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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | ☒ | Emerging growth company | ||
Non-accelerated filer | ☐ | Smaller reporting company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
On April 26, 2024, there were
TABLE OF CONTENTS
2
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)
As of | ||||||
March 31, | December 31, | |||||
2024 | 2023 | |||||
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 | | | ||||
Other assets, net of current portion | | | ||||
Total assets | $ | | $ | | ||
Liabilities and stockholders' equity (deficit) | ||||||
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 | | | ||||
Deferred tax liabilities | | | ||||
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 (deficit): | ||||||
Class A common stock, par value $ | | | ||||
Class B common stock, par value $ | ||||||
Additional paid-in capital | | | ||||
Accumulated deficit | ( | ( | ||||
Accumulated other comprehensive income (deficit), net of tax | ( | | ||||
Total stockholders' equity attributable to RE/MAX Holdings, Inc. | | | ||||
Non-controlling interest | ( | ( | ||||
Total stockholders' equity (deficit) | ( | ( | ||||
Total liabilities and stockholders' equity (deficit) | $ | | $ | | ||
See accompanying notes to unaudited condensed consolidated financial statements.
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RE/MAX HOLDINGS, INC.
Condensed Consolidated Statements of Income (Loss)
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
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 | | | ||||
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.
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RE/MAX HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Net income (loss) | $ | ( | $ | ( | ||
Change in cumulative translation adjustment | ( | | ||||
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 (Deficit)
(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 (deficit) | |||||||||
Balances, January 1, 2024 | | $ | | | $ | — | $ | | $ | ( | $ | | $ | ( | $ | ( | |||||||||
Net income (loss) | — | — | — | — | — | ( | — | ( | ( | ||||||||||||||||
Equity-based compensation expense and dividend equivalents | | — | — | — | | ( | — | — | | ||||||||||||||||
Change in accumulated other comprehensive income (loss) | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||
Shares withheld for taxes on share-based compensation | ( | — | — | — | ( | — | — | — | ( | ||||||||||||||||
Balances, March 31, 2024 | | $ | | | $ | — | $ | | $ | ( | $ | ( | $ | ( | $ | ( |
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, 2023 | | $ | | | $ | — | $ | | $ | ( | $ | ( | $ | ( | $ | | |||||||||
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) | — | — | — | — | — | — | | | | ||||||||||||||||
Shares withheld for taxes on share-based compensation | ( | — | — | — | ( | — | — | — | ( | ||||||||||||||||
Other | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||
Balances, March 31, 2023 | | $ | | | $ | — | $ | | $ | ( | $ | ( | $ | ( | $ | |
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, | ||||||
2024 | 2023 | |||||
Cash flows from operating activities: | ||||||
Net income (loss) | $ | ( | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
Depreciation and amortization | | | ||||
Equity-based compensation expense | | | ||||
Bad debt expense | | | ||||
Deferred income tax expense (benefit) | ( | ( | ||||
Fair value adjustments to contingent consideration | | ( | ||||
Loss (gain) on sale or disposition of assets, net | — | | ||||
Non-cash lease benefit | ( | ( | ||||
Non-cash debt charges | | | ||||
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 | ( | ( | ||||
Other | | | ||||
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 | — | ( | ||||
Payment of contingent consideration | ( | ( | ||||
Net cash used in financing activities | ( | ( | ||||
Effect of exchange rate changes on cash | ( | | ||||
Net increase (decrease) 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 | $ | | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
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RE/MAX HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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”). The Company also sells ancillary products and services, including loan processing services, primarily to its Motto network through the wemlo brand. The Company focuses on enabling its networks’ success by providing powerful technology, quality education, and valuable marketing to build the strength of the RE/MAX and Motto brands.
RE/MAX and Motto are
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Condensed Consolidated Balance Sheet at December 31, 2023, 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, 2024 and the results of its operations and comprehensive income (loss), cash flows and changes in its stockholders’ equity (deficit) for the three months ended March 31, 2024 and 2023. 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, 2023 (“2023 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
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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 open offices. |
● | Annual dues, which are fees charged directly to RE/MAX agents. |
● | 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 open 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 RE/MAX master franchise fees, as well as data services subscription revenue, preferred marketing arrangements, technology products and subscription revenue, events-related 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 Condensed Consolidated Balance Sheets. Other deferred revenue is primarily related to events-related revenue.
Balance at | Revenue | Balance at | ||||||||||
January 1, 2024 | New billings | recognized (a) | March 31, 2024 | |||||||||
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, 2024 | for new activity | recognized | March 31, 2024 | |||||||||
Capitalized contract costs for commissions | $ | | $ | | $ | ( | $ | |
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 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | Total | |||||||||||||||||
Franchise sales | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Annual dues | | | — | — | — | — | — | | ||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
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Disaggregated Revenue
In the following table, segment revenue is disaggregated by Company-Owned or Independent Regions, where applicable, by segment and by geographical area (in thousands):
Three Months Ended | |||||
March 31, | |||||
2024 | 2023 | ||||
U.S. Company-Owned Regions | $ | | $ | | |
U.S. Independent Regions | | | |||
Canada Company-Owned Regions | | | |||
Canada Independent Regions | | | |||
Global | | | |||
Fee revenue (a) | | | |||
Franchise sales and other revenue (b) | | | |||
Total Real Estate | | | |||
U.S. | | | |||
Canada | | | |||
Global | | | |||
Total Marketing Funds | | | |||
Mortgage (c) | | | |||
Other (c) | — | | |||
Total | $ | | $ | |
(a) | Fee revenue includes Continuing franchise fees, Annual dues and Broker fees. |
(b) | Franchise sales and other revenue is derived primarily within the U.S. The decline in other revenue is mostly attributable to a reduction in revenue from the Company’s annual RE/MAX agent convention as a result of lower attendance due the 50th anniversary celebration in the prior year. |
(c) | Revenue from Mortgage and Other are derived exclusively within the U.S. |
Cash, Cash Equivalents and Restricted Cash
The following table reconciles the amounts presented for cash, both unrestricted and restricted, in the Condensed Consolidated Balance Sheets to the amounts presented in the Condensed Consolidated Statements of Cash Flows (in thousands):
March 31, 2024 | December 31, 2023 | |||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash: | ||||||
Marketing Funds (a) | | | ||||
Settlement Fund (b) | | | ||||
Total cash, cash equivalents and restricted cash | $ | | $ | |
(a) | All cash held by the Marketing Funds is contractually restricted, pursuant to the applicable franchise agreements. |
(b) | Represents the net amounts held in the Settlement Fund as part of the settlement of industry class-action lawsuits. See Note 11, Commitments and Contingencies for additional information. |
Services Provided to the Marketing Funds by Real Estate
Real Estate charges the Marketing Funds for various services it performs. These services are primarily comprised of (a) building and maintaining the remax.com and remax.ca websites and mobile apps, (b) dedicated employees focused on consumer facing marketing initiatives, and (c) various administrative services including customer support of technology; accounting and legal.
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Costs charged from Real Estate to the Marketing Funds are as follows (in thousands):
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Technology − operating | $ | | $ | | ||
Technology − capital(a) | — | ( | ||||
Marketing staff and administrative services | | | ||||
Total | $ | | $ | |
(a) | During the first quarter of 2023, the Company determined that certain development projects were no longer needed and therefore $ |
Accounts and Notes Receivable
As of March 31, 2024, and December 31, 2023, the Company had allowances against accounts and notes receivable of $
Property and Equipment
As of March 31, 2024, and December 31, 2023 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
Restructuring and Reduction in Force Charges
During the third quarter of 2023, the Company announced a reduction in force and reorganization (the “Reorganization”) intended to streamline the Company’s operations and yield cost savings over the long term. The Reorganization reduced the Company’s overall workforce by approximately
Severance and Retirement Plan
On May 24, 2023, the Compensation Committee of the Board of Directors approved a Severance and Retirement Plan (the “Plan”). The Plan replaces the Severance Pay Benefit Plan adopted by the Company on December 4, 2018. The Plan provides benefits to eligible employees and executive officers of RE/MAX, LLC and its subsidiaries, in the event of (i) involuntary termination of their employment due to position elimination, reduction in force, or other circumstances that the employer determines should result in payment of benefits, or (ii) voluntary termination of employment due to retirement for employees who meet the retirement eligibility criteria in the Plan, subject in both cases to certain restrictions set forth in the Plan. In the case of involuntary termination, these benefits include salary continuation, a health benefits stipend, outplacement services and a possible pro-rated bonus. In the case of retirement, these benefits include modification of vesting of restricted stock awards (for employees who are eligible for restricted stock awards) and a possible pro-rated bonus. Any associated equity compensation expense will be accelerated through the employee's retirement eligibility date.
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
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from an intercompany Canadian loan between RMCO and the Canadian entity for RE/MAX INTEGRA (“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)” on the Consolidated Statements of Income (Loss) along with the related derivative contracts. During the three months ended March 31, 2024 and 2023, the Company recognized a net realized gain of $
The Company has a short-term $
Recently Adopted Accounting Pronouncements
None.
New Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, which requires greater disaggregation of income tax disclosures related to the income tax reconciliation and income taxes paid. The amendments improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The new standard is effective for annual periods beginning after December 15, 2024, and early adoption is permitted. The Company believes the amendments of ASU 2023-09 will not have a significant impact on the Company’s consolidated financial statements and will include all required disclosures upon adoption.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis, primarily disclosure of significant segment expense categories and amounts for each reportable segment. The new standard is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company will adopt ASU 2023-07 in the annual financial statements for the twelve months ended December 31, 2024, and for interim periods beginning in 2025. The Company believes the amendments of ASU 2023-07 will not have a significant impact on the Company’s consolidated financial statements and will include all required disclosures upon adoption.
