RE/MAX HOLDINGS, INC., 10-Q filed on 5/6/2020
Quarterly Report
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
Apr. 30, 2020
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Mar. 31, 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, $0.0001 par value per share  
Trading Symbol RMAX  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Central Index Key 0001581091  
Amendment Flag false  
Common Class A    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   18,123,963
Common Class B    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   1
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 80,905 $ 83,001
Restricted cash 24,195 20,600
Accounts and notes receivable, current portion, less allowances of $14,879 and $12,538, respectively 27,289 28,644
Income taxes receivable 1,576 896
Other current assets 10,810 9,638
Total current assets 144,775 142,779
Property and equipment, net of accumulated depreciation of $15,402 and $14,940, respectively 5,724 5,444
Operating lease right of use assets 49,949 51,129
Franchise agreements, net 83,801 87,670
Other intangible assets, net 29,554 32,315
Goodwill 161,698 159,038
Deferred tax assets, net 49,251 52,595
Income taxes receivable, net of current portion 1,690 1,690
Other assets, net of current portion 11,220 9,692
Total assets 537,662 542,352
Current liabilities:    
Accounts payable 6,466 2,983
Accrued liabilities 52,343 60,163
Income taxes payable 7,918 6,854
Deferred revenue 25,473 25,663
Current portion of debt 2,628 2,648
Current portion of payable pursuant to tax receivable agreements 3,583 3,583
Operating lease liabilities 5,232 5,102
Total current liabilities 103,643 106,996
Debt, net of current portion 222,522 223,033
Payable pursuant to tax receivable agreements, net of current portion 33,140 33,640
Deferred tax liabilities, net 542 293
Deferred revenue, net of current portion 18,495 18,763
Operating lease liabilities, net of current portion 54,598 55,959
Other liabilities, net of current portion 4,644 5,292
Total liabilities 437,584 443,976
Stockholders' equity:    
Additional paid-in capital 470,639 466,945
Retained earnings 28,881 30,525
Accumulated other comprehensive income, net of tax 378 414
Total stockholders' equity attributable to RE/MAX Holdings, Inc. 499,900 497,886
Non-controlling interest (399,822) (399,510)
Total stockholders' equity 100,078 98,376
Total liabilities and stockholders' equity 537,662 542,352
Common Class A    
Stockholders' equity:    
Common stock 2 2
Common Class B    
Stockholders' equity:    
Common stock $ 0 $ 0
v3.20.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Accounts and notes receivable, allowance $ 14,879 $ 12,538
Property and equipment, accumulated depreciation $ 15,402 $ 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
v3.20.1
Consolidated Statements of Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenue:    
Total revenue $ 70,272 $ 71,178
Operating expenses:    
Selling, operating and administrative expenses 34,677 33,903
Marketing Funds expenses 17,522 18,772
Depreciation and amortization 6,310 5,558
Total operating expenses 58,509 58,233
Operating income 11,763 12,945
Other expenses, net:    
Interest expense (2,682) (3,155)
Interest income 269 320
Foreign currency transaction gains (losses) (270) 55
Total other expenses, net (2,683) (2,780)
Income before provision for income taxes 9,080 10,165
Provision for income taxes (3,790) (1,908)
