RE/MAX(US:RMAX)2024-08-08 20:18PART I. – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024, and 2023, including balance sheets, income statements, comprehensive income, stockholders' equity, and cash flows, along with notes detailing accounting policies, revenue, segments, debt, equity compensation, and a $55.0 million antitrust litigation settlement Condensed Consolidated Financial Statements The financial statements show a decrease in total assets to $571.4 million from $577.2 million at year-end 2023, with Q2 2024 total revenue at $78.5 million (down from $82.4 million in Q2 2023) and net income attributable to RE/MAX Holdings, Inc. increasing to $3.7 million from $2.0 million, while six-month net cash provided by operating activities significantly increased to $25.3 million from $2.2 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $571,369 | $577,150 | | Cash and cash equivalents | $66,064 | $82,623 | | Goodwill | $239,492 | $241,164 | | Total Liabilities | $640,525 | $653,211 | | Debt, net of current portion | $438,109 | $439,980 | | Total stockholders' equity (deficit) | ($69,156) | ($76,061) | Condensed Consolidated Statements of Income (Loss) Highlights (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $78,453 | $82,447 | $156,740 | $167,848 | | Operating income | $16,175 | $13,150 | $20,699 | $20,061 | | Net income (loss) | $6,190 | $3,244 | $583 | $2,565 | | Net income (loss) attributable to RE/MAX Holdings, Inc. | $3,705 | $2,010 | $352 | $1,339 | | Diluted EPS | $0.19 | $0.11 | $0.02 | $0.07 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,266 | $2,242 | | Net cash used in investing activities | ($4,093) | ($2,397) | | Net cash used in financing activities | ($5,387) | ($24,198) | | Net change in cash, cash equivalents and restricted cash | $14,911 | ($23,692) | Notes to Unaudited Condensed Consolidated Financial Statements The notes clarify the company's 100% franchised model for RE/MAX and Motto brands, detail a decline in Real Estate segment revenue, and confirm the $55.0 million antitrust settlement payment by Q2 2024, while also disclosing debt covenants and equity-based compensation plans - The company operates a 100% franchised model for its RE/MAX (real estate) and Motto Mortgage brands and does not own any brokerages14 Revenue by Segment (in thousands) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Real Estate | $54,749 | $57,559 | $109,197 | $118,189 | | Total Mortgage | $3,677 | $3,616 | $7,310 | $6,804 | | Marketing Funds | $20,027 | $21,077 | $40,233 | $42,419 | | Other | $0 | $195 | $0 | $436 | | Total Revenue | $78,453 | $82,447 | $156,740 | $167,848 | - The company entered into a settlement for industry antitrust litigation, agreeing to pay a total of $55.0 million, with the final installment of $27.5 million paid into the Settlement Fund in Q2 2024, and while the court granted final approval on May 9, 2024, appeals have been filed8083 - As of June 30, 2024, the company's Total Leverage Ratio (TLR) was 8.74:1, exceeding the 4.50:1 covenant threshold, which restricts access to its revolving line of credit, primarily due to the litigation settlement payment58 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management reports a 4.8% decrease in Q2 2024 total revenue to $78.5 million, driven by lower U.S. agent count, though partially offset by effective cost management leading to a 5.4% increase in Adjusted EBITDA to $28.1 million, while highlighting ongoing uncertainty from industry litigation and challenging housing market conditions, with key priorities including rebuilding cash reserves after the $55.0 million litigation settlement and managing debt covenants, as the quarterly dividend remains suspended Q2 2024 vs Q2 2023 Financial & Operational Highlights | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $78.5M | $82.4M | -4.8% | | Net Income (attributable to Holdings) | $3.7M | $2.0M | +85.0% | | Adjusted EBITDA | $28.1M | $26.6M | +5.4% | | Total Agent Count | 143,542 | 144,510 | -0.7% | | U.S. & Canada Agent Count | 78,599 | 82,205 | -4.4% | - The decrease in total revenue was primarily driven by negative organic revenue growth of 4.5% and adverse foreign currency movements of 0.3%, mainly due to a reduction in U.S. agent count114 - Selling, operating, and administrative expenses decreased by 13.3% in Q2 2024, primarily due to lower personnel costs from reduced headcount, lower legal expenses, and a decrease in bad debt and technology expenses120121122 - The company's Board of Directors suspended the quarterly dividend in Q4 2023 to preserve capital in light of the litigation settlement and challenging market conditions, with no dividends paid in the first half of 202445171 Quantitative and Qualitative Disclosures About Market Risks The company's primary market risks are interest rate risk from $446.2 million in variable-rate debt, where a 0.25% rate increase would add $1.1 million in annual interest expense, foreign currency risk primarily with the Canadian dollar, and credit risk related to franchisee receivables, with bad debt expense at 1.0% of revenue for the first half of 2024 - The company is subject to interest rate risk on its $446.2 million of outstanding variable-rate term loans, where a hypothetical 0.25% increase in interest rates would result in an additional annual interest expense of $1.1 million180 - The company has significant foreign currency risk exposure, primarily from the Canadian dollar, where a hypothetical 5% strengthening/weakening of the U.S. dollar against the Canadian dollar would have impacted operating income by approximately $0.8 million for the six months ended June 30, 2024181 - Credit risk from franchisee receivables is managed through quarterly reviews, with bad debt expense at 1.0% of revenue for the six months ended June 30, 2024, compared to 2.1% for the same period in 2023178 Controls and Procedures Based on an evaluation as of June 30, 2024, the company's management, including the Principal Executive Officer and Principal Financial Officer, concluded that the disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2024183 - No changes occurred during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting184 PART II. – OTHER INFORMATION Legal Proceedings This section references Note 11, detailing significant ongoing litigation, primarily the Moehrl-related antitrust lawsuits concerning broker commissions, where the company's $55.0 million settlement received final court approval but is now under appeal, and the company states it will vigorously defend against remaining and any new 'copycat' claims, acknowledging the inherent unpredictability and potential for material adverse effects - The company's legal proceedings are dominated by antitrust lawsuits related to broker commissions, where a $55.0 million settlement agreement received final court approval on May 9, 2024, but is now subject to an appeals process83185 - The company is also named in several 'copycat' lawsuits making similar allegations, which it intends to defend against vigorously, including seeking stays in light of the settlement agreement91 Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes to the risk factors as disclosed in the company's 2023 Annual Report on Form 10-K187 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares of its Class A common stock in the second quarter of 2024, with $62.5 million remaining available for repurchase under the existing $100 million program authorized in January 2022 as of June 30, 2024 Share Repurchase Activity (Q2 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Dollar Value Remaining | | :--- | :--- | :--- | :--- | | Apr 1-30 | 0 | $0.00 | $62,491,567 | | May 1-31 | 0 | $0.00 | $62,491,567 | | Jun 1-30 | 0 | $0.00 | $62,491,567 | | Total | 0 | - | $62,491,567 | Defaults Upon Senior Securities The company reports that there were no defaults upon senior securities during the reporting period - None reported189 Mine Safety Disclosures This item is not applicable to the company's business - None reported189 Other Information During the second quarter of 2024, no directors or executive officers of the company adopted, modified, or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements - No director or executive officer adopted, modified, or terminated a Rule 10b5-1 trading plan or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2024189 Exhibits This section lists the exhibits filed with the Form 10-Q, which include certifications by the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act, and various XBRL data files - Filed exhibits include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act191