ANNUAL REPORT
AND FORM 10-K
®
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A WORD FROM THE CEO
In so many respects, 2016 was a momentous year for the RE/MAX network:
• Two major franchising publications named RE/MAX the No. 1 real estate franchise and a top 10 franchise overall;
• Agent productivity remained high, with our U.S. agents at large brokerages averaging double the number of
closed transactions as agents at competing firms in the industry’s two premier brokerage rankings;
• Our redesigned remax.com was the most-visited real estate franchisor website, according to Hitwise data. The
site drew over 95 million visits for the year; and
• We grew significantly, topping the 110,000-agent mark and adding more listings, more sales, more yard signs,
more advertising resources and more competitive advantages to our already solid foundation.
Nobody in the world sells more real estate than RE/MAX, based on residential transaction sides. Maintaining that
global leadership position remains a rally cry and focus for 2017 and beyond.
Within RE/MAX Holdings, our execution on strategic priorities continues to align with our three pillars of shareholder
value creation: Organic Growth, Acquisition and Investment Catalysts, and Return of Capital to Shareholders. We
delivered strong results for each pillar in 2016.
Our Organic Growth in revenue of over 5% illustrated our ongoing ability to attract and retain agents and sell new
franchises. Our worldwide net gain of over 7,000 agents marked the largest increase in 10 years. And our best U.S.-
Canada franchise sales performance since 2010 was a highlight in a robust year of growth.
We also sold our remaining company-owned brokerages in 2016, moving forward as 100% franchised. This enabled
us to generate approximately 65% of revenue from stable, recurring dues and fees tied to agent count. The
100%-franchised model, coupled with our disciplined expense management, led to margin expansion of 200 basis
points last year, generating $60 million in free cash flow.
It was an especially active year for Acquisition and Investment Catalysts. Following the purchases of the New York
and Alaska Regions earlier in the year, in December we acquired New Jersey and a multistate operation covering
Georgia, Kentucky, Tennessee and Southern Ohio. These moves shifted 8,000 agents and nearly 500 offices from
Independent Regions to Company-Owned Regions. A major objective in 2017 is to fully integrate these acquired
regions and ensure the affiliates are able to continue growing their businesses.
In a major development with significant upside potential, in late October we launched Motto Mortgage, the first
national mortgage brokerage franchise offering in the United States. Motto Mortgage, the second member in our
family of brands, reflects the bold, innovative mindset that drives our key business decisions and investments.
Our third pillar, Return of Capital, remains a fundamental priority of our management team and board. As part of
our ongoing commitment to shareholders, we have increased the quarterly dividend by 188% since our October
2013 initial public offering, including a 20% increase announced in February 2017.
Looking ahead, many factors are powering our momentum, including a gradually improving housing market, the
potential of Motto Mortgage, and the benefits of the thousands of newly added agents under the RE/MAX brand.
All of these factors – and much more – will strengthen the network and enable further creation of shareholder value.
The future remains extremely bright. We believe our best days are still ahead.
Dave Liniger
Chief Executive Officer,
Chairman of the Board and Co-Founder
RE/MAX Holdings, Inc.
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#1
NAME IN REAL ESTATE
MARKET SHARE
in U.S. & Canada2
1
AGENTS
2016
2015
111,915
104,826
2014
98,010
REVENUE
($ in millions)
2016
2015
2014
$176.3
$176.9
$171.0
ADJUSTED EBITDA3,4
($ in millions)
2016
2015
$94.6
$91.4
2014
$83.8
NET INCOME4
($ in millions)
2016
2015
2014
$47.8
$51.4
$44.0
111,915
AGENTS
7,343
OFFICES
IN OVER 100
COUNTRIES & TERRITORIES
100%
100%
FRANCHISED
1 MMR Strategy Group study of unaided awareness in the U.S. & Canada. 2 As measured by total residential transaction sides.
3 See Item 7 herein for discussion of Adjusted EBITDA and how it differs from Net Income. 4 Excludes Adjustments attributable to the non-controlling interest.
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That’s the sign of a RE/MAX agen t ®
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2016
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 001-36101
RE/MAX Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
5075 South Syracuse Street
Denver, Colorado
(Address of principal executive offices)
80-0937145
(I.R.S. Employer
Identification Number)
80237
(Zip code)
(303) 770-5531
(Registrants’ telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, par value $0.0001 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is well-known seasoned issuers, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No
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. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted 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 and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes No
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer, or smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of June 30, 2016, the last business day of the registrant’s most recently completed second quarter, the aggregate value of the registrant’s common
stock held by non-affiliates was approximately $708.6 million, based on the number of shares held by non-affiliates as of June 30, 2016 and the
closing price of the registrant’s common stock on the New York Stock Exchange on June 30, 2016. Shares of common stock held by each executive
officer and director have been excluded since those persons may under certain circumstances be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant’s Class A common stock, par value $0.0001 per share, and Class B common stock, par value
$0.0001, as of January 31, 2017 was 17,652,548 and 1, respectively.
Portions of the registrant’s Proxy Statement for the 2017 Annual Meeting of Stockholders are incorporated into Part III of this Annual Report on
Form 10-K where indicated. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s
fiscal year ended December 31, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
RE/MAX HOLDINGS, INC.
2016 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . . .
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
5
23
45
45
45
45
46
46
48
51
73
74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . 117
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
ITEM 16. FORM 10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that are subject to risks and uncertainties.
Forward-looking statements give our current expectations and projections relating to our financial condition, results of
operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact
that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,”
“estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “likely” and other words and terms
of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance
or other events. For example, forward-looking statements include statements we make relating to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our expectations regarding consumer trends in residential real estate transactions;
our expectations regarding overall economic and demographic trends, including the continued growth of
the United States (“U.S.”) residential real estate market;
our expectations regarding our performance during future downturns in the housing sector;
our growth strategy of increasing our agent count;
our ability to expand our network of franchises in both new and existing but underpenetrated markets;
our expectations regarding the growth of Motto Mortgage, our new mortgage brokerage franchise;
our growth strategy of increasing our number of closed transaction sides and transaction sides per agent;
the continued strength of our brand both in the U.S. and Canada and in the rest of the world;
the pursuit of future reacquisitions of Independent Regions;
our intention to pay dividends;
our future financial performance;
our ability to forecast selling, operating and administrative expenses;
the effects of laws applying to our business;
our ability to retain our senior management and other key employees;
our intention to pursue additional intellectual property protections;
our future compliance with U.S. or state franchise regulations;
other plans and objectives for future operations, growth, initiatives, acquisitions or strategies, including
investments in our information technology infrastructure;
the anticipated benefits of our advertising strategy; and
our intention to repatriate cash generated by our Canadian operations to the U.S. on a regular basis in order
to minimize the impact of mark-to-market gains and losses.