Net income 5,290 8,257
Less: net income attributable to non-controlling interest (note 3) 2,659 3,848
Net income attributable to RE/MAX Holdings, Inc. $ 2,631 $ 4,409
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock    
Basic $ 0.15 $ 0.25
Diluted $ 0.15 $ 0.25
RMCO, LLC    
Other expenses, net:    
Net income $ 5,290 $ 8,257
Less: net income attributable to non-controlling interest (note 3) 2,659 3,848
Net income attributable to RE/MAX Holdings, Inc. $ 2,631 $ 4,409
Common Class A    
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock    
Basic $ 0.15 $ 0.25
Diluted $ 0.15 $ 0.25
Weighted average shares of Class A common stock outstanding    
Basic 17,974,264 17,775,381
Diluted 18,033,631 17,817,620
Cash dividends declared per share of Class A common stock $ 0.22 $ 0.21
Continuing franchise fees    
Revenue:    
Total revenue $ 24,143 $ 24,956
Annual dues    
Revenue:    
Total revenue 8,921 8,854
Broker fees    
Revenue:    
Total revenue 9,444 8,588
Marketing Funds fees    
Revenue:    
Total revenue 17,522 18,772
Franchise sales and other revenue    
Revenue:    
Total revenue $ 10,242 $ 10,008
v3.20.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Consolidated Statements of Comprehensive Income    
Net income $ 5,290 $ 8,257
Change in cumulative translation adjustment (230) 69
Other comprehensive income (loss), net of tax (230) 69
Comprehensive income 5,060 8,326
Less: comprehensive income attributable to non-controlling interest 2,465 3,881
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax $ 2,595 $ 4,445
v3.20.1
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)   (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, 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)   (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         18,123,963 1  
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net income $ 5,290 $ 8,257
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 6,310 5,558
Bad debt expense 3,435 1,439
Equity-based compensation expense 2,186 4,051
Deferred income tax expense 2,241 1,081
Fair value adjustments to contingent consideration (505) (70)
Other, net (504) 651
Changes in operating assets and liabilities (4,804) 1,474
Net cash provided by operating activities 13,649 22,441
Cash flows from investing activities:    
Purchases of property, equipment and capitalization of software (1,965) (3,940)
Restricted cash acquired with the Marketing Funds acquisition 0 28,495
Other 0 (1,200)
Net cash (used in) provided by investing activities (1,965) 23,355
Cash flows from financing activities:    
Payments on debt (660) (653)
Distributions paid to non-controlling unitholders (2,777) (2,693)
Dividends and dividend equivalents paid to Class A common stockholders (4,275) (3,782)
Payments related to tax withholding for share-based compensation (2,268) (713)
Net cash used in financing activities (9,980) (7,841)
Effect of exchange rate changes on cash (205) 69
Net increase in cash, cash equivalents and restricted cash 1,499 38,024
Cash, cash equivalents and restricted cash, beginning of year 103,601 59,974
Cash, cash equivalents and restricted cash, end of period 105,100 97,998
Supplemental disclosures of cash flow information:    
Cash paid for interest 2,556 2,951
Net cash paid for income taxes $ 1,079 $ 1,729
v3.20.1
Business and Organization
3 Months Ended
Mar. 31, 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.

