RE/MAX HOLDINGS, INC., 10-Q filed on 8/3/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Jul. 31, 2018
Entity Registrant Name RE/MAX Holdings, Inc.  
Entity Central Index Key 0001581091  
Document Period End Date Jun. 30, 2018  
Current Fiscal Year End Date --12-31  
Document Type 10-Q  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
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
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 39,839 $ 50,807
Accounts and notes receivable, current portion, less allowances of $6,864 and $7,223, respectively 23,527 20,284
Income taxes receivable 1,731 963
Other current assets 5,207 7,974
Total current assets 70,304 80,028
Property and equipment, net of accumulated depreciation of $12,652 and $12,326, respectively 3,786 2,905
Franchise agreements, net 110,907 119,349
Other intangible assets, net 15,747 8,476
Goodwill 154,415 135,213
Deferred tax assets, net 60,790 62,841
Other assets, net of current portion 4,408 4,023
Total assets 420,357 412,835
Current liabilities:    
Accounts payable 475 517
Accrued liabilities 10,625 15,390
Income taxes payable 42 97
Deferred revenue 25,906 25,268
Current portion of debt 2,715 2,350
Current portion of payable pursuant to tax receivable agreements 6,299 6,252
Total current liabilities 46,062 49,874
Debt, net of current portion 226,401 226,636
Payable pursuant to tax receivable agreements, net of current portion 46,923 46,923
Deferred tax liabilities, net 155 151
Deferred revenue, net of current portion 20,267 20,228
Other liabilities, net of current portion 20,013 19,897
Total liabilities 359,821 363,709
Commitments and contingencies (note 14)
Stockholders' equity:    
Additional paid-in capital 454,045 451,199
Retained earnings 13,822 8,400
Accumulated other comprehensive income, net of tax 362 459
Total stockholders' equity attributable to RE/MAX Holdings, Inc. 468,231 460,060
Non-controlling interest (407,695) (410,934)
Total stockholders' equity 60,536 49,126
Total liabilities and stockholders' equity 420,357 412,835
Common Class A    
Stockholders' equity:    
Common stock 2 2
Total stockholders' equity 2 2
Common Class B    
Stockholders' equity:    
Common stock
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Accounts Receivable, allowance $ 6,864 $ 7,223
Property and equipment, accumulated depreciation $ 12,652 $ 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 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Revenue:        
Total revenue $ 54,277 $ 48,727 $ 106,919 $ 96,133
Operating expenses:        
Selling, operating and administrative expenses 28,307 20,670 62,675 47,324
Depreciation and amortization 5,069 5,397 9,644 11,392
Gain on sale or disposition of assets, net (13) (12) (31) (25)
Total operating expenses 33,363 26,055 72,288 58,691
Operating income 20,914 22,672 34,631 37,442
Other expenses, net:        
Interest expense (3,171) (2,462) (5,895) (4,816)
Interest income 98 25 217 50
Foreign currency transaction (losses) gains (103) 39 (186) 16
Total other expenses, net (3,176) (2,398) (5,864) (4,750)
Income before provision for income taxes 17,738 20,274 28,767 32,692
Provision for income taxes (3,147) (4,735) (5,009) (7,765)
Net income 14,591 15,539 23,758 24,927
Less: net income attributable to non-controlling interest (note 4) 6,943 8,081 11,127 12,929
Net income attributable to RE/MAX Holdings, Inc. $ 7,648 $ 7,458 $ 12,631 $ 11,998
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock        
Basic $ 0.43 $ 0.42 $ 0.71 $ 0.68
Diluted 0.43 0.42 0.71 0.68
Weighted average shares of Class A common stock outstanding        
Cash dividends declared per share of Class A common stock     0.40 0.36
Common Class A        
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock        
Basic 0.43 0.42 0.71 0.68
Diluted $ 0.43 $ 0.42 $ 0.71 $ 0.68
Weighted average shares of Class A common stock outstanding        
Basic 17,746,042 17,696,842 17,727,671 17,679,936