3
These and other forward-looking statements are subject to risks and uncertainties that may cause actual results to differ
materially from those that we expected. We derive many of our forward-looking statements from our operating budgets
and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable,
we caution that it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all
factors that could affect our actual results. Important factors that could cause actual results to differ materially from our
expectations, or cautionary statements, are disclosed in “Item 1A.—Risk Factors” and in “Item 7.—Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on
Form 10-K.
We caution you that the important factors referenced above may not contain all of the factors that are important to you.
In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if
substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The
forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this report. We
undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future
events or otherwise, except as required by law.
4
ITEM 1. BUSINESS
Overview
PART I
We are one of the world’s leading franchisors in the real estate industry, franchising real estate brokerages globally under
the RE/MAX brand, and mortgage brokerages within the U.S. under the Motto Mortgage brand. Our business is 100%
franchised—we do not own any of the brokerages that operate under our brands. We focus on our franchisees’ success
through providing education and training, valuable tools and support, and marketing to build the strength of the
RE/MAX and Motto brands. Because our franchisees fund the cost of developing their brokerages, we maintain a low
fixed-cost structure which, combined with our stable, recurring fee-based models, enables us to capitalize on the
economic benefits of the franchising model, yielding high margins and significant cash flow.
Our History. RE/MAX was founded in 1973 with an innovative, entrepreneurial culture premised on combining our
high commission concept—in which agents could, and still do, keep a very high percentage of their earned commissions
in return for paying fixed fees—with high-quality training and education, and affording our agents and franchisees the
flexibility to operate their businesses with great independence. In the early years of our expansion in the U.S. and
Canada, we accelerated the brand’s growth by selling regional franchise rights to independent owners for certain
geographic regions, a practice we still employ in countries outside of the U.S. and Canada. Since 1999, we have held the
number one market share in the U.S. and Canada as measured by total residential transactions sides completed by our
agents. Shares of our Class A common stock began trading on the New York Stock Exchange under the symbol
“RMAX” on October 2, 2013. In October 2016, we launched Motto Mortgage (“Motto”), the first national mortgage
brokerage franchise offering in the United States.
Our Brands. RE/MAX. The RE/MAX strategy is to sell franchises to highly qualified real estate brokers and help those
franchisees recruit and retain the best agents. The RE/MAX brand is built on the strength of our global franchise
network, which is designed to attract and retain the best-performing and most experienced agents by maximizing their
opportunity to retain a larger portion of their commissions. As a result of this agent-centric approach, we believe that our
agents are substantially more productive than the industry average. The RE/MAX brand has the highest level of unaided
brand awareness in real estate in the U.S. and Canada according to a 2016 consumer survey by the MMR Strategy
Group, and our iconic red, white and blue RE/MAX hot air balloon is one of the most recognized real estate logos in the
world.
The majority of our revenue—65% in 2016—is derived from fixed, contractual fees and dues paid to us based on the
number of agents in our franchise network, so agent count is a key measure of our business performance. Today, the
RE/MAX brand has over 110,000 agents operating in over 7,000 offices, and a presence in more than 100 countries and
territories—a global footprint bigger than any other real estate brokerage brand in the world.
111,915 Agents
7,343 Offices
112 Countries and Territories
120,000
100,000
80,000
60,000
40,000
20,000
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
120
100
80
60
40
20
0
6
7
9
1
0
8
9
1
4
8
9
1
8
8
9
1
2
9
9
1
6
9
9
1
0
0
0
2
4
0
0
2
8
0
0
2
2
1
0
2
6
1
0
2
6
7
9
1
0
8
9
1
4
8
9
1
8
8
9
1
2
9
9
1
6
9
9
1
0
0
0
2
4
0
0
2
8
0
0
2
2
1
0
2
6
1
0
2
6
7
9
1
0
8
9
1
4
8
9
1
8
8
9
1
2
9
9
1
6
9
9
1
0
0
0
2
4
0
0
2
8
0
0
2
2
1
0
2
6
1
0
2
As of December 31, 2016.
5
Motto Mortgage. The Motto concept offers real estate brokers access to the mortgage brokerage business, which is
highly complementary, and a model designed to help Motto franchise owners comply with all relevant mortgage
regulations. Motto offers potential homebuyers an opportunity to find both real estate agents and independent Motto loan
originators at offices in one location. Further, Motto loan originators provide home-buyers with financing choices by
providing access to a variety of loan options from multiple leading wholesale lenders. Motto franchisees are mortgage
brokers and not mortgage bankers; as a result, Motto franchisees do not fund any loans. Likewise, we franchise the
Motto system and are not lenders or brokers.
Motto’s fee model consists primarily of fixed contractual fees paid monthly on a per-office basis by the broker for being
a part of the Motto network and for use of the Motto brand and from sales of individual franchises. Due to the fourth
quarter 2016 launch of Motto, we recognized minimal revenue for this new business in 2016. As of February 2017, four
months after launch, we offer Motto franchises throughout the United States. Motto franchisees should profit by
attracting and retaining professional, highly productive loan originators who provide superior client service and
value. We will not be compensated based on the volume of loans completed by a franchise; the franchisee retains all
upside in the quantity of loans completed by a given Motto loan originator or franchise.
The Real Estate Industry
We are a franchisor of businesses in two facets of the real estate industry—real estate brokerages and mortgage
brokerages. With nearly three-quarters of our agent count and approximately 95% of our revenue coming from our
franchising operations in the U.S. and Canada, we are significantly affected by the real estate market in the U.S. and
Canada.
Residential real estate brokerages typically realize revenue by charging a commission based on a percentage of the price
of the home sold. The real estate brokerage industry generally benefits in periods of rising home prices and transaction
activity (with the number of licensed real estate agents generally increasing during such periods), and is adversely
impacted in periods of falling prices and home sale transactions (with the number of licensed real estate agents generally
decreasing during such periods).
