RE/MAX HOLDINGS, INC., 10-K filed on 2/21/2020
Annual Report
v3.19.3.a.u2
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Jan. 31, 2020
Jun. 30, 2019
Document Information [Line Items]      
Document Type 10-K    
Document Annual Report true    
Document Transition Report false    
Document Period End Date Dec. 31, 2019    
Entity File Number 001-36101    
Entity Registrant Name RE/MAX Holdings, Inc.    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 80-0937145    
Entity Address Line One 5075 South Syracuse Street    
Entity Address City or Town Denver    
Entity Address State or Province CO    
Entity Address Postal Zip Code 80237    
City Area Code 303    
Local Phone Number 770-5531    
Title of 12(b) Security Class A Common Stock, par value $0.0001 per share    
Trading Symbol RMAX    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001581091    
Amendment Flag false    
Entity Public Float     $ 534.2
Common Class A      
Document Information [Line Items]      
Entity Common Stock, Shares Outstanding   17,909,545  
Common Class B      
Document Information [Line Items]      
Entity Common Stock, Shares Outstanding   1  
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 83,001 $ 59,974
Restricted cash 20,600 0
Accounts and notes receivable, current portion, less allowances of $12,538 and $7,980, respectively 28,644 21,185
Income taxes receivable 896 533
Other current assets 9,638 5,855
Total current assets 142,779 87,547
Property and equipment, net of accumulated depreciation of $14,940 and $13,280, respectively 5,444 4,390
Operating lease right of use assets 51,129 0
Franchise agreements, net 87,670 103,157
Other intangible assets, net 32,315 22,965
Goodwill 159,038 150,684
Deferred tax assets, net 52,595 53,852
Income taxes receivable, net of current portion 1,690 1,379
Other assets, net of current portion 9,692 4,399
Total assets 542,352 428,373
Current liabilities:    
Accounts payable 2,983 1,890
Accrued liabilities 60,163 13,143
Income taxes payable 6,854 208
Deferred revenue 25,663 25,489
Current portion of debt 2,648 2,622
Current portion of payable pursuant to tax receivable agreements 3,583 3,567
Operating lease liabilities 5,102 0
Total current liabilities 106,996 46,919
Debt, net of current portion 223,033 225,165
Payable pursuant to tax receivable agreements, net of current portion 33,640 37,220
Deferred tax liabilities, net 293 400
Income taxes payable, net of current portion 0 5,794
Deferred revenue, net of current portion 18,763 20,224
Operating lease liabilities, net of current portion 55,959 0
Other liabilities, net of current portion 5,292 17,637
Total liabilities 443,976 353,359
Commitments and contingencies (note 15)
Stockholders' equity:    
Additional paid-in capital 466,945 460,101
Retained earnings 30,525 20,559
Accumulated other comprehensive income, net of tax 414 328
Total stockholders' equity attributable to RE/MAX Holdings, Inc. 497,886 480,990
Non-controlling interest (399,510) (405,976)
Total stockholders' equity 98,376 75,014
Total liabilities and stockholders' equity 542,352 428,373
Common Class A    
Stockholders' equity:    
Common stock 2 2
Common Class B    
Stockholders' equity:    
Common stock $ 0 $ 0
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Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Accounts and notes receivable, allowance $ 12,538 $ 7,980
Property and equipment, accumulated depreciation $ 14,940 $ 13,280
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 17,838,233 17,754,416
Common stock, shares outstanding 17,838,233 17,754,416
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
v3.19.3.a.u2
Consolidated Statements of Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Revenue:      
Total revenue $ 282,293 $ 212,626 $ 193,714
Operating expenses:      
Selling, operating and administrative expenses 118,890 120,179 106,946
Marketing Funds expenses 72,299 0 0
Depreciation and amortization 22,323 20,678 20,512
Loss on sale or disposition of assets, net 342 63 660
Gain on reduction in tax receivable agreement liability (note 4) 0 (6,145) (32,736)
Total operating expenses 213,854 134,775 95,382
Operating income 68,439 77,851 98,332
Other expenses, net:      
Interest expense (12,229) (12,051) (9,996)
Interest income 1,446 676 352
Foreign currency transaction gains (losses) 109 (312) 174
Total other expenses, net (10,674) (11,687) (9,470)
Income before provision for income taxes 57,765 66,164 88,862
Provision for income taxes (10,909) (16,342) (57,542)
Net income 46,856 49,822 31,320
Less: net income attributable to non-controlling interest (note 4) 21,816 22,939 21,221
Net income attributable to RE/MAX Holdings, Inc. $ 25,040 $ 26,883 $ 10,099
Common Class A      
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock      
Basic $ 1.41 $ 1.52 $ 0.57
Diluted $ 1.40 $ 1.51 $ 0.57
Weighted average shares of Class A common stock outstanding      
Basic 17,812,065 17,737,649 17,688,533
Diluted 17,867,752 17,767,499 17,731,800
Cash dividends declared per share of Class A common stock $ 0.84 $ 0.80 $ 0.72
Continuing franchise fees      
Revenue:      
Total revenue $ 99,928 $ 101,104 $ 93,694
Annual dues      
Revenue:      
Total revenue 35,409 35,894 33,767
Broker fees      
Revenue:      
Total revenue 45,990 46,871 43,801
Marketing Funds fees      
Revenue:      
Total revenue 72,299 0 0
Franchise sales and other revenue      
Revenue:      
Total revenue $ 28,667 $ 28,757 $ 22,452
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Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Consolidated Statements of Comprehensive Income      
Net income $ 46,856 $ 49,822 $ 31,320
Change in cumulative translation adjustment 166 (253) 1,037
Other comprehensive income (loss), net of tax 166 (253) 1,037
Comprehensive income 47,022 49,569 32,357
Less: comprehensive income attributable to non-controlling interest 21,896 22,817 21,752
