RE/MAX HOLDINGS, INC., 10-Q filed on 11/2/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Oct. 31, 2018
Entity Registrant Name RE/MAX Holdings, Inc.  
Entity Central Index Key 0001581091  
Document Period End Date Sep. 30, 2018  
Current Fiscal Year End Date --12-31  
Document Type 10-Q  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Common Class A    
Entity Common Stock, Shares Outstanding   17,746,184
Common Class B    
Entity Common Stock, Shares Outstanding   1
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 51,263 $ 50,807
Accounts and notes receivable, current portion, less allowances of $7,247 and $7,223, respectively 21,566 20,284
Income taxes receivable 760 963
Other current assets 5,265 7,974
Total current assets 78,854 80,028
Property and equipment, net of accumulated depreciation of $12,977 and $12,326, respectively 3,626 2,905
Franchise agreements, net 107,032 119,349
Other intangible assets, net 21,911 8,476
Goodwill 150,859 135,213
Deferred tax assets, net 59,449 62,841
Other assets, net of current portion 4,347 4,023
Total assets 426,078 412,835
Current liabilities:    
Accounts payable 783 517
Accrued liabilities 12,440 15,390
Income taxes payable 105 97
Deferred revenue 25,310 25,268
Current portion of debt 2,665 2,350
Current portion of payable pursuant to tax receivable agreements 4,479 6,252
Total current liabilities 45,782 49,874
Debt, net of current portion 225,770 226,636
Payable pursuant to tax receivable agreements, net of current portion 43,710 46,923
Deferred tax liabilities, net 112 151
Deferred revenue, net of current portion 19,939 20,228
Other liabilities, net of current portion 18,607 19,897
Total liabilities 353,920 363,709
Commitments and contingencies (note 14)
Stockholders' equity:    
Additional paid-in capital 457,026 451,199
Retained earnings 18,412 8,400
Accumulated other comprehensive income, net of tax 419 459
Total stockholders' equity attributable to RE/MAX Holdings, Inc. 475,859 460,060
Non-controlling interest (403,701) (410,934)
Total stockholders' equity 72,158 49,126
Total liabilities and stockholders' equity 426,078 412,835
Common Class A    
Stockholders' equity:    
Common stock 2 2
Total stockholders' equity 2 2
Common Class B    
Stockholders' equity:    
Common stock
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Accounts Receivable, allowance $ 7,247 $ 7,223
Property and equipment, accumulated depreciation $ 12,977 $ 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 17,746,184 17,696,991
Common stock, shares outstanding 17,746,184 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
v3.10.0.1
Condensed Consolidated Statements of Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Revenue:        
Total revenue $ 54,866 $ 49,071 $ 161,785 $ 145,204
Operating expenses:        
Selling, operating and administrative expenses 27,461 31,843 90,136 79,167
Depreciation and amortization 5,608 4,286 15,252 15,678
(Gain) loss on sale or disposition of assets, net (10) 451 (41) 426
Total operating expenses 33,059 36,580 105,347 95,271
Operating income 21,807 12,491 56,438 49,933
Other expenses, net:        
Interest expense (3,050) (2,598) (8,945) (7,414)
Interest income 180 145 397 195
Foreign currency transaction gains (losses) 24 273 (162) 289
Total other expenses, net (2,846) (2,180) (8,710) (6,930)
Income before provision for income taxes 18,961 10,311 47,728 43,003
Provision for income taxes (3,420) (3,021) (8,429) (10,786)
Net income 15,541 7,290 39,299 32,217
Less: net income attributable to non-controlling interest (note 4) 7,402 3,573 18,529 16,502
Net income attributable to RE/MAX Holdings, Inc. $ 8,139 $ 3,717 $ 20,770 $ 15,715
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock        
Basic $ 0.46 $ 0.21 $ 1.17 $ 0.89
Diluted 0.46 0.21 1.17 0.89
Weighted average shares of Class A common stock outstanding        
Cash dividends declared per share of Class A common stock     0.60 0.54
Common Class A        
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock        
Basic 0.46 0.21 1.17 0.89
Diluted $ 0.46 $ 0.21 $ 1.17 $ 0.89
Weighted average shares of Class A common stock outstanding        
Basic 17,746,184 17,696,991 17,733,910 17,685,683
