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RE/MAX Holdings, Inc. (“RE/MAX Holdings”) was formed as a Delaware corporation on June 25, 2013. On October 7, 2013, RE/MAX Holdings completed an initial public offering (the “IPO”) of its shares of Class A common stock. RE/MAX Holdings’ only business is to act as the sole manager of RMCO, LLC (“RMCO”). As of March 31, 2017, RE/MAX Holdings owns 58.47% of the common membership units in RMCO, while RIHI, Inc. (“RIHI”) owns the remaining 41.53% of common membership units in RMCO. RE/MAX Holdings and its consolidated subsidiaries, including 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 110,000 agents operating in over 7,000 offices and a presence in more than 100 countries and territories. Motto Mortgage (“Motto”), founded in 2016, is the first nationally franchised mortgage brokerage in the U.S. The Company sold certain operating assets and liabilities of its owned brokerage offices during 2015 and the first quarter of 2016 to existing RE/MAX franchisees (See Note 5, Acquisitions and Dispositions, for a discussion of the 2016 sales). Since then, the Company is 100% franchised, no longer operates any real estate brokerage offices and no longer recognizes brokerage revenue (which consisted of fees assessed by the Company’s owned brokerages for services provided to their affiliated real estate agents). While the Company operates through both RE/MAX and Motto, due to the immateriality of revenue earned by Motto, the Company discloses only one reportable segment.
The Company’s revenue is derived as follows:
Continuing franchise fees which consist of 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 (no significant continuing franchise fees were generated by Motto during the periods presented);
Annual dues from RE/MAX agents;
Broker fees, which consist of fees paid by regional RE/MAX franchise owners and franchisees for real estate commissions paid by customers when an agent sells a home;
Franchise sales and other franchise revenue which consist of fees from initial sales and renewals of RE/MAX and Motto franchises, regional franchise fees, preferred marketing arrangements, approved supplier programs and event-based revenue from training and other programs; and
Brokerage revenue prior to the sale of the Company’s brokerage offices during 2015 and the first quarter of 2016.
|
|||
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated balance sheet at December 31, 2016, 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”) and with Article 10 of Regulation S-X. In compliance with those instructions, 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 March 31, 2017 and December 31, 2016, the results of its operations, comprehensive income and cash flows for the three months ended March 31, 2017 and 2016, and changes in its stockholders’ equity for the three months ended March 31, 2017. 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, 2016.
During 2016, the Company completed the acquisitions of six independent regions. Their results of operations, cash flows and financial positions are included in the consolidated financial statements from their respective dates of acquisition. See Note 5, Acquisitions and Dispositions, for additional information.
Reclassifications
Certain items in the accompanying condensed consolidated financial statements as of December 31, 2016 and for the three months ended March 31, 2016 have been reclassified to conform to the current year’s presentation. These reclassifications did not affect the Company’s consolidated results of operations.
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 disclosure of contingent assets and 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.
Principles of Consolidation
As of March 31, 2017, RE/MAX Holdings owns 58.47% of the common membership units in RMCO and, as its managing member, RE/MAX Holdings controls RMCO’s operations, management and activities. As a result, 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.
New Accounting Pronouncements Not Yet Adopted
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 in fiscal years beginning after December 15, 2019 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. The Company has not yet determined the effect of the standard on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies when transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017 and is required to be adopted using a prospective approach. Early adoption is permitted for transactions not previously reported in issued financial statements. The Company has not yet determined the effect of the standard on its consolidated financial statements and related disclosures.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies classification for certain cash receipts and cash payments on the consolidated statement of cash flow. ASU 2016-15 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017. Early adoption is permitted in any interim or annual reporting period. The standard requires a retrospective transition method for each period presented. The Company has not yet determined the effect of the standard on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize the assets and liabilities that arise from all leases on the consolidated balance sheets. ASU 2016-02 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2018. Early adoption is permitted in any interim or annual reporting period. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company has not yet determined the effect of the standard on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), with several subsequent amendments, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The Company plans to adopt this standard on January 1, 2018. We expect the adoption of the new guidance to change the timing of recognition of franchise sales and franchise renewal revenue. Currently we recognize revenue upon completion of a sale or renewal. Under the new guidance, franchise sales and renewal revenue, which are included in Franchise Sales and Other Franchise Revenue in the Consolidated Statement of Income, will be recognized over the contractual term of the franchise agreement. We currently anticipate that we will utilize the full retrospective transition method, however, this expectation may change following the completion of our evaluation of the impact of this guidance on our consolidated financial statements and related disclosures.
|
|||
3. 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:
|
|
|
March 31, |
|
December 31, |
|
||||
|
|
|
2017 |
|
2016 |
|
||||
|
|
|
Shares |
|
Ownership % |
|
Shares |
|
Ownership % |
|
|
Non-controlling unitholders ownership of common units in RMCO |
|
12,559,600 |
|
41.53 |
% |
12,559,600 |
|
41.57 |
% |
|
RE/MAX Holdings, Inc. outstanding Class A common stock (equal to RE/MAX Holdings, Inc. common units in RMCO) |
|
17,683,429 |
|
58.47 |
% |
17,652,548 |
|
58.43 |
% |
|
Total common units in RMCO |
|
30,243,029 |
|
100.00 |
% |
30,212,148 |
|
100.00 |
% |
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):
|
|
Three Months Ended March 31, |
||||||||||||||||||
|
|
2017 |
|
2016 |
||||||||||||||||
|
|
RE/MAX Holdings, Inc. |
|
Non-controlling interest |
|
Total |
|
|
RE/MAX Holdings, Inc. |
|
Non-controlling interest |
|
Total |
|
||||||
|
Weighted average ownership percentage of RMCO (a) |
|
58.44 |
% |
|
41.56 |
% |
|
100.00 |
% |
|
|
58.33 |
% |
|
41.67 |
% |
|
100.00 |
% |
|
Income before provision for income taxes |
$ |
7,624 |
|
$ |
5,477 |
|
$ |
13,101 |
|
|
$ |
7,965 |
|
$ |
5,690 |
|
$ |
13,655 |
|
|
Provision for income taxes (b)(c) |
|
(2,712) |
|
|
(318) |
|
|
(3,030) |
|
|
|
(3,025) |
|
|
(234) |
|
|
(3,259) |
|
|
Net income |
$ |
4,912 |
|
$ |
5,159 |
|
$ |
10,071 |
|
|
$ |
4,940 |
|
$ |
5,456 |
|
$ |
10,396 |
|
(a) The weighted average ownership percentage of RMCO differs slightly from the allocation of income before provision for income taxes between RE/MAX Holdings and the non-controlling interest as there are 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. However, it also includes its share of taxes imposed directly on RE/MAX, LLC and its consolidated subsidiaries (“RE/MAX, LLC”), a wholly-owned subsidiary of RMCO, 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 imposed on RE/MAX, LLC related primarily to tax liabilities in certain foreign jurisdictions.
