UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number:
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(
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Large accelerated filer | ☐ | ☒ | Emerging growth company | ||
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On April 21, 2022, there were
TABLE OF CONTENTS
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | |
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PART I. – FINANCIAL INFORMATION
Item 1. Financial Statements
RE/MAX HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
March 31, | December 31, | |||||
2022 | 2021 | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Accounts and notes receivable, current portion, net of allowances | | | ||||
Income taxes receivable | | | ||||
Other current assets | | | ||||
Total current assets | | | ||||
Property and equipment, net of accumulated depreciation | | | ||||
Operating lease right of use assets | | | ||||
Franchise agreements, net | | | ||||
Other intangible assets, net | | | ||||
Goodwill | | | ||||
Deferred tax assets, net | | | ||||
Income taxes receivable, net of current portion | | | ||||
Other assets, net of current portion | | | ||||
Total assets | $ | | $ | | ||
Liabilities and stockholders' equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued liabilities | | | ||||
Income taxes payable | | | ||||
Deferred revenue | | | ||||
Current portion of debt | | | ||||
Current portion of payable pursuant to tax receivable agreements | | | ||||
Operating lease liabilities | | | ||||
Total current liabilities | | | ||||
Debt, net of current portion | | | ||||
Payable pursuant to tax receivable agreements, net of current portion | | | ||||
Deferred tax liabilities, net | | | ||||
Deferred revenue, net of current portion | | | ||||
Operating lease liabilities, net of current portion | | | ||||
Other liabilities, net of current portion | | | ||||
Total liabilities | | | ||||
Commitments and contingencies | ||||||
Stockholders' equity: | ||||||
Class A common stock, par value $ | | | ||||
Class B common stock, par value $ | ||||||
Additional paid-in capital | | | ||||
Accumulated deficit | ( | ( | ||||
Accumulated other comprehensive income, net of tax | | | ||||
Total stockholders' equity attributable to RE/MAX Holdings, Inc. | | | ||||
Non-controlling interest | ( | ( | ||||
Total stockholders' equity | | | ||||
Total liabilities and stockholders' equity | $ | | $ | | ||
See accompanying notes to unaudited condensed consolidated financial statements.
3
RE/MAX HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
2022 | 2021 | |||||
Revenue: | ||||||
Continuing franchise fees | $ | | $ | | ||
Annual dues | | | ||||
Broker fees | | | ||||
Marketing Funds fees | | | ||||
Franchise sales and other revenue | | | ||||
Total revenue | | | ||||
Operating expenses: | ||||||
Selling, operating and administrative expenses | | | ||||
Marketing Funds expenses | | | ||||
Depreciation and amortization | | | ||||
Settlement and impairment charges | | — | ||||
Total operating expenses | | | ||||
Operating income (loss) | | | ||||
Other expenses, net: | ||||||
Interest expense | ( | ( | ||||
Interest income | | | ||||
Foreign currency transaction gains (losses) | | ( | ||||
Total other expenses, net | ( | ( | ||||
Income (loss) before provision for income taxes | | | ||||
Provision for income taxes | ( | | ||||
Net income (loss) | $ | | $ | | ||
Less: net income (loss) attributable to non-controlling interest | | | ||||
Net income (loss) attributable to RE/MAX Holdings, Inc. | $ | | $ | | ||
Net income (loss) attributable to RE/MAX Holdings, Inc. per share | ||||||
Basic | $ | | $ | | ||
Diluted | $ | | $ | | ||
Weighted average shares of Class A common stock outstanding | ||||||
Basic | | | ||||
Diluted | | | ||||
Cash dividends declared per share of Class A common stock | $ | | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
4
RE/MAX HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
2022 | 2021 | |||||
Net income (loss) | $ | | $ | | ||
Change in cumulative translation adjustment | | | ||||
Other comprehensive income (loss), net of tax | | | ||||
Comprehensive income (loss) | | | ||||
Less: comprehensive income (loss) attributable to non-controlling interest | | | ||||
Comprehensive income (loss) attributable to RE/MAX Holdings, Inc., net of tax | $ | | $ | | ||
See accompanying notes to unaudited condensed consolidated financial statements.