v3.20.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 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 March 31, 2020 and the results of its operations and comprehensive income, cash flows and changes in its stockholders’ equity for the three months ended March 31, 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

Three months ended March 31, 2020

$

15,982

$

9,895

$

(8,921)

$

16,956

(a)

Revenue recognized related to the beginning balance was $6.8 million for the three months ended March 31, 2020.

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

Three months ended March 31, 2020

$

25,884

$

2,154

$

(2,647)

$

25,391

(a)

Revenue recognized related to the beginning balance was $2.5 million for the three months ended March 31, 2020.

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

Three months ended March 31, 2020

$

3,578

$

(367)

$

444

$

3,655

Disaggregated Revenue

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

Three Months Ended March 31, 

2020

2019

U.S.

$

41,109

$

41,735

Canada

5,310

5,349

Global

3,486

2,740

Total RE/MAX Franchising

49,905

49,824

U.S.

15,651

16,672

Canada

1,655

1,885

Global

216

215

Total Marketing Funds

17,522

18,772

Motto Franchising (a)

1,458

959

Other

1,387

1,623

Total

$

70,272

$

71,178

(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 March 31, 

2020

2019

Company-owned Regions

$

29,244

$

30,018

Independent Regions

10,794

10,923

Global and Other

9,867

8,883

Total RE/MAX Franchising

49,905

49,824

Marketing Funds

17,522

18,772

Motto Franchising

1,458

959

Other

1,387

1,623

Total

$

70,272

$

71,178

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 9
months of
2020

    

2021

    

2022

    

2023

    

2024

    

2025

    

Thereafter

    

Total

Annual dues

$

15,665

$

1,291

$

$

$

$

$

$

16,956

Franchise sales

5,437

6,088

4,673

3,215

1,925

992

3,061

25,391

Total

$

21,102

$

7,379

$

4,673

$

3,215

$

1,925

$

992

$

3,061

$

42,347

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):

March 31,

December 31,

    

2020

2019

Cash and cash equivalents

$

80,905

$

83,001

Restricted cash

24,195

20,600

Total cash, cash equivalents and restricted cash

$

105,100

$

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 are primarily comprised of (a) building and maintaining agent marketing technology, including customer relationship management tools, the www.remax.com website, agent and office websites, and mobile apps, (b) dedicated employees focused on marketing campaigns, and (c) various administrative services including 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 March 31, 

2020

2019

Technology development - operating

$

2,971

$

965

Technology development - capital

644

935

Marketing staff and administrative services

1,228

1,025

Total

$

4,843

$

2,925

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 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. Sublease income was $0.4 million for each of the three months ended March 31, 2020 and 2019.

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.

v3.20.1
Non-controlling Interest
3 Months Ended
Mar. 31, 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:

March 31, 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 March 31, 

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)

58.9

%

41.1

%

100.0

%

58.6

%

41.4

%

100.0

%

Income before provision for income taxes(a)

$

5,552

$

3,528

$

9,080

$

5,958

$

4,207

$

10,165

Provision for income taxes(b)(c)

(2,921)

(869)

(3,790)

(1,549)

(359)

(1,908)

Net income

$

2,631

$

2,659

$

5,290

$

4,409

$

3,848

$

8,257

(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) the gain on reduction in TRA liability in 2020 attributable only to Holdings.
(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. In the three months ended March 31, 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):

f$

Three Months Ended

March 31, 

    

2020

    

2019

Tax and other distributions

$

14

$

55

Dividend distributions

2,763

2,638

Total distributions to non-controlling unitholders

$

2,777

$

2,693

v3.20.1
Earnings Per Share and Dividends
3 Months Ended
Mar. 31, 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 March 31, 

2020

2019

Numerator

Net income attributable to RE/MAX Holdings, Inc.

$

2,631

$

4,409

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

Weighted average shares of Class A common stock outstanding

17,974,264

17,775,381

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

Weighted average shares of Class A common stock outstanding

17,974,264

17,775,381

Add dilutive effect of the following:

Restricted stock units

59,367

42,239

Weighted average shares of Class A common stock outstanding, diluted

18,033,631

17,817,620

Earnings per share of Class A common stock

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

$

0.15

$

0.25

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

$

0.15

$

0.25

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):

Three Months Ended March 31, 

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

On May 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 June 2, 2020 to stockholders of record at the close of business on May 19, 2020.

v3.20.1
Acquisitions
3 Months Ended
Mar. 31, 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.

v3.20.1
Intangible Assets and Goodwill
3 Months Ended
Mar. 31, 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 March 31, 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

$

(97,066)

$

83,801

$

180,867

$

(93,197)

$

87,670

Other intangible assets:

Software (a)

4.0

$

36,205

$

(11,506)

$

24,699

$

36,680

$

(9,653)

$

27,027

Trademarks

9.0

2,014

(1,093)

921

1,904

(1,037)

867

Non-compete agreements

4.5

3,700

(1,857)

1,843

3,700

(1,546)

2,154

Training materials

5.0

2,400

(760)

1,640

2,400

(640)

1,760

Other

3.8

810

(359)

451

800

(293)

507

Total other intangible assets

4.4

$

45,129

$

(15,575)

$

29,554

$

45,484

$

(13,169)

$

32,315

(a)As of March 31, 2020 and December 31, 2019, capitalized software development costs of $5.3 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 March 31, 2020 and 2019 was $5.9 million and $5.2 million, respectively.

