RE/MAX HOLDINGS, INC., 10-Q filed on 5/4/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
Apr. 30, 2018
Entity Registrant Name RE/MAX Holdings, Inc.  
Entity Central Index Key 0001581091  
Document Period End Date Mar. 31, 2018  
Current Fiscal Year End Date --12-31  
Document Type 10-Q  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Common Class A    
Entity Common Stock, Shares Outstanding   17,746,184
Common Class B    
Entity Common Stock, Shares Outstanding   1
v3.8.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 30,103 $ 50,807
Accounts and notes receivable, current portion, less allowances of $7,690 and $7,223, respectively 21,121 20,284
Income taxes receivable 753 963
Other current assets 4,775 7,974
Total current assets 56,752 80,028
Property and equipment, net of accumulated depreciation of $12,318 and $12,326, respectively 3,040 2,905
Franchise agreements, net 114,782 119,349
Other intangible assets, net 16,106 8,476
Goodwill 154,196 135,213
Deferred tax assets, net 62,338 62,841
Other assets, net of current portion 4,063 4,023
Total assets 411,277 412,835
Current liabilities:    
Accounts payable 1,036 517
Accrued liabilities 10,954 15,390
Income taxes payable   97
Tax and other distributions payable to non-controlling unitholders 1,691  
Deferred revenue 24,848 25,268
Current portion of debt 2,350 2,350
Current portion of payable pursuant to tax receivable agreements 6,252 6,252
Total current liabilities 47,131 49,874
Debt, net of current portion 226,176 226,636
Payable pursuant to tax receivable agreements, net of current portion 46,923 46,923
Deferred tax liabilities, net 150 151
Deferred revenue, net of current portion 20,902 20,228
Other liabilities, net of current portion 18,887 19,897
Total liabilities 360,169 363,709
Commitments and contingencies (note 14)
Stockholders' equity:    
Additional paid-in capital 451,903 451,199
Retained earnings 9,788 8,400
Accumulated other comprehensive income, net of tax 416 459
Total stockholders' equity attributable to RE/MAX Holdings, Inc. 462,109 460,060
Non-controlling interest (411,001) (410,934)
Total stockholders' equity 51,108 49,126
Total liabilities and stockholders' equity 411,277 412,835
Common Class A    
Stockholders' equity:    
Common stock 2 2
Total stockholders' equity 2 2
Common Class B    
Stockholders' equity:    
Common stock
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Accounts Receivable, allowance $ 7,690 $ 7,223
Property and equipment, accumulated depreciation $ 12,318 $ 12,326
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 17,733,302 17,696,991
Common stock, shares outstanding 17,733,302 17,696,991
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
v3.8.0.1
Condensed Consolidated Statements of Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Revenue:    
Total revenue $ 52,642 $ 47,406
Operating expenses:    
Selling, operating and administrative expenses 34,368 26,654
Depreciation and amortization 4,575 5,995
Gain on sale or disposition of assets, net (18) (12)
Total operating expenses 38,925 32,637
Operating income 13,717 14,769
Other expenses, net:    
Interest expense (2,724) (2,354)
Interest income 119 26
Foreign currency transaction losses (83) (23)
Total other expenses, net (2,688) (2,351)
Income before provision for income taxes 11,029 12,418
Provision for income taxes (1,862) (3,030)
Net income 9,167 9,388
Less: Net income attributable to non-controlling interest (note 4) 4,184 4,848
Net income attributable to RE/MAX Holdings, Inc. $ 4,983 $ 4,540
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock    
Basic   $ 0.26
Diluted   0.26
Weighted average shares of Class A common stock outstanding    
Cash dividends declared per share of Class A common stock $ 0.20 0.18
Common Class A    
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock    
Basic 0.28 0.26
Diluted $ 0.28 $ 0.26