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax $ 25,126 $ 26,752 $ 10,605
v3.19.3.a.u2
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Common Stock
Common Class A
Common Stock
Common Class B
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax
Non-controlling interest
Common Class A
Common Class B
Total
Beginning balance, Value at Dec. 31, 2016 $ 2   $ 448,713 $ 10,676 $ (47) $ (418,729)     $ 40,615
Beginning balance, Shares at Dec. 31, 2016 17,652,548 1              
Net income       10,099   21,221     31,320
Distributions to non-controlling unitholders           (17,257)     (17,257)
Equity-based compensation expense and related dividend equivalents, value     2,900 (53)         2,847
Equity-based compensation expense and related dividend equivalents, shares 58,426                
Dividends to Class A common stockholders       (12,740)         (12,740)
Change in accumulated other comprehensive income         506 531     1,037
Payroll taxes related to net settled restricted stock units, value     (816)           (816)
Payroll taxes related to net settled restricted stock units, shares (13,983)                
Other     402           402
Ending balance, Value at Dec. 31, 2017 $ 2   451,199 7,982 459 (414,234)     45,408
Ending balance, Shares at Dec. 31, 2017 17,696,991 1              
Net income       26,883   22,939     49,822
Distributions to non-controlling unitholders           (14,559)     (14,559)
Equity-based compensation expense and related dividend equivalents, value     9,314 (112)         9,202
Equity-based compensation expense and related dividend equivalents, shares 73,462                
Dividends to Class A common stockholders       (14,194)         (14,194)
Change in accumulated other comprehensive income         (131) (122)     (253)
Payroll taxes related to net settled restricted stock units, value     (895)           (895)
Payroll taxes related to net settled restricted stock units, shares (16,037)                
Other     483           483
Ending balance, Value at Dec. 31, 2018 $ 2   460,101 20,559 328 (405,976)     75,014
Ending balance, Shares at Dec. 31, 2018 17,754,416 1         17,754,416 1  
Net income       25,040   21,816     46,856
Distributions to non-controlling unitholders           (15,430)     (15,430)
Equity-based compensation expense and related dividend equivalents, value     7,375 (104)         7,271
Equity-based compensation expense and related dividend equivalents, shares 106,390                
Dividends to Class A common stockholders       (14,970)         (14,970)
Change in accumulated other comprehensive income         86 80     166
Payroll taxes related to net settled restricted stock units, value     (1,110)           (1,110)
Payroll taxes related to net settled restricted stock units, shares (22,573)                
Other     579           579
Ending balance, Value at Dec. 31, 2019 $ 2   $ 466,945 $ 30,525 $ 414 $ (399,510)     $ 98,376
Ending balance, Shares at Dec. 31, 2019 17,838,233 1         17,838,233 1  
v3.19.3.a.u2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:      
Net income $ 46,856 $ 49,822 $ 31,320
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 22,323 20,678 20,512
Bad debt expense 4,964 2,257 1,109
Loss (gain) on sale or disposition of assets and sublease, net 342 (139) 4,260
Equity-based compensation expense 10,934 9,176 2,900
Deferred income tax expense 2,310 9,511 47,931
Fair value adjustments to contingent consideration 241 (1,289) 180
Payments pursuant to tax receivable agreements (3,556) (6,305) (13,371)
Non-cash change in tax receivable agreement liability 0 (6,145) (32,736)
Other, net 910 1,127 1,146
Changes in operating assets and liabilities      
Accounts and notes receivable, current portion (5,614) (3,241) (2,825)
Advances from/to affiliates 0 581 (106)
Other current and noncurrent assets (6,084) 2,170 (2,724)
Other current and noncurrent liabilities 6,737 (3,466) 1,592
Income taxes receivable/payable 178 1,099 (605)
Deferred revenue, current and noncurrent (1,566) 228 4,705
Net cash provided by operating activities 78,975 76,064 63,288
Cash flows from investing activities:      
Purchases of property, equipment and capitalization of software (13,226) (7,787) (2,198)
Acquisitions, net of cash acquired of $55, $362 and $0, respectively (14,945) (25,888) (35,720)
Restricted cash acquired with the Marketing Funds acquisition 28,495 0 0
Other (1,200) 0 0
Net cash used in investing activities (876) (33,675) (37,918)
Cash flows from financing activities:      
Payments on debt (2,622) (3,171) (2,366)
Distributions paid to non-controlling unitholders (15,430) (14,559) (17,260)
Dividends and dividend equivalents paid to Class A common stockholders (15,074) (14,306) (12,793)
Payment of payroll taxes related to net settled restricted stock units (1,110) (895) (816)
Payment of contingent consideration (306) (221)  
Net cash used in financing activities (34,542) (33,152) (33,235)
Effect of exchange rate changes on cash 70 (70) 1,063
Net increase (decrease) in cash, cash equivalents and restricted cash 43,627 9,167 (6,802)
Cash, cash equivalents and restricted cash, beginning of year 59,974 50,807 57,609
Cash, cash equivalents and restricted cash, end of period 103,601 59,974 50,807
Supplemental disclosures of cash flow information:      
Cash paid for interest 11,690 11,525 9,972
Net cash paid for income taxes 8,429 5,769 10,078
Schedule of non-cash investing activities:      
Increase (decrease) in accounts payable and accrued liabilities for purchases of property, equipment and capitalization of software $ (94) $ 1,080 $ 295
v3.19.3.a.u2
Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Consolidated Statements of Cash Flows      
Cash acquired $ 55 $ 362 $ 0
v3.19.3.a.u2
Business and Organization
12 Months Ended
Dec. 31, 2019
Business and Organization  
Business and Organization