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RE/MAX HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
(Unaudited)
Retained | Accumulated other | ||||||||||||||||||||||||
Class A | Class B | Additional | earnings | comprehensive | Non- | Total | |||||||||||||||||||
common stock | common stock | paid-in | (accumulated | income (loss), | controlling | stockholders' | |||||||||||||||||||
Shares |
| Amount |
| Shares |
| Amount |
| capital |
| deficit) |
| net of tax |
| interest |
| equity | |||||||||
Balances, January 1, 2022 | | $ | | | $ | — | $ | | $ | ( | $ | | $ | ( | $ | | |||||||||
Net income (loss) | — | — | — | — | — | | — | | | ||||||||||||||||
Distributions to non-controlling unitholders | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||
Equity-based compensation expense and dividend equivalents | | — | — | — | | ( | — | — | | ||||||||||||||||
Dividends to Class A common stockholders | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||
Repurchase and retirement of common shares | ( | — | — | — | — | ( | — | — | ( | ||||||||||||||||
Change in accumulated other comprehensive income (loss) | — | — | — | — | — | — | | | | ||||||||||||||||
Payroll taxes related to net settled restricted stock units | ( | — | — | — | ( | — | — | — | ( | ||||||||||||||||
Balances, March 31, 2022 | | $ | | | $ | — | $ | | $ | ( | $ | | $ | ( | $ | |
Retained | Accumulated other | ||||||||||||||||||||||||
Class A | Class B | Additional | earnings | comprehensive | Non- | Total | |||||||||||||||||||
common stock | common stock | paid-in | (accumulated | income (loss), | controlling | stockholders' | |||||||||||||||||||
Shares |
| Amount |
| Shares |
| Amount |
| capital |
| deficit) |
| net of tax |
| interest |
| equity | |||||||||
Balances, January 1, 2021 | | $ | | | $ | — | $ | | $ | | $ | | $ | ( | $ | | |||||||||
Net income (loss) | — | — | — | — | — | | — | | | ||||||||||||||||
Distributions to non-controlling unitholders | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||
Equity-based compensation expense and dividend equivalents | | — | — | — | | ( | — | — | | ||||||||||||||||
Dividends to Class A common stockholders | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||
Change in accumulated other comprehensive income (loss) | — | — | — | — | — | — | | | | ||||||||||||||||
Payroll taxes related to net settled restricted stock units | ( | — | — | — | ( | — | — | — | ( | ||||||||||||||||
Balances, March 31, 2021 | | $ | | | $ | — | $ | | $ | | $ | | $ | ( | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
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RE/MAX HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
2022 | 2021 | |||||
Cash flows from operating activities: | ||||||
Net income (loss) | $ | | $ | | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
Depreciation and amortization | | | ||||
Impairment charge - leased assets | | — | ||||
Bad debt expense | | | ||||
Equity-based compensation expense | | | ||||
Deferred income tax expense (benefit) | | ( | ||||
Fair value adjustments to contingent consideration | | ( | ||||
Non-cash lease expense (benefit) | ( | ( | ||||
Other, net | | | ||||
Changes in operating assets and liabilities | ( | | ||||
Net cash provided by operating activities | | | ||||
Cash flows from investing activities: | ||||||
Purchases of property, equipment and capitalization of software | ( | ( | ||||
Net cash used in investing activities | ( | ( | ||||
Cash flows from financing activities: | ||||||
Payments on debt | ( | ( | ||||
Distributions paid to non-controlling unitholders | ( | ( | ||||
Dividends and dividend equivalents paid to Class A common stockholders | ( | ( | ||||
Payments related to tax withholding for share-based compensation | ( | ( | ||||
Common shares repurchased | ( | — | ||||
Net cash used in financing activities | ( | ( | ||||
Effect of exchange rate changes on cash | | | ||||
Net (decrease) increase in cash, cash equivalents and restricted cash | ( | | ||||
Cash, cash equivalents and restricted cash, beginning of period | | | ||||
Cash, cash equivalents and restricted cash, end of period | $ | | $ | | ||
Supplemental disclosures of cash flow information: | ||||||
Cash paid for interest | $ | | $ | | ||
Net cash paid for income taxes | $ | | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
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1. Business and Organization
RE/MAX Holdings, Inc. (“Holdings”) and its consolidated subsidiaries, including RMCO, LLC (“RMCO”), are referred to hereinafter as the “Company.”