Diluted 17,771,212 17,737,786 17,767,638 17,726,447
Cash dividends declared per share of Class A common stock $ 0.20 $ 0.18 $ 0.60 $ 0.54
Continuing franchise fees        
Revenue:        
Total revenue $ 25,495 $ 23,049 $ 75,946 $ 69,298
Annual dues        
Revenue:        
Total revenue 9,106 8,592 26,775 25,148
Broker fees        
Revenue:        
Total revenue 13,488 12,125 36,669 32,914
Franchise sales and other revenue        
Revenue:        
Total revenue $ 6,777 $ 5,305 $ 22,395 $ 17,844
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Condensed Consolidated Statements of Comprehensive Income        
Net income $ 15,541 $ 7,290 $ 39,299 $ 32,217
Change in cumulative translation adjustment 90 507 (77) 947
Other comprehensive income (loss), net of tax 90 507 (77) 947
Comprehensive income 15,631 7,797 39,222 33,164
Less: comprehensive income attributable to non-controlling interest 7,435 3,859 18,492 17,035
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax $ 8,196 $ 3,938 $ 20,730 $ 16,129
v3.10.0.1
Condensed Consolidated Statement of Stockholders' Equity - 9 months ended Sep. 30, 2018 - USD ($)
$ in Thousands
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, 2017 $ 451,199 $ 8,400 $ 459 $ (410,934) $ 2   $ 49,126
Beginning balance, Shares at Dec. 31, 2017         17,696,991 1  
Net income   20,770   18,529     39,299
Distributions to non-controlling unitholders       (11,259)     (11,259)
Equity-based compensation and related dividend equivalents, value 6,206 (113)         6,093
Equity-based compensation and related dividend equivalents, shares         64,878    
Dividends to Class A common stockholders   (10,645)         (10,645)
Change in accumulated other comprehensive income     (40) (37)     (77)
Payroll taxes related to net settled restricted stock units (895)           (895)
Payroll taxes related to net settled restricted stock units (in shares)         (15,685)    
Other 516           516
Ending balance, Value at Sep. 30, 2018 $ 457,026 $ 18,412 $ 419 $ (403,701) $ 2   $ 72,158
Ending balance, Shares at Sep. 30, 2018         17,746,184 1  
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities:    
Net income $ 39,299 $ 32,217
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 15,252 15,678
Bad debt expense 1,257 836
(Gain) loss on sale or disposition of assets and sublease, net (146) 3,859
Equity-based compensation expense 6,141 2,161
Deferred income tax expense 3,503 3,822
Fair value adjustments to contingent consideration (860) 250
Payments pursuant to tax receivable agreements (5,047) (7,296)
Other, net 902 888
Changes in operating assets and liabilities (3,279) 1,025
Net cash provided by operating activities 57,022 53,440
Cash flows from investing activities:    
Purchases of property and equipment and capitalization of developed software and trademark costs (5,316) (1,781)
Acquisitions, net of cash acquired of $362 and $0, respectively (25,888)  
Net cash used in investing activities (31,204) (1,781)
Cash flows from financing activities:    
Payments on debt (2,382) (1,772)
Distributions paid to non-controlling unitholders (11,259) (14,213)
Dividends and dividend equivalents paid to Class A common stockholders (10,758) (9,607)
Payment of payroll taxes related to net settled restricted stock units (895) (816)
Payment of contingent consideration (50)  
Net cash used in financing activities (25,344) (26,408)
Effect of exchange rate changes on cash (18) 1,076
Net increase in cash and cash equivalents 456 26,327
Cash and cash equivalents, beginning of year 50,807 57,609
Cash and cash equivalents, end of period 51,263 83,936
Supplemental disclosures of cash flow information:    
Cash paid for interest 8,487 7,477
Net cash paid for income taxes 4,802 8,619
Schedule of non-cash investing and financing activities:    
Increase in accounts payable for capitalization of trademark costs and purchases of property, equipment and software $ 522 $ 310
v3.10.0.1
Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Condensed Consolidated Statements of Cash Flows    
Cash acquired $ 362 $ 0
v3.10.0.1
Business and Organization
9 Months Ended
Sep. 30, 2018
Business and Organization  
Business and Organization