Distributions and Other Payments to Non-controlling Unitholders
Under the terms of RMCO’s fourth amended and restated limited liability company operating agreement (the “New RMCO, LLC Agreement”), RMCO makes cash distributions to non-controlling unitholders. The distributions paid or payable to or on behalf of non-controlling unitholders under the New RMCO, LLC Agreement are summarized as follows:
|
|
|
Three Months Ended |
||||
|
|
|
March 31, |
||||
|
|
|
2017 |
|
2016 |
||
|
Tax and other distributions |
|
$ |
3,588 |
|
$ |
3,003 |
|
Dividend distributions |
|
|
2,261 |
|
|
1,884 |
|
Total distributions |
|
$ |
5,849 |
|
$ |
4,887 |
On May 3, 2017, the Company declared a distribution to non-controlling unitholders of $2,261,000, which is payable on May 31, 2017.
Payments Pursuant to the Tax Receivable Agreements
As of March 31, 2017, the Company reflected a liability of $96,905,000 representing the payments due to RIHI and Oberndorf Investments LLC (“Oberndorf”) under the terms of the tax receivable agreements (the “TRAs”) (see current and non-current portion of “Payable pursuant to tax receivable agreements” in the accompanying Condensed Consolidated Balance Sheets).
As of March 31, 2017, the Company estimates that amounts payable pursuant to the TRAs within the next 12-month period will be approximately $11,331,000, of which $2,612,000 is related to RE/MAX Holdings’ 2014 federal and state tax returns, $2,691,000 is related to RE/MAX Holdings’ 2015 federal and state tax returns and the remainder is related to RE/MAX Holdings’ 2016 federal and state tax returns. To determine the current amount of the payments due to RIHI and Oberndorf, the Company estimated the amount of taxable income that RE/MAX Holdings generated as well as the amount of the specified deductions subject to the TRAs which were realized by RE/MAX Holdings in its federal and state tax returns. This amount was then used as a basis for determining the Company’s increase in estimated tax cash savings as a result of such deductions on which 85% is owed as a current TRA obligation (i.e. payable within 12 months of the Company’s year-end). These calculations are performed pursuant to the terms of the TRAs. The Company paid $1,931,000 and $1,344,000 pursuant to the terms of the TRAs during the three months ended March 31, 2017 and 2016, respectively.
|
|||
5. Acquisitions and Dispositions
Acquisitions
RE/MAX of Georgia, Inc., RE/MAX of Kentucky/Tennessee, Inc. and RE/MAX of Southern Ohio, Inc.
On December 15, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of Georgia, Inc. (“RE/MAX of Georgia”), RE/MAX of Kentucky/Tennessee, Inc. (“RE/MAX of Kentucky/Tennessee”), and RE/MAX of Southern Ohio, Inc. (“RE/MAX of Southern Ohio”), collectively (“RE/MAX Regional Services”) including the regional franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the states of Georgia, Kentucky and Tennessee and in the Southern Ohio area for cash consideration of $50,400,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company funded the acquisition by refinancing its 2013 Senior Secured Credit Facility (See Note 8: Debt) and using cash from operations.
RE/MAX of New Jersey, Inc.
On December 1, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of New Jersey, Inc. (“RE/MAX of New Jersey”), including the regional franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of New Jersey for cash consideration of $45,000,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.
Full House Mortgage Connection, Inc.
Motto Franchising, LLC (“Motto Franchising”), a wholly-owned subsidiary of RE/MAX, LLC, was formed and developed to franchise mortgage brokerages. On September 12, 2016, Motto Franchising acquired certain assets of Full House Mortgage Connection, Inc. (“Full House”), a franchisor of mortgage brokerages that created concepts used to develop Motto, for initial cash consideration of $8,000,000. Motto Franchising, as a franchisor, grants each franchisee a license to use the Motto Mortgage brand, trademark, promotional and operating materials and concepts. The Company used cash generated from operations to initially fund the acquisition. Additional cash consideration may be required based on future revenues generated, as discussed below.
The following table summarizes the estimated consideration at acquisition (in thousands):
|
Cash consideration |
$ |
8,000 |
|
Contingent purchase consideration |
|
6,300 |
|
Total purchase price |
$ |
14,300 |
The contingent purchase consideration and its subsequent valuation is more fully described in Note 9, Fair Value Measurements.
RE/MAX of Alaska, Inc.
On April 1, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of Alaska, Inc. (“RE/MAX of Alaska”), including the regional franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of Alaska for cash consideration of $1,500,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.
RE/MAX of New York, Inc.
On February 22, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of New York, Inc. (“RE/MAX of New York”), including the regional franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of New York for cash consideration of $8,500,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.