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3. 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:
| March 31, 2024 | December 31, 2023 | |||||||
| 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 (“WAO”) 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, | |||||||||||||||||||
2024 | 2023 | ||||||||||||||||||
Holdings |
| NCI |
| Total |
| Holdings |
| NCI |
| Total | |||||||||
WAO percentage of RMCO (a) | % | % | % | % | % | % | |||||||||||||
Income (loss) before provision for income taxes (a) | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||
(Provision) / benefit for income taxes (b) | ( | ( | ( | ( | | ( | |||||||||||||
Net income (loss) | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( |
(a) | The WAO percentage of RMCO differs from the percentage allocation of income (loss) before provision for income taxes between Holdings and the non-controlling interest due to certain items recorded at Holdings. |
(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 flow-through income from RMCO. It also includes Holdings’ share of taxes directly incurred by RMCO and its subsidiaries, including taxes in certain foreign jurisdictions. |
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.
Three Months Ended | |||||
March 31, | |||||
2024 | 2023 | ||||
Dividend distributions (a) | $ | — | $ | | |
Total distributions to non-controlling unitholders | $ | — | $ | |
(a) | In the fourth quarter of 2023, the Company announced that its Board of Directors suspended the Company’s quarterly dividend. |
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4. Earnings (Loss) Per Share, Dividends and Repurchases
Earnings (Loss) Per Share
The following is a reconciliation of the numerator and denominator used in the basic and diluted earnings (loss) per share (“EPS”) calculations (in thousands, except shares and per share information):
| Three Months Ended | |||||
| March 31, | |||||
| 2024 | 2023 | ||||
Numerator |
| |||||
Net income (loss) attributable to RE/MAX Holdings, Inc. |
| $ | ( | $ | ( | |
Denominator for basic net income (loss) per share of Class A common stock |
| |||||
Weighted average shares of Class A common stock outstanding |
| | | |||
Denominator for diluted net income (loss) per share of Class A common stock |
| |||||
Weighted average shares of Class A common stock outstanding |
| | | |||
Add dilutive effect of the following: |
| |||||
Restricted stock (a) |
| — | — | |||
Weighted average shares of Class A common stock outstanding, diluted |
| | | |||
Net income (loss) attributable to RE/MAX Holdings, Inc. per share of Class A common stock |
| |||||
Basic |
| $ | ( | $ | ( | |
Diluted |
| $ | ( | $ | ( |
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 (loss) 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):
Three Months Ended March 31, 2023 | ||||||||||||
Quarter end declared |
| Date paid |
| Per share |
| Class A |
| Non-controlling | ||||
March 31 | March 22, 2023 | $ | | $ | | $ | |
In the fourth quarter of 2023, the Company’s Board of Directors suspended the Company’s quarterly dividend and therefore
Share Repurchases and Retirement
In January 2022, the Company’s Board of Directors authorized a common stock repurchase program of up to $
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5. Intangible Assets and Goodwill
The following table provides the components of the Company’s intangible assets (in thousands, except weighted average amortization period in years):
Weighted |
|
|
|
|
|
| |||||||||||||||
Average | As of March 31, 2024 | As of December 31, 2023 | |||||||||||||||||||
Amortization | Initial | Accumulated | Net | Initial | Accumulated | Net | |||||||||||||||
Period | Cost | Amortization | Balance | Cost | Amortization | Balance | |||||||||||||||
Franchise agreements | $ | | $ | ( | $ | | $ | | $ | ( | $ | | |||||||||
Other intangible assets: | |||||||||||||||||||||
Software (a) | $ | | $ | ( | $ | | $ | | $ | ( | $ | | |||||||||
Trademarks | | ( | | | ( | | |||||||||||||||
Non-compete agreements | | ( | | | ( | | |||||||||||||||
Training materials | | ( | — | | ( | — | |||||||||||||||
Other | | ( | | | ( | | |||||||||||||||
Total other intangible assets | $ | | $ | ( | $ | | $ | | $ | ( | $ | |
(a) | As of March 31, 2024 and December 31, 2023, capitalized software development costs of $ |
Amortization expense was $
As of March 31, 2024, the estimated future amortization expense related to intangible assets includes the estimated amortization expense associated with the Company’s intangible assets assumed with the Company’s acquisitions (in thousands):
Remainder of 2024 | $ | | |
2025 | | ||
2026 | | ||
2027 | | ||
2028 | | ||
Thereafter | | ||
$ | |
The following table presents changes to goodwill by reportable segment (in thousands):
Real Estate | |||
Balance, January 1, 2024 | $ | | |
Effect of changes in foreign currency exchange rates |
| ( | |
Balance, March 31, 2024 | $ | |
As of March 31, 2024, there were no events or circumstances that would indicate impairment may have occurred at either reporting unit level.
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6. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
March 31, 2024 | December 31, 2023 | |||||
Marketing Funds (a) | $ | | $ | | ||
Accrued payroll and related employee costs | | | ||||
Accrued taxes | | | ||||
Accrued professional fees | | | ||||
Settlement payable (b) | | | ||||
Other | | | ||||
$ | | $ | |
(a) | Consists primarily of liabilities recognized to reflect the contractual restriction that all funds collected in the Marketing Funds must be spent for designated purposes pursuant to the terms of the applicable franchise agreements. See Note 2, Summary of Significant Accounting Policies for additional information. |
(b) | Represents the net settlement payable as part of the settlement of industry class-action lawsuits. See Note 11, Commitments and Contingencies for additional information. |
The following table presents a roll forward of the severance and related costs liability as related to the Reorganization and the strategic shift and restructure of the Company’s business, which is in “Accrued payroll and related employee costs” in the table above (in thousands):
Balance, January 1, 2024 | $ | | |
Severance and other related expenses | ( | ||
Cash payments | ( | ||
Balance, March 31, 2024 (a) | $ | |
(a) | The remaining liability balance is related to the strategic shift and restructure of the Company’s business that occurred in the third quarter of 2023. |
7. Debt
Debt, net of current portion, consists of the following (in thousands):
March 31, 2024 | December 31, 2023 | |||||
Senior Secured Credit Facility | $ | | $ | | ||
Less unamortized debt issuance costs | ( | ( | ||||
Less unamortized debt discount costs | ( | ( | ||||
Less current portion | ( | ( | ||||
$ | | $ | |
As of March 31, 2024, maturities of debt are as follows (in thousands):
Remainder of 2024 | $ | | |
2025 | | ||
2026 | | ||
2027 | | ||
2028 | | ||
$ | |
Senior Secured Credit Facility
On July 21, 2021, the Company amended and restated its Senior Secured Credit Facility to fund the acquisition of INTEGRA and refinance its existing facility. The revised facility provides for a
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The Senior Secured Credit Facility requires the Company to repay term loans at approximately $
In addition, if any amounts are drawn under the revolving line of credit under the Senior Secured Credit Facility, the terms of the Company’s Senior Secured Credit Facility require the Company’s TLR to not exceed
The Company is also limited in the amount of restricted payments it can make, as defined in the Senior Secured Credit Facility, as it provides for customary restrictions on, among other things, additional indebtedness, restricted payments, liens, dispositions of property, dividends, transactions with affiliates and fundamental changes such as mergers, consolidations, and liquidations. The restricted payments include declaration or payment of dividends, repurchase of shares, or other distributions. In general, the Company can make unlimited restricted payments, if the Company’s TLR is below
As of March 31, 2024, the Company’s TLR of
With certain exceptions, any default under any of the Company’s other agreements evidencing indebtedness in the amount of $
Prior to July 2023, borrowings under the term loans and revolving loans accrued interest, at the Company’s option on (a) LIBOR, provided LIBOR shall be no less than
8. Fair Value Measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, the Company follows a three-tier fair value hierarchy, which is described in detail in the 2023 Annual Report on Form 10-K.
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A summary of the Company’s liabilities measured at fair value on a recurring basis is as follows (in thousands):
As of March 31, 2024 | As of December 31, 2023 | |||||||||||||||||||||||
Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||
Liabilities | ||||||||||||||||||||||||
Motto contingent consideration | $ | | $ | — | $ | — | $ | | $ | | $ | — | $ | — | $ | | ||||||||
Gadberry Group contingent consideration | | — | — | | | — | — | | ||||||||||||||||
Contingent consideration (a) | $ | | $ | — | $ | — | $ | | $ | | $ | — | $ | — | $ | |
(a) | Recorded as a component of “Accrued liabilities” and “Other liabilities, net of current portion” in the accompanying Condensed Consolidated Balance Sheets. |
The Company is required to pay additional purchase consideration totaling
The table below presents a reconciliation of the contingent consideration (in thousands):
Total | |||
Balance at January 1, 2024 | $ | | |
Fair value adjustments | | ||
Cash payments | ( | ||
Balance at March 31, 2024 | $ | |
The following table summarizes the carrying value and estimated fair value of the Senior Secured Credit Facility (in thousands):
March 31, 2024 | December 31, 2023 | |||||||||||
Carrying |
| Fair Value |
| Carrying |
| Fair Value | ||||||
Senior Secured Credit Facility | $ | | $ | | $ | | $ | |
9. Income Taxes
The “Provision for income taxes” in the accompanying Condensed Consolidated Statements of Income (Loss) is based on an estimate of the Company’s annualized effective income tax rate and discrete items recorded during the three months ended March 31, 2024.
