RE/MAX(RMAX) - 2022 Q3 - Quarterly Report

PART I. – FINANCIAL INFORMATION Item 1. Financial Statements This section presents RE/MAX Holdings, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income, and cash flow statements, with notes on policies and events Condensed Consolidated Balance Sheets As of September 30, 2022, total assets decreased to $726.6 million from $776.1 million at year-end 2021, with total liabilities and stockholders' equity also declining Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $726,555 | $776,133 | | Cash and cash equivalents | $117,899 | $126,270 | | Goodwill | $265,090 | $269,115 | | Franchise agreements, net | $124,521 | $143,832 | | Total Liabilities | $679,867 | $707,066 | | Debt, net of current portion | $444,653 | $447,459 | | Total Stockholders' Equity | $46,688 | $69,067 | Condensed Consolidated Statements of Income (Loss) Q3 2022 total revenue slightly decreased to $88.9 million, while net income improved to $0.1 million from a $25.1 million loss, and nine-month revenue grew to $272.1 million with $7.4 million net income Q3 Financial Performance (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Total Revenue | $88,943 | $90,997 | | Operating Income (Loss) | $5,235 | $(37,576) | | Net Income (Loss) Attributable to RE/MAX Holdings, Inc. | $140 | $(25,149) | | Diluted EPS | $0.01 | $(1.34) | Nine Months Financial Performance (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Total Revenue | $272,119 | $240,538 | | Operating Income (Loss) | $29,746 | $(20,368) | | Net Income (Loss) Attributable to RE/MAX Holdings, Inc. | $7,420 | $(18,725) | | Diluted EPS | $0.39 | $(1.00) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash from operations significantly increased to $61.4 million, while investing activities used $9.9 million and financing activities used $58.6 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $61,386 | $16,644 | | Net cash used in investing activities | $(9,865) | $(192,471) | | Net cash (used in) provided by financing activities | $(58,613) | $199,142 | | Net (decrease) increase in cash | $(9,101) | $23,369 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail accounting policies and financial results, including Q3 2022 restructuring expenses of $10.4 million, the 2021 INTEGRA acquisition, ongoing antitrust litigation, and share repurchase activities - In Q3 2022, the company initiated a restructuring of its business and technology offerings, replacing the booj platform with kvCORE, which resulted in $10.4 million of related expenses, including severance, accelerated equity compensation, and a write-off of capitalized software development costs[47] - The company is a defendant in several putative class action antitrust lawsuits (Moehrl-related suits) alongside the National Association of Realtors (NAR) and other major real estate firms, alleging that NAR rules inflate buyer broker compensation; the company intends to vigorously defend against all claims[104][105] - As part of a strategic shift, the company plans to sell the net assets of the Gadberry Group; as of September 30, 2022, total assets held for sale were $11.7 million and total liabilities held for sale were $3.5 million[74][75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, noting a 2.3% Q3 2022 revenue decrease to $88.9 million due to market conditions, alongside a strategic restructuring involving a 17% workforce reduction and technology platform shift Financial and Operational Highlights Q3 2022 highlights include a 2.3% revenue decrease to $88.9 million, Adjusted EBITDA decline to $31.5 million, 2.4% total agent growth, and a strategic restructuring with a 17% workforce reduction Q3 2022 Key Metrics vs. Q3 2021 | Metric | Q3 2022 | Change vs. Q3 2021 | | :--- | :--- | :--- | | Total Revenue | $88.9 million | -2.3% | | Adjusted EBITDA | $31.5 million | -9.5% | | Total Agent Count | 144,300 | +2.4% | | U.S. & Canada Agent Count | 85,133 | -0.6% | | Motto Mortgage Offices | 211 | +19.9% | - The company announced a strategic shift, including replacing its booj platform with the kvCORE platform and reducing its workforce by approximately 17% (120 employees), which is expected to be complete by year-end 2022[126] - Restructuring in Q3 2022 resulted in pre-tax charges of $6.9 million for severance, $2.0 million in accelerated equity compensation, and a $1.2 million write-off of capitalized software development costs[126] Results of Operations Q3 2022 total revenue decreased 2.3% due to a 13.8% drop in Broker fees, while nine-month revenue increased 13.1%, and Q3 Adjusted EBITDA decreased to $31.5 million Q3 2022 vs Q3 2021 Revenue Breakdown (in thousands) | Revenue Stream | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Continuing franchise fees | $33,310 | $32,464 | 2.6% | | Broker fees | $16,596 | $19,245 | (13.8)% | | Marketing Funds fees | $22,736 | $23,269 | (2.3)% | | Total Revenue | $88,943 | $90,997 | (2.3)% | - The decrease in Q3 Broker fees was primarily due to lower average transactions per agent, partially offset by rising home prices and revenue from the INTEGRA acquisition[135] - Q3 Selling, operating and administrative expenses included restructuring charges of $6.9 million in severance and $2.0 million in accelerated equity compensation, offset by lower acquisition-related costs and corporate bonus accruals compared to the prior year[142] Liquidity and Capital Resources As of September 30, 2022, the company held $117.9 million in cash, with liquidity from operations and a $460.0 million term loan, prioritizing capital expenditures, dividends, and a $100 million share repurchase program - The company maintains a Senior Secured Credit Facility with a $460.0 million term loan (maturing 2028) and an undrawn $50.0 million revolving facility (maturing 2026); the term loan's interest rate was 5.6% as of September 30, 2022[179][185][186] - A common stock repurchase program of up to $100 million was authorized in January 2022, with $23.8 million used through September 30, 2022, and $76.2 million remaining available[196] - The Board of Directors declared a quarterly cash dividend of $0.23 per share in Q3 2022 and again for payment in Q4 2022[195] Item 3. Quantitative and Qualitative Disclosures About Market Risks The company faces market risks including credit, interest rate, and foreign currency exposure, with a 0.25% LIBOR increase potentially adding $1.1 million to annual interest expense and a 5% USD strengthening impacting operating income by $1.3 million - The company is subject to interest rate risk on its $454.3 million in variable-rate term loans; a hypothetical 0.25% increase in the interest rate would add $1.1 million to annual interest expense[206] - Significant exposure to the Canadian dollar means a hypothetical 5% strengthening of the U.S. dollar would have decreased operating income by approximately $1.3 million for the nine months ended September 30, 2022[208] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective[210] - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[211] PART II. – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, with disclosures regarding significant antitrust lawsuits detailed in Note 12 incorporated by reference - The company is involved in litigation from time to time, with disclosures regarding legal matters, particularly significant antitrust lawsuits detailed in Note 12, incorporated by reference[214] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - No material changes have occurred to the risk factors disclosed in the company's 2021 Annual Report on Form 10-K[215] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2022, the company repurchased 507,980 shares of Class A common stock, with $76.2 million remaining available under its repurchase program as of September 30, 2022 Share Repurchases for Q3 2022 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2022 | 68,715 | $24.59 | | August 2022 | 163,385 | $25.53 | | September 2022 | 275,880 | $22.00 | | Total Q3 | 507,980 | N/A | - As of September 30, 2022, $76.2 million remained available under the company's $100 million stock repurchase program authorized in January 2022[216]