RE/MAX(RMAX) - 2021 Q1 - Quarterly Report

PART I. – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for RE/MAX Holdings, Inc. as of March 31, 2021, and for the three months ended March 31, 2021 and 2020, including Balance Sheets, Statements of Income, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with detailed notes Condensed Consolidated Balance Sheets As of March 31, 2021, total assets were $558.4 million, a slight increase from $557.4 million at year-end 2020, with total liabilities stable at $444.3 million and total stockholders' equity increasing to $114.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $102,632 | $101,355 | | Total current assets | $170,549 | $166,372 | | Goodwill | $176,008 | $175,835 | | Total assets | $558,388 | $557,392 | | Liabilities & Equity | | | | Total current liabilities | $119,335 | $117,245 | | Debt, net of current portion | $220,676 | $221,137 | | Total liabilities | $444,287 | $444,711 | | Total stockholders' equity | $114,101 | $112,681 | Condensed Consolidated Statements of Income For the three months ended March 31, 2021, total revenue increased to $72.3 million from $70.3 million year-over-year, but operating income significantly decreased to $3.5 million from $11.8 million due to increased selling, operating, and administrative expenses, resulting in net income attributable to RE/MAX Holdings, Inc. of $1.1 million and diluted EPS of $0.06 Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total revenue | $72,295 | $70,272 | | Total operating expenses | $68,758 | $58,509 | | Operating income | $3,537 | $11,763 | | Net income | $1,640 | $5,290 | | Net income attributable to RE/MAX Holdings, Inc. | $1,092 | $2,631 | | Diluted EPS | $0.06 | $0.15 | Condensed Consolidated Statements of Cash Flows For the first quarter of 2021, net cash provided by operating activities increased to $20.8 million from $13.6 million in the prior year, with net cash used in investing activities at $4.4 million and financing activities at $13.6 million, ending the period with $124.1 million in cash, cash equivalents, and restricted cash Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,832 | $13,649 | | Net cash used in investing activities | ($4,381) | ($1,965) | | Net cash used in financing activities | ($13,638) | ($9,980) | | Net increase in cash, cash equivalents and restricted cash | $2,905 | $1,499 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations of the company's financial statements, covering its business organization, significant accounting policies, revenue recognition, acquisitions, segment information, and legal contingencies - The company operates a 100% franchised model for its RE/MAX real estate and Motto Mortgage brokerage brands, with nearly 140,000 agents in over 110 countries and territories[24] - Major revenue streams include continuing franchise fees, annual dues, broker fees, marketing funds fees, and franchise sales[29][35] - The company is a defendant in several putative class action complaints (the "Moehrl-related suits") alleging that a NAR rule on buyer broker compensation violates federal antitrust law, and the company intends to vigorously defend against all claims[77] Segment Revenue (in thousands) | Segment | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total Real Estate | $51,154 | $49,905 | | Total Mortgage | $2,323 | $1,458 | | Marketing Funds fees | $18,145 | $17,522 | | Other | $673 | $1,387 | | Total revenue | $72,295 | $70,272 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the financial results for the first quarter of 2021, highlighting a robust housing market and record growth in Motto Mortgage, with total agent count growing 6.4% year-over-year, revenue increasing 2.9% to $72.3 million, and Adjusted EBITDA growing 18.5% to $23.2 million Financial and Operational Highlights The first quarter of 2021 saw strong operational performance, with total agent count increasing by 6.4% to 140,214, driven by 16.4% growth outside the U.S. and Canada, total open Motto Mortgage offices growing 27.1% to 150, revenue rising 2.9% to $72.3 million, and Adjusted EBITDA increasing 18.5% to $23.2 million with the margin expanding to 32.0% - Total agent count grew 6.4% to 140,214 agents, the largest year-over-year increase in over a decade[88][92][95] - Total open Motto Mortgage offices increased 27.1% to 150[95] Q1 2021 Financial Highlights (in thousands) | Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total revenue | $72,295 | $70,272 | 2.9% | | Net income attributable to RE/MAX Holdings, Inc. | $1,092 | $2,631 | (58.5)% | | Adjusted EBITDA | $23,160 | $19,539 | 18.5% | Results of Operations