The Company is one of the world’s leading franchisors 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 and Motto are
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Condensed Consolidated Balance Sheet at December 31, 2021, which was derived from the audited consolidated financial statements at that date, and the unaudited interim condensed consolidated financial statements and notes thereto have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements are presented on a consolidated basis and include the accounts of Holdings and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2022 and the results of its operations and comprehensive income, cash flows and changes in its stockholders’ equity for the three months ended 2022 and 2021. 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, 2021 (“2021 Annual Report on Form 10-K”). Please refer to that document for a fuller discussion of all significant accounting policies.
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Segment Reporting
The Company operates under the following
Revenue Recognition
The Company generates most of its revenue from contracts with customers. The Company’s major streams of revenue are:
● | Continuing franchise fees, which are fixed contractual fees paid monthly by RE/MAX or Motto franchisees or Independent Region sub-franchisors based on the number of RE/MAX agents or Motto franchisees based on the number of open offices. |
● | Annual dues, which are fees charged directly to RE/MAX agents. |
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● | Broker fees, which are fees on real estate commissions when a RE/MAX agent assists a consumer with buying or selling a home. |
● | Marketing Funds fees, which are fixed contractual fees paid monthly by franchisees based on the number of RE/MAX agents or Motto franchisees based on the number of offices. |
● | Franchise sales and other revenue, which consists of fees from initial sales of RE/MAX and Motto franchises, renewals of RE/MAX franchises and master franchise fees, as well as data services subscription revenue, preferred marketing arrangements, technology products and subscription revenue, event-based revenue from education and other programs and mortgage loan processing revenue. |
Deferred Revenue and Commissions Related to Franchise Sales
Deferred revenue is primarily driven by Franchise sales and Annual dues, as discussed above, and is included in “Deferred revenue” and “Deferred revenue, net of current portion” on the Consolidated Balance Sheets. Other deferred revenue is primarily related to event-based revenue. The activity consists of the following (in thousands):
Balance at | Revenue | Balance at | ||||||||||
January 1, 2022 | New billings | recognized (a) | March 31, 2022 | |||||||||
Franchise sales | $ | | $ | | $ | ( | $ | | ||||
Annual dues | | | ( | | ||||||||
Other | | | ( | | ||||||||
$ | | $ | | $ | ( | $ | |
(a) | Revenue recognized related to the beginning balance for Franchise sales and Annual dues were $ |
Commissions paid on franchise sales are recognized as an asset and amortized over the contract life of the franchise agreement.
Additions to | ||||||||||||
Balance at | contract cost | Expense | Balance at | |||||||||
January 1, 2022 | for new activity | recognized | March 31, 2022 | |||||||||
Three Months Ended March 31, 2022 | $ | | $ | | $ | ( | $ | |
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Disaggregated Revenue
In the following table, segment revenue is disaggregated by Company-Owned or Independent Regions, where applicable, and by geographical area (in thousands):
Three Months Ended March 31, | |||||
2022 | 2021 | ||||
U.S. Company-Owned Regions (a) | $ | | $ | | |
U.S. Independent Regions (a) | | | |||
Canada Company-Owned Regions (a) | | | |||
Canada Independent Regions (a) | | | |||
Global | | | |||
Fee revenue (b) | | | |||
Franchise sales and other revenue (c) | | | |||
Total Real Estate | | | |||
U.S. (a) | | | |||
Canada (a) | | | |||
Global | | | |||
Total Marketing Funds | | | |||
Mortgage (d) | | | |||
Other (d) | | | |||
Total | $ | | $ | |
(a) | In July 2021, the Company acquired the operating companies of the North America regions of RE/MAX INTEGRA (“INTEGRA”). Fee revenue from these regions were previously recognized in the U.S. and Canada Independent Regions. See Note 5, Acquisitions, for information related to this transaction. |
(b) | Fee revenue includes Continuing franchise fees, Annual dues and Broker fees. |
(c) | Franchise sales and other revenue is derived primarily within the U.S. |
(d) | Revenue from Mortgage and Other are derived exclusively within the U.S. |
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):
Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | ||||||||||||||||
Annual dues | $ | | $ | | $ | — | $ | — | $ | — | $ | — | $ | — | $ | | |||||||
Franchise sales | | | | | | | | | |||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
Cash, Cash Equivalents and Restricted Cash
All cash held by the Marketing Funds is contractually restricted.