The following table summarizes the allocation of the purchase price to the fair value of assets acquired for the aforementioned acquisitions (in thousands):
|
|
|
|
RE/MAX Regional Services |
|
|
RE/MAX of New Jersey |
|
|
Full House |
|
|
RE/MAX of Alaska |
|
|
RE/MAX of New York |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
- |
|
$ |
335 |
|
$ |
- |
|
$ |
- |
|
$ |
131 |
|
$ |
466 |
|
Franchise agreements |
|
|
28,000 |
|
|
28,200 |
|
|
- |
|
|
529 |
|
|
5,000 |
|
|
61,729 |
|
Non-compete agreement |
|
|
- |
|
|
- |
|
|
2,500 |
|
|
- |
|
|
- |
|
|
2,500 |
|
Other assets |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
340 |
|
|
340 |
|
Goodwill |
|
|
22,400 |
|
|
16,465 |
|
|
11,800 |
|
|
971 |
|
|
3,029 |
|
|
54,665 |
|
Total purchase price |
|
$ |
50,400 |
|
$ |
45,000 |
|
$ |
14,300 |
|
$ |
1,500 |
|
$ |
8,500 |
|
$ |
119,700 |
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the acquisitions of RE/MAX Regional Services, RE/MAX of New Jersey, Full House, RE/MAX of Alaska and RE/MAX of New York had occurred on January 1, 2016. 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, including additional amortization expense associated with the valuation of the acquired franchise agreements. 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 that date, nor of the results that may be obtained in the future.
|
|
Three Months Ended |
|
|
|
March 31, 2016 |
|
|
|
(In thousands, except per share amounts) |
|
|
Total revenue |
$ |
45,983 |
|
Net income attributable to RE/MAX Holdings, Inc. (a) |
$ |
3,907 |
|
Basic earnings per common share |
$ |
0.22 |
|
Diluted earnings per common share |
$ |
0.22 |
|
(a) |
Includes the net impact of $1.0 million in professional fees and debt extinguishment costs incurred related to the amendment of the Company’s credit facility. See Note 8, Debt, for a discussion of the credit facility. |
Dispositions
STC Northwest, LLC d/b/a RE/MAX Northwest Realtors
On January 20, 2016, the Company sold certain operating assets and liabilities related to three owned brokerage offices located in the U.S., of STC Northwest, LLC d/b/a RE/MAX Northwest Realtors, a wholly owned subsidiary of the Company. The Company recognized a loss on the sale of the assets and the liabilities transferred of approximately $90,000 during the first quarter of 2016, which is reflected in “(Gain) loss on sale or disposition of assets, net” in the accompanying Condensed Consolidated Statements of Income. In connection with this sale, the Company transferred separate office franchise agreements to the purchaser, under which the Company will receive ongoing monthly continuing franchise fees, broker fees and franchise sales revenue.
|
|||
6. Intangible Assets and Goodwill
The following table provides the components of the Company’s intangible assets, other than goodwill (in thousands, except weighted average amortization period in years):
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
As of March 31, 2017 |
|
As of December 31, 2016 |
||||||||||||||
|
|
|
Amortization |
|
Initial |
|
Accumulated |
|
Net |
|
Initial |
|
Accumulated |
|
Net |
||||||
|
|
|
Period |
|
Cost |
|
Amortization |
|
Balance |
|
Cost |
|
Amortization |
|
Balance |
||||||
|
Franchise agreements |
|
12.2 |
|
$ |
224,167 |
|
$ |
(120,387) |
|
$ |
103,780 |
|
$ |
224,167 |
|
$ |
(115,027) |
|
$ |
109,140 |
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software (a) |
|
4.6 |
|
$ |
13,314 |
|
$ |
(7,484) |
|
$ |
5,830 |
|
$ |
13,207 |
|
$ |
(7,154) |
|
$ |
6,053 |
|
Trademarks |
|
14.2 |
|
|
3,119 |
|
|
(1,828) |
|
|
1,291 |
|
|
3,102 |
|
|
(1,782) |
|
|
1,320 |
|
Non-compete |
|
10.0 |
|
|
2,500 |
|
|
(125) |
|
|
2,375 |
|
|
2,500 |
|
|
(62) |
|
|
2,438 |
|
Total other intangible assets |
|
7.9 |
|
$ |
18,933 |
|
$ |
(9,437) |
|
$ |
9,496 |
|
$ |
18,809 |
|
$ |
(8,998) |
|
$ |
9,811 |
(a) As of March 31, 2017 and December 31, 2016, capitalized software development costs of $559,000 and $356,000, respectively, were information technology infrastructure projects not yet complete and ready for their intended use and thus were not subject to amortization.
Amortization expense for the three months ended March 31, 2017 and 2016 was $5,800,000 and $3,514,000, respectively.