U.S. and Canadian Real Estate Industry Overview. The U.S. residential real estate industry is an approximately $1.71
trillion market based on 2016 sales volume, according to U.S. Census Bureau data and existing home sales information
from the National Association of Realtors (“NAR”). Residential real estate represents the largest single asset class in the
U.S. with a value of approximately $22.7 trillion, according to the Federal Reserve. Canadian home sales totaled
approximately CA$263 billion in 2016, according to the Canadian Real Estate Association (“CREA”).
6
Cyclical Nature. The U.S. real estate industry has seen steady, multi-year improvement since 2012, but is fundamentally
cyclical in nature and has seen downturns before, such as from the second half of 2005 through 2011, when existing
home sale transactions declined by 40%, and the median price declined 24%, according to NAR. 2016 saw increased
transactions and a fifth year of price increases over 5%, but NAR forecasts a relatively moderate 1.7% increase in
transactions and 3.9% increase in median price in 2017. Therefore, we believe that moderate, sustainable growth will
continue for at least the next few years.
7
6
5
4
3
2
1
0
s
n
o
i
l
l
i
M
e
g
n
a
h
C
t
n
e
c
r
e
P
12
10
8
6
4
2
0
Existing Home Sale Transactions
Existing Home Sale Median Price
250
200
150
100
s
d
n
a
s
u
o
h
T
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
50
0
13.6
4.4
3.1 5.5
9.7 9.7
4.4
-0.2
9.4 9.2
5.6
1.7
6.3 3.8 1.7 4.1
-8.5
-3.5
-2.9
Source: National Association of Realtors (NAR)
-18.5
-22.2
5.3 3.9 4.1 6.6 7.7 8.4 9.3 12.4
11.5
6.4
5.7 6.8 5.1 3.9 3.2
1.0
-1.3
0.2
-3.9
-9.5
-12.9
e
g
n
a
h
C
t
n
e
c
r
e
P
NAR Forecast
Source: National Association of Realtors (NAR)
NAR Forecast
While this price recovery has meant that home affordability, as indicated by NAR’s Home Affordability Index, has
weakened somewhat from record favorable conditions in 2012, home affordability has remained substantially better than
its twenty-year average. This means homes continue to be affordable for the median consumer. However, in comparison
to what is traditionally considered a ‘balanced’ market, with enough inventory on the market to satisfy six months of
home sales demand, inventory has remained tight for nearly four and a half years.
Months Supply of Inventory
NAR Home Affordability Index
20-year Average
7
9
9
1
8
9
9
1
9
9
9
1
0
0
0
2
1
0
0
2
2
0
0
2
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
Source: NAR (based on seasonally adjusted home sales)
200
150
100
50
0
7
9
9
1
8
9
9
1
Source: NAR
20-year Average
9
9
9
1
0
0
0
2
1
0
0
2
2
0
0
2
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
The extent to which home affordability remains high will depend on the magnitude of widely anticipated interest rate
changes, changes in home prices (which may be influenced by the amount of inventory on the market), and changes in
the job market and/or wage growth.
In Canada, the downturn from 2005 through 2011 was mild by comparison to that of the U.S. for the same period.
Canadian home sales were up 5.5% in 2015 and 6.3% in 2016, but are forecast to decline 3.3% in 2017, according to
CREA.
Favorable Long-term Demand. We believe long-term demand for housing in the U.S. is primarily driven by the
economic health of the domestic economy, and local factors such as demand relative to supply. We also believe the
residential real estate market in the U.S. will benefit from fundamental demographic shifts over the long term. These
include an increase in household formations, including as a result of immigration and population growth. We believe
there is also pent-up selling demand from generational shifts, such as many retirement age homeowners who are likely to
7
take advantage of improving housing market conditions in order to sell their existing residences and retire in new areas
of the country or purchase smaller homes. Similarly, we believe there is also pent-up buying demand among adults in the
large millennial generation, driving household formation back to historical levels. In 2016, we began to see evidence of
this demand in the market. The number of adults reaching age 65 each year continues to increase as the “baby boom”
generation enters retirement age, and their ability to sell their homes has been and will be aided by the fact that,
according to CoreLogic, the percentage of homes with a loan-to-value ratio less than 80% increased from 55% in
October 2012, to 79% as of October 2016. Likewise, first-time homebuyers showed signs of a rebound in 2016,
according to NAR. Having historically averaged around 40% of the market, in 2014 and 2015, first-time homebuyers
comprised 32% to 33%, respectively, of all homebuyers, which was near a 30-year low. In 2016, however, first-time
homebuyers improved to 35% of homebuyers.
The Long-Term Value Proposition for Real Estate Brokerage Services. We believe the traditional agent-assisted
business model compares favorably to alternative channels of the residential brokerage industry, such as discount
brokers, “for sale by owner” listings, and lower-fee brokerages catering to consumers who use technology for some of
the services traditionally provided by brokers, because full-service brokerages are best suited to address many of the key
characteristics of real estate transactions, including:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
the complexity and large monetary value involved in home sale transactions,
the infrequency of home sale transactions,
the high price variability in the home market,
the intimate local knowledge necessary to advise clients on neighborhood characteristics,
the unique nature of each particular home, and
the consumer’s need for a high degree of personalized advice and support in light of these factors.
For these reasons, we believe that consumers will continue to use the agent-assisted model for residential real estate
transactions. In addition, although listings are available for viewing on a wide variety of real estate websites, we believe
an agent’s local market expertise provides the ability to better understand the inventory of for-sale homes and the
interests of potential buyers. This knowledge allows the agent to customize the pool of potential homes they show to a
buyer, as well as help sellers to present their home professionally to best attract potential buyers. We believe this demand
to have an advocate and a guide through the home-buying or -selling process is borne out by NAR data showing that the
percentage of home buyers and sellers using an agent or broker has climbed over the last decade and a half, to 89% of
sellers and 88% of purchasers being represented by a real estate agent.