1. Business and Organization

RE/MAX Holdings, Inc. (“RE/MAX Holdings”) completed an initial public offering (the “IPO”) of its shares of Class A common stock on October 7, 2013. RE/MAX Holdings’ only business is to act as the sole manager of RMCO, LLC (“RMCO”). As of September 30, 2018, RE/MAX Holdings owns 58.56% of the common membership units in RMCO, while RIHI, Inc. (“RIHI”) owns the remaining 41.44% of common membership units in RMCO. RE/MAX Holdings and its consolidated subsidiaries, including RMCO, are referred to hereinafter as the “Company.” 

The Company is a franchisor in the real estate industry, franchising real estate brokerages globally under the RE/MAX brand (“RE/MAX”) and mortgage brokerages within the United States (“U.S.”) under the Motto Mortgage brand. RE/MAX, founded in 1973, has over 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.

v3.10.0.1
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 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 September 30, 2018 and the results of its operations and comprehensive income for the three and nine months ended September 30, 2018 and 2017, cash flows for the nine months ended September 30, 2018 and 2017 and changes in its stockholders’ equity for the nine months ended September 30, 2018. Interim results may not be indicative of full-year performance. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Annual Report on Form 10-K”). 

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 nine months ended September 30, 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.

 

Segment Reporting

 

In February 2018, the Company both (a) acquired all membership interests in booj and (b) promoted Adam Contos to the role of sole Chief Executive Officer. Because of these changes and the continued growth of Motto, in the second quarter of 2018 the chief operating decision maker re-evaluated the information used to evaluate performance and make resource allocation decisions. As a result of the re-evaluation, the Company determined it was operating under the following three segments: RE/MAX Franchising, Motto Franchising and booj. Due to quantitative insignificance, the Motto Franchising and booj operating segments do not meet the criteria of a reportable segment, and RE/MAX Franchising is the only reportable segment. The RE/MAX Franchising reportable segment comprises the operations of the Company’s owned and independent global franchising operations under the RE/MAX brand name and corporate-wide shared services expenses. Other comprises Motto Franchising and booj. All prior segment information has been recasted to reflect the Company’s new segment structure. 

Principles of Consolidation

 

RE/MAX Holdings consolidates RMCO and records a non-controlling interest in the accompanying Condensed Consolidated Balance Sheets and records net income attributable to the non-controlling interest and comprehensive income attributable to the non-controlling interest in the accompanying Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income, respectively.

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 has also concluded that it expects future Independent Region acquisitions to be 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 Flows. 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 for additional information. 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.  See Note 3, Revenue for more information.

New Accounting Pronouncements Not Yet Adopted

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 is effective for the Company beginning January 1, 2020. Certain changes are applied retrospectively to each period presented and others are to be applied either in the period of adoption or prospectively. The Company believes the amendments of ASU 2018-13 will not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In 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.

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 Company plans to elect the transition method per ASU 2018-11 and apply the new lease standard at adoption and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and will not retrospectively recast prior periods presented.  The Company has several building leases and other smaller leases for which the Company is still assessing the application of this standard. The Company has not yet determined the exact effect of the standard on its consolidated financial statements and related disclosures but expects a material increase in both “Total assets” and “Total liabilities” on the Condensed Consolidated Balance Sheets upon implementation primarily related to building leases.

v3.10.0.1
Revenue
9 Months Ended
Sep. 30, 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 adoption of the new guidance changed the timing of recognition of franchise sales and franchise renewal revenue and related commissions paid on franchise sales and renewals, as discussed below.  These changes 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 Company’s franchise agreements offer the following benefits to the franchisee: common use and promotion of RE/MAX and Motto trademarks; distinctive sales and promotional materials; access to technology; standardized supplies and other materials used in RE/MAX and Motto offices; and recommended procedures for operation of RE/MAX and Motto offices. The Company concluded that these benefits are all a part of one performance obligation, a license of symbolic intellectual property that is billed through a variety of fees including franchise sales, continuing franchise fees, broker fees, and annual dues, described below. The Company has other performance obligations associated with contracts with customers in other revenue for training, marketing and events.

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. 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”.  Previously, such commissions were expensed as incurred.

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

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 September 30, 2017

 

    

As previously
reported

    

Adjustments

    

As adjusted

Franchise sales and other revenue

 

$

5,611

 

$

(306)

 

$

5,305

Selling, operating and administrative expenses

 

 

31,832

 

 

11

 

 

31,843

Provision for income taxes

 

 

3,091

 

 

(70)

 

 

3,021

Net income

 

 

7,537

 

 

(247)

 

 

7,290

Net income attributable to non-controlling interest

 

 

3,702

 

 

(129)

 

 

3,573

Net income attributable to RE/MAX Holdings, Inc.

 

 

3,835

 

 

(118)

 

 

3,717

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

 

 

 

 

 

 

 

 

 

Basic

 

 

0.22

 

 

(0.01)

 

 

0.21

Diluted

 

 

0.22

 

 

(0.01)

 

 

0.21

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Nine Months Ended September 30, 2017

 

    

As previously
reported

    

Adjustments

    

As adjusted

Franchise sales and other revenue

 

$

19,065

 

$

(1,221)

 

$

17,844

Selling, operating and administrative expenses

 

 

79,263

 

 

(96)

 

 

79,167

Provision for income taxes

 

 

10,883

 

 

(97)

 

 

10,786

Net income

 

 

33,245

 

 

(1,028)

 

 

32,217

Net income attributable to non-controlling interest

 

 

16,968

 

 

(466)

 

 

16,502

Net income attributable to RE/MAX Holdings, Inc.