1. Business and Organization

RE/MAX Holdings, Inc. (“Holdings”) completed an initial public offering (the “IPO”) of its shares of Class A common stock on October 7, 2013. Holdings’ only business is to act as the sole manager of RMCO, LLC (“RMCO”). As of December 31, 2019, Holdings owns 58.7% of the common membership units in RMCO, while RIHI, Inc. (“RIHI”) owns the remaining 41.3%. 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 (“Motto”). RE/MAX, founded in 1973, has over 130,000 agents operating in over 8,000 offices and a presence in more than 110 countries and territories. Motto, founded in 2016, is the first nationally franchised mortgage brokerage in the U.S. During 2018, the Company acquired all membership interests in booj, LLC, formerly known as Active Website, LLC, (“booj”), a real estate technology company. RE/MAX and Motto are 100% franchised and do not operate any real estate or mortgage brokerage offices.

Holdings Capital Structure

Holdings has two classes of common stock, Class A common stock and Class B common stock:

Class A common stock

Holders of shares of Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Additionally, holders of shares of Class A common stock are entitled to receive dividends when and if declared by the Company’s Board of Directors, subject to any statutory or contractual restrictions on the payment of dividends.

Holders of shares of Class A common stock do not have preemptive, subscription, redemption or conversion rights.

Class B common stock

RIHI is the sole holder of Class B common stock and is controlled by David Liniger, the Company’s Chairman and Co-Founder, and Gail Liniger, the Company’s Vice Chair and Co-Founder. On October 7, 2018, pursuant to the terms of the Company’s Certificate of Incorporation, RIHI lost its previous effective control of a majority of the voting power of Holdings common stock. RIHI owns all Holdings’ Class B common stock which, prior to October 7, 2018, entitled RIHI to a number of votes on matters presented to Holdings stockholders equal to two times the number of RMCO common units that RIHI held. Effective October 7, 2018, the voting power of Class B common stock was reduced to equal the number of RMCO common units held, and therefore RIHI lost the controlling vote of Holdings. As a result of this change in the voting rights of the Class B common stock, RIHI no longer controls a majority of the voting power of Holdings’ common stock, and Holdings is no longer considered a “controlled company” under the corporate governance standards of the New York Stock Exchange (the “NYSE”).

Holders of shares of Class B common stock do not have preemptive, subscription, redemption or conversion rights.

Holders of shares of Class A common stock and Class B common stock vote together as a single class on all matters presented to the Company’s stockholders for their vote or approval, except as otherwise required by applicable law.

v3.19.3.a.u2
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements (“financial statements”) and notes thereto included in this Annual Report on Form 10-K have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The accompanying financial statements include the accounts of Holdings and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying financial statements reflect all normal and recurring adjustments necessary to present fairly the

Company’s financial position as of December 31, 2019 and 2018, the results of its operations and comprehensive income, changes in its stockholders’ equity and its cash flows for the years ended December 31, 2019, 2018 and 2017.

On January 1, 2019 the Company acquired all of the regional and pan-regional advertising fund entities previously owned by its founder and Chairman of the Board of Directors, David Liniger, for a nominal amount. During 2018, the Company completed the acquisition of booj, and during 2017 the Company completed the acquisition of an independent region. Their results of operations, cash flows and financial positions are included in the financial statements from their respective dates of acquisition. See Note 6, Acquisitions for additional information.

Use of Estimates

The preparation of the accompanying 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain items in the Consolidated Statement of Cash Flows have been reclassified in the years ended December 31, 2018 and 2017 to conform with the current year presentation.

Segment Reporting

The Company operates under the following segments:

RE/MAX Franchising – 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.
Motto Franchising – comprises the operations of the Company’s mortgage broker franchising operations under the Motto Mortgage brand name and does not include any charges related to the corporate-wide shared services expenses.
Marketing Funds – comprises the operations of the Company’s marketing campaigns designed to build and maintain brand awareness and the development and operation of agent marketing technology.
Other – comprises the legacy operations of booj (see Note 6, Acquisitions for additional information), which, due to quantitative insignificance, do not meet the criteria of a reportable segment.

See Note 18 Segment Information for additional information about segment reporting.

Principles of Consolidation

Holdings consolidates RMCO and records a non-controlling interest in the accompanying 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 Consolidated Statements of Income and Consolidated Statements of Comprehensive Income, respectively.

Revenue Recognition

The Company generates the substantial majority of its revenue from contracts with customers. 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; marketing tools and training; 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 highly related and all a part of one performance obligation for each franchise agreement, a license of symbolic intellectual property that is billed through a variety of fees including continuing franchise fees, annual dues, broker fees, marketing funds fees and franchise sales, described below. The Company has other performance obligations associated with contracts with customers in other

revenue for training, marketing and events, and legacy booj customers. The method used to measure progress is over the passage of time for most streams of revenue. The following is a description of principal activities from which the Company generates its revenue.

Continuing Franchise Fees

Continuing franchise fees are fixed contractual fees paid monthly (a) by regional franchise owners in Independent Regions or franchisees in Company-owned Regions based on the number of RE/MAX agents in the respective franchised region or office or (b) by Motto franchisees based on the number of offices open. Motto offices reach the full monthly billing once the Motto office has been open for 12 to 14 months. 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 or number of Motto offices.

Annual Dues

Annual dues are a fixed membership fee paid annually by RE/MAX agents directly to the Company to be a part of the RE/MAX network and use the RE/MAX brand. Annual dues are a flat fee per agent. 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 RE/MAX agents.

The activity in the Company’s deferred revenue for annual dues is included in “Deferred revenue” and “Deferred revenue, net of current portion” on the Consolidated Balance Sheets, and consists of the following in aggregate (in thousands):

    

Balance at
beginning of period

    

New billings

    

Revenue recognized(a)

    

Balance at end
of period

Year ended December 31, 2019

$

15,877

$

35,514

$

(35,409)

$

15,982

(a)Revenue recognized related to the beginning balance was $14.4 million for the year ended December 31, 2019.
(b)

Broker Fees

Broker fees are assessed against real estate commissions paid by customers when a RE/MAX agent sells a home. Generally, the amount paid is 1% of the total commission on the transaction, although in Independent Regions in Canada it is not charged. Additionally, agents in Company-owned Regions existing prior to 2004, the year the Company began assessing broker fees, are generally “grandfathered” and continue to be exempt from paying a broker fee. As of December 31, 2019, grandfathered agents represented approximately 17% of total agents in U.S. Company-owned Regions. 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.

Marketing Funds Fees

Marketing Funds fees are fixed contractual fees paid monthly by franchisees based on the number of RE/MAX agents in the respective franchised region or office or the number of Motto offices. These revenues are obligated to be used for marketing campaigns to build brand awareness and to support agent marketing technology. Amounts received into the Marketing Funds are recognized as revenue 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 or number of Motto offices.

All assets of the Marketing Funds are contractually restricted for the benefit of franchisees, and the Company recognizes an equal and offsetting liability on the Company’s balance sheet for all amounts received. Additionally, this results in recording an equal and offsetting amount of expenses against all revenues such that there is no impact to overall profitability of the Company from these revenues.