As of March 31, 2017, the estimated future amortization expense for the next five years related to intangible assets with definite lives is as follows (in thousands):
|
As of March 31, 2017: |
|
|
|
|
Remainder of 2017 |
|
$ |
13,846 |
|
2018 |
|
|
14,836 |
|
2019 |
|
|
14,668 |
|
2020 |
|
|
14,471 |
|
2021 |
|
|
14,069 |
|
|
|
$ |
71,890 |
The following table presents changes to goodwill for the three months ended March 31, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
Balance, January 1, 2017 |
$ |
126,633 |
|
Effect of changes in foreign currency exchange rates |
|
27 |
|
Balance, March 31, 2017 |
$ |
126,660 |
|
|||
7. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
|
March 31, |
|
December 31, |
||
|
|
|
2017 |
|
2016 |
||
|
Accrued payroll and related employee costs |
|
$ |
4,013 |
|
$ |
7,035 |
|
Accrued taxes |
|
|
1,303 |
|
|
1,554 |
|
Accrued professional fees |
|
|
712 |
|
|
1,382 |
|
Lease-related accruals |
|
|
353 |
|
|
353 |
|
Other |
|
|
1,612 |
|
|
2,944 |
|
|
|
$ |
7,993 |
|
$ |
13,268 |
|
|||
8. Debt
Debt consists of the following (in thousands):
|
|
|
March 31, |
|
December 31, |
||
|
|
|
2017 |
|
2016 |
||
|
2016 Senior Secured Credit Facility |
|
$ |
233,825 |
|
$ |
234,412 |
|
Less unamortized debt issuance costs |
|
|
(2,004) |
|
|
(2,076) |
|
Less unamortized debt discount costs |
|
|
(1,461) |
|
|
(1,516) |
|
Less current portion |
|
|
(2,350) |
|
|
(2,350) |
|
|
|
$ |
228,010 |
|
$ |
228,470 |
Maturities of debt are as follows (in thousands):
|
As of March 31, 2017: |
|
|
|
Remainder of 2017 |
$ |
1,763 |
|
2018 |
|
2,350 |
|
2019 |
|
2,350 |
|
2020 |
|
2,350 |
|
2021 |
|
2,350 |
|
Thereafter |
|
222,662 |
|
|
$ |
233,825 |
Senior Secured Credit Facility
On December 15, 2016, RE/MAX, LLC, entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto (the “2016 Senior Secured Credit Facility”), which amended and restated a prior credit agreement (the “2013 Senior Secured Credit Facility”). The 2016 Senior Secured Credit Facility consists of a $235,000,000 term loan facility which matures on December 15, 2023 and a $10,000,000 revolving loan facility which must be repaid on December 15, 2021. Borrowings under the term loans and revolving loans, if any outstanding, accrue interest at LIBOR (as long as LIBOR is not less than the floor of 0.75%) plus a maximum applicable margin of 2.75%. As of March 31, 2017, the interest rate was 3.90%.
Mandatory principal payments of approximately $588,000 are due quarterly until the facility matures on December 15, 2023. RE/MAX, LLC may make optional prepayments on the term loan facility at any time without penalty; however, no such optional prepayments were made during the three months ended March 31, 2017.
Under the 2013 Senior Secured Credit Facility, RE/MAX, LLC was required to make additional principal payments out of excess cash flow, as well as from the proceeds of certain asset sales, proceeds from the issuance of indebtedness and from insurance recoveries. RE/MAX, LLC made an excess cash flow prepayment of $12,727,000 during the three months ended March 31, 2016. RE/MAX, LLC accounted for the mandatory principal excess cash flow prepayments as early extinguishments of debt and recorded a loss during the three months ended March 31, 2016 of $136,000 related to unamortized debt discount and issuance costs.
Under the 2016 Senior Secured Credit no additional mandatory prepayment and commitment reduction is required if the total leverage ratio as defined by the 2016 Senior Secured Credit Facility as of the last day of such fiscal year is less than 2.75 to 1.0. RE/MAX, LLC’s total leverage ratio was less than 2.75 to 1.0 as of March 31, 2017, and as a result, RE/MAX, LLC does not expect to make an excess cash flow principal prepayment within the next 12-month period.
As of March 31, 2017, RE/MAX, LLC had $230,360,000 of term loans outstanding, net of an unamortized discount and issuance costs, and no revolving loans outstanding under our 2016 Senior Secured Credit Facility. Whenever amounts are drawn under the revolving line of credit, the 2016 Senior Secured Credit Facility requires compliance with a leverage ratio and an interest coverage ratio. A commitment fee of 0.5% per annum accrues on the amount of unutilized revolving line of credit.
|
|||
9. 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 Company’s Annual Report on Form 10-K for the year-ended December 31, 2016.
A summary of the Company’s liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 is as follows (in thousands):
|
As of March 31, 2017 |
As of December 31, 2016 |
|||||||||||||||||||||||
|
Fair Value |
Level 1 |
Level 2 |
Level 3 |
Fair Value |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||||
|
Liabilities |
||||||||||||||||||||||||
|
Contingent consideration |
$ |
6,530 |
$ |
- |
$ |
- |
$ |
6,530 |
$ |
6,400 |
$ |
- |
$ |
- |
$ |
6,400 |
||||||||
The Company is required to pay additional purchase consideration totaling eight percent of gross revenues generated by Motto each year for the next ten years with no limitation as to the maximum payout. The consideration is payable following each anniversary, beginning October 1, 2017 and ending September 30, 2026. The acquisition date fair value of the contingent purchase consideration represented the forecasted discounted cash payments that the Company expects to pay Full House with respect to the acquired business. The Company measures this liability each reporting period and recognizes changes in fair value, if any, in earnings of the Company. Any changes are included in “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income. 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 cash payments derived from anticipated gross revenues.
The table below presents a reconciliation of all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs for the period from January 1, 2017 to March 31, 2017 (in thousands):
|
|
|
Fair value of Contingent Consideration Liability |
|
|
Balance at January 1, 2017 |
|
$ |
6,400 |
|
Fair value adjustments |
|
|
130 |
|
Balance at March 31, 2017 |
|
$ |
6,530 |
The following table summarizes the carrying value and fair value of the 2016 Senior Secured Credit Facility as of March 31, 2017 and December 31, 2016 (in thousands):
|
|
|
March 31, |
|
December 31, |
||||||||
|
|
|
2017 |
|
2016 |
||||||||
|
|
|
Carrying Amounts |
|
Fair Value Level 2 |
|
Carrying Amounts |
|
Fair Value Level 2 |
||||
|
Senior Secured Credit Facility |
|
$ |
230,360 |
|
$ |
235,286 |
|
$ |
230,820 |
|
$ |
233,240 |
The Company assesses categorization of assets and liabilities by level at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Levels I, II and III during the three months ended March 31, 2017.
|
|||
10. Income Taxes
RE/MAX Holdings is subject to U.S. federal and state income taxation on its allocable portion of the income of RMCO. The “Provision for income taxes” in the accompanying Condensed Consolidated Statements of Income for the three months ended March 31, 2017 and 2016 is based on an estimate of the Company’s annualized effective income tax rate. The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as a series of limited liability companies which are not themselves subject to federal income tax. Accordingly, the portion of the Company’s subsidiaries earnings attributable to the non-controlling interest are subject to tax when reported as a component of the non-controlling interests’ taxable income. The “Provision for income taxes” is comprised of a provision for income taxes attributable to RE/MAX Holdings and to entities other than RE/MAX Holdings. 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. However, it also includes its share of taxes imposed directly on RE/MAX, LLC, related primarily to tax liabilities in certain foreign jurisdictions. The provision for income taxes attributable to the non-controlling interest represents it share of taxes imposed on RE/MAX, LLC related to tax liabilities primarily in certain foreign jurisdictions.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. As of March 31, 2017, the Company does not believe it has any significant uncertain tax positions.