Consolidated revenue for Q1 2021 increased by 2.9% to $72.3 million, driven by a 26.6% rise in Broker fees due to higher transaction volumes and home prices, partially offset by a 20.4% decrease in Franchise sales and other revenue, while total operating expenses increased by 17.5% to $68.8 million, largely due to a 74.2% increase in personnel costs Revenue by Component (in thousands) | Revenue Component | Q1 2021 | Q1 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Continuing franchise fees | $25,374 | $24,143 | $1,231 | 5.1% | | Broker fees | $11,953 | $9,444 | $2,509 | 26.6% | | Franchise sales and other revenue | $8,151 | $10,242 | ($2,091) | (20.4)% | | Total revenue | $72,295 | $70,272 | $2,023 | 2.9% | - Selling, operating and administrative expenses increased by 26.0% ($9.0 million), primarily due to a $12.1 million (74.2%) increase in personnel costs, driven by higher equity-based compensation (including a $5.5 million acceleration for departed employees), higher bonus expense, and increased headcount from acquisitions[102][103][107] - Adjusted EBITDA increased by $3.6 million to $23.2 million, mainly due to higher Broker fees revenue and lower bad debt expense, partially offset by higher bonus and legal fees[111] Liquidity and Capital Resources The company maintains a strong liquidity position with $102.6 million in cash and cash equivalents as of March 31, 2021, with cash from operations increasing to $20.8 million in Q1 2021, and capital allocation priorities including reinvesting in the business, pursuing acquisitions, and returning capital to shareholders, with a quarterly dividend of $0.23 per share paid and expected total 2021 capital expenditures between $12 million and $15 million - As of March 31, 2021, the company had $102.6 million in cash and cash equivalents and $223.0 million of term loans outstanding under its Senior Secured Credit Facility[122][123] - Capital allocation priorities include maintaining liquidity, pursuing acquisitions of Independent Regions and complementary businesses, and investing in technology[128][129] - A quarterly cash dividend of $0.23 per share was declared and paid in Q1 2021, and another was declared for Q2 2021[131] - Total capital expenditures for 2021 are expected to be between $12 million and $15 million, primarily for a corporate headquarters refresh and technology investments[130] Quantitative and Qualitative Disclosures About Market Risks The company is exposed to market risks, primarily interest rate, foreign exchange, and credit risks, with interest rate risk stemming from its variable-rate Senior Secured Credit Facility, currency risk from global operations (Canadian dollar being most significant), and credit risk related to franchisee receivables managed through regular reviews - A hypothetical 0.25% increase in LIBOR above the 0.75% floor would result in an additional annual interest expense of $0.6 million on the company's $224.4 million in outstanding term loans[141] - A hypothetical 5% change in the U.S. dollar versus the Canadian dollar would have impacted operating income by approximately $0.3 million for the quarter[142] - Credit risk from franchisee receivables is considered low, with bad debt expense being less than 1% of revenue for the quarter[140] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective[144] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[145] PART II. – OTHER INFORMATION Legal Proceedings The company is involved in various litigation, including the "Moehrl-related suits," a series of class action complaints related to antitrust allegations concerning broker compensation rules, and states its intention to defend itself vigorously - The company is involved in ongoing litigation, including the Moehrl-related suits, which are class action complaints alleging antitrust violations, and the company intends to defend itself vigorously[77][147] Risk Factors There have been no material changes to the risk factors as disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to the risk factors previously disclosed in the 2020 Annual Report on Form 10-K have been reported[149] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[150] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[150] Mine Safety Disclosures Not applicable. The company reported no mine safety disclosures - None[151] Other Information The company reported no other information required to be disclosed under this item - None[152] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002, as well as Inline XBRL documents - Exhibits filed include certifications from the CEO and CFO (31.1, 31.2, 32.1) and various XBRL data files[154]