Franchise Sales

Franchise sales comprises revenue from the sale or renewal of franchises. A fee is charged upon a franchise sale or renewal. Those fees are deemed to be a part of the license of symbolic intellectual property and are recognized as

revenue over the contractual term of the franchise agreement, which is typically 5 years for RE/MAX and 7 years for Motto franchise agreements. 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

Year ended December 31, 2019

$

27,560

$

7,750

$

(9,426)

$

25,884

(a)Revenue recognized related to the beginning balance was $8.4 million for the year ended December 31, 2019.

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 Consolidated Balance Sheets) consist of the following (in thousands):

Balance at

Expense

Additions to contract

Balance at end

    

beginning of period

    

recognized

    

cost for new activity

    

of period

Year ended December 31, 2019

$

3,748

$

(1,290)

$

1,120

$

3,578

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 and are recorded net as the Company does not control the good or service provided. Event-based revenue is recognized when the event occurs and until then amounts collected are included in “Deferred revenue”. Other revenue also includes revenue from booj’s legacy operations for its external customers as booj continues to provide technology products and services, such as websites, mobile apps, reporting and website tools, to its legacy customers and technology subscription revenue such as for the First app.

Disaggregated Revenue

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

Year Ended December 31, 

2019

2018

2017

U.S.

$

164,867

$

170,496

$

160,538

Canada

23,024

23,771

23,189

Global

11,745

10,237

9,431

Total RE/MAX Franchising

199,636

204,504

193,158

U.S.

64,906

Canada

6,559

Global

834

Total Marketing Funds

72,299

Motto Franchising (a)

4,542

2,536

556

Other

5,816

5,586

Total

$

282,293

212,626

193,714

(a)Revenue from the Motto Franchising segment is derived exclusively within the U.S.

In the following table, segment revenue is disaggregated by Company-owned or Independent Regions in the U.S., Canada and Global (in thousands):

Year Ended December 31, 

2019

2018

2017

Company-owned Regions

$

128,972

$

133,925

$

125,092

Independent Regions

44,686

46,289

44,799

Global and Other

25,978

24,290

23,267

Total RE/MAX Franchising

199,636

204,504

193,158

Marketing Funds

72,299

Motto Franchising

4,542

2,536

556

Other

5,816

5,586

Total

$

282,293

$

212,626

$

193,714

Transaction Price Allocated to the Remaining Performance Obligations

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

    

2020

    

2021

    

2022

    

2023

    

2024

    

Thereafter

    

Total

Annual dues

$

15,982

$

$

$

$

$

$

15,982

Franchise sales

7,141

5,801

4,368

2,881

1,589

4,104

25,884

Total

$

23,123

$

5,801

$

4,368

$

2,881

$

1,589

$

4,104

$

41,866

Cash, Cash Equivalents and Restricted Cash

All cash held by the Marketing Funds is contractually restricted. The following table reconciles the amounts presented for cash, both unrestricted and restricted, in the Consolidated Balance Sheets to the amounts presented in the Consolidated Statements of Cash Flows (in thousands):

As of December 31,

    

2019

2018

Cash and cash equivalents

$

83,001

$

59,974

Restricted cash

20,600

Total cash, cash equivalents and restricted cash

$

103,601

$

59,974

Services Provided to the Marketing Funds by RE/MAX Franchising

RE/MAX Franchising charges the Marketing Funds for various services it performs. These services are primarily comprised of (a) providing agent marketing technology, including customer relationship management tools, the www.remax.com website, agent and office websites, and mobile apps, (b) dedicated employees focused on marketing campaigns, and (c) various administrative services including accounting and legal. Because these costs are ultimately paid by the Marketing Funds, they do not impact the net income of Holdings as the Marketing Funds have no reported net income.

Costs charged from RE/MAX Franchising to the Marketing Funds are as follows (in thousands):

Year Ended

December 31, 2019

Technology development - operating

$

6,244

Technology development - capital

5,095

Marketing staff and administrative services (a)

3,763

Total

$

15,102

(a)Costs charged to the Marketing Funds for the years ended December 31, 2018 and 2017, while the Marketing Funds were a related party, were $3.8 million and $3.4 million, respectively.

Prior to January 1, 2019, the Marketing Funds were not owned by the Company (see Note 6 Acquisitions). During that time, the Marketing funds still incurred significant technology costs, however, these services were provided by and paid directly to third parties and were not provided by the Company. In 2019, RE/MAX Franchising (through the booj technology team) began providing these services as noted above.

Selling, Operating and Administrative Expenses

Selling, operating and administrative expenses primarily consist of personnel costs, including salaries, benefits, payroll taxes and other compensation expenses, professional fees, lease costs, as well as expenses for marketing to customers, to expand the Company’s franchises and outsourced technology services.

Fair Value of Financial Instruments

The carrying amounts of financial instruments, net of any allowances, including cash equivalents, accounts and notes receivable, accounts payable and accrued expenses approximate fair value due to their short-term nature.

Accounts and Notes Receivable

Accounts receivable arising from monthly billings do not bear interest. The Company provides limited financing of certain franchise sales through the issuance of notes receivable with the associated interest recorded in “Interest income” in the accompanying Consolidated Statements of Income. Amounts collected on notes receivable are included in “Net cash provided by operating activities” in the accompanying Consolidated Statements of Cash Flows.

The Company records allowances against its accounts and notes receivable balances for estimated probable losses. Increases and decreases in the allowance for doubtful accounts are established based upon changes in the credit quality of receivables and are included as a component of “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income. The allowance for doubtful accounts and notes is based on historical experience, general economic conditions, and the credit quality of specific accounts.

The activity in the Company’s allowances against accounts and notes receivable consists of the following (in thousands):

Balance at beginning of period

Additions/charges to cost and expense for allowances for doubtful accounts (a)

Deductions/write-offs

Balance at end of period

Year Ended December 31, 2019

$

7,980

$

4,964

$

(406)

$

12,538

Year Ended December 31, 2018

    

$

7,223

$

2,257

$

(1,500)

$

7,980

Year Ended December 31, 2017

$

6,458

$

1,109

$

(344)

$

7,223

(a) For the year ended December 31, 2019, $1.5 million of expense was attributable to the acquired Marketing Funds.