 

 

16,277

 

 

(562)

 

 

15,715

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

 

 

 

 

 

 

 

 

 

Basic

 

 

0.92

 

 

(0.03)

 

 

0.89

Diluted

 

 

0.92

 

 

(0.03)

 

 

0.89

Condensed Consolidated Statement of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Three Months Ended September 30, 2017

 

    

As previously
reported

    

Adjustments

    

As adjusted

Net income

 

$

7,537

 

$

(247)

 

$

7,290

Change in cumulative translation adjustment

 

 

536

 

 

(29)

 

 

507

Comprehensive income

 

 

8,073

 

 

(276)

 

 

7,797

Comprehensive income attributable to non-controlling interest

 

 

3,987

 

 

(128)

 

 

3,859

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

 

 

4,086

 

 

(148)

 

 

3,938

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Nine Months Ended September 30, 2017

 

    

As previously
reported

    

Adjustments

    

As adjusted

Net income

 

$

33,245

 

$

(1,028)

 

$

32,217

Change in cumulative translation adjustment

 

 

999

 

 

(52)

 

 

947

Comprehensive income

 

 

34,244

 

 

(1,080)

 

 

33,164

Comprehensive income attributable to non-controlling interest

 

 

17,500

 

 

(465)

 

 

17,035

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

 

 

16,744

 

 

(615)

 

 

16,129

Condensed Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Nine Months Ended September 30, 2017

 

    

As previously
reported

    

Adjustments

    

As adjusted

Net income

 

$

33,245

 

$

(1,028)

 

$

32,217

Deferred income tax expense

 

 

3,919

 

 

(97)

 

 

3,822

Changes in operating assets and liabilities

 

 

(100)

 

 

1,125

 

 

1,025

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

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. This revenue is recognized in the month for which the fee is billed.  This revenue is a usage-based royalty as it is dependent on the number of RE/MAX agents and number of Motto offices.

Annual Dues

Annual dues revenue consists of fixed contractual fees paid annually based on the number of RE/MAX agents. The Company defers the annual dues revenue when billed and recognizes the revenue ratably over the 12-month period to which it relates.  Annual dues revenue is a usage-based royalty as it is dependent on the number of agents.

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 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

Nine months ended September 30, 2018

 

$

15,297

 

$

28,249

 

$

(26,775)

 

$

16,771


(a)Revenue recognized related to the beginning balance was $2.4 million and $13.4 million for the three and nine months ended September 30, 2018, respectively.

 

Broker Fees

Revenue from broker fees represents fees received from the Company’s RE/MAX franchised regions or franchise offices that are based on a percentage of RE/MAX agents’ gross commission income. Revenue from broker fees is recognized as a sales-based royalty and recognized in the month when a home sale transaction occurs. Motto franchisees do not pay any fees based on the number or dollar value of loans brokered.

Franchise Sales

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

Nine months ended September 30, 2018

 

$

27,943

 

$

6,083

 

$

(6,896)

 

$

27,130


(a)Revenue recognized related to the beginning balance was $1.9 million and $5.7 million for the three and nine months ended September 30, 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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

 

 

Additions to contract

 

Balance at end

 

    

beginning of period

    

Expense recognized

    

cost for new activity

    

of period

Nine months ended September 30, 2018

 

$

3,532

 

$

(956)

 

$

1,146

 

$

3,722

Other Revenue

Other revenue is primarily revenue from preferred marketing arrangements and event-based revenue from training and other programs. Revenue from preferred marketing arrangements involves both flat fees paid in advance as well as revenue sharing, both of which are generally recognized over the period of the arrangement.  Event-based revenue is recognized when the event occurs and until then is included in “Deferred revenue”. Other revenue also includes revenue from booj’s operations for its external customers.

Disaggregated Revenue

In the following table, segment revenue is disaggregated by geographical area for the three and nine months ended September 30, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

 

 

 

2017

 

 

 

 

2017

 

    

2018

    

As adjusted*

    

2018

    

As adjusted*

U.S.