Percentage of Home Buyers and Sellers Using An Agent
100%
90%
80%
70%
Agent-assisted
Sales, 89%
Agent-assisted
Purchases, 88%
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
Source: NAR Profile of Home Buyers and Sellers
8
The Long-term Value Proposition for Mortgage Brokerage Services. Likewise, we believe mortgage brokers provide a
valuable “concierge” service for consumers. Mortgage brokers are familiar with the latest loan programs and choices
available through various wholesale lenders. A professional mortgage broker can introduce consumers to loan programs
from several lenders, providing choice and information consumers may be unlikely to locate on their own. The
percentage of mortgage originations handled by mortgage brokerages was, in 2016, substantially below historical levels,
which we believe indicates the potential for growth in the mortgage brokerage production channel.
Mortgage Brokerage Share of Mortgage Originations
Historical Average (2000-2015)
2015 and 2016 (1st Half)
22.5%
10.0%
Source: Inside Mortgage Finance Publications, Inc. © 2017 Used with permission.
Moreover, according to Federal Home Loan Mortgage Corporation (known as “Freddie Mac”), purchase-money
originations are expected to increase gradually in the next few years. Such increases in mortgage originations would
provide a growth opportunity for the Motto franchise.
Purchase Mortgage Originations
s
n
o
i
l
l
i
r
T
$1.0
$0.5
$0.0
2012
2013
2014
2015
2016
Source: Freddie Mac (conforming loans)
2017
Freddie Mac Forecast
2018
Purchase-money mortgage originations are loans that arise during the initial sale of a house, and therefore correlate to the
overall number of home sales and home prices, which, as mentioned above, NAR forecasts to increase gradually. Home
purchases are driven primarily by the buyer’s personal and professional circumstances, whereas refinancings depend
mainly upon interest rates, because they primarily occur when homeowners see the opportunity to take advantage of
improved interest rates.
Our Franchise Model and Offering
Introduction to Franchising. Franchising is a distributed model for licensing the use of the franchisor’s system and
brand. In return, the franchisee retains ownership and sole responsibility for the local business, and therefore the
substantial portion of the profits it generates and its risks. The successful franchisor provides its franchisees, i) a unique
product or service offering; ii) a distinctive brand name and, eventually as the system gains market share, the favorable
consumer recognition that brand comes to symbolize; iii) training and productivity tools to help franchisees operate their
business effectively, efficiently, and successfully; and iv) group purchasing power of the franchise system to obtain
favorable prices for supplies, advertising, and other tools and services necessary in the operation of the business. Because
franchising involves principally the development and licensing of intellectual property, and the costs of retail space and
employees are borne by the individual unit owner, it is a low fixed-cost structure typified by high gross margins,
allowing the franchisor to focus on innovation, franchisee training and support, and marketing to grow brand reputation.
9
The REMAX “Agent-Centric” Franchise Offering. We believe that our “agent-centric” approach is a compelling
offering in the real estate brokerage industry, and it enables us to attract and retain highly effective agents and motivated
franchisees to our network and drive growth in our business and profitability. Our franchise model provides the
following unique combination of benefits to our franchisees and agents:
• High Agent Commission Fee Split and Low Franchise Fees. The RE/MAX high commission split concept is a
cornerstone of our model and, although not unique, differentiates us in the industry. We recommend to our
franchisees an agent-favorable commission split of 95%/5%, in exchange for the agent paying fixed fees to
share the overhead and other costs of the brokerage. This model allows high-producing agents to earn a higher
commission compared to traditional brokerages where the broker typically takes 30% to 40% of the agent’s
commission.
• Affiliation with the Best Brand in Residential Real Estate. With number one market share as measured by total
residential transaction sides completed by our agents, and leading unaided brand awareness in the U.S. and
Canada, according to a consumer survey by MMR Strategy Group, we reinforce brand awareness through
marketing and advertising campaigns that are supported by our franchisees’ and agents’ local marketing.
• Entrepreneurial, High Performance Culture. Our brand and the economics of our model attract highly driven,
professional, productive agents, and we allow them autonomy to run their businesses independently,
including, generally, the freedom to set commission rates and oversee local advertising.
• High Traffic Websites Supporting Lead Referral Systems. Remax.com was the most visited real estate
franchisor website during 2016, according to Hitwise data. When a prospective buyer inquires about a
property displayed on our websites, a RE/MAX agent receives this lead through our lead referral system,
LeadStreet®, without a referral fee. LeadStreet® has sent over 17 million free leads to our agents since 2006.
We believe that no other national real estate brand provides their agents comparable access to free leads.
• RE/MAX University® Training Programs. RE/MAX University® offers on-demand access to industry
information and advanced training in areas such as distressed properties, luxury properties, senior clients,
buyer agency and many other specialty areas of real estate. Our proprietary Momentum® training,
development and recruiting program educates our broker owners on how to manage their business more
effectively and profitably, and plan for future success by recruiting and training more agents.
• RE/MAX Approved Supplier Program. Using the collective buying power of our franchise network, a network
of preferred suppliers provide group discount prices, marketing materials that have been pre-vetted to comply
with RE/MAX brand standards and higher quality materials that may not be cost-effective to procure on an
individual office basis. These vendors provide us additional revenue in return for marketing access to our
network of franchisees and agents.
10
We attribute our success to our ability, by providing this unique, agent-centric suite of benefits, to recruit and retain
highly-productive agents and motivated franchisees. Our goal is to continue a self-reinforcing cycle that we call “Premier
Market Presence,” whereby recruiting agents and franchisees helps achieve a network effect to further enhance our brand
and market share, expand our franchise network and support offerings, and ultimately grow our revenue, as illustrated
below:
Increase Brand
Awareness and
Market Share
Attract
Experienced
Agents and Sell
Franchises
®
Productive
Agents Drive
Transaction
Growth
Best-in-Class
Support and Top-
Producer-Friendly
Model
RE/MAX Four-Tier Franchise Structure. We are a 100% franchised business, with all of the RE/MAX branded
brokerage office locations being operated by franchisees. In the early years of our expansion in the U.S. and Canada, we
sold regional franchise rights to independent owners for certain geographic regions (“Independent Regions”). In recent
years, we have pursued a strategy to reacquire regional franchise rights from Independent Regions in the U.S. and
Canada, as discussed below. We franchise directly in the rest of the U.S. and Canada, in what we call “Company-owned
Regions.” Brokerage offices, in turn, enter into independent contractor relationships with real estate sales associates who
represent real estate buyers and sellers.