Accumulated Other Comprehensive Income (Loss) and Foreign Currency Translation

Accumulated other comprehensive income (loss) includes all changes in equity during a period that have yet to be recognized in income, except those resulting from transactions with stockholders and is comprised of foreign currency translation adjustments.

As of December 31, 2019, the Company, directly and through its franchisees, conducted operations in over 110 countries and territories, including the U.S. and Canada. The functional currency for the Company’s operations is the U.S. dollar, except for its Canadian subsidiary which is the Canadian Dollar.

Assets and liabilities of the Canadian subsidiary are translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of income and cash flows are translated at the average exchange rates in effect during the applicable period. Exchange rate fluctuations on translating consolidated foreign currency financial statements into U.S. dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded as a component of “Accumulated other comprehensive income,” and periodic changes are included in comprehensive income. When the Company sells a part or all of its investment in a foreign entity resulting in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, it releases any related cumulative translation adjustment into net income.

Foreign currency denominated monetary assets and liabilities and transactions occurring in currencies other than the Company’s or the Company’s consolidated foreign subsidiaries’ functional currencies are recorded based on exchange rates at the time such transactions arise. Changes in exchange rates with respect to amounts recorded in the accompanying Consolidated Balance Sheets related to these non-functional currency transactions result in transaction gains and losses that are reflected in the accompanying Consolidated Statements of Income as “Foreign currency transaction (losses) gains.”

Property and Equipment

Property and equipment, including leasehold improvements, are initially recorded at cost. Depreciation is provided for on a straight-line method over the estimated useful lives of each asset class and commences when the property is placed in service. Amortization of leasehold improvements is provided for on a straight-line method over the estimated benefit period of the related assets or the lease term, if shorter.

Franchise Agreements and Other Intangible Assets

The Company’s franchise agreements result from franchise rights acquired from Independent Region acquisitions and are initially recorded at fair value. The Company amortizes the franchise agreements over their estimated useful life on a straight-line basis.

The Company also purchases and develops software for internal use. Software development costs and upgrade and enhancement costs incurred during the application development stage that result in additional functionality are capitalized. Costs incurred during the preliminary project and post-implementation-operation stages are expensed as incurred. Capitalized software costs are generally amortized over a term of two to five years. Purchased software licenses are amortized over their estimated useful lives.

In addition, the Company owns the principal trademarks, service marks and trade names that it uses in conjunction with operating its business. These intangible assets increase when the Company pays to file trademark applications in the U.S. and certain other jurisdictions globally. The Company’s trademarks are amortized on a straight-line basis over their estimated useful lives.

The Company reviews its franchise agreements and other intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated from such asset. If not recoverable, the excess of the carrying amount of an asset over its estimated discounted cash flows would be charged to operations as an impairment loss. For each of the years ended December 31, 2019, 2018 and 2017, there were no material impairments indicated for such assets.

Goodwill

Goodwill is an asset representing the future economic benefits arising from the other assets acquired in a business combination that are not individually identified and separately recognized. The Company assesses goodwill for impairment at least annually at the reporting unit level or whenever an event occurs that would indicate impairment may have occurred. Reporting units are driven by the level at which segment management reviews operating results. The Company performs its required impairment testing annually on October 1.

The Company’s impairment assessment begins with a qualitative assessment to determine if it is more likely than not that a reporting unit’s fair value is less than the carrying amount. The initial qualitative assessment includes comparing the overall financial performance of the reporting units against the planned results as well as other factors which might indicate that the reporting unit’s value has declined since the last assessment date. If it is determined in the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the standard two-step quantitative impairment test is performed. The impairment test consists of comparing the estimated fair value of each reporting unit with its carrying amount, including goodwill. The fair value of a reporting unit is determined by forecasting results, such as franchise sales for Motto, and applying and assumed discount rate to determine fair value as of the test date. If the estimated fair value of a reporting unit exceeds its carrying value, then it is not considered impaired and no further analysis is required. Goodwill impairment exists when the estimated implied fair value of a reporting unit’s goodwill is less than its carrying value.

The Company did not record any goodwill impairments during the years ended December 31, 2019, 2018 and 2017.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Management periodically assesses the recoverability of its deferred tax assets based upon expected future earnings, future deductibility of the asset and changes in applicable tax laws and other factors. If management determines that it is not likely that the deferred tax asset will be fully recoverable in the future, a valuation allowance may be established for the difference between the asset balance and the amount expected to be recoverable in the future. The allowance will result in a charge to the Company’s Consolidated Statements of Income.

RMCO complies with the requirements of the Internal Revenue Code that are applicable to limited liability companies that have elected to be treated as partnerships, which allow for the complete pass-through of taxable income or losses to RMCO’s unitholders, who are individually responsible for any federal tax consequences. The share of U.S. income allocable to Holdings results in a provision for income taxes for the federal and state taxes on that portion of income. The share of U.S. income allocable to RIHI does not result in a provision for income taxes for federal and state taxes given Holdings does not consolidate RIHI. RMCO is subject to certain global withholding taxes, which are ultimately allocated to both Holdings and RIHI since they are paid by RMCO.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Equity-Based Compensation

The Company recognizes compensation expense associated with equity-based compensation as a component of “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income. All equity-based compensation is required to be measured at fair value on the grant date, is expensed over the requisite service, generally over a three-year period, and forfeitures are accounted for as they occur. The Company recognizes compensation expense on awards on a straight-line basis over the requisite service period for the entire award. Refer to Note 13, Equity-Based Compensation for additional discussion regarding details of the Company’s equity-based compensation plans.