Weighted average shares of Class A common stock outstanding    
Basic 17,709,095 17,662,842
Diluted 17,762,133 17,716,013
Cash dividends declared per share of Class A common stock $ 0.20 $ 0.18
Continuing franchise fees    
Revenue:    
Total revenue $ 25,240 $ 22,965
Annual dues    
Revenue:    
Total revenue 8,696 8,235
Broker fees    
Revenue:    
Total revenue 9,188 8,235
Franchise sales and other revenue    
Revenue:    
Total revenue $ 9,518 $ 7,971
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Condensed Consolidated Statements of Comprehensive Income    
Net income $ 9,167 $ 9,388
Change in cumulative translation adjustment (82) 89
Other comprehensive (loss) income, net of tax (82) 89
Comprehensive income 9,085 9,477
Less: comprehensive income attributable to non-controlling interest 4,145 4,899
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax $ 4,940 $ 4,578
v3.8.0.1
Condensed Consolidated Statements of Stockholders' Equity - 3 months ended Mar. 31, 2018 - USD ($)
$ in Thousands
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interest
Common Class A
Common Class B
Total
Balances, January 1, 2018 at Dec. 31, 2017 $ 451,199 $ 8,400 $ 459 $ (410,934) $ 2   $ 49,126
Beginning balance, Shares at Dec. 31, 2017         17,696,991 1  
Net income   4,983   4,184     9,167
Distributions to non-controlling unitholders       (4,212)     (4,212)
Equity-based compensation expense and related dividend equivalents, value 1,268 (48)         1,220
Equity-based compensation expense and related dividend equivalents, shares         46,520    
Dividends to Class A common stockholders   (3,547)     $ (3,547)   (3,547)
Change in accumulated other comprehensive income     (43) (39)     (82)
Payroll taxes related to net settled restricted stock units (564)           (564)
Payroll taxes related to net settled restricted stock units (in shares)         (10,209)    
Ending balance, Value at Mar. 31, 2018 $ 451,903 $ 9,788 $ 416 $ (411,001) $ 2   $ 51,108
Ending balance, Shares at Mar. 31, 2018         17,733,302 1  
v3.8.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash flows from operating activities:    
Net income $ 9,167 $ 9,388
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 4,575 5,995
Bad debt expense 464 343
Equity-based compensation expense 1,268 562
Deferred income tax expense 478 1,178
Fair value adjustments to contingent consideration 135 130
Payments pursuant to tax receivable agreements   (1,931)
Other, net 99 115
Changes in operating assets and liabilities (2,614) (1,685)
Net cash provided by operating activities 13,572 14,095
Cash flows from investing activities:    
Purchases of property, equipment and software (691) (657)
Acquisitions (26,250)  
Net cash used in investing activities (26,941) (657)
Cash flows from financing activities:    
Payments on debt (592) (592)
Distributions paid to non-controlling unitholders (2,521) (2,281)
Dividends and dividend equivalents paid to Class A common stockholders (3,595) (3,184)
Payment of payroll taxes related to net settled restricted stock units (564) (450)
Payment of contingent consideration (50)  
Net cash used in financing activities (7,322) (6,507)
Effect of exchange rate changes on cash (13) 98
Net (decrease) increase in cash and cash equivalents (20,704) 7,029
Cash and cash equivalents, beginning of year 50,807 57,609
Cash and cash equivalents, end of period 30,103 64,638
Supplemental disclosures of cash flow information:    
Cash paid for interest 2,585 2,600
Net cash paid for income taxes 1,217 1,008
Schedule of non-cash investing and financing activities:    
Tax and other distributions payable to non-controlling unitholders 1,691 3,568
Increase in accounts payable for capitalization of trademark costs and purchases of property, equipment and software $ 206 $ 134
v3.8.0.1
Business and Organization
3 Months Ended
Mar. 31, 2018
Business and Organization  
Business and Organization