Tier
Description
Franchisor
RE/MAX, LLC
Owns the right to the RE/MAX brand and sells franchises and
franchising rights.
Independent
Regional
Franchise
Owner
Franchisee
(Broker-Owner)
Owns rights to sell brokerage franchises in a specified region.
14 regional franchises, with 36% of our U.S. and Canada agent count
as of the end of 2016, are Independent Regions. Typically, 20-year
agreement with renewal options.
RE/MAX, LLC franchises directly in Company-owned Regions, in the
rest of the U.S. and Canada.
Operates a RE/MAX-branded brokerage office, lists properties and
recruits agents.
Typically, 5-year agreement.
Services
• Brand Equity
• Market Share
• Advertising
• Marketing Strategies
• Corporate Communications
• Local Services
• Regional Advertising
• Franchise Sales
In Company-owned Regions, RE/MAX, LLC
performs these services.
• Office Infrastructure
• Sales Tools / Management
• Broker of Record
Agent
(Sales Associate)
Branded independent contractors who operate out of local franchise
brokerage offices.
• Represents real estate buyer or seller
• Typically sets own commission rate
11
In Company-owned Regions in the U.S. and Canada, we typically enter into five-year renewable franchise agreements
with franchisees covering a standard set of terms and conditions. For those regions that are independently owned, we
have a long-term agreement (typically 20 years, with up to three renewal periods of equal length) with the Independent
Region owner, pursuant to which it is authorized to enter into franchise agreements with individual franchisees in that
region.
In general, the franchisees (or broker-owners) do not receive an exclusive territory except under certain limited
circumstances. Prior to opening an office, a franchisee or principal owner is required to attend a four- to five-day training
program at our global headquarters. Prospective franchisees, renewing franchisees, and transferees of a franchise are
subject to a criminal background check and must meet certain subjective and objective standards, including those related
to relevant experience, education, licensing, background, financial capacity, skills, integrity and other qualities of
character.
RE/MAX Marketing and Promotion. We believe the widespread recognition of the RE/MAX brand and our iconic red,
white and blue RE/MAX hot air balloon logo and property signs is a key aspect of our value proposition to agents and
franchisees. A variety of advertising, marketing and promotion programs build our brand and generate leads for our
agents, including leading websites such as remax.com, advertising campaigns using television, digital marketing, social
media, print, billboards and signs, and appearances of the iconic RE/MAX hot-air balloon. Event-based marketing
programs, sponsorships, sporting activities and other similar functions also promote our brand. These include our
support, since 1992 for Children's Miracle Network Hospitals in the U.S. and Children's Miracle Network in Canada, to
help sick and injured children. Through the Miracle Home program, participating RE/MAX agents donate to Children's
Miracle Network Hospitals once a home sale transaction is complete.
Our agents and franchisees fund nearly all of the advertising, marketing and promotion supporting the RE/MAX brand,
which, in the U.S. and Canada, occurs primarily on three levels:
• Local Campaigns. Our franchisees and agents engage in extensive promotional efforts within their local
markets to attract customers and drive agent and brand awareness locally. These programs are subject to our
brand guidelines and quality standards for use of the RE/MAX brand, but we allow our franchisees and agents
substantial flexibility to create advertising, marketing and promotion programs that are tailored to local market
conditions. We believe the marketing, advertising and promotion expenditures by our agents and franchisees
substantially exceed the amounts spent by our advertising funds each year.
• Regional Advertising Funds. Regional advertising funds primarily support advertising campaigns to build and
maintain brand awareness at the regional level. The regional advertising funds in Company-owned Regions
are funded by our agents through fees that our brokers collect and pay to the regional advertising funds. These
regional advertising funds in Company-owned Regions are corporations owned by our controlling
stockholder, and the use of the fund balances is restricted by the terms of our franchise agreements. Therefore,
the regional advertising fund entities are excluded from our consolidated financial statements. Franchisee
contributions to the regional advertising funds that promote the RE/MAX brand in Company-owned Regions
were $50.6 million for their fiscal year ended January 31, 2017. The RE/MAX brand is promoted in
Independent Regions by other regional advertising funds.
• Pan-Regional Campaigns. The regional advertising funds in Company-owned Regions, together with some or
all of the advertising funds in Independent Regions, may contribute to national or pan-regional creative
development and media purchases, to promote a consistent brand message and achieve economies of scale in
the purchase of advertising.
The Motto Mortgage Brokerage Model. In late 2016, we launched Motto. In connection with our Motto business, we
are a mortgage brokerage franchisor, not a lender or mortgage broker. Our franchisees will be brokers, not lenders, and
so neither we nor our franchisees fund any loans. As a franchisor, we help our Motto franchisees establish independent
mortgage brokerage companies, with a model designed to comply with all relevant regulations. The technology, training,
marketing, tools and other services that we provide to Motto franchisees have been designed to enable real estate
brokers—both RE/MAX franchisees and other real estate brokers—to overcome the barriers to enter into the mortgage
business. Pairing a Motto franchise with a real estate brokerage lets homebuyers enjoy an enhanced, coordinated,
12
convenient and simplified experience with a professional real estate agent to find a home and with a Motto loan
originator to secure financing from among several financing options. Because Motto’s emphasis is on proximity to real
estate brokerages and marketing to home buying customers, we believe our franchisees are well-positioned to benefit
from gradually increasing home sales and by extension, a gradually increasing purchase-money mortgage origination
market. This convenience will be a differentiator for real estate agents, which we believe will result in enhanced
customer satisfaction and customer loyalty, which is essential for a successful, professional, real estate agent. There are
not presently any other mortgage brokerage franchisors in the United States.
Our Motto mortgage brokerage franchise business, Motto Franchising, LLC, offers seven-year agreements with
franchisees. Motto Franchising sells franchises directly throughout the U.S.; there are no regional franchise rights in the
Motto system. Loan Originators at Motto franchises are typically employees of the franchisee and not independent
contractors.
Motto, similar to RE/MAX, has an advertising fund that is owned by our controlling stockholder that will be funded by
fees paid by each Motto franchisee. The Motto advertising fund currently primarily engages in efforts to help build
awareness of the Motto brand and help Motto franchisees recruit experienced loan originators.