Recently Adopted Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 became effective for the Company on January 1, 2019. The standard is to be applied either in the period of adoption or retrospectively to each period affected 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 amendments of ASU 2018-02 did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with several subsequent amendments, which requires lessees to recognize the assets and liabilities that arise from operating and finance leases on the consolidated balance sheets, with a few exceptions. ASU 2016-02 became effective for the Company on January 1, 2019 and replaced the existing lease guidance in U.S. GAAP when it became effective. The Company did not retrospectively recast prior periods presented and instead adjusted assets and liabilities on January 1, 2019. In addition, the Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to forgo reassessing (a) whether a contract contains a lease, (b) lease classification, and (c) whether capitalized costs associated with a lease are initial direct costs. The practical expedient was applied consistently to all the Company’s leases, including those for which the Company acts as the lessor. In addition, the Company elected the practical expedient relating to the combination of lease and non-lease components as a single lease component. The Company chose not to apply the hindsight practical expedient. The new lease guidance has been applied to all the Company’s leases as of January 1, 2019, which impacted how operating lease assets and liabilities were recorded within the Consolidated Balance Sheet, resulting in the recording of approximately $65.8 million of lease liabilities and approximately $55.6 million of right-of-use (“ROU”) assets on the Consolidated Balance Sheet. Deferred rent and sublease loss balances as of January 1, 2019 of approximately $9.3 million and approximately $2.4 million, respectively, and intangible assets of approximately $1.5 million were subsumed into the ROU asset at transition. Adoption of the new standard did not materially affect the Company’s consolidated net earnings and had no impact on cash flows. See Note 3, Leases, for more information.

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. The Company early adopted ASU 2017-04 and it was effective for annual and interim impairment tests beginning January 1, 2019 using a prospective approach. The adoption of this standard had no impact on the Company’s financial statements and related disclosures.

New Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which clarifies that implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in the software licensing arrangements under the internal-use software guidance. ASU 2018-15 also clarifies that any capitalized costs should not be recorded to “Depreciation and amortization” in the Consolidated Statements of Income. ASU 2018-15 is effective for the Company beginning January 1, 2020 and provides for the alternative to adopt the ASU (a) prospectively only for new costs incurred after the adoption date or (b) by adjusting existing costs to comply with this standard, including the requirement to present the amortization of costs outside “Depreciation and amortization”. The Company plans to adopt this ASU prospectively to all new implementation costs incurred after adoption. Given this implementation approach, the adoption of the standard on January 1, 2020 will have no immediate impact.

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; early adoption is permitted. 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 financial statements and related disclosures.

v3.19.3.a.u2
Leases
12 Months Ended
Dec. 31, 2019
Leases  
Leases

3. Leases

The Company leases corporate offices, a distribution center, billboards and certain equipment. As all franchisees are independently owned and operated, there are no leases recognized for any offices used by the Company’s franchisees. The leases have remaining lease terms ranging from less than a year up to 14, some of which include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years depending on the lease. Of these renewal options, the Company determined that none are reasonably certain to be exercised. All the Company’s material leases are classified as operating leases.

The Company has a lease for its corporate headquarters office building (the “Master Lease”) that expires in 2028. The Company may, at its option, extend the Master Lease for two renewal periods of 10 years. Under the terms of the Master Lease, the Company pays an annual base rent, which escalates 3% each year, including the first optional renewal period. The second optional renewal period resets to fair market rental value, and the rent escalates 3% each year until expiration. The Company pays for insurance, property taxes and operating expenses of the leased space. The Master Lease is the Company’s only significant lease.

The Company acts as the lessor for four sublease agreements on its corporate headquarters, consisting solely of operating leases, each of which include a renewal option for the lessee to extend the length of the lease. Renewal options for two of the sublease agreements are contingent upon renewal of the corporate headquarters lease, which is not reasonably certain to be exercised in 2028. As such, the Company determined these sublease renewal options are not reasonably certain to be exercised. Renewal options for the remaining two sublease agreements have already been exercised and will expire before the end of the corporate headquarters lease in 2028.

The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from any of its short-term leases. All leases with a term of 12 months or less at commencement, for which the Company is not reasonably certain to exercise available renewal options that would extend the lease term past 12 months, will be recognized on a straight-line basis over the lease term.

The Company used its Senior Secured Credit Facility interest rate to extrapolate a rate for each of its leases to calculate the present value of the lease liability and right-of-use asset. A summary of the Company’s lease cost is as follows (in thousands, except for weighted-averages):

Year Ended December 31, 2019

Lease Cost

Operating lease cost (a)

$

12,259

Sublease income

(1,508)

Short-term lease cost (b)

6,495

Total lease cost

$

17,246

Other information

Cash paid for amounts included in the measurement of lease liabilities

Operating cash outflows from operating leases

$

8,507

Weighted-average remaining lease term in years - operating leases

8.4

Weighted-average discount rate - operating leases

6.3

%

(a)Includes approximately $3.7 million of taxes, insurance and maintenance.
(b)Includes expenses associated with short-term leases of billboard advertisements and is included in “Marketing Funds expenses” on the Consolidated Statements of Income.

Maturities under non-cancellable leases as of December 31, 2019 were as follows (in thousands):

Rent Payments

Sublease Receipts

Total Cash Outflows

Year ending December 31:

2020

    

$

8,756

$

(888)

$

7,868

2021

9,010

(775)

8,235

2022

9,002

(804)

8,198

2023

9,173

(822)

8,351

2024

9,439

(785)

8,654

Thereafter

34,235

(597)

33,638

Total lease payments

$

79,615

$

(4,671)

$

74,944

Less: imputed interest

18,554

Present value of lease liabilities

$

61,061

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, maturities under non-cancellable leases as of December 31, 2018 were as follows (in thousands):

Rent Payments

Sublease Receipts

Total Cash Outflows

Year ending December 31:

2019

    

$

9,402

$

(1,087)

$

8,315

2020

9,601

(873)

8,728

2021

9,341

(775)

8,566

2022

9,011

(804)

8,207

2023

9,169

(827)

8,342

Thereafter

43,556

(1,382)

42,174

Total lease payments

$

90,080

$

(5,748)

$

84,332

v3.19.3.a.u2
Non-controlling Interest
12 Months Ended
Dec. 31, 2019
Noncontrolling Interest  
Non-controlling Interest

4. Non-controlling Interest

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

As of December 31, 

2019

2018

    

Shares

    

Ownership %

    

Shares

    

Ownership %

 

Non-controlling interest ownership of common units in RMCO

12,559,600

41.3

%  

12,559,600

41.4

%

Holdings outstanding Class A common stock (equal to Holdings common units in RMCO)

17,838,233

58.7

%  

17,754,416

58.6

%

Total common units in RMCO

30,397,833

100.0

%  

30,314,016

100.0

%

The weighted average ownership percentages for the applicable reporting periods are used to calculate the “Net income attributable to RE/MAX Holdings, Inc.” A reconciliation of “Income before provision for income taxes” to “Net income attributable to RE/MAX Holdings, Inc.” and “Net Income attributable to non-controlling interest” in the accompanying Consolidated Statements of Income for the periods indicated is detailed as follows (in thousands, except percentages):

Year Ended December 31, 

2019

2018

2017

RE/MAX
Holdings,
Inc.