Valuation Allowance
In the tax year ending December 31, 2023, the Company evaluated the need for a valuation allowance against its deferred tax assets and determined that in accordance with ASC 740 Income Taxes (“ASC 740”), the objective negative evidence of a three-year cumulative pre-tax net loss, primarily due to the settlement of industry class-action lawsuits, prevented the use of the Company’s subjective positive evidence of expected future profitability in evaluating the realizability of its net deferred tax assets. As a result, a full valuation allowance was established against the Company’s deferred tax assets. As of the first quarter of 2024, the Company expects to remain in a three-year cumulative loss and has recorded a $
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Tax Receivable Agreements (“TRAs”)
As of March 31, 2024, the Company’s total liability under the TRAs for the tax year ending December 31, 2023 is $
Uncertain Tax Positions
As of March 31, 2024, there have been no material changes to the Company’s uncertain tax positions since December 31, 2023 and a portion of the Company’s uncertain tax positions have a reasonable possibility of being settled within the next 12 months.
10. Equity-Based Compensation
Equity-based compensation expense under the Holdings 2013 Omnibus Incentive Plan (the “2013 Incentive Plan”) as well as the new Holdings 2023 Omnibus Incentive Plan (the “2023 Incentive Plan” and, together with the 2013 Incentive Plan, the “Incentive Plans”), is as follows (in thousands):
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Expense from time-based awards (a) | $ | | $ | | ||
Expense from performance-based awards (a)(b) | | | ||||
Expense from bonus to be settled in shares (c) | | | ||||
Equity-based compensation expense | $ | | $ | |
(a) | Includes $ |
(b) | Expense recognized for performance-based awards is re-assessed each quarter based on expectations of achievement against the performance conditions. |
(c) | A portion of the annual corporate bonus earned is to be settled in shares. These amounts are recognized as “Accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets and are not included in “Additional paid-in capital” until the shares are issued. |
Time-based Restricted Stock
The following table summarizes equity-based compensation activity related to time-based restricted stock units and restricted stock awards:
Shares | Weighted average | ||||
Balance, January 1, 2024 | | $ | | ||
Granted | | $ | | ||
Shares vested (including tax withholding) (a) | ( | $ | | ||
Forfeited | ( | $ | | ||
Balance, March 31, 2024 | | $ | |
(a) | Pursuant to the terms of the Incentive Plan, shares withheld by the Company for the payment of the employee's tax withholding related to shares vesting are added back to the pool of shares available for future awards. |
As of March 31, 2024, there was $
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Performance-based Restricted Stock
The following table summarizes equity-based compensation activity related to performance-based restricted stock units:
Shares | Weighted average | ||||
Balance, January 1, 2024 | | $ | | ||
Granted (a) | | $ | | ||
Forfeited | ( | $ | | ||
Balance, March 31, 2024 | | $ | |
(a) | Represents the total participant target award. |
As of March 31, 2024, there was $
11. Commitments and Contingencies
A number of putative class action complaints were filed against the National Association of Realtors (“NAR”), Anywhere Real Estate, Inc. (formerly Realogy Holdings Corp.), HomeServices of America, Inc. (“HSA”), RE/MAX, LLC and Keller Williams Realty, Inc (“Keller Williams”). The first was filed on March 6, 2019, by plaintiff Christopher Moehrl in the United States District Court for the Northern District of Illinois (the “Moehrl Action”). Similar actions have been filed in various federal courts. The complaints make substantially similar allegations and seek substantially similar relief. For convenience, all of these lawsuits are collectively referred to as the “Moehrl-related antitrust litigations.” In the Moehrl Action, the plaintiffs allege that a NAR rule that requires brokers to make a blanket, non-negotiable offer of buyer broker compensation when listing a property, results in increased costs to sellers and is in violation of federal antitrust law. They further allege that certain defendants use their agreements with franchisees to require adherence to the NAR rule in violation of federal antitrust law. Amended complaints added allegations regarding buyer steering and non-disclosure of buyer-broker compensation to the buyer. While similar to the Moehrl Action, the Moehrl-related antitrust litigations also allege state antitrust violations and claims against a multiple listing service (“MLS”) defendant rather than NAR.
In the Moehrl Action, plaintiffs sought certification of
In one of the Moehrl-related antitrust litigations, filed by plaintiffs Scott and Rhonda Burnett and others in the Western District of Missouri (the “Burnett Action”), the court on April 22, 2022 granted plaintiffs’ motion for class certification and a trial was set for October 2023. On September 15, 2023, RE/MAX, LLC entered into a Settlement Term Sheet (the “Settlement”) with plaintiffs in the Burnett Action and Moehrl Action. The proposed Settlement would resolve all claims set forth in the Burnett Action and Moehrl Action, as well as all similar claims on a nationwide basis against RE/MAX, LLC (collectively, the “Nationwide Claims”) and would release RE/MAX, LLC and the Company, their subsidiaries and affiliates, and RE/MAX sub-franchisors, franchisees and their sales associates in the United States from the Nationwide Claims. By the terms of the Settlement, RE/MAX, LLC agreed to make certain changes to its business practices and to pay a total settlement amount of $
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Condensed Balance Sheets. In addition, the first and second installments the Company paid into the Settlement Fund is included in “Restricted cash” within the Consolidated Condensed Balance Sheets.
The Settlement Agreement remains subject to final court approval and will become effective following any appeals process, if applicable. The Settlement Agreement and any actions taken to carry out the Settlement Agreement are not an admission or concession of liability, or of the validity of any claim, defense, or point of fact or law on the part of any party. RE/MAX, LLC continues to deny the material allegations of the complaints in the Burnett Action, the Moehrl Action, the Moehrl-related antitrust litigations, and the Copycat Cases (as defined below). RE/MAX, LLC entered into the Settlement after considering the risks and costs of continuing the litigation. On September 19, 2023, the Burnett court stayed deadlines as to RE/MAX, LLC. On October 5, 2023, RE/MAX, LLC entered into a definitive settlement agreement (the “Settlement Agreement”) containing substantially the same material terms and conditions as provided in the Settlement. On November 20, 2023, the court granted preliminary approval of the Settlement Agreement. The court set May 9, 2024 for the final approval hearing.
On October 31, 2023, after a two-week trial, the jury in the Burnett Action found an unlawful conspiracy existed and awarded approximately $
In one of the other Moehrl-related antitrust litigations, filed by Jennifer Nosalek and others in the District of Massachusetts (the “Nosalek Action”), on June 30, 2023, plaintiffs filed a motion requesting preliminary approval of a settlement with MLS Property Information Network, Inc. (“MLS PIN”). The parties subsequently amended the settlement agreement on September 5, 2023, and January 5, 2024. If approved by the court, the settlement agreement requires MLS PIN to pay $
On April 9, 2021, a putative class action claim (the “Sunderland Action”) was filed in the Federal Court of Canada against the Toronto Regional Real Estate Board (“TRREB”), The Canadian Real Estate Association (“CREA”), RE/MAX Ontario-Atlantic Canada Inc. (“RE/MAX OA”), which was acquired by the Company in July 2021, Century 21 Canada Limited Partnership, Royal Lepage Real Estate Services Ltd., and many other real estate companies (collectively, the “Defendants”), by the putative representative plaintiff, Mark Sunderland (the “Plaintiff”). The Plaintiff alleges that the Defendants conspired, agreed or arranged with each other and acted in furtherance of their conspiracy to fix, maintain, increase, control, raise, or stabilize the rate of real estate buyers’ brokerages’ and salespersons’ commissions in respect of the purchase and sale of properties listed on TRREB’s multiple listing service system (the “Toronto MLS”) in violation of the Canadian Competition Act. On February 24, 2022, Plaintiff filed a Fresh as Amended Statement of Claim. With respect to RE/MAX OA, the amended claim alleges franchisor defendants aided and abetted their respective franchisee brokerages and their salespeople in violation of Section 45(1) of the Canadian Competition Act. Among other requested relief, the Plaintiff seeks damages against the defendants and injunctive relief. On September 25, 2023, the Court dismissed the claims against RE/MAX OA, and on October 25, 2023, the Plaintiff appealed the decision and RE/MAX OA has cross appealed. A copycat lawsuit to the Sunderland Action was filed by plaintiff Kevin McFall (the “McFall Action”) on January 18, 2024. The complaint makes substantially similar allegations and seeks substantially similar relief as the Sunderland Action, but alleges a national class. The McFall Action names over
On January 25, 2021, a similar action to the Moehrl-related antitrust litigations was filed in the Northern District of Illinois (the “Batton Action) alleging violations of federal antitrust law and unjust enrichment. The complaint makes substantially similar allegations and seeks similar relief as the Moehrl-related antitrust litigations but alleges harm to homebuyers rather
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than sellers. The Company’s motion to dismiss was granted on May 2, 2022, and the plaintiffs filed an amended complaint adding state antitrust and consumer protection claims. On February 20, 2024, the court dismissed plaintiffs’ claim seeking injunctive relief for violations of the Sherman Act and dismissed certain state law claims in Tennessee and Kansas. The court denied the remainder of the Company’s motion to dismiss. On April 15, 2024, the Company filed its answer and motion to dismiss.
The Company intends to vigorously defend against all remaining claims, including against any appeals. If the Settlement is not approved, the Company may become involved in additional litigation or other legal proceedings concerning the same or similar claims. As a result, the Company is unable to reasonably estimate the financial impact of the litigation beyond what has been accrued for pursuant to the terms of the Settlement Agreement and the Company cannot predict, beyond the Settlement Amount, whether resolution of these matters would have a material effect on its financial position or results of operations. The Moehrl-related antitrust litigations, the Batton Action, and the Canadian antitrust litigations consist of:
Christopher Moehrl et al. v. The National Association of Realtors, Realogy Holdings Corp., HomeServices of America, Inc., BHH Affiliates, LLC, HSF Affiliates, LLC, The Long & Foster Companies, Inc. RE/MAX, LLC., and Keller Williams Realty, Inc., filed on March 6, 2019 in the U.S. District Court for the Northern District of Illinois.