Financial Model
As a franchisor, we maintain a low fixed-cost structure. In addition, our stable, fee-based model derives a majority of our
revenue from recurring fees paid by our agents, franchisees and regional franchise owners. This combination helps us
drive significant operating leverage through incremental revenue growth, yielding significant cash flow.
s
n
o
i
l
l
i
M
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
Revenue
$176.9
$176.3
$171.0
Adjusted EBITDA(1) (2)
Net Income(2)
$83.8
$91.4
$94.6
$44.0
$51.4
$47.8
2014
2015
2016
2014
2015
2016
2014
2015
2016
(1)
(2)
Adjusted EBITDA is a non-GAAP measure of financial performance that differs from U.S. Generally Accepted Accounting
Principles. See “Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further
discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA and net income.
Excludes adjustments attributable to the non-controlling interest. See "Corporate Structure and Ownership” below.
13
Revenue Streams. The chart below illustrates our revenue streams:
Revenue Streams as Percentage of 2016 Total Revenue
Continuing
Franchise Fees
Fixed monthly fee per RE/MAX agent,
or per Motto office
Annual Dues
Fixed annual fees RE/MAX agents
pay directly to us
}Agent Count-Based
Recurring Revenue
Broker Fees
Percentage fee paid by RE/MAX franchisees
on agent-generated transactions
Franchise Sales and
Other Franchise Revenue
Fees for the initial sale or renewal of a RE/MAX or
Motto franchise, and other income
65%
2016
Revenue
21%
14%
Continuing Franchise Fees. In the U.S. and Canada, RE/MAX continuing franchise fees are fixed contractual fees paid
monthly by regional franchise owners in Independent Regions or franchisees in Company-owned Regions to RE/MAX
based on the number of agents in the franchise region or in the franchisee’s office. Likewise, Motto continuing franchise
fees are fixed contractual fees paid monthly by Motto franchisees.
Annual Dues. Annual dues are the membership fees that agents pay directly to us to be a part of the RE/MAX network
and use the RE/MAX brand. Annual dues are currently a flat fee of US$400/CA$400 per agent annually for our U.S. and
Canadian agents. Motto franchisees and their loan originators do not pay annual dues.
Broker Fees. Broker fees are assessed to the RE/MAX broker against real estate commissions paid by customers when
an agent sells a home. Generally, the amount paid by broker-owners to the master or regional franchisor, which we refer
to as the “broker fee,” is 1% of the total commission on the transaction. The amount of commission collected by brokers
is based primarily on the sales volume of RE/MAX agents, home sale prices in such sales and real estate commissions
earned by agents on these transactions. Broker fees therefore vary based upon the overall health of the real estate
industry and the volume of existing home sales in particular. Motto franchisees do not pay any fees based on the number
or dollar value of loans brokered.
Franchise Sales and Other Franchise Revenue. Franchise sales and other franchise revenue primarily comprises:
• Franchise Sales: Revenue from sales and renewals of individual franchises in RE/MAX Company-owned
Regions, Independent Regions, and Motto, as well as RE/MAX regional and country master franchises for
Independent Regions in global markets outside of North America (“Global Regions”). We receive only a
portion of the revenue from the sales and renewals of individual franchises from Independent and Global
Regions.
• Other Franchise Revenue: Revenue from preferred marketing arrangements and approved supplier programs
with third parties, as well as event-based revenue from training and other programs, including our annual
convention in the U.S.
Revenue per Agent in Owned versus Independent RE/MAX Regions. We receive a higher amount of revenue per agent in
our Company-owned Regions than in our Independent Regions in the U.S. and Canada, and more in Independent
Regions in the U.S. and Canada than in Global Regions. While both Company-owned Regions and Independent Regions
in the U.S. and Canada charge relatively similar fees to RE/MAX brokerages and agents, we receive the entire amount of
the continuing franchise fee, broker fee and initial franchise and renewal fee in Company-owned Regions, whereas we
receive only a portion of these fees in Independent Regions. We generally receive 15%, 20% or 30% of the amount of
14
such fees in Independent Regions, which is a fixed rate in each particular Independent Region established by the terms of
the applicable regional franchise agreement. We base our continuing franchise fees, agent dues and broker fees outside
the U.S. and Canada on the same structure as our Independent Regions, except that the aggregate level of such fees is
substantially lower in these markets. In 2016, the average annual revenue per agent in our Company-owned Regions in
the U.S. and Canada was approximately $2,500, whereas the average annual revenue per agent in Independent Regions
in the U.S. and Canada was approximately $800, and in Global Regions was approximately $200.
Independent Regions
Company-owned Regions
Global Regions
(U.S. / Canada)
(U.S. / Canada)
(Outside U.S. / Canada)
~$800
Per Agent Average
~$2,500
Per Agent Average
~$200
Per Agent Average
~$300 / Agent
Average
~$100 / Agent
Average
~$400 / Agent
~$1,400 / Agent
Average
~$700 / Agent
Average
~$400 / Agent
~$100 / Agent
Average
~$50 / Agent
Average
~$50 / Agent
Continuing
Franchise Fees
Broker
Fee
Annual Dues
Continuing
Franchise Fees
Broker
Fee
Annual Dues
Continuing
Franchise Fees
Broker
Fee
Annual Dues
Value Creation and Growth Strategy
Our favorable margins generate healthy cash flow, which facilitates our value creation and growth strategy. We intend to
leverage our market leadership as a leading franchisor in the residential real estate industry in the U.S. and Canada to
drive shareholder value by:
a) achieving organic growth, building on our network of over 7,000 RE/MAX franchisees and 110,000 agents and
building our network of Motto mortgage brokerage franchises;
b) catalyzing growth by reacquiring regional RE/MAX franchise rights and acquiring other complementary
businesses; and
c)
returning capital to shareholders.
Organic Growth. Our organic growth generally comes from: a) RE/MAX agent count growth; b) RE/MAX and Motto
franchise sales, c) increases in our ability to monetize the value of our RE/MAX and Motto networks; d) the extent to
which we increase the fees paid by RE/MAX or Motto franchisees or RE/MAX agents; and e) continued improvement in
the housing market, resulting in more home sale transactions or higher home prices.