1. Business and Organization

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, 2018, RE/MAX Holdings owns 58.54% of the common membership units in RMCO, while RIHI, Inc. (“RIHI”) owns the remaining 41.46% 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 (“REMAX”) and mortgage brokerages within the United States (“U.S.”) under the Motto Mortgage brand. RE/MAX, founded in 1973, has over 120,000 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.  During the first quarter of 2018, the Company acquired all membership interests in booj, LLC, formerly known as Active Website, LLC, (“booj”), a real estate technology company.

The Company’s revenue is comprised of continuing franchise fees, annual dues, broker fees and franchise sales and other revenue. See Note 3, Revenue for additional information on revenue streams.

v3.8.0.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

 

The accompanying condensed consolidated balance sheet at December 31, 2017, which was derived from the audited consolidated financial statements at that date, and the unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).  Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements are presented on a consolidated basis and include the accounts of RE/MAX Holdings and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2018 and December 31, 2017 and the results of its operations and comprehensive income, changes in its stockholders’ equity and its cash flows for the three months ended March 31, 2018 and 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, 2017.

 

Reclassifications

 

In addition to the change in accounting principle discussed in Note 3, Revenue certain items in the accompanying condensed consolidated financial statements for the three months ended March 31, 2017 have been reclassified to conform to the current year’s presentation. These reclassifications did not affect the Company’s consolidated results of operations or cash flows.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Principles of Consolidation

 

As of March 31, 2018, RE/MAX Holdings owns 58.54% 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.

Recently Adopted Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 became effective prospectively for the Company on January 1, 2018.  The Company concluded that the acquisition of booj meets the definition of a business.  See Note 6, Acquisitions for additional information.  The Company is still assessing the impact of this standard on any future independent region acquisitions, which have historically been accounted for as an acquisition of a business.

In August 2016, the FASB issued 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 became effective for the Company on January 1, 2018 and required a retrospective transition method for each period presented.  Under the new guidance, the contingent consideration payments related to the purchase of Full House Mortgage Connection, Inc. (“Full House”), a franchisor of mortgage brokerages that created concepts used to develop Motto, are classified as financing outflows up to the $6.3 million acquisition date fair value and any cash payments paid in excess of the acquisition date fair value are classified as operating outflows. (See Note 6, Acquisitions).  The adoption of this standard had no other material impact on its 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 replaced most existing revenue recognition guidance in U.S. GAAP when it became effective for the Company on January 1, 2018. The Company applied Topic 606 retrospectively which resulted in adjusting each prior reporting period presented. Additionally, the adoption of Topic 606 resulted in net cumulative adjustments to “Retained earnings” of $4.9 million and “Non-controlling interest” of $11.6 million which were recorded to the opening balance sheet as of January 1, 2016.  The adoption of the new guidance changed the timing of recognition of franchise sales and franchise renewal revenue. Previously, the Company recognized 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 Revenue” in the Consolidated Statements of Income, are recognized over the contractual term of the franchise agreement. Previously, the Company expensed the commissions upon franchise sale completion.  Under the new guidance, the commissions related to franchise sales are recorded as a contract cost and are recognized over the contractual term of the franchise agreement.  The adoption of this standard had no material impact on other revenue streams.  See Note 3, Revenue for more information.

New Accounting Pronouncements Not Yet Adopted

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), which adjusts the classification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for the Company beginning January 1, 2019. The standard is to be applied either in the period of adoption or retrospectively to each period effected by the Tax Cuts and Jobs Act. The Company completed the majority of its accounting for the tax effects of the Tax Cuts and Jobs Act as of December 31, 2017. The Company believes the amendments of ASU 2018-02 will not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. ASU 2017-04 is effective for annual and interim impairment tests beginning January 1, 2020 for the Company and is required to be adopted using a prospective approach. Early adoption is allowed for annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this ASU to have a material impact 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 required to be adopted by the Company on January 1, 2019.  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.

v3.8.0.1
Revenue
3 Months Ended
Mar. 31, 2018
Revenue  
Revenue

3. Revenue

Changes in Revenue Recognition Policies

The Company adopted the new revenue standard on January 1, 2018. The Company applied the new revenue standard retrospectively and has recast the 2017 condensed consolidated financial statements as though the new revenue standard had been applied in all periods presented.  The Company’s franchise agreements offer the following benefits to the franchisee: common use and promotion of RE/MAX trademarks; distinctive sales and promotional materials; access to technology; standardized supplies and other materials used in RE/MAX offices; and recommended procedures for operation of RE/MAX offices.  The Company concluded that these benefits are all a part of one performance obligation, a license of symbolic intellectual property.