Scott and Rhonda Burnett et al. v. The National Association of Realtors, Realogy Holdings Corp., HomeServices of America, Inc., BHH Affiliates, LLC, HSF Affiliates, LLC, RE/MAX, LLC, and Keller Williams Realty, Inc., filed on April 29, 2019 in the U.S. District Court for the Western District of Missouri.
Jennifer Nosalek et al. v. MLS Property Information Network, Inc., Anywhere Real Estate Inc. (f/k/a Realogy Holdings Corp.), Century 21 Real Estate LLC, Coldwell Banker Real Estate LLC, Sotheby’s International Realty Affiliates LLC, Better Homes and Gardens Real Estate LLC, ERA Franchise System LLC, HomeServices of America, Inc., BHH Affiliates, LLC, HSF Affiliates, LLC, RE/MAX, LLC, Polzler & Schneider Holdings Corp., Integra Enterprises Corp., RE/MAX of New England, Inc., RE/MAX Integrated Regions, LLC, and Keller Williams Realty, Inc., filed on December 17, 2020 in the U.S. District Court for the District of Massachusetts.
Mya Batton et al. v. The National Association of Realtors, Realogy Holdings Corp., HomeServices of America, Inc., BHH Affiliates, LLC, HSF Affiliates, LLC, The Long & Foster Companies, Inc., RE/MAX, LLC, and Keller Williams Realty, Inc., filed on January 25, 2021 in the U.S. District Court for the Northern District of Illinois.
Mark Sunderland v. Toronto Regional Real Estate Board (TRREB), The Canadian Real Estate Association (CREA), RE/MAX Ontario-Atlantic Canada Inc. o/a RE/MAX INTEGRA, Century 21 Canada Limited Partnership, Residential Income Fund, L.P., Royal Lepage Real Estate Services Ltd., Homelife Realty Services Inc., Right At Home Realty Inc., Forest Hill Real Estate Inc., Harvey Kalles Real Estate Ltd., Max Wright Real Estate Corporation, Chestnut Park Real Estate Limited, Sutton Group Realty Services Ltd. and IPRO Realty Ltd., filed on April 9, 2021 in the Federal Court of Canada.
Kevin McFall v. Canadian Real Estate Association, et. al., filed on January 18, 2024 in the Federal Court of Canada.
Copycat lawsuits to the Moehrl-related antitrust litigations were filed by plaintiff Monty March in the Southern District of New York (the “March Action”), plaintiff Christina Grace in the Northern District of California (the “Grace Action”), plaintiff Willsim Latham, LLC in the Eastern District of California (the “Willsim Action”), and plaintiff Dalton Jensen in the District of Utah (the “Jensen Action”) (together, the “Copycat Cases”). The Company intends to vigorously defend against all claims, including seeking to stay the lawsuits in light of the Settlement Agreement. On December 27, 2023, a motion was filed by plaintiffs in another copycat lawsuit that did not name the Company, seeking to consolidate the copycat lawsuits in a multidistrict litigation, including the Grace Action, the March Action, and the Willsim Action, and many lawsuits that did not name the Company, in the Western District of Missouri for purposes of pretrial activities (the “MDL motion”). The MDL motion was denied based on the procedural posture of the litigation and the NAR settlement, without reaching the issue of whether centralization would be appropriate. The Copycat Cases that name the Company consist of:
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Monty March v. Real Estate Board of New York; Real Estate Board Of New York Listing Service; Brown Harris Stevens, LLC; Christie’s International Real Estate LLC; Coldwell Banker LLC; Compass, Inc.; Core Marketing Services LLC; The Corcoran Group, Inc.; Douglas Elliman, Inc.; Elegran Real Estate, D/B/A Elegran LLC; Engel & Volkers LLC; Fox Residential Group LLC; Halstead Real Estate LLC; Homesnap Inc.; Keller Williams Nyc, LLC; Leslie J. Garfield & Co., Inc.; Level Group Inc.; M.N.S. Real Estate Nyc, LLC; Modern Spaces LLC; The Agency LLC; The Modlin Group LLC; Nest Seekers International LLC; Oxford Property Group LLC; R New York LLC; RE/MAX, LLC; Serhant LLC; Sloane Square LLC; and Sotheby’s International Realty Affiliates LLC, filed on November 13, 2023 in the U.S. District Court for the Southern District of New York.
Christina Grace v. National Association of Realtors, RE/MAX Holdings, Inc., Anywhere Real Estate Inc., Keller Williams Realty, Inc., Compass, Inc., eXp World Holdings, Inc., Bay Area Real Estate Information Services, Inc., Marin Association of Realtors, North Bay Association of Realtors, Northern Solano County Association of Realtors, Inc., and Solano Association of Realtors, Inc., filed on December 8, 2023 in the U.S. District Court for the Northern District of California.
Willsim Latham, LLC v. MetroList Services, Inc., Sacramento Association of Realtors, Inc., Placer County Association of Realtors, Inc., El Dorado County Association of Realtors, Lodi Association of Realtors, Yolo County Association of Realtors, Central Valley Association of Realtors, Amador Country Association of Realtors, Nevada County Association of Realtors, Sutter-Yub Association of Realtors, RE/MAX Holdings, Inc., Anywhere Real Estate Inc., Keller Williams Realty, Inc., eXp World Holdings, Inc., Norcal Gold Inc., Century 21 Select Real Estate, Inc., William L. Lyon & Associates, Inc. Paul M. Zagaris, Inc., Guide Real Estate, Inc., filed on January 18, 2024 in the U.S. District Court for the Eastern District of California.
Dalton Jensen v. The National Association of Realtors, Anywhere Real Estate Inc., HomeServices of America, Inc., HSF Affiliates, LLC, BHH Affiliates, LC, RE/MAX, LLC, Keller Williams LLC, Keller Williams of Salt Lake, KW St. George Keller Williams Realty, KW Westfield, Equity Real Estate, Century 21 Everest, Realtypath, LLC, Windemere Real Estate SVCS. Co., filed on February 9, 2024 in the U.S. District Court for the District of Utah.
12. Segment Information
The Company operates under the following
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Continuing franchise fees | $ | | $ | | ||
Annual dues | | | ||||
Broker fees | | | ||||
Franchise sales and other revenue | | | ||||
Total Real Estate | | | ||||
Continuing franchise fees | | | ||||
Franchise sales and other revenue | | | ||||
Total Mortgage | | | ||||
Marketing Funds fees | | | ||||
Other | — | | ||||
Total revenue | $ | | $ | |
23
The following table presents a reconciliation of Adjusted EBITDA by segment to income (loss) before provision for income taxes (in thousands):
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Adjusted EBITDA: Real Estate | $ | | $ | | ||
Adjusted EBITDA: Mortgage | ( | ( | ||||
Adjusted EBITDA: Other | ( | ( | ||||
Adjusted EBITDA: Consolidated | | | ||||
Equity-based compensation expense | ( | ( | ||||
Acquisition-related expense (a) | — | ( | ||||
Fair value adjustments to contingent consideration (b) | ( | | ||||
Restructuring charges (c) | | ( | ||||
Other (d) | ( | ( | ||||
Interest income | | | ||||
Interest expense | ( | ( | ||||
Depreciation and amortization | ( | ( | ||||
Income (loss) before provision for income taxes | $ | ( | $ | ( |
(a) | Acquisition-related expense includes personnel, legal, accounting, advisory and consulting fees incurred in connection with the acquisition activities and integration of acquired companies. |
(b) | Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liabilities. See Note 8, Fair Value Measurements for additional information. |
(c) | During the third quarter of 2023, the Company announced a reduction in force and reorganization intended to streamline the Company’s operations and yield cost savings over the long term. See Note 2, Summary of Significant Accounting Policies for additional information. |
(d) | Other is primarily made up of employee retention related expenses from the Company's CEO transition. |
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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements (“financial statements”) and accompanying notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and accompanying notes included in our most recent Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Annual Report on Form 10-K”).
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are often identified by the use of words such as “believe,” “intend,” “expect,” “estimate,” “plan,” “outlook,” “project,” “anticipate,” “may,” “will,” “would” and other similar words and expressions that predict or indicate future events or trends that are not statements of historical matters. Forward-looking statements include statements related to: agent count; franchise sales; Motto open offices; our business model; cost structure; balance sheet; revenue; operating expenses; financial outlook; return of capital, including dividends and our share repurchase program; non-GAAP financial measures; assets and liabilities held for sale; uncertain tax positions; housing and mortgage market conditions and trends; economic and demographic trends; competition; the anticipated benefits of our strategic initiatives; our anticipated sources and uses of liquidity including for potential acquisitions; capital expenditures; future litigation expenses, including antitrust litigations; our credit agreement including total leverage ratio and any future excess cash flow payments; our strategic and operating plans and business models including our efforts to accelerate the growth of our businesses; the long-term benefits of our strategic growth opportunities including mitigation of economic downturns; and strategic investments in the Mortgage business.
Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily accurately indicate the times at which such performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our 2023 Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not intend, and we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
The results of operations discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are those of RE/MAX Holdings, Inc. (“Holdings”) and its consolidated subsidiaries, including RMCO, LLC and its consolidated subsidiaries (“RMCO”), collectively, the “Company,” “we,” “our” or “us.”