15
Organic Growth from Agent Count and Franchise Sales. With respect to RE/MAX agent count growth, we experienced
agent losses during the downturn, but we returned to a period of net agent growth in 2012 and our year-over-year growth
in agent count continued in 2013 through 2016.
RE/MAX Agent Count
120,000
100,000
80,000
60,000
40,000
20,000
0
Global
Regions
Independent
Regions
(US/Canada)
Owned
Regions
(US/Canada)
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
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3
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4
Q
1
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4
Q
1
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2
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3
Q
4
Q
'03 2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Number of Agents at Quarter-End
RE/MAX sold 903 office franchises in 2016 and intends to continue adding franchises in new and existing markets, and
as a result, increase our global market share and brand awareness. Each incremental agent leverages our existing
infrastructure, allowing us to drive additional revenue at little incremental cost. We are committed to reinvesting in the
business to enhance our value proposition and through a range of new and existing programs and tools.
RE/MAX Office Franchise Sales
1,200
1,000
800
600
400
200
0
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
Global
Regions
Independent
Regions
(US/Canada)
Owned
Regions
(US/Canada)
16
Organic Growth from Global Regions. Over the last two decades, the size of the RE/MAX network outside of the U.S.
and Canada has grown to nearly a quarter of RE/MAX agent count. However, we earn substantially more of our revenue
in the U.S. than in other countries as a result of the higher average revenue per agent earned in Company-owned Regions
than in Independent Regions, and in the U.S. and Canada as compared to the rest of the world:
RE/MAX Agents by Geography
As of Year-end 2016
Revenue by Geography
Percent of 2016 Revenue
4%
13%
U.S.
Canada
Global Regions
55%
U.S.
Canada
Global Regions
83%
26%
19%
While the portion of our revenue from Global Regions has historically been small, a notable portion of it has come from
sales of master franchises—the right to franchise the RE/MAX brand across an entire country or multi-country region—
in Global Regions. Having a presence in over 100 countries and territories at present, we have sold the rights to most
major territories, and our revenue from Global Regions in 2016 did not contain revenue from any major master franchise
sales. Revenue from Global Regions has remained a relatively consistent percentage of our revenue because, as our agent
count in these regions has increased, recurring revenue from fees and dues has taken the place of less predictable revenue
from master franchise sales, and we view this as a positive sign of Global Regions’ ability to contribute to our revenue in
future years.
Our revenue from countries outside of the U.S. is also affected by the strength of the U.S. dollar against other currencies,
primarily the Canadian dollar and to a lesser degree, the Euro.
Pricing. Given the low fixed infrastructure cost of our franchise model, modest increases in aggregate fees per agent
positively affect our profitability. We may increase our aggregate fees per agent over time as we enhance the value we
offer to our network. In July 2016, we increased continuing franchise fees in the Company-owned regions in the U.S. by
five dollars per agent per month and in Canada by $2.50 per agent per month. We are judicious with respect to the
timing and amount of increases in aggregate fees per agent and our strategic focus remains on growing agent count
through franchise sales, recruiting programs and retention initiatives.
17
Growth Catalysts through Acquisitions.
We intend to continue to pursue reacquisitions of the regional RE/MAX franchise rights in a number of Independent
Regions in the U.S. and Canada, as well as other acquisitions in related areas that build on our core competencies in
franchising and real estate brokerage support.
6
Independent Region Acquisitions. The reacquisition of a
regional franchise substantially increases our revenue per
agent and provides an opportunity for us to drive enhanced
profitability, as we receive a higher amount of revenue per
agent in our Company-owned Regions than in our
Independent Regions. While both Company-owned Regions
and Independent Regions charge relatively similar fees to
their brokerages and agents, we only receive a percentage of
the continuing franchise fee, broker fee and initial franchise
and renewal fee in Independent Regions. By reacquiring
regional franchise rights, we can capture 100% of these fees
and substantially increase the average revenue per agent for
agents in the reacquired region, which, as a result of our low
fixed-cost structure, further increases our overall margins. In
addition, we can establish operational efficiencies and
improvements in financial performance of a reacquired
region by leveraging our existing infrastructure and
experience.
Revenue Flow through Independent Regions
RE/MAX, LLC
15%-30% of
Continuing Franchise Fee
Broker Fee
Initial Franchise Fee
Independent Regions
Implied Gross
70%-85%
Upside
through
Independent
Region
Acquisitions
CONTINUING
FRANCHISE FEE
BROKER
FEE
1% of
Commissions
INITIAL
FRANCHISE
FEE
ANNUAL
DUES
$400
/ Agent / Year
Franchises / Brokerages
Fixed
Monthly
Management Fee
Recommended
5% of
Commissions
Agents
Recent History of Re-Acquiring
Independent Regional Rights
2007
2007
2007
2011
2012
2013
2013
2016
2016
2016
2016
2016
2016
California & Hawaii
Florida
Carolinas
Mountain States
Texas
Central Atlantic
Southwest
New York
Alaska
New Jersey
Georgia
Kentucky/Tennessee
Southern Ohio
Company-owned Regions
Independent Regions
64%
36%
of US/CA agents, as of year-end 2016
The regions in which we have re-acquired franchise rights since 2007 represented 45% of our agents in the U.S. and
Canada as of December 31, 2016, with the result that the Company-owned Regions in which we franchise directly
represented 64% of our agents in the U.S. and Canada. The remaining 36% of our U.S. and Canada combined agent
count operate in Independent Regions.
18
Other Acquisitions. In September 2016, we acquired certain assets of Full House Mortgage Connection, Inc. (“Full
House”), which had created a concept for franchising mortgage brokerages. We used the assets acquired from Full House
in the launch of our Motto mortgage franchising business in October 2016, which we believe extends our core
competencies of franchising and real estate industry knowledge to the mortgage brokerage business. We believe that the
new Motto business, with its recurring fee model, complements RE/MAX’s franchise model and adds a new channel for
long-term growth. We may pursue other acquisitions, either of other brands, or of other businesses that we believe can
help enhance the value proposition that we provide to the franchisees in our existing businesses.