Franchise sales is comprised of revenue from the sale or renewal of franchises. The Company previously recognized revenue at the time of sale. Under the new revenue standard, the franchise sale initial fees are considered to be a part of the license of symbolic intellectual property, which is now recognized over the contractual term of the franchise agreement, which is typically 5 years for RE/MAX and 7 years for Motto franchise agreements, respectively. Correspondingly, the commissions related to franchise sales are recorded as an asset (the current portion in “Other current assets” and long term portion in “Other assets, net of current portion”) and are recognized over the contractual term of the franchise agreement in “Selling, operating and administrative expenses”.

The following tables summarize the impacts of the new revenue standard adoption on the Company’s condensed consolidated financial statements (in thousands):

Condensed Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

As of December 31, 2017

 

 

As previously reported

 

Adjustments

 

As adjusted

Accounts and notes receivable, current portion, net

 

$

21,304

 

$

(1,020)

 

$

20,284

Income taxes receivable

 

 

870

 

 

93

 

 

963

Other current assets

 

 

6,924

 

 

1,050

 

 

7,974

Deferred tax assets, net

 

 

59,151

 

 

3,690

 

 

62,841

Other assets, net of current portion

 

 

1,563

 

 

2,460

 

 

4,023

Income taxes payable

 

 

133

 

 

(36)

 

 

97

Deferred revenue

 

 

18,918

 

 

6,350

 

 

25,268

Deferred revenue, net of current

 

 

 -

 

 

20,228

 

 

20,228

Retained earnings

 

 

16,027

 

 

(7,627)

 

 

8,400

Accumulated other comprehensive income, net of tax

 

 

515

 

 

(56)

 

 

459

Non-controlling interest

 

 

(398,348)

 

 

(12,586)

 

 

(410,934)

Condensed Consolidated Statement of Income

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Three Months Ended March 31, 2017

 

 

As previously reported

 

Adjustments

 

As adjusted

Franchise sales and other revenue

 

$

8,794

 

$

(823)

 

$

7,971

Selling, operating and administrative expenses

 

 

26,794

 

 

(140)

 

 

26,654

Net income

 

 

10,071

 

 

(683)

 

 

9,388

Net income attributable to non-controlling interest

 

 

5,159

 

 

(311)

 

 

4,848

Net income attributable to RE/MAX Holdings, Inc.

 

 

4,912

 

 

(372)

 

 

4,540

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

 

 

 

 

 

 

 

 

 

Basic

 

 

0.28

 

 

(0.02)

 

 

0.26

Diluted

 

 

0.28

 

 

(0.02)

 

 

0.26

Condensed Consolidated Statement of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Three Months Ended March 31, 2017

 

 

As previously reported

 

Adjustments

 

As adjusted

Net income

 

$

10,071

 

$

(683)

 

$

9,388

Change in cumulative translation adjustment

 

 

95

 

 

(6)

 

 

89

Comprehensive income

 

 

10,166

 

 

(689)

 

 

9,477

Comprehensive income attributable to non-controlling interest

 

 

5,210

 

 

(311)

 

 

4,899

Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax

 

 

4,956

 

 

(378)

 

 

4,578

Condensed Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Impact on Changes in Accounting Policies

 

 

Three Months Ended March 31, 2017

 

 

As previously reported

 

Adjustments

 

As adjusted

Net income

 

$

10,071

 

$

(683)

 

$

9,388

Changes in operating assets and liabilities

 

 

(2,368)

 

 

683

 

 

(1,685)

Revenue Recognition Under the New Revenue Standard

The Company generates all of its revenue from contracts with customers.  The following is a description of principal activities from which the Company generates its revenue.  The franchise agreements provide the franchisees the right to access intellectual property throughout the license period.  The method used to measure progress is over the passage of time for most streams of revenue.

Continuing Franchise Fees

The Company provides an ongoing trademark license, operational, training and administrative services and systems to RE/MAX franchisees, which include systems and tools that are designed to help the Company’s franchisees and their agents serve their customers and help franchisees attract new or retain existing agents. Revenue from continuing franchise fees consists of fixed contractual fees paid monthly by franchise owners and franchisees based on the number of RE/MAX agents in the respective franchised region or office and the number of Motto offices (no significant continuing franchise fees were generated by Motto during the periods presented). This revenue is recognized in the month for which the fee is billed.