Diluted 17,769,641 17,723,802 17,763,592 17,720,564
Cash dividends declared per share of Class A common stock $ 0.20 $ 0.18 $ 0.40 $ 0.36
Continuing franchise fees        
Revenue:        
Total revenue $ 25,211 $ 23,284 $ 50,451 $ 46,249
Annual dues        
Revenue:        
Total revenue 8,973 8,320 17,669 16,556
Broker fees        
Revenue:        
Total revenue 13,993 12,555 23,181 20,789
Franchise sales and other revenue        
Revenue:        
Total revenue $ 6,100 $ 4,568 $ 15,618 $ 12,539
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Condensed Consolidated Statements of Comprehensive Income        
Net income $ 14,591 $ 15,539 $ 23,758 $ 24,927
Change in cumulative translation adjustment (85) 351 (167) 440
Other comprehensive (loss) income, net of tax (85) 351 (167) 440
Comprehensive income 14,506 15,890 23,591 25,367
Less: comprehensive income attributable to non-controlling interest 6,912 8,277 11,057 13,176
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax $ 7,594 $ 7,613 $ 12,534 $ 12,191
v3.10.0.1
Condensed Consolidated Statement of Stockholders’ Equity - 6 months ended Jun. 30, 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
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   12,631   11,127     23,758
Distributions to non-controlling unitholders       (7,818)     (7,818)
Equity-based compensation and related dividend equivalents, value 3,430 (113)         3,317
Equity-based compensation and related dividend equivalents, shares         64,878    
Dividends to Class A common stockholders   (7,096)         (7,096)
Change in accumulated other comprehensive income     (97) (70)     (167)
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 311           311
Ending balance, Value at Jun. 30, 2018 $ 454,045 $ 13,822 $ 362 $ (407,695) $ 2   $ 60,536
Ending balance, Shares at Jun. 30, 2018         17,746,184 1  
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Cash flows from operating activities:    
Net income $ 23,758 $ 24,927
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 9,644 11,392
Bad debt expense 823 587
Equity-based compensation expense 3,424 1,293
Deferred income tax expense 2,060 2,674
Fair value adjustments to contingent consideration 80 (170)
Other, net 426 231
Changes in operating assets and liabilities (6,285) (7,993)
Net cash provided by operating activities 33,930 32,941
Cash flows from investing activities:    
Purchases of property, equipment and software and capitalization of trademark costs (1,441) (1,323)
Acquisitions, net of cash acquired of $362 and $0, respectively (25,888)  
Net cash used in investing activities (27,329) (1,323)
Cash flows from financing activities:    
Payments on debt (1,554) (1,180)
Distributions paid to non-controlling unitholders (7,818) (10,971)
Dividends and dividend equivalents paid to Class A common stockholders (7,209) (6,422)
Payment of payroll taxes related to net settled restricted stock units (895) (816)
Payment of contingent consideration (50)  
Net cash used in financing activities (17,526) (19,389)
Effect of exchange rate changes on cash (43) 479
Net (decrease) increase in cash and cash equivalents (10,968) 12,708
Cash and cash equivalents, beginning of year 50,807 57,609
Cash and cash equivalents, end of period 39,839 70,317
Supplemental disclosures of cash flow information:    
Cash paid for interest 5,616 4,904
Net cash paid for income taxes 3,741 7,564
Schedule of non-cash investing and financing activities:    
Increase in accounts payable for capitalization of trademark costs and purchases of property, equipment and software $ 259 $ 199
v3.10.0.1
Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Condensed Consolidated Statements of Cash Flows    
Cash acquired $ 362 $ 0
v3.10.0.1
Business and Organization
6 Months Ended
Jun. 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 June 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.