Business Overview
We are one of the world’s leading franchisors in the real estate industry. We franchise real estate brokerages globally under the RE/MAX brand (“RE/MAX”) and mortgage brokerages in the U.S. under the Motto Mortgage brand (“Motto”). We also sell ancillary products and services to our franchise networks, including loan processing services, primarily to our Motto network through our wemlo brand. RE/MAX and Motto are 100% franchised—we do not own any of the brokerages that operate under these brands. We focus on enabling our networks’ success by providing powerful technology, quality education, and valuable marketing to build the strength of the RE/MAX and Motto brands. We support our franchisees in growing their brokerages, although they fund the associated cost of development. As a result, we maintain a relatively low fixed-cost structure which, combined with our primarily recurring fee-based models, enables us to capitalize on the economic benefits of the franchising model, yielding high margins and significant cash flow.
Financial and Operational Highlights – Three Months Ended March 31, 2024
(Compared to the three months ended March 31, 2023, unless otherwise noted)
● | Total revenue of $78.3 million, a decrease of 8.3% from the prior year. |
● | Revenue excluding the Marketing Funds (a) decreased 9.3% to $58.1 million, driven by negative organic revenue growth(b) of 9.3%. |
● | Net income (loss) attributable to RE/MAX Holdings, Inc. of ($3.4) million, compared to ($0.7) million in the prior year. |
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● | Adjusted EBITDA(c) of $19.0 million and Adjusted EBITDA margin(c) of 24.3% compared to Adjusted EBITDA of $19.9 million and Adjusted EBITDA margin of 23.3% in the prior year. |
● | Total agent count decreased 0.2% to 143,287 agents. |
● | U.S. and Canada combined agent count decreased 4.3% to 78,955 agents. |
● | Total open Motto Mortgage offices increased 4.7% to 243 offices. |
(a) Revenue excluding the Marketing Funds is a non-GAAP measure of financial performance that differs from the U.S. generally accepted accounting principles (“U.S. GAAP”). Revenue excluding the Marketing Funds is calculated directly from our condensed consolidated financial statements as Total revenue less Marketing Funds fees. (b) We define organic revenue growth as revenue growth from continuing operations excluding Marketing Funds, revenue attributable to acquisitions, and foreign currency movements. We define revenue from acquisitions as the incremental revenue generated from the date of an acquisition to its first anniversary (excluding Marketing Funds revenue related to acquisitions where applicable). (c) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures of financial performance that differ from U.S. GAAP. See “—Non-GAAP Financial Measures” for further discussion of Adjusted EBITDA and Adjusted EBITDA margin and a reconciliation of the differences between Adjusted EBITDA and net income (loss), which is the most comparable U.S. GAAP measure for operating performance. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue. |
While effective cost management led to solid first-quarter margin performance, current market conditions caused in large part by higher interest rates continue to provide a challenging business environment, which has resulted in declines in U.S. agent count and Total revenue. We extended a modified pilot program designed to attract and grow teams of real estate agents to the majority of the United States as of April 1, 2024. The expanded program offers an alternative fee structure for eligible teams that is designed to support and encourage growth of medium to large-sized teams. To activate the program's financial incentives, a brokerage in an eligible state must add any combination of six new team leaders/members. All new agents must be from outside the network and be on an active team; individual agents don't count. The financial incentives are only available to teams that have at least six members (a team leader plus at least five team members or licensed assistants) who market together and operate from the same office at qualifying brokerages.
The real estate industry faces uncertainty as a result of industry litigation, including the National Association of Realtors (“NAR”) recent settlement of class action cases that include changes in business practices (the settlement remains subject to final court approval). Among the business practice changes that NAR agreed to are removing offers of buyer agent compensation from being displayed on MLS listings and requiring buyer broker agreements. Shortly after the NAR settlement was announced, we initiated outreach to our RE/MAX affiliates focused on education and resources about the anticipated changes in business practices. We have developed materials and resources to help our affiliates navigate the post-settlement landscape. There are also other potential legal and regulatory proceedings related to NAR and MLS listing practices that create further uncertainty for RE/MAX and the real estate industry.
As previously disclosed, RE/MAX, LLC entered into a Settlement Term Sheet (the “Settlement”) with plaintiffs in the industry litigation on September 15, 2023. Pursuant to the terms of the Settlement, RE/MAX, LLC agreed to make certain changes to its business practices and to pay a total settlement amount of $55.0 million (the “Settlement Amount”) into a qualified settlement escrow fund (the “Settlement Fund”). The first two installments were paid into the Settlement Fund in the second half of 2023, totaling $27.5 million, and are included in “Restricted cash” within the Consolidated Condensed Balance Sheets. The hearing on final approval of RE/MAX, LLC’s settlement agreement is scheduled for May 9, 2024. Should the court grant final approval of the settlement agreement, the final installment of $27.5 million is required to be deposited into the Settlement Fund within ten business days, and we expect to fund the final installment with existing cash balances. As a result, we are focused in the near term on rebuilding our cash reserves.
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Selected Operating and Financial Highlights
The following tables summarize several key performance indicators and our results of operations.
As of March 31, | 2024 vs. 2023 | ||||||||
2024 | 2023 | # | % | ||||||
Agent Count: | |||||||||
U.S. | |||||||||
Company-Owned Regions | 47,302 | 50,340 | (3,038) | (6.0) | % | ||||
Independent Regions | 6,617 | 7,110 | (493) | (6.9) | % | ||||
U.S. Total | 53,919 | 57,450 | (3,531) | (6.1) | % | ||||
Canada | |||||||||
Company-Owned Regions | 20,151 | 20,172 | (21) | (0.1) | % | ||||
Independent Regions | 4,885 | 4,899 | (14) | (0.3) | % | ||||
Canada Total | 25,036 | 25,071 | (35) | (0.1) | % | ||||
U.S. and Canada Total | 78,955 | 82,521 | (3,566) | (4.3) | % | ||||
Outside U.S. and Canada | |||||||||
Independent Regions | 64,332 | 61,002 | 3,330 | 5.5 | % | ||||
Outside U.S. and Canada Total | 64,332 | 61,002 | 3,330 | 5.5 | % | ||||
Total | 143,287 | 143,523 | (236) | (0.2) | % | ||||
RE/MAX open offices: | |||||||||
U.S. | 3,293 | 3,423 | (130) | (3.8) | % | ||||
Canada | 942 | 970 | (28) | (2.9) | % | ||||
U.S. and Canada Total | 4,235 | 4,393 | (158) | (3.6) | % | ||||
Outside U.S. and Canada | 4,644 | 4,787 | (143) | (3.0) | % | ||||
Total | 8,879 | 9,180 | (301) | (3.3) | % | ||||
Motto open offices (1): | 243 | 232 | 11 | 4.7 | % | ||||
Three Months Ended | |||||||||
March 31, | 2024 vs. 2023 | ||||||||
2024 | 2023 | # | % | ||||||
RE/MAX franchise sales: | |||||||||
U.S. | 25 | 56 | (31) | (55.4) | % | ||||
Canada | 8 | 11 | (3) | (27.3) | % | ||||
U.S. and Canada Total | 33 | 67 | (34) | (50.7) | % | ||||
Outside U.S. and Canada | 112 | 139 | (27) | (19.4) | % | ||||
Total | 145 | 206 | (61) | (29.6) | % | ||||
Motto franchise sales (1): | 4 | 10 | (6) | (60.0) | % |
(1) | As of March 31, 2024 and 2023, there were 65 and 56 offices, respectively, that we are offering short-term financial relief and are temporarily either not being billed and/or having associated revenue recognized. |
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Total revenue | $ | 78,287 | $ | 85,401 | ||
Total selling, operating and administrative expenses | $ | 45,705 | $ | 49,115 | ||
Operating income (loss) | $ | 4,524 | $ | 6,911 | ||
Net income (loss) | $ | (5,607) | $ | (679) | ||
Net income (loss) attributable to RE/MAX Holdings, Inc. | $ | (3,353) | $ | (671) | ||
Adjusted EBITDA (1) | $ | 18,993 | $ | 19,920 | ||
Adjusted EBITDA margin (1) | 24.3 | % | 23.3 | % |
(1) | See “—Non-GAAP Financial Measures” for further discussion of Adjusted EBITDA and Adjusted EBITDA margin and a reconciliation of the differences between Adjusted EBITDA and net income (loss), which is the most comparable |
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U.S. GAAP measure for operating performance. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue. |
Results of Operations
Comparison of the Three Months Ended March 31, 2024 and 2023
Revenue
A summary of the components of our revenue is as follows (in thousands except percentages):
Three Months Ended | Change | |||||||||||
March 31, | Favorable/(Unfavorable) | |||||||||||
2024 | 2023 | $ | % | |||||||||
Revenue: | ||||||||||||
Continuing franchise fees | $ | 31,085 | $ | 32,076 | $ | (991) | (3.1) | % | ||||
Annual dues | 8,225 | 8,618 | (393) | (4.6) | % | |||||||
Broker fees | 10,716 | 10,892 | (176) | (1.6) | % | |||||||
Marketing Funds fees | 20,206 | 21,342 | (1,136) | (5.3) | % | |||||||
Franchise sales and other revenue | 8,055 | 12,473 | (4,418) | (35.4) | % | |||||||
Total revenue | $ | 78,287 | $ | 85,401 | $ | (7,114) | (8.3) | % |
Three Months Ended | Change | |||||||||||
March 31, | Favorable/(Unfavorable) | |||||||||||
2024 | 2023 | $ | % | |||||||||
Revenue excluding the Marketing Funds: | ||||||||||||
Total revenue | $ | 78,287 | $ | 85,401 | $ | (7,114) | (8.3) | % | ||||
Less: Marketing Funds fees | 20,206 | 21,342 | (1,136) | (5.3) | % | |||||||
Revenue excluding the Marketing Funds | $ | 58,081 | $ | 64,059 | $ | (5,978) | (9.3) | % |
RE/MAX Holdings generated revenue of $78.3 million in the first quarter of 2024, a decrease of $7.1 million, or 8.3%, compared to $85.4 million in the same period in 2023. Revenue excluding the Marketing Funds was $58.1 million in the first quarter of 2024, a decrease of $6.0 million, or 9.3%, compared to $64.1 million in the same period in 2023. This decrease was attributable to negative organic revenue growth of 9.3%. Negative organic revenue growth was driven by a reduction in revenue from our annual RE/MAX agent convention, due to the 50th anniversary celebration in the prior year, and a decrease in U.S. agent count, partially offset by higher Mortgage segment revenue.