Annual Dues

Annual dues revenue represents amounts assessed to agents for membership affiliation in the RE/MAX network. The Company defers the annual dues revenue when billed and recognizes the revenue ratably over the 12-month period to which it relates.

The activity in the Company’s annual dues deferred revenue 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, 2018

 

$

15,297

 

$

10,430

 

$

(8,696)

 

$

17,031


(a)Revenue recognized related to the beginning balance was $7.5 million for the three months ended March 31, 2018.

 

Broker Fees

Revenue from broker fees represents fees received from the Company’s RE/MAX franchised regions or franchise offices that are based on a percentage of RE/MAX agents’ gross commission income. Revenue from broker fees is recognized as revenue in the month when a home sale transaction occurs.

Franchise Sales

The activity in the Company’s deferred revenue is included in “Deferred revenue” and “Deferred revenue, net of current portion” on the Condensed Consolidated Balance Sheets.

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, 2018

 

$

27,943

 

$

2,534

 

$

(2,344)

 

$

28,133


(a)Revenue recognized related to the beginning balance was $2.1 million for the three months ended March 31, 2018.

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expense recognized

 

 

 

 

 

 

Balance at

 

that is included in

 

Additions to contract

 

Balance at end

 

 

beginning of period

 

beginning balance

 

cost for new activity

 

of period

Three months ended March 31, 2018

 

$

3,532

 

$

(325)

 

$

470

 

$

3,677

Other Revenue

Other revenue is primarily revenue from preferred marketing arrangements, approved supplier programs, and event-based revenue from training and other programs. Revenue from preferred marketing arrangement involves both flat fees paid in advance as well as revenue sharing, both of which are generally recognized over the period of the arrangement.  Event-based revenue is recognized when the event occurs and until then is included in “Deferred revenue”. Other revenue also includes revenue contributed by booj for web site design, development, implementation, hosting and maintenance for its external customers.

Disaggregated Revenue

In the following table, revenue is disaggregated by geographical area for each of the three months ended March 31, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Canada

 

Global and Other

 

Total

Three months ended March 31, 2018

 

$

36,749

 

$

5,763

 

$

10,130

 

$

52,642

Three months ended March 31, 2017

 

 

34,078

 

 

5,224

 

 

8,104

 

 

47,406

In the following table, revenue is disaggregated by owned or independent regions in the U.S. or Canada for each of the three months ended March 31, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned Regions

 

Independent Regions

 

Global and Other

 

Total

Three months ended March 31, 2018

 

$

31,363

 

$

11,149

 

$

10,130

 

$

52,642

Three months ended March 31, 2017

 

 

28,552

 

 

10,750

 

 

8,104

 

 

47,406

Transaction Price Allocated to the Remaining Performance Obligations

The following table includes estimated revenue by year expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining  nine months of 2018

 

2019

 

2020

 

2021

 

2022

 

2023

 

Thereafter

 

Total

Annual dues

 

$

16,029

 

$

1,002

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

$

17,031

Franchise sales

 

 

5,898

 

 

6,426

 

 

5,086

 

 

3,653

 

 

2,091

 

 

952

 

 

4,027

 

 

28,133

Total

 

$

21,927

 

$

7,428

 

$

5,086

 

$

3,653

 

$

2,091

 

$

952

 

$

4,027

 

$

45,164

Using the transition requirements of the new standard, the Company has elected not to disclose the amount of the transaction price allocated to the remaining performance obligations or when the Company expects to recognize that amount as revenue for the year ended December 31, 2017.

v3.8.0.1
Non-controlling Interest
3 Months Ended
Mar. 31, 2018
Noncontrolling Interest  
Non-controlling Interest

4. Non-controlling Interest

RE/MAX Holdings is the sole managing member of RMCO and operates and controls all of the business affairs of RMCO. The ownership of the common units in RMCO is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

 

December 31, 

 

 

 

2018

 

 

2017

 

 

    

Shares

    

Ownership %

    

 

Shares

    

Ownership %

 

Non-controlling interest ownership of common units in RMCO

 

12,559,600

 

41.46

%

 

12,559,600

 

41.51

%

RE/MAX Holdings, Inc. outstanding Class A common stock (equal to RE/MAX Holdings, Inc. common units in RMCO)

 

17,733,302

 

58.54

%

 

17,696,991

 

58.49

%

Total common units in RMCO

 

30,292,902

 

100.00

%

 

30,256,591

 

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

 

 

2018

 

 

As adjusted*

 

 

RE/MAX Holdings, Inc.