The Company and its subsidiaries file, or will file, income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. RMCO is not subject to federal income taxes as it is a flow-through entity, however, RMCO is required to file an annual U.S. Return of Partnership Income. With respect to state and local jurisdictions and countries outside of the U.S., the Company and its subsidiaries are typically subject to examination for three to four years after the income tax returns have been filed.
|
|||
11. Equity-Based Compensation
The Company’s Board of Directors adopted the RE/MAX Holdings, Inc. 2013 Omnibus Incentive Plan (the “2013 Incentive Plan”), which authorized 3,576,466 shares. The 2013 Incentive Plan provides for the grant of incentive stock options to the Company’s employees, and for the grant of shares of RE/MAX Holdings Class A common stock, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) which may have time-based or performance-based vesting criteria, dividend equivalent rights, cash-based awards and any combination thereof to employees, directors and consultants of the Company.
The Company recognizes equity-based compensation expense in “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income. The Company recognizes corporate income tax benefits relating to the exercise of options and vesting of restricted stock units in “Provision for income taxes” in the accompanying Condensed Consolidated Statements of Income.
Employee stock-based compensation expense under the Company’s 2013 Incentive Plan was as follows (in thousands):
|
|
Three Months Ended |
||||
|
|
March 31, |
||||
|
|
2017 |
|
2016 |
||
|
Expense from Time-based RSUs |
$ |
527 |
|
$ |
766 |
|
Expense from Performance-based RSUs |
|
35 |
|
|
- |
|
Equity-based compensation expense |
|
562 |
|
|
766 |
|
Tax benefit from share-based compensation |
|
(123) |
|
|
(170) |
|
Excess tax benefit from share-based compensation |
|
(207) |
|
|
- |
|
Net compensation cost |
$ |
232 |
|
$ |
596 |
|
|
|
|
|
|
|
Time-based Restricted Stock Units
Time-based RSUs granted under the 2013 Incentive Plan are valued using the Company’s closing stock price on the date of grant. Grants awarded to the Company’s Board of Directors generally vest over a one year period. Grants awarded to the Company’s employees generally vest ratably over a three year period. Compensation expense is recognized on a straight line basis over the vesting period.
The following table summarizes equity-based compensation activity related to time-based RSUs as of and for the three months ended March 31, 2017:
|
|
|
Time-based restricted stock units |
|
|
Weighted average grant date fair value per share |
|
Balance, January 1, 2017 |
|
127,011 |
|
$ |
33.00 |
|
Granted |
|
43,450 |
|
$ |
55.45 |
|
Shares vested (including tax withholding)(a) |
|
(30,881) |
|
$ |
33.36 |
|
Forfeited |
|
(7,828) |
|
$ |
33.18 |
|
Balance, March 31, 2017 |
|
131,752 |
|
$ |
40.31 |
(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 March 31, 2017, there was $4,484,000 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 1.97 years for time-based restricted stock units.
Performance-based Restricted Stock Units
Performance-based RSUs granted under the 2013 Incentive Plan are stock-based awards in which the number of shares ultimately received depends on the Company’s achievement of a specified revenue as well as the Company’s total shareholder return (“TSR”) relative to the TSR of all companies in the S&P SmallCap 600 Index over a three year performance period. The number of shares that could be issued range from 0% to 150% of the participant’s target award. Performance-based RSUs are valued on the date of grant using a Monte Carlo simulation for the TSR element of the award. The Company’s expense will be adjusted based on the estimated achievement of revenue versus target. Earned performance-based RSUs cliff-vest at the end of the three year performance period. Compensation expense is recognized over the vesting period based on the Company’s estimated performance.
The following table summarizes equity-based compensation activity related to performance-based RSUs as of and for the three months ended March 31, 2017:
|
|
|
Performance-based restricted stock units |
|
|
Weighted average grant date fair value per share |
|
Balance, January 1, 2017 |
|
— |
|
$ |
— |
|
Granted (a) |
|
33,961 |
|
$ |
57.88 |
|
Shares vested (including tax withholding) |
|
— |
|
$ |
— |
|
Forfeited |
|
— |
|
$ |
— |
|
Balance, March 31, 2017 |
|
33,961 |
|
$ |
57.88 |
(a) Represents the total participant target award.
At March 31, 2017, there was $1,341,000 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 2.75 years for performance-based RSUs.
After giving effect to all outstanding awards (assuming maximum achievement of performance goals for performance-based awards), there were 2,385,336 additional shares available for the Company to grant under the 2013 Incentive Plan as of March 31, 2017.
|
|||
12. Leadership Changes
On January 7, 2016, the Company’s former Chief Financial Officer and Chief Operating Officer entered into a separation and transition agreement (the “Separation and Transition Agreement”) pursuant to which he separated from the Company effective March 31, 2016. The Company incurred a total cost of $1,043,000, including $331,000 of equity-based compensation expense, which was recorded to “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income during the three months ended March 31, 2016.
On December 31, 2014, the Company’s former Chief Executive Officer retired and pursuant to the terms of the Separation and Release of Claims Agreement (the “Separation Agreement”), the Company is required to provide severance and other related benefits over a 36-month period, beginning in October 2015. The Company recorded a liability, measured at its estimated fair value, for payments that will be made under the Separation Agreement, with a corresponding charge to “Selling, general and administrative expenses.” The Company incurred a total cost of $3,581,000, including $1,007,000 of equity-based compensation expense related to this retirement.
The Company’s severance and other related expenses incurred for the aforementioned leadership changes were $1,043,000 for the three months ended March 31, 2016, which is included in “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income. There were no such expenses incurred during the three months ended March 31, 2017.
The following table presents a rollforward of the estimated fair value liability established for the aforementioned leadership changes during the three months ended March 31, 2017 (in thousands):
|
Balance, January 1, 2017 |
|
$ |
964 |
|
Severance and other related expenses |
|
|
— |
|
Accretion |
|
|
8 |
|
Cash payments |
|
|
(274) |
|
Balance, March 31, 2017 |
|
$ |
698 |
|
|||
13. Commitments and Contingencies
Commitments
The Company leases offices and equipment under noncancelable leases, subject to certain provisions for renewal options and escalation clauses.
Contingencies
In connection with the Purchase of Full House, as described in Note 5, Acquisitions and Dispositions, the Company entered into an arrangement to pay additional purchase consideration based on Motto’s future gross revenues, excluding certain fees, over the next ten years. As of March 31, 2017, this liability was estimated to be $6,530,000.
In connection with the sale of the assets and liabilities related to the Company’s previously owned brokerages, the Company entered into three Assignment and Assumption of Lease Agreements (the “Assignment Agreements”) pursuant to which the Company assigned its obligations under and rights, title and interest in 21 leases to the respective purchasers. For certain leases, the Company remains secondarily liable for future lease payments over approximately the next 52-month period under the respective lease agreements and accordingly, as of March 31, 2017, the Company has outstanding lease guarantees of $5,536,000. This amount represents the maximum potential amount of future payments under the respective lease guarantees. In the event of default by the purchaser, the indemnity and default clauses in the Assignment Agreements govern the Company’s ability to pursue and recover damages incurred, if any, against the purchaser.
Litigation
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 as appropriate. 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.
On October 7, 2013, RE/MAX Holdings acquired the net assets, excluding cash, of Tails, Inc. (“Tails”) for consideration paid of $20,175,000. Several shareholders of Tails challenged the terms of the transaction and filed a shareholder action entitled Robert B. Fisher, Carla L. Fisher, Bradley G. Rhodes and James D. Schwartz v. Tails, Inc. in the Circuit Court of Henrico County, Virginia ("Tails I"). After the Circuit Court dismissed Tails I, the Virginia Supreme Court affirmed dismissal on January 8, 2015. On March 7, 2016, the same Tails I plaintiffs filed a complaint entitled Robert B. Fisher, Carla L. Fisher, Bradley G. Rhodes and James D. Schwartz v. Gail Liniger, Dave Liniger, Bruce Benham, RE/MAX Holdings, Inc. and Tails Holdco, Inc. in Denver District Court ("Tails II"). As amended by the Denver District Court on November 21, 2016, the Tails II Complaint alleges claims for breach of fiduciary duty and claims for interest allegedly owed. The defendants intend to vigorously defend their position that the plaintiffs are not entitled to the relief sought. The Company believes a range for the potential impact to its financial position and results of operation is not determinable as of March 31, 2017. Accordingly, the Company currently has not recorded an accrual in the accompanying Condensed Consolidated Balance Sheets.
Except for the ongoing litigation concerning the acquisition of the net assets of Tails, management of the Company believes other such litigation matters involving a reasonably possible chance of loss will not, individually or in the aggregate, result in a material adverse effect on the Company's financial condition, results of operations and cash flows.
|
|||
14. Related-Party Transactions
The majority stockholders of RIHI, including the Company’s current Chief Executive Officer, Chairman and Co-Founder and the Company’s Vice Chairman have made and continue to make a golf course they own available to the Company for business purposes. During the three months ended March 31, 2017 and 2016, the Company used the golf course for business purposes at minimal charge.
The Company provides services, such as accounting, legal, marketing, technology, human resources and public relations services, to certain affiliated entities, and it allows these companies to share its leased office space. During the three months ended March 31, 2017 and 2016, the total amounts allocated for services rendered and rent for office space provided on behalf of affiliated entities were $762,000 and $431,000, respectively. Such amounts are generally paid within 30 days and no such amounts were outstanding at March 31, 2017 or December 31, 2016. In addition, related party advertising funds have current outstanding amounts due from the Company of $204,000 and $145,000 as of March 31, 2017 and December 31, 2016, respectively. Such amounts are included in “Accounts payable to affiliates” in the accompanying Condensed Consolidated Balance Sheets.
|
|||
|
|
|
March 31, |
|
December 31, |
|
||||
|
|
|
2017 |
|
2016 |
|
||||
|
|
|
Shares |
|
Ownership % |
|
Shares |
|
Ownership % |
|
|
Non-controlling unitholders ownership of common units in RMCO |
|
12,559,600 |
|
41.53 |
% |
12,559,600 |
|
41.57 |
% |
|
RE/MAX Holdings, Inc. outstanding Class A common stock (equal to RE/MAX Holdings, Inc. common units in RMCO) |
|
17,683,429 |
|
58.47 |
% |
17,652,548 |
|
58.43 |
% |
|
Total common units in RMCO |
|
30,243,029 |
|
100.00 |
% |
30,212,148 |
|
100.00 |
% |
|
|
Three Months Ended March 31, |
||||||||||||||||||
|
|
2017 |
|
2016 |
||||||||||||||||
|
|
RE/MAX Holdings, Inc. |
|
Non-controlling interest |
|
Total |
|
|
RE/MAX Holdings, Inc. |
|
Non-controlling interest |
|
Total |
|
||||||
|
Weighted average ownership percentage of RMCO (a) |
|
58.44 |
% |
|
41.56 |
% |
|
100.00 |
% |
|
|
58.33 |
% |
|
41.67 |
% |
|
100.00 |
% |
|
Income before provision for income taxes |
$ |
7,624 |
|
$ |
5,477 |
|
$ |
13,101 |
|
|
$ |
7,965 |
|
$ |
5,690 |
|
$ |
13,655 |
|
|
Provision for income taxes (b)(c) |
|
(2,712) |
|
|
(318) |
|
|
(3,030) |
|
|
|
(3,025) |
|
|
(234) |
|
|
(3,259) |
|
|
Net income |
$ |
4,912 |
|
$ |
5,159 |
|
$ |
10,071 |
|
|
$ |
4,940 |
|
$ |
5,456 |
|
$ |
10,396 |
|
(a) The weighted average ownership percentage of RMCO differs slightly from the allocation of income before provision for income taxes between RE/MAX Holdings and the non-controlling interest as there are 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. However, it also includes its share of taxes imposed directly on RE/MAX, LLC and its consolidated subsidiaries (“RE/MAX, LLC”), a wholly-owned subsidiary of RMCO, 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 imposed on RE/MAX, LLC related primarily to tax liabilities in certain foreign jurisdictions.
|
|
|
Three Months Ended |
||||
|
|
|
March 31, |
||||
|
|
|
2017 |
|
2016 |
||
|
Tax and other distributions |
|
$ |
3,588 |
|
$ |
3,003 |
|
Dividend distributions |
|
|
2,261 |
|
|
1,884 |
|
Total distributions |
|
$ |
5,849 |
|
$ |
4,887 |
|
|||
The following table summarizes the allocation of the purchase price to the fair value of assets acquired for the aforementioned acquisitions (in thousands):
|
|
|
|
RE/MAX Regional Services |
|
|
RE/MAX of New Jersey |
|
|
Full House |
|
|
RE/MAX of Alaska |
|
|
RE/MAX of New York |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
- |
|
$ |
335 |
|
$ |
- |
|
$ |
- |
|
$ |
131 |
|
$ |
466 |
|
Franchise agreements |
|
|
28,000 |
|
|
28,200 |
|
|
- |
|
|
529 |
|
|
5,000 |
|
|
61,729 |
|
Non-compete agreement |
|
|
- |
|
|
- |
|
|
2,500 |
|
|
- |
|
|
- |
|
|
2,500 |
|
Other assets |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
340 |
|
|
340 |
|
Goodwill |
|
|
22,400 |
|
|
16,465 |
|
|
11,800 |
|
|
971 |
|
|
3,029 |
|
|
54,665 |
|
Total purchase price |
|
$ |
50,400 |
|
$ |
45,000 |
|
$ |
14,300 |
|
$ |
1,500 |
|
$ |
8,500 |
|
$ |
119,700 |
|
|
Three Months Ended |
|
|
|
March 31, 2016 |
|
|
|
(In thousands, except per share amounts) |
|
|
Total revenue |
$ |
45,983 |
|
Net income attributable to RE/MAX Holdings, Inc. (a) |
$ |
3,907 |
|
Basic earnings per common share |
$ |
0.22 |
|
Diluted earnings per common share |
$ |
0.22 |
|
(a) |
Includes the net impact of $1.0 million in professional fees and debt extinguishment costs incurred related to the amendment of the Company’s credit facility. See Note 8, Debt, for a discussion of the credit facility. |
|
Cash consideration |
$ |
8,000 |
|
Contingent purchase consideration |
|
6,300 |
|
Total purchase price |
$ |
14,300 |
|
|||
The following table provides the components of the Company’s intangible assets, other than goodwill (in thousands, except weighted average amortization period in years):
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
As of March 31, 2017 |
|
As of December 31, 2016 |
||||||||||||||
|
|
|
Amortization |
|
Initial |
|
Accumulated |
|
Net |
|
Initial |
|
Accumulated |
|
Net |
||||||
|
|
|
Period |
|
Cost |
|
Amortization |
|
Balance |
|
Cost |
|
Amortization |
|
Balance |
||||||
|
Franchise agreements |
|
12.2 |
|
$ |
224,167 |
|
$ |
(120,387) |
|
$ |
103,780 |
|
$ |
224,167 |
|
$ |
(115,027) |
|
$ |
109,140 |
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software (a) |
|
4.6 |
|
$ |
13,314 |
|
$ |
(7,484) |
|
$ |
5,830 |
|
$ |
13,207 |
|
$ |
(7,154) |
|
$ |
6,053 |
|
Trademarks |
|
14.2 |
|
|
3,119 |
|
|
(1,828) |
|
|
1,291 |
|
|
3,102 |
|
|
(1,782) |
|
|
1,320 |
|
Non-compete |
|
10.0 |
|
|
2,500 |
|
|
(125) |
|
|
2,375 |
|
|
2,500 |
|
|
(62) |
|
|
2,438 |
|
Total other intangible assets |
|
7.9 |
|
$ |
18,933 |
|
$ |
(9,437) |
|
$ |
9,496 |
|
$ |
18,809 |
|
$ |
(8,998) |
|
$ |
9,811 |
(a) As of March 31, 2017 and December 31, 2016, capitalized software development costs of $559,000 and $356,000, respectively, were information technology infrastructure projects not yet complete and ready for their intended use and thus were not subject to amortization.