Continuing Franchise Fees
Revenue from Continuing franchise fees decreased primarily due to a reduction in U.S. agent count, partially offset by higher Mortgage segment revenue.
Broker Fees
Revenue from Broker fees decreased primarily due to a reduction in U.S. agent count, partially offset by an increase in average home sales price.
Marketing Funds Fees and Marketing Funds Expenses
Revenue from Marketing Funds fees decreased primarily due to a reduction in U.S. agent count. We recognize an equal and offsetting amount of expenses to revenue such that there is no impact to our overall profitability.
Franchise Sales and Other Revenue
Franchise sales and other revenue decreased primarily due to a reduction in revenue of approximately $3.3 million from our annual RE/MAX agent convention as a result of lower attendance due to the 50th anniversary celebration in the prior year.
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Operating Expenses
A summary of the components of our operating expenses is as follows (in thousands, except percentages):
Three Months Ended | Change | |||||||||||
March 31, | Favorable/(Unfavorable) | |||||||||||
2024 | 2023 | $ | % | |||||||||
Operating expenses: | ||||||||||||
Selling, operating and administrative expenses | $ | 45,705 | $ | 49,115 | $ | 3,410 | 6.9 | % | ||||
Marketing Funds expenses | 20,206 | 21,342 | 1,136 | 5.3 | % | |||||||
Depreciation and amortization | 7,852 | 8,033 | 181 | 2.3 | % | |||||||
Total operating expenses | $ | 73,763 | $ | 78,490 | $ | 4,727 | 6.0 | % | ||||
Percent of revenue | 94.2 | % | 91.9 | % |
Selling, operating and administrative expenses consist of personnel costs, professional fee expenses, lease costs and other expenses. Other expenses within Selling, operating and administrative expenses include certain marketing and production costs that are not paid by the Marketing Funds, including travel and entertainment costs, and costs associated with our annual conventions in the U.S. and other events, and technology services.
Three Months Ended | Change | |||||||||||
March 31, | Favorable/(Unfavorable) | |||||||||||
2024 | 2023 | $ | % | |||||||||
Selling, operating and administrative expenses: | ||||||||||||
Personnel | $ | 25,832 | $ | 25,019 | $ | (813) | (3.2) | % | ||||
Professional fees | 2,927 | 3,380 | 453 | 13.4 | % | |||||||
Lease costs | 1,898 | 1,974 | 76 | 3.9 | % | |||||||
Other | 15,048 | 18,742 | 3,694 | 19.7 | % | |||||||
Total selling, operating and administrative expenses | $ | 45,705 | $ | 49,115 | $ | 3,410 | 6.9 | % | ||||
Percent of revenue | 58.4 | % | 57.5 | % | ||||||||
Total Selling, operating and administrative expenses decreased as follows:
● | Personnel costs increased primarily due to an increase in equity compensation expense and an increase due to employee retention related expense, partially offset by lower compensation expense due to a reduction in average headcount. |
● | Professional fees decreased primarily due to lower legal expenses. See section titled “Legal Proceedings,” set forth in Part II, Item 1 of this Quarterly Report on Form 10-Q. |
● | Other selling, operating and administrative expenses decreased due to a reduction in expenses from our annual RE/MAX agent convention as a result of lower attendance due the 50th anniversary celebration in the prior year. |
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Other Expenses, Net
A summary of the components of our Other expenses, net is as follows (in thousands, except percentages):
Three Months Ended | Change | |||||||||||
March 31, | Favorable/(Unfavorable) | |||||||||||
2024 | 2023 | $ | % | |||||||||
Other expenses, net: | ||||||||||||
Interest expense | $ | (9,256) | $ | (8,245) | $ | (1,011) | (12.3) | % | ||||
Interest income | 1,001 | 1,004 | (3) | n/m | ||||||||
Foreign currency transaction gains (losses) | (372) | 43 | (415) | n/m | ||||||||
Total other expenses, net | $ | (8,627) | $ | (7,198) | $ | (1,429) | (19.9) | % | ||||
Percent of revenue | 11.0 | % | 8.4 | % | ||||||||
n/m - not meaningful |
Other expenses, net increased primarily due to an increase in interest expense because of rising interest rates. See Note 7, Debt for more information. Foreign currency transaction gains (losses) are primarily the result of transactions denominated in the Canadian Dollar.
Provision for Income Taxes
The comparison of the effective income tax rates (“EITR”) for the three months ended March 31, 2024 and 2023 is not meaningful. For the three months ended March 31, 2024 the EITR was mainly impacted by a valuation allowance against first quarter domestic losses, foreign withholding and income tax expense. For the three months ended March 31, 2023, the EITR included tax effects of discrete items that are significant as a percentage of loss before provision for income taxes, including the impact from vesting of equity based compensation where tax deductible expense was less than GAAP expense.
In addition, our EITR depends on many factors, including a rate benefit attributable to the fact that the portion of RMCO’s earnings attributable to the non-controlling interests are not subject to corporate-level taxes because RMCO is classified as a partnership for U.S. federal income tax purposes and therefore is treated as a “flow-through entity,” as well as annual changes in state tax rates and foreign income tax expense. See Note 3, Non-controlling Interest to the accompanying unaudited condensed consolidated financial statements for further details on the allocation of income taxes between Holdings and the non-controlling interest and see Note 9, Income Taxes for additional information.
Adjusted EBITDA
See “—Non-GAAP Financial Measures” for our definition of Adjusted EBITDA and for further discussion of our presentation of Adjusted EBITDA as well as a reconciliation of Adjusted EBITDA to net income (loss), which is the most comparable GAAP measure for operating performance.
Adjusted EBITDA was $19.0 million for the three months ended March 31, 2024, a decrease of $0.9 million from the comparable prior year period. Adjusted EBITDA decreased due to lower revenue resulting primarily from a decrease in U.S. agent count and the net impact of our annual RE/MAX agent convention, as a result of lower attendance due to the 50th anniversary celebration in the prior year, partially offset by lower compensation expense and lower legal fees.
Non-GAAP Financial Measures
The Securities and Exchange Commission (“SEC”) has adopted rules to regulate the use in filings with the SEC and in public disclosures of financial measures that are not in accordance with U.S. GAAP, such as Revenue excluding the Marketing Funds and Adjusted EBITDA and the ratios related thereto. These measures are derived on the basis of methodologies other than in accordance with U.S. GAAP.
Revenue excluding the Marketing Funds is a non-GAAP measure of financial performance that differs from U.S. GAAP and we believe that exclusion of the Marketing Funds is a useful supplemental measure as we recognize an equal and offsetting amount of expenses to revenue such that there is no impact to our overall profitability. Revenue excluding the Marketing Funds is calculated directly from our condensed consolidated financial statements as Total revenue less Marketing Funds fees.
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We define Adjusted EBITDA as EBITDA (consolidated net income (loss) before depreciation and amortization, interest expense, interest income and the provision for income taxes, each of which is presented in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance: gain or loss on sale or disposition of assets and sublease, settlement and impairment charges, equity-based compensation expense, acquisition-related expense, gains or losses from changes in the tax receivable agreement liability, expense or income related to changes in the fair value measurement of contingent consideration, restructuring charges and other non-recurring items.
As Adjusted EBITDA omits certain non-cash items and other non-recurring cash charges or other items, we believe that it is less susceptible to variances that affect our operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items. We present Adjusted EBITDA, and the related Adjusted EBITDA margin, because we believe they are useful as supplemental measures in evaluating the performance of our operating businesses and provide greater transparency into our results of operations. Our management uses Adjusted EBITDA and Adjusted EBITDA margin as factors in evaluating the performance of our business.
Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider these measures either in isolation or as a substitute for analyzing our results as reported under U.S. GAAP. Some of these limitations are:
● | these measures do not reflect changes in, or cash requirements for, our working capital needs; |
● | these measures do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments on our debt; |
● | these measures do not reflect our income tax expense or the cash requirements to pay our taxes; |
● | these measures do not reflect the cash requirements to pay dividends to stockholders of our Class A common stock and tax and other cash distributions to our non-controlling unitholders; |
● | these measures do not reflect the cash requirements pursuant to the Tax Receivable Agreements (“TRAs”); |
● | these measures do not reflect the cash requirements for share repurchases; |
● | these measures do not reflect the cash requirements for the settlement of industry class-action lawsuits and other legal settlements; |
● | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements; |
● | although equity-based compensation is a non-cash charge, the issuance of equity-based awards may have a dilutive impact on earnings per share; and |
● | other companies may calculate these measures differently, so similarly named measures may not be comparable. |
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A reconciliation of Adjusted EBITDA to net income (loss) is set forth in the following table (in thousands):
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Net income (loss) | $ | (5,607) | $ | (679) | ||
Depreciation and amortization | 7,852 | 8,033 | ||||
Interest expense | 9,256 | 8,245 | ||||
Interest income | (1,001) | (1,004) | ||||
Provision for income taxes | 1,504 | 392 | ||||
EBITDA | 12,004 | 14,987 | ||||
Equity-based compensation expense | 5,923 | 4,451 | ||||
Acquisition-related expense (1) | — | 37 | ||||
Fair value adjustments to contingent consideration (2) | 34 | (4) | ||||
Restructuring charges (3) | (32) | 39 | ||||
Other (4) | 1,064 | 410 | ||||
Adjusted EBITDA | $ | 18,993 | $ | 19,920 |
(1) | Acquisition-related expense includes personnel, legal, accounting, advisory and consulting fees incurred in connection with acquisition activities and integration of acquired companies. |
(2) | Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liabilities. See Note 8, Fair Value Measurements for additional information. |
(3) | During the third quarter of 2023, we announced a reduction in force and reorganization intended to streamline our operations and yield cost savings over the long term. See Note 2, Summary of Significant Accounting Policies for additional information. |
(4) | Other is primarily made up of employee retention related expenses from our CEO transition. |
Liquidity and Capital Resources
Overview of Factors Affecting Our Liquidity
Our liquidity position is primarily affected by the growth of our agent and franchise base and conditions in the real estate market. In this regard, our short-term liquidity position from time to time has been, and will continue to be, affected by several factors including agents in the RE/MAX network, particularly in Company-Owned Regions. Our cash flows are primarily related to the timing of:
(i) | cash receipt of revenues; |
(ii) | payment of selling, operating and administrative expenses; |
(iii) | net investments in our Mortgage segment; |
(iv) | cash consideration for acquisitions and acquisition-related expenses; |
(v) | principal payments, including any early principal payments, and related interest payments on our Senior Secured Credit Facility; |
(vi) | dividend payments to stockholders of our Class A common stock; |
(vii) | distributions and other payments to non-controlling unitholders pursuant to the terms of RMCO’s limited liability company operating agreement (“the RMCO, LLC Agreement”); |
(viii) | corporate tax payments paid by the Company; |
(ix) | payments to the TRA parties pursuant to the TRAs; |
(x) | the settlement of industry class-action lawsuits and other legal settlements; and |
(xi) | share repurchases. |
We have satisfied these needs primarily through our existing cash balances, cash generated by our operations and funds available under our Senior Secured Credit Facility. We may pursue other sources of capital that may include other forms of external financing, such as additional financing in the public capital markets, in order to increase our cash position and preserve financial flexibility as needs arise.
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Financing Resources
RMCO and RE/MAX, LLC, a wholly owned subsidiary of RMCO, have a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto (the “Senior Secured Credit Facility”). On July 21, 2021, we amended and restated our Senior Secured Credit Facility to fund the acquisition of RE/MAX INTEGRA (“INTEGRA”) and refinance our existing facility. The revised facility provides for a seven-year $460.0 million term loan facility and a five-year $50.0 million revolving loan facility. The Senior Secured Credit Facility also provides for incremental facilities under which RE/MAX, LLC may request to add one or more tranches of term facilities or increase any then existing credit facility in the aggregate principal amount of up to $100 million (or a higher amount subject to the terms and conditions of the Senior Secured Credit Facility), subject to lender participation.
The Senior Secured Credit Facility is guaranteed by RMCO and is secured by a lien on substantially all of the assets of RE/MAX, LLC and other operating companies.
The Senior Secured Credit Facility requires us to repay term loans at approximately $1.2 million per quarter. We are also required to repay the term loans and reduce revolving commitments with (i) 100% of proceeds of any incurrence of additional debt not permitted by the Senior Secured Credit Facility, (ii) 100% of proceeds of asset sales and 100% of amounts recovered under insurance policies, subject to certain exceptions and a reinvestment right and (iii) 50% of Excess Cash Flow (or “ECF”) as defined in the Senior Secured Credit Facility, at the end of the applicable fiscal year if RE/MAX, LLC’s Total Leverage Ratio (or “TLR”) as defined in the Senior Secured Credit Facility, is in excess of 4.25:1. The TLR is calculated based on RE/MAX, LLC’s consolidated indebtedness and consolidated EBITDA, both defined in the Senior Secured Credit Facility. As of March 31, 2024, RE/MAX, LLC’s consolidated EBITDA, as defined in the Senior Secured Credit Facility, was $42.8 million on a trailing twelve-month basis. If the TLR as of the last day of such fiscal year is equal to or less than 4.25:1 but above 3.75:1, the repayment percentage is 25% of ECF and if our TLR as of the last day of such fiscal year is less than 3.75:1, no repayment from ECF is required. We evaluated if an ECF payment was required as of December 31, 2023, pursuant to the terms of the Senior Secured Credit Facility and determined no ECF payment was required.
In addition, if any amounts are drawn under the revolving line of credit under the Senior Secured Credit Facility the terms of the Senior Secured Credit Facility require the TLR to not exceed 4.50:1 at the last day of any period of four consecutive fiscal quarters. If the TLR remains above 4.50:1, access to borrowings under the revolving line of credit is restricted. A commitment fee of 0.5% per annum (subject to reductions) accrues on the amount of unutilized revolving line of credit regardless of our TLR. As of the date of this report, no amounts were drawn on the revolving line of credit. We expect the earliest the TLR will fall below 4.50:1 is during the third quarter of 2024.
We are also limited in the amount of restricted payments we can make, as defined in the Senior Secured Credit Facility, as it provides for customary restrictions on, among other things, additional indebtedness, restricted payments, liens, dispositions of property, dividends, transactions with affiliates and fundamental changes such as mergers, consolidations, and liquidations. The restricted payments include declaration or payment of dividends, repurchase of shares, or other distributions. In general, we can make unlimited restricted payments, if the TLR is below 3.50:1 (both before and after giving effect to such payments). If the TLR exceeds 3.50:1, we will be limited in the amount of restricted payments – primarily dividends and share repurchases – we can make up to the greater of $50 million or 50% of consolidated EBITDA on a trailing twelve-month basis (unless we can rely on other restricted payment baskets available under the Senior Secured Credit Facility).
As of March 31, 2024, the TLR of 8.51:1, exceeded 4.50:1, primarily due to the settlement of industry class-action lawsuits (for additional information see Note 11, Commitments and Contingencies). As a result, as long as the TLR remains above 3.50:1, we will be limited in the amount of restricted payments we can make and as long as the TLR remains above 4.50:1, access to borrowings under the revolving line of credit will be restricted. We expect that the earliest the TLR will fall below 4.50:1 is during the third quarter of 2024.
With certain exceptions, any default under any of our other agreements evidencing indebtedness in the amount of $15.0 million or more constitutes an event of default under the Senior Secured Credit Facility.
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Prior to July 2023, borrowings under the term loans and revolving loans accrued interest, at our option on (a) LIBOR, provided LIBOR shall be no less than 0.50% plus an applicable margin of 2.50% and, provided further that such rate shall be adjusted for reserve requirements for eurocurrency liabilities, if any (the “LIBOR Rate”) or (b) the greatest of (i) the prime rate as quoted by the Wall Street Journal, (ii) the NYFRB Rate (as defined in the Senior Secured Credit Facility) plus 0.50% and (iii) the one-month Eurodollar Rate plus 1.00%, (such greatest rate, the “ABR”) plus, in each case, an applicable margin of 1.50%. The Senior Secured Credit Facility includes a provision for transition from LIBOR to the alternative reference rate of Term Secured Overnight Financing Rate (“SOFR”) on or before June 2023 (the LIBOR Rate cessation date) and we transitioned from LIBOR to Adjusted Term SOFR on July 31, 2023. Borrowings under the term loans and revolving loans accrue interest based on Adjusted Term SOFR, subject to the same floor of 0.50%, plus the same applicable margin of 2.50%. As of March 31, 2024, the interest rate on the term loan facility was 7.9%.
As of March 31, 2024, we had $447.4 million of term loans outstanding, excluding any unamortized discount and issuance costs, and no revolving loans outstanding under our Senior Secured Credit Facility.
Sources and Uses of Cash
As of March 31, 2024 and December 31, 2023, we had $82.1 million and $82.6 million, respectively, of cash and cash equivalents, of which approximately $33.0 million and $32.5 million, respectively, were denominated in foreign currencies.
The following table summarizes our cash flows from operating, investing, and financing activities (in thousands):
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Cash provided by (used in): | ||||||
Operating activities | $ | 9,381 | $ | 3,064 | ||
Investing activities | (2,430) | (1,294) | ||||
Financing activities | (4,353) | (15,849) | ||||
Effect of exchange rate changes on cash | (925) | 34 | ||||
Net change in cash, cash equivalents and restricted cash | $ | 1,673 | $ | (14,045) |
Operating Activities
Cash provided by operating activities increased primarily as a result of:
● | an increase due to lower spend in the Marketing Funds resulting in lower net use of restricted cash in the current year; |
● | an increase due to higher tax payments in the prior year of $0.7 million; offset by, |
● | a decrease due to higher interest payments of $0.8 million, due to higher interest rates in the current year; |
● | a decrease in Adjusted EBITDA of $0.9 million; and |
● | timing differences on various operating assets and liabilities. |
Investing Activities
During the three months ended March 31, 2024, the change in cash used in investing activities was primarily the result of higher building refresh spend on leased buildings other than our corporate headquarters as compared to the prior year.
Financing Activities
During the three months ended March 31, 2024, the change in cash used in financing activities was primarily due to lower dividends paid to Class A common stockholders and distributions paid to noncontrolling interests due to the suspension of our quarterly dividend and lower allocation of capital to our share repurchase program.
Capital Allocation Priorities
Liquidity
Our objective is to maintain a strong liquidity position. We have existing cash balances, cash flows from operating activities, and incremental facilities under our Senior Secured Credit Facility available to support the needs of our business. As needs arise, we may seek additional financing in the public capital markets.