 

Non-controlling interest

 

Total

 

 

RE/MAX Holdings, Inc.

 

Non-controlling interest

 

Total

 

Weighted average ownership percentage of RMCO (a)

 

58.51

%

 

41.49

%

 

100.00

%

 

 

58.44

%

 

41.56

%

 

100.00

%

Income before provision for income taxes

$

6,453

 

$

4,576

 

$

11,029

 

 

$

7,252

 

$

5,166

 

$

12,418

 

Provision for income taxes (b)(c)

 

(1,470)

 

 

(392)

 

 

(1,862)

 

 

 

(2,712)

 

 

(318)

 

 

(3,030)

 

Net income

$

4,983

 

$

4,184

 

$

9,167

 

 

$

4,540

 

$

4,848

 

$

9,388

 


*See Note 3, Revenue for more information.

(a)

The weighted average ownership percentage of RMCO differs from the allocation of income before provision for income taxes between RE/MAX Holdings and the non-controlling interest, which is based on ownership of common units in RMCO, due to certain relatively insignificant expenses recorded at RE/MAX Holdings.    

(b)

The provision for income taxes attributable to RE/MAX Holdings is primarily comprised of U.S. federal and state income taxes on its proportionate share of the pass-through income from RMCO. However, it also includes its share of taxes directly incurred by RMCO and its subsidiaries, related primarily to tax liabilities in certain foreign jurisdictions. 

(c)

The provision for income taxes attributable to the non-controlling interest represents its share of taxes related primarily to tax liabilities in certain foreign jurisdictions directly incurred by RMCO or its subsidiaries.  Because RMCO is a pass-through entity, there is no U.S. federal and state income tax provision recorded on the non-controlling interest.  

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 on a pro-rata basis. The distributions paid or payable to non-controlling unitholders are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

 

2018

 

2017

Tax and other distributions

 

$

1,700

 

$

3,588

Dividend distributions

 

 

2,512

 

 

2,261

Total distributions to non-controlling unitholders

 

$

4,212

 

$

5,849

On May 2, 2018, the Company declared a distribution to non-controlling unitholders of $2.5 million, which is payable on May 30, 2018.

v3.8.0.1
Earnings Per Share and Dividends
3 Months Ended
Mar. 31, 2018
Earnings Per Share and Dividends  
Earnings Per Share and Dividends

5. Earnings Per Share and Dividends

Earnings Per Share

Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted EPS measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The treasury stock method is used to determine the dilutive potential of stock options and restricted stock units.

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

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

 

    

2017

 

 

2018

 

As adjusted*

Numerator

 

 

 

 

 

 

Net income attributable to RE/MAX Holdings, Inc.

 

$

4,983

 

$

4,540

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

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

 

17,709,095

 

 

17,662,842

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

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

 

17,709,095

 

 

17,662,842

Add dilutive effect of the following:

 

 

 

 

 

 

Restricted stock units

 

 

53,038

 

 

53,171

Weighted average shares of Class A common stock outstanding, diluted

 

 

17,762,133

 

 

17,716,013

Earnings per share of Class A common stock

 

 

 

 

 

 

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

 

$

0.28

 

$

0.26

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

 

$

0.28

 

$

0.26

*See Note 3, Revenue for more information.

Outstanding Class B common stock does not share in the earnings of RE/MAX Holdings and is therefore not a participating security. Accordingly, basic and diluted net income per share of Class B common stock has not been presented.