March 31, 2022 | December 31, 2021 | |||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Total cash, cash equivalents and restricted cash | $ | | $ | |
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Services Provided to the Marketing Funds by Real Estate
Real Estate charges the Marketing Funds for various services it performs. These services primarily comprise (a) building and maintaining agent marketing technology, including customer relationship management tools, the www.remax.com website, agent, office and team websites, and mobile apps, (b) dedicated employees focused on marketing campaigns, and (c) various administrative services including customer support of technology, accounting and legal. Because these costs are ultimately paid by the Marketing Funds, they do not impact the net income (loss) of Holdings as the Marketing Funds have no reported net income (loss).
Costs charged from Real Estate to the Marketing Funds are as follows (in thousands):
Three Months Ended | ||||||
March 31, | ||||||
2022 | 2021 | |||||
Technology − operating | $ | | $ | | ||
Technology − capital | | | ||||
Marketing staff and administrative services | | | ||||
Total | $ | | $ | |
Accounts and Notes Receivable
As of March 31, 2022, and December 31, 2021, the Company had allowances against accounts and notes receivable of $
Property and Equipment
As of March 31, 2022, and December 31, 2021, the Company had accumulated depreciation of $
Leases
The Company leases corporate offices, a distribution center, billboards and certain equipment. As all franchisees are independently owned and operated; there are
During the first quarter of 2022, the Company subleased a portion of its corporate headquarters. As a result, the Company performed an impairment test on the portion subleased. Based on a comparison of undiscounted cash flows to the right of use (“ROU”) asset, the Company determined that the asset was impaired, driven largely by the difference between the existing lease rate on the Company’s corporate headquarters and the sublease rates received. This resulted in an impairment charge of $
Foreign Currency Derivatives
The Company is exposed to foreign currency transaction gains and losses related to certain foreign currency denominated asset and liability positions, with the Canadian dollar representing the most significant exposure primarily from an intercompany Canadian loan between RMCO and the new Canadian entity for INTEGRA. The Company uses short duration foreign currency forward contracts, generally with maturities ranging from a few days to a few months, to minimize its exposures related to foreign currency exchange rate fluctuations. None of these contracts are designated as accounting hedges as the underlying currency positions are revalued through Foreign currency transaction gains (losses) along with the related derivative contracts.
As of March 31, 2022, the Company had an aggregate U.S. dollar equivalent of $
11
Recently Adopted Accounting Pronouncements
None.
New Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which contains temporary optional expedients and exceptions to the guidance in U.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The new guidance is effective upon issuance and may be adopted on any date on or after March 12, 2020. The relief is temporary and only available until December 31, 2022, when the reference rate replacement activity is expected to have completed. The Company believes the amendments of ASU 2020-04 will not have a significant impact on the Company’s consolidated financial statements and related disclosures as the Company does not currently engage in interest rate hedging of its LIBOR based debt, nor does it believe it has any material contracts tied to LIBOR other than its Senior Secured Credit Facility, as discussed in Note 8, Debt. The Company does not expect any material adverse consequences from this transition.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets (commissions related to franchise sales) and contract liabilities (deferred revenue) acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The impact to future acquisitions could be material depending on the significance of future acquisitions. There would be no impact to cash flows.
3. Non-controlling Interest
Holdings is the sole managing member of RMCO and operates and controls all the business affairs of RMCO.
| March 31, 2022 | December 31, 2021 | |||||||
| Shares | Ownership % | Shares | Ownership % | |||||
Non-controlling interest ownership of common units in RMCO |
| | | % | | % | |||
Holdings outstanding Class A common stock (equal to Holdings common units in RMCO) |
| | | % | | % | |||
Total common units in RMCO |
| | | % | | | % |
The weighted average ownership percentages for the applicable reporting periods are used to calculate the “Net income (loss) attributable to RE/MAX Holdings, Inc.”
Three Months Ended March 31, | |||||||||||||||||||
2022 | 2021 | ||||||||||||||||||
Non- | Non- | ||||||||||||||||||
controlling | controlling | ||||||||||||||||||
Holdings |
| interest |
| Total |
|