits
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Exhibit No. |
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Exhibit Description |
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File
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Exhibit
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Filed
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3.1 |
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10-Q |
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001-36101 |
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11/14/2013 |
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3.1 |
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3.2 |
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8-K |
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001-36101 |
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2/22/2018 |
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3.1 |
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4.1 |
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Form of RE/MAX Holdings, Inc.’s Class A common stock certificate. |
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S-1 |
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333-190699 |
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9/27/2013 |
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4.1 |
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31.1 |
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31.2 |
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32.1 |
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101.INS |
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XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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XBRL Taxonomy Extension Schema Document |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
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X |
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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RE/MAX Holdings, Inc. (Registrant) |
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Date: |
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August 2, 2019 |
By: |
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/s/ Adam M. Contos |
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Adam M. Contos |
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Director and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: |
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August 2, 2019 |
By: |
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/s/ Karri R. Callahan |
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Karri R. Callahan Chief Financial Officer (Principal Financial Officer) |
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Date: |
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August 2, 2019 |
By: |
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/s/ Brett A. Ritchie |
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Brett A. Ritchie Chief Accounting Officer (Principal Accounting Officer) |
45
Exhibit 31.1
Certification
I, Adam M. Contos, certify that:
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1. |
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I have reviewed this quarterly report on Form 10-Q of RE/MAX Holdings, Inc.; |
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2. |
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Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
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4. |
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The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and |
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Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
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The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): |
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a. |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date: August 2, 2019 |
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/s/ Adam M. Contos |
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Adam M. Contos |
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Director and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
Certification
I, Karri R. Callahan certify that:
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I have reviewed this quarterly report on Form 10-Q of RE/MAX Holdings, Inc.; |
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Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
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Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
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4. |
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The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
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a. |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and |
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Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
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The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): |
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a. |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date: August 2, 2019 |
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/s/ Karri R. Callahan |
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Karri R. Callahan |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 32.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of RE/MAX Holdings, Inc., a Delaware corporation (the "Company"), does hereby certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the period ended June 30, 2019 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of June 30, 2019 and December 31, 2018, and for the three and six months ended June 30, 2019 and 2018.
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Date: August 2, 2019 |
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/s/ Adam M. Contos |
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Adam M. Contos |
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Director and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: August 2, 2019 |
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/s/ Karri R. Callahan |
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Karri R. Callahan |
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Chief Financial Officer |
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(Principal Financial Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.