Dividends

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2018

 

2017

 

 

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

Dividend declared during quarter ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

March 21, 2018

 

$

0.20

 

$

3,547

 

$

2,512

 

March 22, 2017

 

$

0.18

 

$

3,184

 

$

2,261

On May 2, 2018, the Company’s Board of Directors declared a quarterly dividend of $0.20 per share on all outstanding shares of Class A common stock, which is payable on May 30, 2018 to stockholders of record at the close of business on May 16, 2018.

v3.8.0.1
Acquisitions
3 Months Ended
Mar. 31, 2018
Acquisitions  
Acquisitions

6. Acquisitions

Booj, LLC

On February 26, 2018, RE/MAX, LLC and its consolidated subsidiaries (“RE/MAX, LLC”) acquired all membership interests in booj, a real estate technology company, using $26.3 million in cash generated from operations, plus up to approximately $10.0 million in equity-based compensation to be earned over time, which will be accounted for as compensation expense in the future (see Note 12, Equity-Based Compensation for additional information).  RE/MAX, LLC acquired booj in order to deliver core technology solutions designed for RE/MAX affiliates. 

Booj constitutes a business and was accounted for using the fair value acquisition method.  The Company has not completed the analysis necessary to conclude on its purchase price allocation.  However, the Company’s best, current estimate is that approximately $18.4 million will be recognized as goodwill with the remainder as amortizable intangibles, with the primary intangibles being related to technology.  These amounts are likely to change as the Company completes its purchase price allocation.  The goodwill is attributable to expected synergies and projected long term revenue growth.  All of the goodwill recognized is tax deductible. 

Revenue and net income attributable to the acquisition of booj were not material for the three months ended March 31, 2018. 

RE/MAX of Northern Illinois, Inc.

On November 15, 2017, RE/MAX, LLC acquired certain assets of RE/MAX of Northern Illinois, Inc. (“RE/MAX of Northern Illinois”), including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the region as well as the franchise agreements between the Independent Region and the franchisees, using $35.7 million in cash generated from operations. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. 

The following table summarizes the allocation of the purchase price to the fair value of assets acquired for RE/MAX of Northern Illinois (in thousands):

 

 

 

 

 

 

RE/MAX of Northern Illinois

Franchise agreements

 

$

22,800

Goodwill

 

 

12,920

Total purchase price

 

$

35,720

RE/MAX of Northern Illinois 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 preliminary estimated fair values. The franchise agreements acquired were preliminarily valued using an income approach which utilizes level 3 inputs and are being amortized over a weighted-average useful life using the straight-line method.  The preliminary estimated fair value of the assets acquired is subject to adjustments based on the Company’s final assessment of the fair values of the franchise agreements, which is the acquired asset with the highest likelihood of changing upon finalization of the valuation process.  The excess of the total purchase price over the preliminary fair value of the identifiable assets acquired was recorded as goodwill.  The goodwill recognized is attributable to expected synergies and projected long term revenue growth.  All of the goodwill recognized is tax deductible. 

Adjustments recorded during the measurement period are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined.  Revisions or adjustments are not made to any prior period information.  Adjustments to the accounting for RE/MAX of Northern Illinois were made during the three months ended March 31, 2018 to the consolidated balance sheet to increase “Goodwill” by $0.7 million with a corresponding decrease to “Franchise agreements, net” of $0.7 million. 

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the acquisition of booj had occurred on January 1, 2017 and RE/MAX of Northern Illinois 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, 

 

2018

 

2017

 

2016

 

(in thousands, except per share amounts)

Total revenue

$

53,908

 

$

50,177

 

$

43,820

Net income attributable to RE/MAX Holdings, Inc.