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

v3.10.0.1
Summary of Significant Accounting Policies
6 Months Ended
Jun. 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 June 30, 2018 and December 31, 2017 and the results of its operations and comprehensive income for the three and six months ended June 30, 2018 and 2017, cash flows for the six months ended June 30, 2018 and 2017 and changes in its stockholders’ equity for the six months ended June 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.

 

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 six months ended June 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 Company reevaluated the information used by the chief operating decision maker to evaluate performance and make resource allocation decisions. As a result of the reevaluation, the Company determined it was operating under the following three segments: RE/MAX Franchising, Motto Franchising and booj. Due to the immateriality of the Motto Franchising and booj operating segments, the Company has only one reportable segment, RE/MAX Franchising. 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).  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 when paid and are recognized as expense 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.

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 several building leases and other smaller leases and is still assessing the application of this standard for those leases. 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.

v3.10.0.1
Revenue
6 Months Ended
Jun. 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 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 June 30, 2017

 

 

As previously reported

 

Adjustments

 

As adjusted

Franchise sales and other revenue

 

$

4,660

 

$

(92)

 

$

4,568

Selling, operating and administrative expenses

 

 

20,637

 

 

33

 

 

20,670

Provision for income taxes

 

 

4,762

 

 

(27)

 

 

4,735

Net income

 

 

15,637

 

 

(98)

 

 

15,539

Net income attributable to non-controlling interest

 

 

8,108

 

 

(27)

 

 

8,081

Net income attributable to RE/MAX Holdings, Inc.

 

 

7,529

 

 

(71)

 

 

7,458

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

 

 

 

 

 

 

 

 

 

Basic

 

 

0.43

 

 

(0.01)

 

 

0.42

Diluted

 

 

0.42

 

 

(0.00)

 

 

0.42

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Six Months Ended June 30, 2017

 

 

As previously reported

 

Adjustments

 

As adjusted

Franchise sales and other revenue

 

$

13,454

 

$

(915)

 

$

12,539

Selling, operating and administrative expenses

 

 

47,431

 

 

(107)

 

 

47,324

Provision for income taxes

 

 

7,792

 

 

(27)

 

 

7,765

Net income

 

 

25,708

 

 

(781)

 

 

24,927

Net income attributable to non-controlling interest

 

 

13,266

 

 

(337)

 

 

12,929

Net income attributable to RE/MAX Holdings, Inc.

 

 

12,442

 

 

(444)

 

 

11,998

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

 

 

 

 

 

 

 

 

 

Basic

 

 

0.70

 

 

(0.02)

 

 

0.68

Diluted

 

 

0.70

 

 

(0.02)

 

 

0.68

Condensed Consolidated Statement of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Three Months Ended June 30, 2017

 

 

As previously reported

 

Adjustments

 

As adjusted

Net income

 

$

15,637

 

$

(98)

 

$

15,539

Change in cumulative translation adjustment

 

 

368

 

 

(17)

 

 

351

Comprehensive income

 

 

16,005

 

 

(115)

 

 

15,890

Comprehensive income attributable to non-controlling interest

 

 

8,303

 

 

(26)

 

 

8,277

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

 

 

7,702

 

 

(89)

 

 

7,613

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Six Months Ended June 30, 2017

 

 

As previously reported

 

Adjustments

 

As adjusted

Net income

 

$

25,708

 

$

(781)

 

$

24,927

Change in cumulative translation adjustment

 

 

463

 

 

(23)

 

 

440

Comprehensive income

 

 

26,171

 

 

(804)

 

 

25,367

Comprehensive income attributable to non-controlling interest

 

 

13,513

 

 

(337)

 

 

13,176

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

 

 

12,658

 

 

(467)

 

 

12,191

Condensed Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Impact of Changes in Accounting Policies

 

 

Six Months Ended June 30, 2017

 

 

As previously reported

 

Adjustments

 

As adjusted

Net income

 

$

25,708

 

$

(781)

 

$

24,927

Deferred income tax expense

 

 

2,701

 

 

(27)

 

 

2,674

Changes in operating assets and liabilities

 

 

(8,801)

 

 

808

 

 

(7,993)

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 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

Six months ended June 30, 2018

 

$

15,297

 

$

19,624

 

$

(17,669)

 

$

17,252


(a)Revenue recognized related to the beginning balance was $5.3 million and $12.8 million for the three and six months ended June 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 revenue 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

Six months ended June 30, 2018

 

$

27,943

 

$

4,237

 

$

(4,614)

 

$

27,566


(a)Revenue recognized related to the beginning balance was $1.7 million and $3.8 million for the three and six months ended June 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

Six months ended June 30, 2018

 

$

3,532

 

$

(659)

 

$

829

 

$

3,702

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 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 six months ended June 30, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

 

 

 

2017

 

 

 

 

2017

 

 

2018

 

As adjusted*

 

2018

 

As adjusted*

U.S.

 

$

41,173

 

$

38,361

 

$

77,922

 

$

72,439

Canada

 

 

6,213

 

 

5,750

 

 

11,976

 

 

10,974

Global and Other

 

 

4,724

 

 

4,546

 

 

13,806

 

 

12,638

Total RE/MAX Franchising

 

 

52,110

 

 

48,657

 

 

103,704

 

 

96,051

Other

 

 

2,167

 

 

70

 

 

3,215

 

 

82

Total

 

$

54,277

 

$

48,727

 

$

106,919

 

$

96,133


*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 six months ended June 30, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

 

 

 

2017

 

 

 

 

2017

 

 

2018

 

As adjusted*

 

2018

 

As adjusted*

Owned Regions

 

$

35,692

 

$

32,997

 

$

67,055

 

$

61,549

Independent Regions

 

 

11,694

 

 

11,114

 

 

22,843

 

 

21,864

Global and Other

 

 

4,724

 

 

4,546

 

 

13,806

 

 

12,638

Total RE/MAX Franchising

 

 

52,110

 

 

48,657

 

 

103,704

 

 

96,051

Other

 

 

2,167

 

 

70

 

 

3,215

 

 

82

Total

 

$

54,277

 

$

48,727

 

$

106,919

 

$

96,133


*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 6
months of
2018

 

2019

 

2020

 

2021

 

2022

 

2023

 

Thereafter

 

Total

Annual dues

 

$

12,761

 

$

4,491

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

$

17,252

Franchise sales

 

 

3,758

 

 

6,671

 

 

5,348

 

 

3,925

 

 

2,378

 

 

1,084

 

 

4,402

 

 

27,566

Total

 

$

16,519

 

$

11,162

 

$

5,348

 

$

3,925

 

$

2,378

 

$

1,084

 

$

4,402

 

$

44,818

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
6 Months Ended
Jun. 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

June 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 June 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)

$

10,367

 

$

7,371

 

$

17,738

 

 

$

11,861

 

$

8,413

 

$

20,274

 

Provision for income taxes(b)(c)

 

(2,719)

 

 

(428)

 

 

(3,147)

 

 

 

(4,403)

 

 

(332)

 

 

(4,735)

 

Net income

$

7,648

 

$

6,943

 

$

14,591

 

 

$

7,458

 

$

8,081

 

$

15,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 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)

 

58.53

%

 

41.47

%

 

100.00

%

 

 

58.47

%

 

41.53

%

 

100.00

%

Income before provision for income taxes(a)

$

16,820

 

$

11,947

 

$

28,767

 

 

$

19,113

 

$

13,579

 

$

32,692

 

Provision for income taxes(b)(c)

 

(4,189)

 

 

(820)

 

 

(5,009)

 

 

 

(7,115)

 

 

(650)

 

 

(7,765)

 

Net income

$

12,631

 

$

11,127

 

$

23,758

 

 

$

11,998

 

$

12,929

 

$

24,927

 


*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. 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):

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

 

2018

 

2017

Tax and other distributions

 

$

2,794

 

$

6,450

Dividend distributions

 

 

5,024

 

 

4,521

Total distributions to non-controlling unitholders

 

$

7,818

 

$

10,971

On July 6, 2018 the Company paid $5.0 million pursuant to the terms of the TRAs.

v3.10.0.1
Earnings Per Share and Dividends
6 Months Ended
Jun. 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

 

Six Months Ended

 

June 30, 

 

June 30, 

 

 

    

2017

   

 

    

2017

 

2018

 

As adjusted*

 

2018

 

As adjusted*

Numerator

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to RE/MAX Holdings, Inc.

$

7,648

 

$

7,458

 

$

12,631

 

$

11,998

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

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

17,746,042

 

 

17,696,842

 

 

17,727,671

 

 

17,679,936

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

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

17,746,042

 

 

17,696,842

 

 

17,727,671

 

 

17,679,936

Add dilutive effect of the following:

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units

 

23,599

 

 

26,960

 

 

35,921

 

 

40,628

Weighted average shares of Class A common stock outstanding, diluted

 

17,769,641

 

 

17,723,802

 

 

17,763,592

 

 

17,720,564

Earnings per share of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

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

$

0.43

 

$

0.42

 

$

0.71

 

$

0.68

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

$

0.43

 

$

0.42

 

$

0.71

 

$

0.68


*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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

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

June 30

 

May 30, 2018

 

 

0