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

As of March 31, 2020:

Remainder of 2020

$

17,557

2021

25,941

2022

19,323

2023

15,192

2024

12,795

$

90,808

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 related to acquisitions(a)

2,927

2,927

Effect of changes in foreign currency exchange rates

(267)

(267)

Balance, March 31, 2020

$

149,898

$

11,800

$

161,698

(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.
v3.20.1
Accrued Liabilities
3 Months Ended
Mar. 31, 2020
Accrued Liabilities.  
Accrued Liabilities

7. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

March 31, 

December 31, 

2020

2019

Marketing Funds (a)

$

42,253

$

39,672

Accrued payroll and related employee costs

2,749

11,900

Accrued taxes

1,779

2,451

Accrued professional fees

1,972

2,047

Other

3,590

4,093

$

52,343

$

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.
v3.20.1
Debt
3 Months Ended
Mar. 31, 2020
Debt  
Debt

8. Debt

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

March 31, 

    

December 31,

2020

2019

Senior Secured Credit Facility

$

226,775

$

227,363

Other long-term financing(a)

290

362

Less unamortized debt issuance costs

(1,107)

(1,182)

Less unamortized debt discount costs

(808)

(862)

Less current portion(a)

(2,628)

(2,648)

$

222,522

$

223,033

(a)Includes financing assumed with the acquisition of booj. As of March 31, 2020, the carrying value of this financing approximates the fair value.

Maturities of debt are as follows (in thousands):

Three Months Ended March 31, 2020

    

Remainder of 2020

$

1,988

2021

2,414

2022

2,350

2023

220,313

$

227,065

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 March 31, 2020, the Company had no revolving loans outstanding under its Senior Secured Credit Facility. As of March 31, 2020, the interest rate on the term loan facility was 3.74%.

v3.20.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Fair Value Measurements  
Fair Value Measurements

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 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):

As of March 31, 2020

As of December 31, 2019

    

Fair Value

    

Level 1

    

Level 2

    

Level 3

Fair Value

    

Level 1

    

Level 2

    

Level 3

Liabilities

Contingent consideration

$

4,500

$

$

$

4,500

$

5,005

$

$

$

5,005

The Company is required to pay additional purchase consideration totaling 8% of gross receipts collected by Motto each year (the “Revenue Share Year”) through September 30, 2026, with no limitation as to the maximum payout. The fair value of the contingent purchase consideration represents the forecasted discounted cash payments that the Company expects to pay. Increases or decreases in the fair value of the contingent purchase consideration can result from changes in discount rates as well as the timing and amount of forecasted revenues. The forecasted revenue growth assumption that is most sensitive is the assumed franchise sales count for which the forecast assumes between 40 and 80 franchises sold annually, with a weighted average of 70. The model also assumes a discount rate of approximately 15%. A 10% reduction in the number of franchise sales would decrease the liability by $0.2 million. A 1% change to the discount rate applied to the forecast would change the liability by approximately $0.2 million. The Company measures this liability each reporting period and recognizes changes in fair value, if any, in “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income and recorded as a component of “Accrued liabilities” and “Other liabilities, net of current portion” in the accompanying Condensed Consolidated Balance Sheets.

The table below presents a reconciliation of this liability (in thousands):

Balance at January 1, 2020

5,005

Fair value adjustments

(505)

Balance at March 31, 2020

$

4,500


The following table summarizes the carrying value and fair value of the Senior Secured Credit Facility (in thousands):

March 31, 2020

December 31, 2019

    

Carrying
Amount

    

Fair Value
Level 2

    

Carrying
Amount

    

Fair Value
Level 2

Senior Secured Credit Facility

$

224,860

$

192,759

$

225,319

$

227,363

v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Taxes  
Income Taxes

10. Income Taxes

The “Provision for income taxes” in the accompanying Condensed Consolidated Statements of Income is based on an estimate of the Company’s year to date actual effective income tax rate.