$

4,291

 

$

3,814

 

$

5,010

Basic earnings per common share

$

0.24

 

$

0.22

 

$

0.28

Diluted earnings per common share

$

0.24

 

$

0.22

 

$

0.28

 

v3.8.0.1
Intangible Assets and Goodwill
3 Months Ended
Mar. 31, 2018
Intangible Assets and Goodwill  
Intangible Assets and Goodwill

 

7. Intangible Assets and Goodwill

The following table provides the components of the Company’s intangible assets (in thousands, except weighted average amortization period in years):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Average

 

As of March 31, 2018

 

As of December 31, 2017

 

 

Amortization

 

Initial

 

Accumulated

 

Net

 

Initial

 

Accumulated

 

Net

 

 

Period

 

Cost

 

Amortization

 

Balance

 

Cost

 

Amortization

 

Balance

Franchise agreements

 

12.5

 

$

180,867

 

$

(66,085)

 

$

114,782

 

$

181,567

 

$

(62,218)

 

$

119,349

Other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software(a)

 

4.4

 

$

13,357

 

$

(7,903)

 

$

5,454

 

$

13,762

 

$

(8,111)

 

$

5,651

Trademarks

 

10.2

 

 

1,334

 

 

(682)

 

 

652

 

 

1,539

 

 

(902)

 

 

637

Non-compete

 

10.0

 

 

2,500

 

 

(375)

 

 

2,125

 

 

2,500

 

 

(312)

 

 

2,188

Other - booj(b)

 

 

 

 

7,875

 

 

 —

 

 

7,875

 

 

 —

 

 

 —

 

 

 —

Total other intangible assets

 

6.3

 

$

25,066

 

$

(8,960)

 

$

16,106

 

$

17,801

 

$

(9,325)

 

$

8,476


(a)

As of March 31, 2018 and December 31, 2017, capitalized software development costs of $0.7 million and $0.6 million, respectively, were related to information technology infrastructure projects not yet complete and ready for their intended use and thus were not subject to amortization.

(b)

Includes the preliminary intangible assets assumed with the acquisition of booj.  See Note 6, Acquisitions for additional information.

 

Amortization expense for the three months ended March 31, 2018 and 2017 was $4.3 million and $5.8 million, respectively.

As of March 31, 2018 the estimated future amortization expense for the next five years related to intangible assets includes the preliminary intangible assets assumed with the acquisition of booj and is as follows (in thousands):

 

 

 

 

As of March 31, 2018:

    

 

 

Remainder of 2018

 

$

14,206

2019

    

 

18,762

2020

 

 

18,561

2021

 

 

18,112

2022

 

 

15,797

 

 

$

85,438

The following table presents changes to goodwill for the period from January 1, 2018 to March 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

Balance, January 1, 2018

    

$

135,213

Goodwill recognized related to current year acquisitions

 

 

18,375

Adjustments to acquisition accounting during the measurement period

 

 

700

Effect of changes in foreign currency exchange rates

 

 

(92)

Balance, March 31, 2018

 

$

154,196

 

v3.8.0.1
Accrued Liabilities
3 Months Ended
Mar. 31, 2018
Accrued Liabilities.  
Accrued Liabilities

 

8. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

 

    

March 31,

 

December 31,

 

 

2018

 

2017

Accrued payroll and related employee costs

 

$

5,106

 

$

3,874

Accrued taxes

 

 

1,235

 

 

1,635

Accrued professional fees

 

 

1,506

 

 

2,339

Other(a)

 

 

3,107

 

 

7,542

 

 

$

10,954

 

$

15,390

 


(a)

Other accrued liabilities as of December 31, 2017 includes a $4.5 million payable in connection with the February 13, 2018 settlement, and subsequent payment, resulting from the litigation matter concerning the Company’s 2013 acquisition of the net assets of Tails, Inc. (“Tails”), as discussed in Note 14, Commitments and Contingencies.

 

v3.8.0.1
Debt
3 Months Ended
Mar. 31, 2018
Debt  
Debt

9. Debt

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

 

 

 

 

 

 

 

 

    

March 31,

 

December 31,

 

 

2018

 

2017

Senior Secured Credit Facility

    

$

231,475

 

$

232,063

Less unamortized debt issuance costs

 

 

(1,705)

 

 

(1,780)

Less unamortized debt discount costs

 

 

(1,244)

 

 

(1,297)

Less current portion

 

 

(2,350)

 

 

(2,350)

 

 

$

226,176

 

$

226,636

 

 

Maturities of debt are as follows (in thousands):

 

 

 

As of March 31, 2018:

 

 

Remainder of 2018

$

1,763

2019

 

2,350

2020

 

2,350