Non-controlling
interest

Total

RE/MAX
Holdings,
Inc.

Non-controlling
interest

Total

RE/MAX
Holdings,
Inc.

Non-controlling
interest

Total

Weighted average ownership percentage of RMCO(a)

58.6

%

41.4

%

100.0

%

58.6

%

41.4

%

100.0

%

58.5

%

41.5

%

100.0

%

Income before provision for income taxes(a)

$

33,850

$

23,915

$

57,765

$

41,238

$

24,926

$

66,164

$

65,493

$

23,369

$

88,862

Provision for income taxes(b)(c)

(8,810)

(2,099)

(10,909)

(14,355)

(1,987)

(16,342)

(55,394)

(2,148)

(57,542)

Net income

$

25,040

$

21,816

$

46,856

$

26,883

$

22,939

$

49,822

$

10,099

$

21,221

$

31,320

(a)The weighted average ownership percentage of RMCO differs from the allocation of income before provision for income taxes between Holdings and the non-controlling interest due to (i) certain relatively insignificant expenses and (ii) the significant gain on reduction in TRA liability in 2018 and 2017 attributable only to Holdings. See Note 12, Income Taxes for additional information.
(b)The provision for income taxes attributable to Holdings is primarily comprised of U.S. federal and state income taxes on its proportionate share of the pass-through income from RMCO. It also includes Holdings’ share of taxes directly incurred by RMCO and its subsidiaries, related primarily to tax liabilities in certain foreign jurisdictions. In 2018 and 2017, the provision for income taxes attributable to Holdings also includes a significant decrease in the value of deferred tax assets. See Note 12, Income Taxes for additional information.
(c)The provision for income taxes attributable to the non-controlling interest represents its share of taxes related primarily to tax liabilities in certain foreign jurisdictions directly incurred by RMCO or its subsidiaries. Because RMCO is a pass-through entity there is no U.S. federal and state income tax provision recorded on the non-controlling interest.

Distributions and Other Payments to Non-controlling Unitholders

Under the terms of RMCO’s limited liability company operating agreement, RMCO makes cash distributions to non-controlling unitholders on a pro-rata basis. The distributions paid or payable to non-controlling unitholders are summarized as follows (in thousands):

Year Ended

December 31, 

    

2019

    

2018

Tax and other distributions

$

4,880

$

4,511

Dividend distributions

10,550

10,048

Total distributions to non-controlling unitholders

$

15,430

$

14,559

On February 19, 2020, the Company declared a distribution to non-controlling unitholders of $2.8 million, which is payable on March 18, 2020.

Holdings Ownership of RMCO and Tax Receivable Agreements

Holdings has twice acquired significant portions of the ownership in RMCO; first in October 2013 at the time of IPO when Holdings acquired its initial 11.5 million common units of RMCO and, second, in November and December 2015 when it acquired 5.2 million additional common units. Holdings issued Class A common stock, which it exchanged for these common units of RMCO. RIHI then sold the Class A common stock to the market.

When Holdings acquired common units in RMCO, it received a step-up in tax basis on the underlying assets held by RMCO. The step-up is principally equivalent to the difference between (1) the fair value of the underlying assets on the date of acquisition of the common units and (2) their tax basis in RMCO, multiplied by the percentage of units acquired. The majority of the step-up in basis relates to intangibles assets, primarily franchise agreements and goodwill, and the step-up is often substantial. These assets are amortizable under IRS rules and result in deductions on the Company’s tax return for many years and consequently, Holdings receives a future tax benefit. These future benefits are reflected within

deferred tax assets on the Company’s consolidated balance sheets.

If Holdings acquires additional common units of RMCO from RIHI, the percentage of Holdings’ ownership of RMCO will increase, and additional deferred tax assets will be created as additional tax basis step-ups occur.

In connection with the initial sale of RMCO common units in October 2013, Holdings entered into Tax Receivable Agreements (“TRAs”) which require that Holdings make annual payments to the TRA holders equivalent to 85% of any tax benefits realized on each year’s tax return from the additional tax deductions arising from the step-up in tax basis. The TRA holders as of December 31, 2019 are RIHI and Parallaxes Rain Co-Investment, LLC (“Parallaxes”). TRA liabilities were established for the future cash obligations expected to be paid under the TRAs and are not discounted. As of December 31, 2019, this liability was $37.2 million and was recorded within “Current portion of payable pursuant to tax receivable agreements” and “Payable pursuant to tax receivable agreement” in the Consolidated Balance Sheets. Similar to the deferred tax assets, the TRA liabilities would increase if Holdings acquires additional common units of RMCO from RIHI.

Both deferred tax assets and TRA liability were substantially reduced by the Tax Cuts and Jobs Act enacted in December 2017. The reduction in the corporate tax rate from 35% to 21% resulted in comparable reductions in both the deferred tax asset amounts and the TRA liabilities. The deferred tax assets and TRA liabilities were further reduced in 2018 as a result of the foreign tax provisions contained in the Tax Cuts and Jobs Act. See Note 12, Income Taxes for further information on the impact of the Tax Cuts and Jobs Act.

v3.19.3.a.u2
Earnings Per Share and Dividends
12 Months Ended
Dec. 31, 2019
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 effect of time-based restricted stock units. The dilutive effect of performance-based restricted stock units is measured using the guidance for contingently issuable shares.

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

Year Ended December 31, 

2019

2018

2017

Numerator

Net income attributable to RE/MAX Holdings, Inc.