The Company has determined that it is unable to reliably estimate its annual effective tax rate to apply to its income for the quarter, as described in ASC 740. Therefore, the Company has elected to record its tax provision for the quarter ended using its actual effective tax rate.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted which includes significant changes to the U.S. Corporate tax system. The Company will continue to evaluate tax planning opportunities as well as monitor any changes that might be contained in the final regulations related to the TCJA. Such remaining final regulations are expected in 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted which includes several significant business tax provisions. The Company has recognized the effect of this change in tax law during the current quarter which was not significant. The CARES Act provides a five-year carryback of net operating losses generated in tax years beginning after December 31, 2017 and before January 1, 2020. Based upon this change in law, any 2020 tax loss, if realized will be able to be carried back five years.

v3.20.1
Equity-Based Compensation
3 Months Ended
Mar. 31, 2020
Equity-Based Compensation  
Equity-Based Compensation

11. Equity-Based Compensation

Employee equity-based compensation expense, net of the amount capitalized in internally developed software, is as follows (in thousands):

Three Months Ended March 31, 

2020

    

2019

Expense from time-based awards (a)

$

2,137

$

2,112

Expense from performance-based awards (a)(b)

81

1,101

Expense from bonus to be settled in shares (c)

898

Equity-based compensation capitalized (a)

(32)

(60)

Equity-based compensation expense

$

2,186

$

4,051

(a)Includes expense recognized and costs capitalized in connection with the awards granted to booj employees and former owners at the time of acquisition.
(b)Expense recognized for performance-based awards is re-assessed each quarter based on expectations of achievement against the performance conditions. The Company granted certain performance awards to booj employees that vested in 2019 and therefore have no comparable amounts in 2020.
(c)In 2019, the Company revised its annual bonus plan so that a portion of the bonus for most employees would be settled in shares if the Company met certain performance metrics. The Company eliminated the 2020 corporate bonus as part of cost savings measures in connection with the COVID-19 pandemic.

Time-based Restricted Stock Units

The following table summarizes equity-based compensation activity related to time-based restricted stock units (“RSUs”):

    

RSUs

    

Weighted average
grant date fair
value per share

Balance, January 1, 2020

455,452

$

46.15

Granted

295,437

$

29.16

Shares vested (including tax withholding) (a)

(163,028)

$

45.58

Forfeited

(2,711)

$

42.08

Balance, March 31, 2020

585,150

$

37.75

(a)Pursuant to the terms of the RE/MAX Holdings, Inc. 2013 Omnibus 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, 2020, there was $18.9 million of total unrecognized 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 2.2 years for time-based restricted stock units.

Performance-based Restricted Stock Units

The following table summarizes equity-based compensation activity related to performance-based restricted stock units (“PSUs”):

    

PSUs

    

Weighted average
grant date fair
value per share

Balance, January 1, 2020

139,964

$

45.31

Granted (a)

203,202

$

28.29

Shares vested

(6,331)

$

38.49

Forfeited

(4,034)

$

43.95

Balance, March 31, 2020

332,801

$

35.07

(a)Represents the total participant target award.

At March 31, 2020, there was $3.7 million of total unrecognized PSU 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 2.5 years for PSUs.

v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies  
Commitments and Contingencies