 

$

40,872

 

$

36,615

 

$

118,794

 

$

109,054

Canada

 

 

6,170

 

 

6,599

 

 

18,146

 

 

17,573

Global and Other

 

 

5,408

 

 

5,694

 

 

19,214

 

 

18,332

Total RE/MAX Franchising

 

 

52,450

 

 

48,908

 

 

156,154

 

 

144,959

Other

 

 

2,416

 

 

163

 

 

5,631

 

 

245

Total

 

$

54,866

 

$

49,071

 

$

161,785

 

$

145,204


*See above within Note 3, Revenue for more information

In the following table, segment revenue is disaggregated by owned or independent regions in the U.S. and Canada for the three and nine months ended September 30, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

 

 

 

2017

 

 

 

 

2017

 

    

2018

    

As adjusted*

    

2018

    

As adjusted*

Owned Regions

 

$

35,138

 

$

31,616

 

$

102,193

 

$

93,165

Independent Regions

 

 

11,904

 

 

11,598

 

 

34,747

 

 

33,462

Global and Other

 

 

5,408

 

 

5,694

 

 

19,214

 

 

18,332

Total RE/MAX Franchising

 

 

52,450

 

 

48,908

 

 

156,154

 

 

144,959

Other

 

 

2,416

 

 

163

 

 

5,631

 

 

245

Total

 

$

54,866

 

$

49,071

 

$

161,785

 

$

145,204


*See above within Note 3, Revenue for more information

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 3
months of
2018

    

2019

    

2020

    

2021

    

2022

    

2023

    

Thereafter

    

Total

Annual dues

 

$

7,376

 

$

9,395

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

16,771

Franchise sales

 

 

1,916

 

 

6,970

 

 

5,662

 

 

4,246

 

 

2,710

 

 

1,284

 

 

4,342

 

 

27,130

Total

 

$

9,292

 

$

16,365

 

$

5,662

 

$

4,246

 

$

2,710

 

$

1,284

 

$

4,342

 

$

43,901

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.

v3.10.0.1
Non-controlling Interest
9 Months Ended
Sep. 30, 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:

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

 

2018

 

2017

 

 

    

Shares

    

Ownership %

    

Shares

    

Ownership %

 

Non-controlling interest ownership of common units in RMCO

 

12,559,600

 

41.44

%  

12,559,600

 

41.51

%

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

 

17,746,184

 

58.56

%  

17,696,991

 

58.49

%

Total common units in RMCO

 

30,305,784

 

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 September 30, 

 

 

 

 

 

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)

 

 

58.56

%  

 

41.44

%  

 

100.00

%  

 

58.49

%  

 

41.51

%  

 

100.00

%

Income before provision for income taxes(a)

 

$

11,096

 

$

7,865

 

$

18,961

 

$

5,992

 

$

4,319

 

$

10,311

 

Provision for income taxes(b)(c)

 

 

(2,957)

 

 

(463)

 

 

(3,420)

 

 

(2,275)

 

 

(746)

 

 

(3,021)

 

Net income

 

$

8,139

 

$

7,402

 

$

15,541

 

$

3,717

 

$

3,573

 

$

7,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

58.54

%  

 

41.46

%  

 

100.00

%  

 

58.47

%  

 

41.53

%  

 

100.00

%

Income before provision for income taxes(a)

 

$

27,916

 

$

19,812

 

$

47,728

 

$

25,104

 

$

17,899

 

$

43,003

 

Provision for income taxes(b)(c)

 

 

(7,146)

 

 

(1,283)

 

 

(8,429)

 

 

(9,389)

 

 

(1,397)

 

 

(10,786)

 

Net income

 

$

20,770

 

$

18,529

 

$

39,299

 

$

15,715

 

$

16,502

 

$

32,217

 


*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 due to certain relatively insignificant expenses recorded at RE/MAX Holdings.    

(b)

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

(c)

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

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):

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

Tax and other distributions

 

$

3,723

 

$

7,430

Dividend distributions

 

 

7,536

 

 

6,783

Total distributions to non-controlling unitholders

 

$

11,259

 

$

14,213

 

v3.10.0.1
Earnings Per Share and Dividends
9 Months Ended
Sep. 30, 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

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

 

    

2017

    

 

    

2017

 

 

2018

 

As adjusted*

 

2018

 

As adjusted*

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to RE/MAX Holdings, Inc.

 

$

8,139

 

$

3,717

 

$

20,770

 

$

15,715

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

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

 

17,746,184

 

 

17,696,991

 

 

17,733,910

 

 

17,685,683

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

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

 

17,746,184

 

 

17,696,991

 

 

17,733,910

 

 

17,685,683

Add dilutive effect of the following:

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units

 

 

25,028

 

 

40,795

 

 

33,728

 

 

40,764

Weighted average shares of Class A common stock outstanding, diluted

 

 

17,771,212

 

 

17,737,786

 

 

17,767,638

 

 

17,726,447

Earnings per share of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.46

 

$

0.21

 

$

1.17

 

$

0.89

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

 

$

0.46

 

$

0.21

 

$

1.17

 

$

0.89


*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):