$

25,040

$

26,883

$

10,099

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

Weighted average shares of Class A common stock outstanding

17,812,065

17,737,649

17,688,533

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

Weighted average shares of Class A common stock outstanding

17,812,065

17,737,649

17,688,533

Add dilutive effect of the following:

Restricted stock units

55,687

29,850

43,267

Weighted average shares of Class A common stock outstanding, diluted

17,867,752

17,767,499

17,731,800

Earnings per share of Class A common stock

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

$

1.41

$

1.52

$

0.57

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

$

1.40

$

1.51

$

0.57

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

Dividends

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

Year Ended December 31, 

2019

2018

2017

Quarter end declared

    

Date paid

    

Per share

    

Date paid

    

Per share

    

Date paid

    

Per share

March 31

March 20, 2019

$

0.21

March 21, 2018

$

0.20

March 22, 2017

$

0.18

June 30

May 29, 2019

0.21

May 30, 2018

0.20

May 31, 2017

0.18

September 30

August 29, 2019

0.21

August 29, 2018

0.20

August 30, 2017

0.18

December 31

November 27, 2019

0.21

November 28, 2018

0.20

November 29, 2017

0.18

$

0.84

$

0.80

$

0.72

On February 19, 2020, the Company’s Board of Directors declared a quarterly dividend of $0.22 per share on all outstanding shares of Class A common stock, which is payable on March 18, 2020 to stockholders of record at the close of business on March 4, 2020.

v3.19.3.a.u2
Acquisitions
12 Months Ended
Dec. 31, 2019
Acquisitions  
Acquisitions

6. Acquisitions

First

On December 16, 2019, the Company acquired First Leads, Inc. (“First”) for $15 million in cash generated from operations. First is a mobile app that leverages data science, machine learning and human interaction to help real estate professionals better leverage the value of their personal network and was acquired to complement the Company’s technology offerings and booj Platform.

Marketing Funds

On January 1, 2019, the Company acquired all of the regional and pan-regional advertising fund entities previously owned by its founder and Chairman of the Board of Directors, David Liniger, for a nominal amount. As in the past, the Marketing Funds are contractually obligated to use the funds collected to support both regional and pan-regional marketing campaigns designed to build and maintain brand awareness and to support the Company’s agent marketing technology. The Company does not plan for the use of the funds to change because of this acquisition and consolidation. The acquisitions of the Marketing Funds are part of the Company’s succession plan, and ownership of the Marketing Funds by the franchisor is a common structure. Expenses incurred with the acquisition of the Marketing Funds were not material.

The total assets equal the total liabilities of the Marketing Funds and beginning January 1, 2019, are reflected in the consolidated financial statements of the Company. The Company also began recognizing revenue from the amounts collected, which substantially increased its revenues and expenses.

The following table summarizes the Company’s allocation of the purchase price to the fair value of assets acquired and liabilities assumed (in thousands):

Restricted cash

$

28,495

Other current assets

8,472

Property and equipment

788

Other assets, net of current portion

126

Total assets acquired

37,881

Other current liabilities

37,881

Total liabilities assumed

37,881

Total acquisition price

$

-

The Marketing Funds constitutes a business and was accounted for using the fair value acquisition method. The total purchase price was allocated to the assets acquired based on their estimated fair values.

Booj, LLC

On February 26, 2018, the Company acquired all membership interests in booj 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, based on grant date fair value, which will be accounted for as compensation expense in the future (see Note 13, Equity-Based Compensation for additional information). The Company acquired booj in order to deliver core technology solutions designed for and with RE/MAX affiliates.

The following table summarizes the Company’s allocation of the purchase price to the fair value of assets acquired and liabilities assumed (in thousands):

    

Cash

$

362

Other current assets

367

Property and equipment

625

Software

7,400

Trademarks

500

Non-compete agreement

1,200

Customer relationships

800

Other intangible assets

1,589

Other assets, net of current portion

336

Total assets acquired, excluding goodwill

13,179

Current portion of debt

(606)

Other current liabilities

(557)

Debt, net of current portion

(805)

Total liabilities assumed

(1,968)

Goodwill

15,039

Total purchase price

$

26,250

Booj constitutes a business and was accounted for using the fair value acquisition method. The total purchase price was allocated to the assets acquired based on their estimated fair values. The largest intangible assets acquired were 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 excess of the total purchase price over the fair value of the identifiable assets acquired was recorded as goodwill. The goodwill is attributable to expected synergies and projected long-term revenue growth for the RE/MAX network. All of the goodwill recognized is tax deductible.

Independent Region Acquisition

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

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 the Marketing Funds had occurred January 1, 2018, the acquisition of booj had occurred on January 1, 2017 and the acquisition of 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.

Year Ended December 31,

2018

2017

(in thousands, except per share amounts)

Total revenue

$

287,394

$

205,059

Net income attributable to Holdings

$

26,131

$

7,628

Basic earnings per common share

$

1.47

$

0.43

Diluted earnings per common share

$

1.47

$

0.43

v3.19.3.a.u2
Property and Equipment
12 Months Ended
Dec. 31, 2019
Property and Equipment  
Property and Equipment

7. Property and Equipment

Property and equipment consist of the following (in thousands):

As of December 31, 

    

Depreciable Life

    

2019

    

2018

Leasehold improvements

    

Shorter of estimated useful life or life of lease

$

3,327

$

3,278

Office furniture, fixtures and equipment

2 - 10 years

17,057

14,392

Total property and equipment

20,384

17,670

Less accumulated depreciation

(14,940)

(13,280)

Total property and equipment, net

$

5,444

$

4,390

Depreciation expense was $1.7 million, $1.2 million and $0.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

v3.19.3.a.u2
Intangible Assets and Goodwill
12 Months Ended
Dec. 31, 2019
Intangible Assets and Goodwill  
Intangible Assets and Goodwill

8. 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 December 31, 2019

As of December 31, 2018

Amortization

Initial

Accumulated

Net

Initial

Accumulated

Net

Period

Cost

Amortization

Balance

Cost

Amortization

Balance

Franchise agreements

12.5

$

180,867

$

(93,197)

$

87,670

$

180,867

$

(77,710)

$

103,157

Other intangible assets: