RE/MAX HOLDINGS, INC., 10-Q filed on 8/6/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2020
Jul. 31, 2020
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2020  
Entity File Number 001-36101  
Entity Registrant Name RE/MAX Holdings, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 80-0937145  
Entity Address Line One 5075 South Syracuse Street  
Entity Address City or Town Denver  
Entity Address State or Province CO  
Entity Address Postal Zip Code 80237  
City Area Code 303  
Local Phone Number 770-5531  
Title of 12(b) Security Class A Common Stock, $0.0001 par value per share  
Trading Symbol RMAX  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Entity Central Index Key 0001581091  
Amendment Flag false  
Common Class A    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   18,123,963
Common Class B    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   1
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 84,545 $ 83,001
Restricted cash 14,752 20,600
Accounts and notes receivable, current portion, less allowances of $15,112 and $12,538, respectively 29,732 28,644
Income taxes receivable 639 896
Other current assets 9,773 9,638
Total current assets 139,441 142,779
Property and equipment, net of accumulated depreciation of $15,914 and $14,940, respectively 5,124 5,444
Operating lease right of use assets 48,787 51,129
Franchise agreements, net 79,933 87,670
Other intangible assets, net 27,628 32,315
Goodwill 161,814 159,038
Deferred tax assets, net 50,169 52,595
Income taxes receivable, net of current portion 1,690 1,690
Other assets, net of current portion 13,126 9,692
Total assets 527,712 542,352
Current liabilities:    
Accounts payable 4,225 2,983
Accrued liabilities 44,442 60,163
Income taxes payable 8,210 6,854
Deferred revenue 25,362 25,663
Current portion of debt 2,566 2,648
Current portion of payable pursuant to tax receivable agreements 6,478 3,583
Operating lease liabilities 5,381 5,102
Total current liabilities 96,664 106,996
Debt, net of current portion 222,051 223,033
Payable pursuant to tax receivable agreements, net of current portion 30,745 33,640
Deferred tax liabilities, net 351 293
Deferred revenue, net of current portion 17,905 18,763
Operating lease liabilities, net of current portion 53,197 55,959
Other liabilities, net of current portion 4,642 5,292
Total liabilities 425,555 443,976
Commitments and contingencies (note 12)
Stockholders' equity:    
Additional paid-in capital 473,451 466,945
Retained earnings 28,385 30,525
Accumulated other comprehensive income, net of tax 440 414
Total stockholders' equity attributable to RE/MAX Holdings, Inc. 502,278 497,886
Non-controlling interest (400,121) (399,510)
Total stockholders' equity 102,157 98,376
Total liabilities and stockholders' equity 527,712 542,352
Common Class A    
Stockholders' equity:    
Common stock 2 2
Common Class B    
Stockholders' equity:    
Common stock $ 0 $ 0
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Accounts and notes receivable, allowance $ 15,112 $ 12,538
Property and equipment, accumulated depreciation $ 15,914 $ 14,940
Common Class A    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 180,000,000 180,000,000
Common stock, shares issued 18,123,963 17,838,233
Common stock, shares outstanding 18,123,963 17,838,233
Common Class B    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 1,000 1,000
Common stock, shares issued 1 1
Common stock, shares outstanding 1 1
v3.20.2
Condensed Consolidated Statements of Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenue:        
Total revenue $ 52,207 $ 71,381 $ 122,479 $ 142,559
Operating expenses:        
Selling, operating and administrative expenses 25,348 25,710 60,025 59,613
Marketing Funds expenses 11,765 18,060 29,287 36,832
Depreciation and amortization 6,412 5,541 12,722 11,099
Total operating expenses 43,525 49,311 102,034 107,544
Operating income 8,682 22,070 20,445 35,015
Other expenses, net:        
Interest expense (2,187) (3,154) (4,869) (6,309)
Interest income 34 342 303 662
Foreign currency transaction gains (losses) 101 61 (169) 116
Total other expenses, net (2,052) (2,751) (4,735) (5,531)
Income before provision for income taxes 6,630 19,319 15,710 29,484
Provision for income taxes (706) (3,186) (4,496) (5,094)
Net income 5,924 16,133 11,214 24,390
Less: net income attributable to non-controlling interest (note 3) 2,435 7,563 5,094 11,411
Net income attributable to RE/MAX Holdings, Inc. $ 3,489 $ 8,570 $ 6,120 $ 12,979
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock        
Basic $ 0.19 $ 0.48 $ 0.34 $ 0.73
Diluted $ 0.19 $ 0.48 $ 0.34 $ 0.73
RMCO, LLC        
Other expenses, net:        
Net income $ 5,924 $ 16,133 $ 11,214 $ 24,390
Less: net income attributable to non-controlling interest (note 3) 2,435 7,563 5,094 11,411
Net income attributable to RE/MAX Holdings, Inc. $ 3,489 $ 8,570 $ 6,120 $ 12,979
Common Class A        
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock        
Basic $ 0.19 $ 0.48 $ 0.34 $ 0.73
Diluted $ 0.19 $ 0.48 $ 0.34 $ 0.73
Weighted average shares of Class A common stock outstanding        
Basic 18,123,963 17,808,321 18,049,114 17,791,942
Diluted 18,146,886 17,833,958 18,090,259 17,825,880
Cash dividends declared per share of Class A common stock $ 0.22 $ 0.21 $ 0.44 $ 0.42
Continuing franchise fees        
Revenue:        
Total revenue $ 16,738 $ 24,894 $ 40,881 $ 49,850
Annual dues        
Revenue:        
Total revenue 8,745 8,819 17,666 17,673
Broker fees        
Revenue:        
Total revenue 10,426 13,459 19,870 22,047
Marketing Funds fees        
Revenue:        
Total revenue 11,765 18,060 29,287 36,832
Franchise sales and other revenue        
Revenue:        
Total revenue $ 4,533 $ 6,149 $ 14,775 $ 16,157
v3.20.2
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Condensed Consolidated Statements of Comprehensive Income        
Net income $ 5,924 $ 16,133 $ 11,214 $ 24,390
Change in cumulative translation adjustment 117 65 (113) 134
Other comprehensive income (loss), net of tax 117 65 (113) 134
Comprehensive income 6,041 16,198 11,101 24,524
Less: comprehensive income attributable to non-controlling interest 2,490 7,595 4,955 11,476
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax $ 3,551 $ 8,603 $ 6,146 $ 13,048
v3.20.2
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
Common Stock
Common Class A
Common Stock
Common Class B
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax
Non-controlling interest
Common Class A
Common Class B
Total
Beginning balance, Value at Dec. 31, 2018 $ 2,000 $ 0 $ 460,101,000 $ 21,138,000 $ 328,000 $ (402,294,000)     $ 79,275,000
Beginning balance, Shares at Dec. 31, 2018 17,754,416 1              
Net income $ 0 $ 0 0 4,409,000 0 3,848,000     8,257,000
Distributions to non-controlling unitholders 0 0 0 0 0 (2,693,000)     (2,693,000)
Equity-based compensation expense and related dividend equivalents, value $ 0 $ 0 3,213,000 (42,000) 0 0     3,171,000
Equity-based compensation expense and related dividend equivalents, shares 70,797 0              
Dividends to Class A common stockholders $ 0 $ 0 0 (3,740,000) 0 0     (3,740,000)
Change in accumulated other comprehensive income 0 0 0 0 36,000 33,000     69,000
Payroll taxes related to net settled restricted stock units, value $ 0 $ 0 (713,000) 0 0 0     (713,000)
Payroll taxes related to net settled restricted stock units, shares (17,265) 0              
Ending balance, Value at Mar. 31, 2019 $ 2,000 $ 0 462,601,000 21,765,000 364,000 (401,106,000)     83,626,000
Ending balance, Shares at Mar. 31, 2019 17,807,948 1              
Beginning balance, Value at Dec. 31, 2018 $ 2,000 $ 0 460,101,000 21,138,000 328,000 (402,294,000)     79,275,000
Beginning balance, Shares at Dec. 31, 2018 17,754,416 1              
Net income                 24,390,000
Change in accumulated other comprehensive income                 134,000
Ending balance, Value at Jun. 30, 2019 $ 2,000 $ 0 463,055,000 26,595,000 397,000 (398,124,000)     91,925,000
Ending balance, Shares at Jun. 30, 2019 17,809,119 1              
Beginning balance, Value at Mar. 31, 2019 $ 2,000 $ 0 462,601,000 21,765,000 364,000 (401,106,000)     83,626,000
Beginning balance, Shares at Mar. 31, 2019 17,807,948 1              
Net income $ 0 $ 0 0 8,570,000 0 7,563,000     16,133,000
Distributions to non-controlling unitholders 0 0 0 0 0 (4,613,000)     (4,613,000)
Equity-based compensation expense and related dividend equivalents, value $ 0 0 182,000 (1,000) 0 0     181,000
Equity-based compensation expense and related dividend equivalents, shares 1,740                
Dividends to Class A common stockholders $ 0 0 0 (3,739,000) 0 0     (3,739,000)
Change in accumulated other comprehensive income 0 0 0 0 33,000 32,000     65,000
Payroll taxes related to net settled restricted stock units, value $ 0 0 (18,000) 0 0 0     (18,000)
Payroll taxes related to net settled restricted stock units, shares (569)                
Other $ 0 0 290,000 0 0 0     290,000
Ending balance, Value at Jun. 30, 2019 $ 2,000 $ 0 463,055,000 26,595,000 397,000 (398,124,000)     91,925,000
Ending balance, Shares at Jun. 30, 2019 17,809,119 1              
Beginning balance, Value at Dec. 31, 2019 $ 2,000 $ 0 466,945,000 30,525,000 414,000 (399,510,000)     98,376,000
Beginning balance, Shares at Dec. 31, 2019 17,838,233 1         17,838,233 1  
Net income $ 0 $ 0 0 2,631,000 0 2,659,000     5,290,000
Distributions to non-controlling unitholders 0 0 0 0 0 (2,777,000)     (2,777,000)
Equity-based compensation expense and related dividend equivalents, value $ 0 $ 0 5,962,000 (289,000) 0 0     5,673,000
Equity-based compensation expense and related dividend equivalents, shares 368,375 0              
Dividends to Class A common stockholders $ 0 $ 0 0 (3,986,000) 0 0     (3,986,000)
Change in accumulated other comprehensive income 0 0 0 0 (36,000) (194,000)     (230,000)
Payroll taxes related to net settled restricted stock units, value $ 0 $ 0 (2,268,000) 0 0 0     (2,268,000)
Payroll taxes related to net settled restricted stock units, shares (82,645) 0              
Ending balance, Value at Mar. 31, 2020 $ 2,000 $ 0 470,639,000 28,881,000 378,000 (399,822,000)     100,078,000
Ending balance, Shares at Mar. 31, 2020 18,123,963 1              
Beginning balance, Value at Dec. 31, 2019 $ 2,000 $ 0 466,945,000 30,525,000 414,000 (399,510,000)     98,376,000
Beginning balance, Shares at Dec. 31, 2019 17,838,233 1         17,838,233 1  
Net income                 11,214,000
Change in accumulated other comprehensive income                 (113,000)
Ending balance, Value at Jun. 30, 2020 $ 2,000 $ 0 473,451,000 28,385,000 440,000 (400,121,000)     102,157,000
Ending balance, Shares at Jun. 30, 2020 18,123,963 1         18,123,963 1  
Beginning balance, Value at Mar. 31, 2020 $ 2,000 $ 0 470,639,000 28,881,000 378,000 (399,822,000)     100,078,000
Beginning balance, Shares at Mar. 31, 2020 18,123,963 1              
Net income $ 0 $ 0 0 3,489,000 0 2,435,000     5,924,000
Distributions to non-controlling unitholders 0 0 0 0 0 (2,789,000)     (2,789,000)
Equity-based compensation expense and related dividend equivalents, value 0 0 2,812,000 0 0 0     2,812,000
Dividends to Class A common stockholders 0 0 0 (3,987,000) 0 0     (3,987,000)
Change in accumulated other comprehensive income 0 0 0 0 62,000 55,000     117,000
Other 0 0 0 2,000 0 0     2,000
Ending balance, Value at Jun. 30, 2020 $ 2,000 $ 0 $ 473,451,000 $ 28,385,000 $ 440,000 $ (400,121,000)     $ 102,157,000
Ending balance, Shares at Jun. 30, 2020 18,123,963 1         18,123,963 1  
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net income $ 11,214 $ 24,390
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 12,722 11,099
Bad debt expense 3,860 2,560
Equity-based compensation expense 4,933 5,847
Deferred income tax expense 1,099 2,521
Fair value adjustments to contingent consideration (355) 345
Other, net 229 1,048
Changes in operating assets and liabilities (17,379) (14,827)
Net cash provided by operating activities 16,323 32,983
Cash flows from investing activities:    
Purchases of property, equipment and capitalization of software (3,102) (7,378)
Restricted cash acquired with the Marketing Funds acquisition 0 28,495
Other 0 (1,200)
Net cash (used in) provided by investing activities (3,102) 19,917
Cash flows from financing activities:    
Payments on debt (1,322) (1,311)
Distributions paid to non-controlling unitholders (5,566) (7,306)
Dividends and dividend equivalents paid to Class A common stockholders (8,262) (7,522)
Payments related to tax withholding for share-based compensation (2,268) (731)
Net cash used in financing activities (17,418) (16,870)
Effect of exchange rate changes on cash (107) 109
Net (decrease) increase in cash, cash equivalents and restricted cash (4,304) 36,139
Cash, cash equivalents and restricted cash, beginning of year 103,601 59,974
Cash, cash equivalents and restricted cash, end of period 99,297 96,113
Supplemental disclosures of cash flow information:    
Cash paid for interest 4,608 5,948
Net cash paid for income taxes 1,682 3,885
Payments pursuant to tax receivable agreements $ 0 $ 2,854
v3.20.2
Business and Organization
6 Months Ended
Jun. 30, 2020
Business and Organization  
Business and Organization

1. Business and Organization

RE/MAX Holdings, Inc. (“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 (“Motto”). RE/MAX, founded in 1973, has over 130,000 agents operating in over 8,000 offices and a presence in more than 110 countries and territories. Motto, founded in 2016, is the first nationally franchised mortgage brokerage in the U.S. RE/MAX and Motto are 100% franchised and do not operate any real estate or mortgage brokerage offices.

v3.20.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2020
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Consolidated Balance Sheet at December 31, 2019, 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 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, 2020 and the results of its operations and comprehensive income, cash flows and changes in its stockholders’ equity for the three and six months ended June 30, 2020 and 2019. 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, 2019 (“2019 Annual Report on Form 10-K”). Please refer to that document for a fuller discussion of all significant accounting policies.

Use of Estimates

The preparation of the accompanying 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.

Revenue Recognition

The Company generates the substantial majority of its revenue from contracts with customers. The Company’s major streams of revenue are:

Continuing franchise fees, which are fixed contractual fees paid monthly by regional franchise owners and franchisees based on the number of RE/MAX agents in the respective franchised region or office and the number of Motto offices.
Annual dues, which are fees charged directly to RE/MAX agents.
Broker fees, which are fees paid on real estate commissions when a RE/MAX agent assists a consumer to buy or sell a home.
Marketing Funds fees, which are fixed contractual fees paid monthly by franchisees based on the number of RE/MAX agents in the respective franchised region or office or the number of Motto offices.
Franchise sales and other franchise revenue, which consist of fees from initial sales of RE/MAX and Motto franchises, renewals of RE/MAX franchises, master franchise fees, preferred marketing arrangements, approved supplier programs and event-based revenue from training and other programs.

Annual Dues

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
beginning of period

    

New billings

    

Revenue recognized(a)

    

Balance at end
of period

Six Months Ended June 30, 2020

$

15,982

$

18,072

$

(17,666)

$

16,388

(a)

Revenue recognized related to the beginning balance was $4.5 million and $11.2 million for the three and six months ended June 30, 2020, respectively.

Franchise Sales

The activity in the Company’s franchise sales deferred revenue accounts consists of the following (in thousands):

    

Balance at
beginning of period

    

New billings

    

Revenue recognized(a)

    

Balance at end
of period

Six Months Ended June 30, 2020

$

25,884

$

3,758

$

(4,909)

$

24,733

(a)

Revenue recognized related to the beginning balance was $2.0 million and $4.6 million for the three and six months ended June 30, 2020, 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):

Balance at

Expense

Additions to contract

Balance at end

    

beginning of period

    

recognized

    

cost for new activity

    

of period

Six Months Ended June 30, 2020

$

3,578

$

(711)

$

740

$

3,607

Disaggregated Revenue

In the following table, segment revenue is disaggregated by geographical area (in thousands):

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

2019

2020

2019

U.S.

$

31,420

$

41,689

$

72,529

$

83,424

Canada

4,625

5,893

9,935

11,242

Global

2,326

2,803

5,812

5,543

Total RE/MAX Franchising

38,371

50,385

88,276

100,209

U.S.

10,596

16,381

26,247

33,053

Canada

1,015

1,500

2,670

3,385

Global

154

179

370

394

Total Marketing Funds

11,765

18,060

29,287

36,832

Motto Franchising (a)

1,070

1,030

2,528

1,989

Other

1,001

1,906

2,388

3,529

Total

$

52,207

$

71,381

$

122,479

$

142,559

(a)Revenue from the Motto Franchising segment is derived exclusively within the U.S.

In the following table, segment revenue is disaggregated by Company-Owned or Independent Regions in the U.S., Canada and Global (in thousands):

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

2019

2020

2019

Company-Owned Regions

$

29,365

$

39,823

$

64,406

$

75,730

Independent Regions

7,780

8,671

16,565

16,772

Global and Other

1,226

1,891

7,305

7,707

Total RE/MAX Franchising

38,371

50,385

88,276

100,209

Marketing Funds

11,765

18,060

29,287

36,832

Motto Franchising

1,070

1,030

2,528

1,989

Other

1,001

1,906

2,388

3,529

Total

$

52,207

$

71,381

$

122,479

$

142,559

Certain items in the table above have been reclassified in the three and six months ended June 30, 2019 to conform with the current year presentation.

Transaction Price Allocated to the Remaining Performance Obligations

The following table includes estimated revenue by year, excluding certain other immaterial items, 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 months of
2020

    

2021

    

2022

    

2023

    

2024

    

2025

    

Thereafter

    

Total

Annual dues

$

12,258

$

4,130

$

$

$

$

$

$

16,388

Franchise sales

3,631

6,274

4,894

3,464

2,178

1,109

3,183

24,733

Total

$

15,889

$

10,404

$

4,894

$

3,464

$

2,178

$

1,109

$

3,183

$

41,121

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,

    

2020

2019

Cash and cash equivalents

$

84,545

$

83,001

Restricted cash

14,752

20,600

Total cash, cash equivalents and restricted cash

$

99,297

$

103,601

Services Provided to the Marketing Funds by RE/MAX Franchising

RE/MAX Franchising charges the Marketing Funds for various services it performs. These services primarily comprise (a) building and maintaining agent marketing technology, including customer relationship management tools, the remax.com website, agent, office and team websites, and mobile apps, (b) dedicated employees focused on marketing campaigns, and (c) various administrative services including customer support of technology, accounting and legal. Because these costs are ultimately paid by the Marketing Funds, they do not impact the net income of Holdings as the Marketing Funds have no reported net income.

Costs charged from RE/MAX Franchising to the Marketing Funds are as follows (in thousands):

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

2019

2020

2019

Technology development - operating

$

3,722

$

1,199

$

6,693

$

2,164

Technology development - capital

116

1,529

760

2,464

Marketing staff and administrative services

983

1,024

2,211

2,049

Total

$

4,821

$

3,752

$

9,664

$

6,677

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. All of the Company’s material leases are classified as operating leases.

The Company acts as the lessor for four sublease agreements on its corporate headquarters, consisting solely of operating leases.

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.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which clarifies that implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in the software licensing arrangements under the internal-use software guidance. ASU 2018-15 also clarifies that any capitalized costs should not be recorded to “Depreciation and amortization” in the Consolidated Statements of Income. The Company adopted this standard effective January 1, 2020 prospectively to all new implementation costs incurred after adoption. The amendments of ASU 2018-15 did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which eliminates certain disclosure requirements for fair value measurements and requires new or modified disclosures. ASU 2018-13 became

effective for the Company on January 1, 2020. This new guidance was applied on a prospective basis. The amendments of ASU 2018-13 did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires earlier recognition of credit losses on loans, held-to-maturity securities, and certain other financial assets. ASU 2016-13 replaces the current incurred loss model with a model requiring entities to estimate expected credit losses over the life of the financial instrument based on both historical information as well as reasonable and supportable forecasts. The FASB requires entities to use a modified retrospective transition approach, in which an adjustment is made to beginning retained earnings for the cumulative effect of adopting the standard. ASU 2016-13 became effective for the Company on January 1, 2020. The standard had an immaterial effect on the Company’s credit losses at transition and no adjustment to retained earnings was required. All periods presented for comparative purposes prior to the adoption date of this standard were not adjusted.

New Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which contains temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The new guidance is effective upon issuance and may be adopted on any date on or after March 12, 2020. The relief is temporary and only available until December 31, 2022, when the reference rate replacement activity is expected to have completed. The Company believes the amendments of ASU 2020-04 will not have a significant impact on the Company’s consolidated financial statements and related disclosures as the Company does not currently engage in interest rate hedging of its LIBOR based debt, nor does it believe it has any material contracts tied to LIBOR other than its debt agreement.

v3.20.2
Non-controlling Interest
6 Months Ended
Jun. 30, 2020
Noncontrolling Interest  
Non-controlling Interest

3. Non-controlling Interest

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:

June 30, 2020

December 31, 2019

    

Shares

    

Ownership %

    

Shares

    

Ownership %

 

Non-controlling interest ownership of common units in RMCO

12,559,600

40.9

%  

12,559,600

41.3

%

Holdings outstanding Class A common stock (equal to Holdings common units in RMCO)

18,123,963

59.1

%  

17,838,233

58.7

%

Total common units in RMCO

30,683,563

100.0

%  

30,397,833

100.0

%

The weighted average ownership percentages for the applicable reporting periods are used to calculate the “Net income attributable to RE/MAX Holdings, Inc.” 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 percentages):

Three Months Ended June 30, 

2020

2019

    

RE/MAX
Holdings,
Inc.

    

Non-controlling
interest

    

Total

    

RE/MAX
Holdings,
Inc.

    

Non-controlling
interest

    

Total

Weighted average ownership percentage of RMCO(a)

59.1

%  

40.9

%  

100.00

%  

58.6

%  

41.4

%  

100.0

%

Income before provision for income taxes(a)

$

3,895

$

2,735

$

6,630

$

11,328

$

7,991

$

19,319

Provision for income taxes(b)(c)

(406)

(300)

(706)

(2,758)

(428)

(3,186)

Net income

$

3,489

$

2,435

$

5,924

$

8,570

$

7,563

$

16,133

Six Months Ended June 30, 

2020

2019

RE/MAX
Holdings,
Inc.

Non-controlling
interest

Total

RE/MAX
Holdings,
Inc.

Non-controlling
interest

Total

Weighted average ownership percentage of RMCO(a)

59.0

%

41.0

%

100.0

%

58.6

%

41.4

%

100.0

%

Income before provision for income taxes(a)

$

9,447

$

6,263

$

15,710

$

17,286

$

12,198

$

29,484

Provision for income taxes(b)(c)

(3,327)

(1,169)

(4,496)

(4,307)

(787)

(5,094)

Net income

$

6,120

$

5,094

$

11,214

$

12,979

$

11,411

$

24,390

(a)The weighted average ownership percentage of RMCO differs from the allocation of income before provision for income taxes between Holdings and the non-controlling interest due to (i) certain relatively insignificant expenses and (ii) a gain on reduction in the tax receivable agreement liability attributable only to Holdings was recorded for the three months ended March 31, 2020 and subsequently removed for the three months ended June 30, 2020.
(b)The provision for income taxes attributable to 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 Holdings’ share of taxes directly incurred by RMCO and its subsidiaries, related primarily to tax liabilities in certain foreign jurisdictions. For the six months ended June 30, 2020, the provision for income taxes attributable to Holdings also includes a decrease in the value of deferred tax assets. See Note 10, Income Taxes for additional information.
(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. Otherwise, because RMCO is a pass-through entity, there is no U.S. federal and state income tax provision recorded on the non-controlling interest.

Distributions and Other Payments to Non-controlling Unitholders

Under the terms of RMCO’s limited liability company operating 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, 

    

2020

    

2019

Tax and other distributions

$

40

$

2,031

Dividend distributions

5,526

5,275

Total distributions to non-controlling unitholders

$

5,566

$

7,306

v3.20.2
Earnings Per Share and Dividends
6 Months Ended
Jun. 30, 2020
Earnings Per Share and Dividends  
Earnings Per Share and Dividends

4. Earnings Per Share and Dividends

Earnings Per Share

The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations (in thousands, except shares and per share information):

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

2019

2020

2019

Numerator

Net income attributable to RE/MAX Holdings, Inc.

$

3,489

$

8,570

$

6,120

$

12,979

Denominator for basic net income per share of Class A common stock

Weighted average shares of Class A common stock outstanding

18,123,963

17,808,321

18,049,114

17,791,942

Denominator for diluted net income per share of Class A common stock

Weighted average shares of Class A common stock outstanding

18,123,963

17,808,321

18,049,114

17,791,942

Add dilutive effect of the following:

Restricted stock units

22,923

25,637

41,145

33,938

Weighted average shares of Class A common stock outstanding, diluted

18,146,886

17,833,958

18,090,259

17,825,880

Earnings per share of Class A common stock

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

$

0.19

$

0.48

$

0.34

$

0.73

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

$

0.19

$

0.48

$

0.34

$

0.73

Outstanding Class B common stock does not share in the earnings of 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.

Dividends

Dividends declared and paid during each quarter ended per share on all outstanding shares of Class A common stock were as follows (in thousands, except per share information):

Six Months Ended June 30, 

2020

2019

Quarter end declared

    

Date paid

    

Per share

    

Amount paid
to Class A
stockholders

    

Amount paid
to non-controlling
unitholders

    

Date paid

    

Per share

    

Amount paid
to Class A
stockholders

    

Amount paid
to non-controlling
unitholders

March 31

March 18, 2020

$

0.22

$

3,986

$

2,763

March 20, 2019

$

0.21

$

3,740

$

2,638

June 30

June 2, 2020

0.22

3,987

2,763

May 29, 2019

0.21

3,739

2,637

$

0.44

$

7,973

$

5,526

$

0.42

$

7,479

$

5,275

On August 5, 2020, the Company’s Board of Directors declared a quarterly dividend of $0.22 per share on all outstanding shares of Class A common stock, which is payable on September 2, 2020 to stockholders of record at the close of business on August 19, 2020.

v3.20.2
Acquisitions
6 Months Ended
Jun. 30, 2020
Acquisitions  
Acquisitions

5. Acquisitions

First

On December 16, 2019, the Company acquired First Leads, Inc. (“First”) for $15 million in cash generated from operations. First provides a mobile app that leverages data science, machine learning and human interaction to help real estate professionals better leverage the value of their personal network and was acquired to complement the Company’s technology offerings and booj Platform.

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 acquisitions of the Marketing Funds were part of the Company’s succession plan, and ownership of the Marketing Funds by the franchisor is a common structure. Expenses incurred with the acquisition of the Marketing Funds were not material.

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 following table summarizes the Company’s allocation of the purchase price to the fair value of assets acquired and liabilities assumed (in thousands):

Restricted cash

$

28,495

Other current assets

8,472

Property and equipment

788

Other assets, net of current portion

126

Total assets acquired

37,881

Other current liabilities

37,881

Total liabilities assumed

37,881

Total acquisition price

$

-

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.

v3.20.2
Intangible Assets and Goodwill
6 Months Ended
Jun. 30, 2020
Intangible Assets and Goodwill  
Intangible Assets and Goodwill

6. 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):

Weighted

    

    

    

    

    

    

Average

As of June 30, 2020

As of December 31, 2019

Amortization

Initial

Accumulated

Net

Initial

Accumulated

Net

Period

Cost

Amortization

Balance

Cost

Amortization

Balance

Franchise agreements

12.5

$

180,867

$

(100,934)

$

79,933

$

180,867

$

(93,197)

$

87,670

Other intangible assets:

Software (a)

4.3

$

36,946

$

(13,628)

$

23,318

$

36,680

$

(9,653)

$

27,027

Trademarks

9.0

2,021

(1,148)

873

1,904

(1,037)

867

Non-compete agreements

4.5

3,700

(2,168)

1,532

3,700

(1,546)

2,154

Training materials

5.0

2,400

(880)

1,520

2,400

(640)

1,760

Other

3.8

810

(425)

385

800

(293)

507

Total other intangible assets

4.6

$

45,877

$

(18,249)

$

27,628

$

45,484

$

(13,169)

$

32,315

(a)As of June 30, 2020 and December 31, 2019, capitalized software development costs of $0.8 million and $10.5 million, respectively, were related to technology projects not yet complete and ready for their intended use and thus were not subject to amortization.

Amortization expense for the three months ended June 30, 2020 and 2019 was $6.0 million and $5.1 million, respectively. Amortization expense for the six months ended June 30, 2020 and 2019 was $11.8 million and $10.3 million, respectively.

The estimated future amortization expense for the next five years related to intangible assets is as follows (in thousands):

As of June 30, 2020:

Remainder of 2020

$

17,556

2021

26,133

2022

19,516

2023

15,371

2024

12,916

$

91,492

The following table presents changes to goodwill (in thousands), by segment:

    

RE/MAX
Franchising

    

Motto Franchising

    

Total

Balance, January 1, 2020

$

147,238

$

11,800

$

159,038

Goodwill recognized from acquisitions(a)

2,927

2,927

Effect of changes in foreign currency exchange rates

(151)

(151)

Balance, June 30, 2020

$

150,014

$

11,800

$

161,814

(a)The purpose of the First acquisition is to deliver technology solutions to RE/MAX franchisees and agents. As such, the Company allocated the goodwill arising from this acquisition to RE/MAX Franchising. The change in goodwill relates to updates to the initial purchase price allocation.

v3.20.2
Accrued Liabilities
6 Months Ended
Jun. 30, 2020
Accrued Liabilities.  
Accrued Liabilities

7. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

June 30, 

December 31, 

2020

2019

Marketing Funds (a)

$

36,837

$

39,672

Accrued payroll and related employee costs

2,384

11,900

Accrued taxes

1,317

2,451

Accrued professional fees

1,712

2,047

Other

2,192

4,093

$

44,442

$

60,163

(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.

v3.20.2
Debt
6 Months Ended
Jun. 30, 2020
Debt  
Debt

8. Debt

Debt, net of current portion, consists of the following (in thousands):

June 30, 

    

December 31, 

2020

2019

Senior Secured Credit Facility

$

226,188

$

227,363

Other long-term financing(a)

216

362

Less unamortized debt issuance costs

(1,034)

(1,182)

Less unamortized debt discount costs

(753)

(862)

Less current portion(a)

(2,566)

(2,648)

$

222,051

$

223,033

(a)Includes financing assumed with the acquisition of booj. As of June 30, 2020, the carrying value of this financing approximates the fair value.

Maturities of debt are as follows (in thousands):

Six Months Ended June 30, 2020

    

Remainder of 2020

$

1,326

2021

2,414

2022

2,350

2023

220,314

$

226,404

Senior Secured Credit Facility

In July 2013, the Company entered into a credit agreement with several lenders and administered by a bank, referred to herein as the “2013 Senior Secured Credit Facility.” In December 2016, the 2013 Senior Secured Credit Facility was amended and restated, referred to herein as 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 for which any loans outstanding must be repaid on December 15, 2021. As of June 30, 2020, the Company had no revolving loans outstanding under its Senior Secured Credit Facility. As of June 30, 2020, the interest rate on the term loan facility was 3.50%.

v3.20.2
Fair Value Measurements
6 Months Ended
Jun. 30, 2020
Fair Value Measurements  
Fair Value Measurements

9. Fair Value Measurements

Fair value is a market-based measurement that is 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 2019 Annual Report on Form 10-K.

A summary of the Company’s liabilities measured at fair value on a recurring basis is as follows (in thousands):

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