12. Commitments and Contingencies

In March and April of 2019, three putative class action complaints were filed against National Association of Realtors (“NAR”), Realogy Holdings Corp., HomeServices of America, Inc, RE/MAX Holdings, and Keller Williams Realty, Inc. The first was filed on March 6, 2019, by plaintiff Christopher Moehrl in the Northern District of Illinois. The second was filed on April 15, 2019, by plaintiff Sawbill Strategies, Inc., also in the Northern District of Illinois. These two actions have now been consolidated. A third action was filed by plaintiffs Joshua Sitzer and four other individual plaintiffs in the Western District of Missouri. The complaints (collectively “Moehrl/Sitzer suits”) make substantially similar allegations and seek substantially similar relief. The plaintiffs allege that a NAR rule requires brokers to make a blanket, non-negotiable offer of buyer broker compensation when listing a property, resulting in inflated costs to sellers in violation of federal antitrust law. They further allege that certain defendants use their agreements with franchisees to require adherence to the NAR rule in violation of federal antitrust law. Amended complaints add allegations regarding buyer steering and non-disclosure of buyer-broker compensation to the buyer. Additionally, plaintiffs in the action filed by Sitzer et al allege violations of the Missouri Merchandising Practices Act. By agreement, RE/MAX, LLC was substituted for RE/MAX Holdings as defendant in the actions. Among other requested relief, plaintiffs seek damages against the defendants and an injunction enjoining defendants from requiring sellers to pay the buyer broker. The Company intends to vigorously defend against all claims.

v3.20.1
Segment Information
3 Months Ended
Mar. 31, 2020
Segment Information  
Segment Information

13. Segment Information

The Company operates under the following four operating segments: RE/MAX Franchising, Motto Franchising, Marketing Funds and booj. Due to quantitative insignificance, the booj operating segment does not meet the criteria of a reportable segment and is included in “Other”. Motto Franchising does not meet the quantitative significance test; however, management has chosen to report results for the segment as it believes it will be a key driver of future success for Holdings. Management evaluates the operating results of its segments based upon revenue and adjusted earnings before interest, the provision for income taxes, depreciation and amortization and other non-cash and non-recurring cash charges or other items (“Adjusted EBITDA”). The Company’s presentation of Adjusted EBITDA may not be comparable to similar measures used by other companies. Except for the adjustments identified below in arriving at Adjusted EBITDA, the accounting policies of the reportable segments are the same as those described in the Company’s 2019 Annual Report on Form 10-K.


The following table presents revenue from external customers by segment (in thousands):

Three Months Ended March 31, 

2020

2019

Continuing franchise fees

$

22,877

$

24,117

Annual dues

8,921

8,854

Broker fees

9,444

8,588

Franchise sales and other revenue

8,663

8,265

Total RE/MAX Franchising

49,905

49,824

Continuing franchise fees

1,266

839

Franchise sales and other revenue

192

120

Total Motto Franchising

1,458

959

Marketing Funds fees

17,522

18,772

Other

1,387

1,623

Total revenue

$

70,272

$

71,178

The following table presents a reconciliation of Adjusted EBITDA by segment to income before provision for income taxes (in thousands):

Three Months Ended March 31, 

2020

2019

Adjusted EBITDA: RE/MAX Franchising

$

20,731

$

24,144

Adjusted EBITDA: Motto Franchising

(578)

(741)

Adjusted EBITDA: Other

(614)

(413)

Adjusted EBITDA: Consolidated

19,539

22,990

Gain (loss) on sale or disposition of assets

11

(379)

Equity-based compensation expense

(2,186)

(4,051)

Acquisition-related expense (a)

(566)

(72)

Gain on reduction in tax receivable agreement liability

500

Fair value adjustments to contingent consideration (b)

505

70

Interest income

269

320

Interest expense

(2,682)

(3,155)

Depreciation and amortization

(6,310)

(5,558)

Income before provision for income taxes

$

9,080

$

10,165

(a)Acquisition-related expense includes legal, accounting, advisory and consulting fees incurred in connection with the acquisition and integration of acquired companies.
(b)Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liability. See Note 9, Fair Value Measurements for additional information.
v3.20.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Summary of Significant Accounting Policies  
Basis of Presentation

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 March 31, 2020 and the results of its operations and comprehensive income, cash flows and changes in its stockholders’ equity for the three months ended March 31, 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

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

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

Three months ended March 31, 2020

$

15,982

$

9,895

$

(8,921)

$

16,956

(a)

Revenue recognized related to the beginning balance was $6.8 million for the three months ended March 31, 2020.

Franchise Sales

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