As of March 31, 2017, the estimated future amortization expense for the next five years related to intangible assets with definite lives is as follows (in thousands):
|
As of March 31, 2017: |
|
|
|
|
Remainder of 2017 |
|
$ |
13,846 |
|
2018 |
|
|
14,836 |
|
2019 |
|
|
14,668 |
|
2020 |
|
|
14,471 |
|
2021 |
|
|
14,069 |
|
|
|
$ |
71,890 |
The following table presents changes to goodwill for the three months ended March 31, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
Balance, January 1, 2017 |
$ |
126,633 |
|
Effect of changes in foreign currency exchange rates |
|
27 |
|
Balance, March 31, 2017 |
$ |
126,660 |
|
|||
Accrued liabilities consist of the following (in thousands):
|
|
|
March 31, |
|
December 31, |
||
|
|
|
2017 |
|
2016 |
||
|
Accrued payroll and related employee costs |
|
$ |
4,013 |
|
$ |
7,035 |
|
Accrued taxes |
|
|
1,303 |
|
|
1,554 |
|
Accrued professional fees |
|
|
712 |
|
|
1,382 |
|
Lease-related accruals |
|
|
353 |
|
|
353 |
|
Other |
|
|
1,612 |
|
|
2,944 |
|
|
|
$ |
7,993 |
|
$ |
13,268 |
|
|||
Debt consists of the following (in thousands):
|
|
|
March 31, |
|
December 31, |
||
|
|
|
2017 |
|
2016 |
||
|
2016 Senior Secured Credit Facility |
|
$ |
233,825 |
|
$ |
234,412 |
|
Less unamortized debt issuance costs |
|
|
(2,004) |
|
|
(2,076) |
|
Less unamortized debt discount costs |
|
|
(1,461) |
|
|
(1,516) |
|
Less current portion |
|
|
(2,350) |
|
|
(2,350) |
|
|
|
$ |
228,010 |
|
$ |
228,470 |
Maturities of debt are as follows (in thousands):
|
As of March 31, 2017: |
|
|
|
Remainder of 2017 |
$ |
1,763 |
|
2018 |
|
2,350 |
|
2019 |
|
2,350 |
|
2020 |
|
2,350 |
|
2021 |
|
2,350 |
|
Thereafter |
|
222,662 |
|
|
$ |
233,825 |
|
|||
A summary of the Company’s liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 is as follows (in thousands):
|
As of March 31, 2017 |
As of December 31, 2016 |
|||||||||||||||||||||||
|
Fair Value |
Level 1 |
Level 2 |
Level 3 |
Fair Value |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||||
|
Liabilities |
||||||||||||||||||||||||
|
Contingent consideration |
$ |
6,530 |
$ |
- |
$ |
- |
$ |
6,530 |
$ |
6,400 |
$ |
- |
$ |
- |
$ |
6,400 |
||||||||
The table below presents a reconciliation of all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs for the period from January 1, 2017 to March 31, 2017 (in thousands):
|
|
|
Fair value of Contingent Consideration Liability |
|
|
Balance at January 1, 2017 |
|
$ |
6,400 |
|
Fair value adjustments |
|
|
130 |
|
Balance at March 31, 2017 |
|
$ |
6,530 |
|
|
|
Fair value of Contingent Consideration Liability |
|
|
Balance at January 1, 2017 |
|
$ |
6,400 |
|
Fair value adjustments |
|
|
130 |
|
Balance at March 31, 2017 |
|
$ |
6,530 |
The following table summarizes the carrying value and fair value of the 2016 Senior Secured Credit Facility as of March 31, 2017 and December 31, 2016 (in thousands):
|
|
|
March 31, |
|
December 31, |
||||||||
|
|
|
2017 |
|
2016 |
||||||||
|
|
|
Carrying Amounts |
|
Fair Value Level 2 |
|
Carrying Amounts |
|
Fair Value Level 2 |
||||
|
Senior Secured Credit Facility |
|
$ |
230,360 |
|
$ |
235,286 |
|
$ |
230,820 |
|
$ |
233,240 |
|
|||
|
|
Three Months Ended |
||||
|
|
March 31, |
||||
|
|
2017 |
|
2016 |
||
|
Expense from Time-based RSUs |
$ |
527 |
|
$ |
766 |
|
Expense from Performance-based RSUs |
|
35 |
|
|
- |
|
Equity-based compensation expense |
|
562 |
|
|
766 |
|
Tax benefit from share-based compensation |
|
(123) |
|
|
(170) |
|
Excess tax benefit from share-based compensation |
|
(207) |
|
|
- |
|
Net compensation cost |
$ |
232 |
|
$ |
596 |
|
|
|
|
|
|
|
|
|
|
Time-based restricted stock units |
|
|
Weighted average grant date fair value per share |
|
Balance, January 1, 2017 |
|
127,011 |
|
$ |
33.00 |
|
Granted |
|
43,450 |
|
$ |
55.45 |
|
Shares vested (including tax withholding)(a) |
|
(30,881) |
|
$ |
33.36 |
|
Forfeited |
|
(7,828) |
|
$ |
33.18 |
|
Balance, March 31, 2017 |
|
131,752 |
|
$ |
40.31 |
(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.
The following table summarizes equity-based compensation activity related to performance-based RSUs as of and for the three months ended March 31, 2017:
|
|
|
Performance-based restricted stock units |
|
|
Weighted average grant date fair value per share |
|
Balance, January 1, 2017 |
|
— |
|
$ |
— |
|
Granted (a) |
|
33,961 |
|
$ |
57.88 |
|
Shares vested (including tax withholding) |
|
— |
|
$ |
— |
|
Forfeited |
|
— |
|
$ |
— |
|
Balance, March 31, 2017 |
|
33,961 |
|
$ |
57.88 |
(a) Represents the total participant target award.
|
|||
The following table presents a rollforward of the estimated fair value liability established for the aforementioned leadership changes during the three months ended March 31, 2017 (in thousands):
|
Balance, January 1, 2017 |
|
$ |
964 |
|
Severance and other related expenses |
|
|
— |
|
Accretion |
|
|
8 |
|
Cash payments |
|
|
(274) |
|
Balance, March 31, 2017 |
|
$ |
698 |
|
|
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