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Acquisitions
As part of our growth strategy, we may pursue acquisitions of Independent Regions in the U.S. and Canada as well as additional acquisitions or investments in complementary businesses, services and technologies that would provide access to new markets, revenue streams, or otherwise complement our existing operations. We may fund any such growth with various sources of capital including existing cash balances and cash flow from operations, as well as proceeds from debt financings including under existing credit facilities or new arrangements raised in the public capital markets.
Capital Expenditures
The total aggregate amount for purchases of property and equipment and capitalization of developed software was $2.6 million and $1.5 million for the three months ended March 31, 2024 and 2023, respectively. These amounts primarily relate to building refresh spend on leased buildings other than our corporate headquarters refresh and spend on investments in technology. We plan to continue to re-invest in our business in order to improve operational efficiencies and enhance the tools and services provided to the affiliates in our networks. Total capital expenditures for 2024 are expected to be between $7.0 million and $9.0 million. See Financial and Operational Highlights above for additional information.
Return of Capital
Our Board of Directors approved quarterly cash dividends of $0.23 per share on all outstanding shares of Class A common stock during the first quarter in 2023, as disclosed in Note 4, Earnings Per Share and Dividends. In the fourth quarter of 2023, our Board of Directors suspended our quarterly dividend. In light of the pending litigation settlement and ongoing challenging housing and mortgage market conditions, we believe this action to preserve our capital is prudent.
During the first quarter of 2022, our Board of Directors authorized a common stock repurchase program of up to $100 million. The share repurchase program does not obligate the Company to purchase any amount of common stock and does not have an expiration date. During the three months ended March 31, 2023, 160,405 shares of our Class A common stock were repurchased and retired for $3.4 million, excluding commissions, at an average cost of $21.24 per share. During the three months ended March 31, 2024, we did not repurchase any shares of our Class A common stock. As of March 31, 2024, $62.5 million remained available under the share repurchase authorization.
Future capital allocation decisions with respect to return of capital either in the form of additional future dividends, and if declared, the amount, payment and timing of any such future dividend, or in the form of share buybacks, will be at the sole discretion of our Board of Directors who will take into account general economic, housing and mortgage market conditions, the Company’s financial condition, available cash, current and anticipated cash needs, any applicable restrictions pursuant to the terms of our Senior Secured Credit Facility and any other factors that the Board of Directors considers relevant.
Distributions and Other Payments to Non-controlling Unitholders by RMCO
Distributions and other payments pursuant to the RMCO, LLC Agreement and TRAs were comprised of the following (in thousands):
Three Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Distributions and other payments pursuant to the RMCO, LLC Agreement: | ||||||
Dividend distributions | $ | — | $ | 2,889 | ||
Total distributions to RIHI | — | 2,889 | ||||
Payments pursuant to the TRAs | 537 | — | ||||
Total distributions to RIHI and TRA payments | $ | 537 | $ | 2,889 |
Commitments and Contingencies
See Note 11, Commitments and Contingencies to the accompanying unaudited condensed consolidated financial statements for additional information.
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements as of March 31, 2024.
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Critical Accounting Judgments and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements and accompanying notes. Actual results could differ from those estimates. Our Critical Accounting Judgments and Estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Judgments and Estimates” in our 2023 Annual Report on Form 10-K for which there were no material changes, included:
● | Purchase Accounting for Acquisitions |
● | Deferred Tax Assets and TRA Liability |
New Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies to the accompanying unaudited condensed consolidated financial statements for additional information.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
We have operations within the U.S., Canada, and globally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate, foreign exchange and credit risks, as well as risks relating to changes in the general economic conditions in the countries where we conduct business. We use derivative instruments to mitigate the impact of certain of our market risk exposures. We do not use derivatives for trading or speculative purposes.
Credit Risk
We are exposed to credit risk related to receivables from franchisees. We perform quarterly reviews of credit exposure above an established threshold for each franchisee and are in regular communication with those franchisees about their balance. For significant delinquencies, we will terminate the franchise. For the three months ended March 31, 2024 and 2023 bad debt expense was 1.7% and 1.9% of revenue, respectively.
Interest Rate Risk
We are subject to interest rate risk in connection with borrowings under our Senior Secured Credit Facility which bear interest at variable rates. On March 31, 2024, $447.4 million in term loans were outstanding under our Senior Secured Credit Facility. We currently do not engage in any interest rate hedging activity, but given our variable rate borrowings, we monitor interest rates and if appropriate, may engage in hedging activity prospectively. As of September 30, 2023, the interest rate on our Senior Secured Credit Facility was based on LIBOR, subject to a floor of 0.50%, plus an applicable margin of 2.50%. We transitioned from LIBOR to Adjusted Term SOFR during the third quarter of 2023 and borrowings under the term loans and revolving loans will accrue interest based on Adjusted Term SOFR, beginning on July 31, 2023, subject to the same floor of 0.50%, plus the same applicable margin of 2.50%.
As of March 31, 2024, the interest rate was 7.9%. If our rate is above the floor, then each hypothetical 0.25% increase would result in additional annual interest expense of $1.1 million. To mitigate a portion of this risk, we invest our cash balances in short-term investments that earn interest at variable rates.
Currency Risk
We have a network of global franchisees in over 110 countries and territories. Fluctuations in exchange rates of the U.S. dollar against foreign currencies can result, and have resulted, in fluctuations in (a) revenue and operating income (loss) due to a portion of our revenue being denominated in foreign currencies and (b) foreign exchange transaction gains and losses due primarily to cash, accounts receivable and liability balances denominated in foreign currencies, with the Canadian dollar representing the most significant exposure. To mitigate a portion of this risk related to (b), we enter into short-term foreign currency forwards, to minimize exposures related to foreign currency. See Note 2, Summary of Significant Accounting Policies, for more information. In addition, we actively convert cash balances into U.S. dollars to mitigate currency risk on cash positions.
During the three months ended March 31, 2024, a hypothetical 5% strengthening/weakening in the value of the U.S. dollar compared to the Canadian dollar would have resulted in a decrease/increase to operating income (loss) of approximately $0.4 million related to currency risk (a) above.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that as of March 31, 2024 our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in litigation, claims and other proceedings relating to the conduct of our business, and the disclosures set forth in Note 11, Commitments and Contingencies relating to certain legal matters is incorporated herein by reference. Such litigation and other proceedings may include, but are not limited to, actions relating to intellectual property, commercial arrangements, franchising arrangements, brokerage disputes, vicarious liability based upon conduct of individuals or entities outside of our control including franchisees and independent agents, and employment law claims. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur. Often these cases raise complex factual and legal issues, which are subject to risks and uncertainties and which could require significant time and resources from management. Although we do not believe any currently pending litigation will have a material adverse effect on our business, financial condition or operations, there are inherent uncertainties in litigation and other claims and regulatory proceedings and such pending matters could result in unexpected expenses and liabilities and might materially adversely affect our business, financial condition or operations, including our reputation.
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Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, please see “Risk Factors” in our 2023 Annual Report on Form 10-K. There have been no material changes to the risk factors as disclosed in our 2023 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth stock repurchases of our Class A common stock for the three months ended March 31, 2024:
Approximate Dollar | ||||||||
Total Number of Shares | Value of Shares that | |||||||
| Purchased as part of | May Yet be | ||||||
| Publicly Announced | Average Price | Purchased Under the | |||||
Period |
| Plans or Programs (a) | Paid Per Share | Plans or Programs | ||||
Jan 1-31 | — | $ | — | $ | 62,491,567 | |||
Feb 1-29 | — | $ | — | $ | 62,491,567 | |||
Mar 1-31 | — | $ | — | $ | 62,491,567 | |||
Total |
| — |
In January 2022, our Board of Directors authorized a common stock repurchase program of up to $100 million. There was no repurchase activity during the three months ended March 31, 2024. As of March 31, 2024, $62.5 million remains under the program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
During the three months ended March 31, 2024,
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Item 6. Exhibits
Exhibit No. |
| Exhibit Description |
| Form |
| File |
| Date of |
| Exhibit |
| Filed |
---|---|---|---|---|---|---|---|---|---|---|---|---|
2.1 | 8-K | 001-36101 | 6/3/2021 | 2.1 | ||||||||
3.1 | 10-Q | 001-36101 | 11/14/2013 | 3.1 | ||||||||
3.2 | 8-K | 001-36101 | 2/22/2018 | 3.1 | ||||||||
3.3 | Amendment No. 1 to Amended and Restated Bylaws of RE/MAX Holdings, Inc. | 8-K | 001-36101 | 5/31/2023 | 3.1 | |||||||
4.1 | Form of RE/MAX Holdings, Inc.’s Class A common stock certificate. | S-1 | 333-190699 | 9/27/2013 | 4.1 | |||||||
10.1 | 10-Q | 001-36101 | 5/4/2023 | 10.1 | ||||||||
10.2 | X | |||||||||||
31.1 | X | |||||||||||
31.2 | X | |||||||||||
32.1 | X | |||||||||||
101.INS | XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
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Exhibit No. |
| Exhibit Description |
| Form |
| File |
| Date of |
| Exhibit |
| Filed |
---|---|---|---|---|---|---|---|---|---|---|---|---|
104 | Cover Page Interactive Data File – The cover page XBRL tags are embedded within the Inline XBRL document. | X |
† Indicates a management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RE/MAX Holdings, Inc. (Registrant) | |||||
Date: | May 2, 2024 | By: | /s/ Erik Carlson | |||
Erik Carlson | ||||||
Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: | May 2, 2024 | By: | /s/ Karri R. Callahan | |||
Karri R. Callahan Chief Financial Officer (Principal Financial Officer) | ||||||
Date: | May 2, 2024 | By: | /s/ Leah R. Jenkins | |||
Leah R. Jenkins Chief Accounting Officer (Principal Accounting Officer) |
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