Return of Capital to Shareholders. We are committed to returning capital to shareholders as part of our value creation
strategy. We have paid quarterly dividends since April of 2014, the first quarter after our October 7, 2013 initial public
offering, when we began paying quarterly dividends of $0.0625 per share, and we have periodically increased our
quarterly dividends since then, as we have deemed appropriate. On February 22, 2017, our Board of Directors announced
a quarterly dividend of $0.18 per share.
Quarterly Dividends
$0.20
$0.15
$0.10
$0.05
$0.00
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
2014
2015
2016
1
Q
2017
We distributed approximately $18.1 million to our shareholders and unitholders in the form of dividends in 2016. Our
disciplined approach to allocating capital allows us to return capital to shareholders while driving organic growth and
catalyzing growth through acquisitions and, as a result, generate shareholder value.
Competition
The real estate brokerage franchise business is highly competitive. We primarily compete against other real estate
franchisors seeking to grow their franchise system. Our largest national competitors in the U.S. and Canada include the
brands operated by Realogy Holdings Corp. (including Century 21, Coldwell Banker, ERA, Sothebys and Better Homes
and Gardens), Berkshire Hathaway Home Services, Keller Williams Realty, Inc. and Royal LePage. In most markets, we
also compete against regional chains, independent, non-franchise brokerages and Internet-based and other brokers
offering deeply discounted commissions. Our efforts to target consumers and connect them with a RE/MAX agent via
our websites also face competition from major real estate portals. Likewise, the support services we provide to RE/MAX
franchisees and agents also face competition from various providers of training, back office management, and lead
generation services. We believe that competition in the real estate brokerage franchise business is based principally upon
the reputational strength of the brand, the quality of the services offered to franchisees, and the amount of franchise-
related fees to be paid by franchisees.
19
The ability of our franchisees to compete with other real estate brokerages, both franchised and unaffiliated, is an
important aspect of our growth strategy. A franchisee’s ability to compete may be affected by a variety of factors,
including the quality of the franchisee’s independent agents, the location of the franchisee’s offices and the number of
competing offices in the area. A franchisee’s success may also be affected by general, regional and local housing
conditions, as well as overall economic conditions.
While there are no national mortgage brokerage franchisors in the United States at the present time, other than Motto
Franchising, the mortgage origination business is characterized by a variety of business models. While real estate
brokerage owners are our core market for the purchase of Motto franchises, such owners may form independent, non-
franchised mortgage brokerages. They may enter into joint ventures with lenders for mortgage originations, and they
may elect not to enter the mortgage origination business themselves, but instead earn revenue from providing marketing
and other services to mortgage lenders.
Motto Franchising does not originate loans, and therefore does not compete in the mortgage origination business. The
Mortgage origination business in which Motto franchisees participate is highly competitive. There are several different
marketing channels for mortgage origination services, with some originators, like Motto franchisees, marketing
significantly to real estate agents and their customers. Other originators are independent mortgage bankers or
correspondent lenders, underwriting and funding mortgage loans and then selling the loans to third parties. Retail
lenders, both traditional and on-line-only companies, and both banks and non-bank lenders, typically market their loan
products directly to consumers.
Intellectual Property
We protect the RE/MAX and Motto brands through a combination of trademarks and copyrights. We have registered
“RE/MAX” as a trademark in the U.S., Canada, and over 150 other countries and territories, and have registered various
versions of the RE/MAX balloon logo and real estate yard sign design in numerous countries and territories as well. We
also have filed other trademark applications in the U.S. and certain other jurisdictions, and will pursue additional
trademark registrations and other intellectual property protection to the extent we believe it would be beneficial and cost
effective. We also are the registered holder of a variety of domain names that include “remax,” “motto,” and similar
variations.
Corporate Structure and Ownership
RE/MAX Holdings, Inc. (“RE/MAX Holdings”) is a holding company incorporated in Delaware and its only business is
to act as the sole manager of RMCO, LLC, or “RMCO”. In that capacity, RE/MAX Holdings operates and controls all of
the business and affairs of RMCO. As of December 31, 2016, RE/MAX Holdings owns 58.43% of the common units in
RMCO, while RIHI, Inc. (“RIHI”) owns the remaining 41.57% of common units in RMCO. RIHI is majority owned and
controlled by David Liniger, our Chief Executive Officer, Chairman and Co-Founder, and by Gail Liniger, our Vice
Chair and Co-Founder.
20
The diagram below depicts our organizational structure:
Class B Shares
Class A
Shareholders
RIHI, Inc.
RE/MAX Holdings, Inc.
(NYSE Ticker: RMAX)
Managing Member
RMCO, LLC
RE/MAX Operating
Subsidiaries
including RE/MAX, LLC
and Motto Franchising, LLC
The holders of RE/MAX Holdings Class A common stock collectively own 100% of the economic interests in RE/MAX
Holdings, Inc., while RIHI owns 100% of the outstanding shares of RE/MAX Holdings Class B common stock. The
shares of Class B common stock have no economic rights but entitle the holder, without regard to the number of shares
of Class B common stock held, to a number of votes on matters presented to stockholders of RE/MAX Holdings, Inc.
that is equal to two times the aggregate number of common units of RMCO held by such holder. As a result of RIHI’s
ownership of shares of RE/MAX Holdings Class B common stock, and its ownership of 12,559,600 common units in
RMCO, it holds effective control of a majority of the voting power of RE/MAX Holdings outstanding common stock.
Ownership of RMCO
as of year-end 2016
Voting Rights in RE/MAX Holdings
as of year-end 2016
RIHI
41.57%
RE/MAX
Holdings
58.43%
Class A
Shares
41.27%
RIHI
58.73%
RIHI’s voting rights will be reduced to equal the aggregate number of RMCO common units held—and RIHI would
therefore be expected to lose its controlling vote of RE/MAX Holdings, Inc.—after any of the following occur: (i)
October 7, 2018; (ii) the death of the Company’s Chief Executive Officer, Chairman and Co-Founder, David Liniger; or
(iii) RIHI’s ownership of RMCO common units falls below 5,320,380 common units.
21
Due to RIHI’s control of a majority of the voting power of RE/MAX Holdings’ common stock, RE/MAX Holdings
constitutes a “controlled company” under the corporate governance standards of the New York Stock Exchange and
therefore are not required to comply with certain corporate governance requirements. Due to RIHI’s ownership interest
in RMCO, RE/MAX Holdings’ results reflect a significant non-controlling interest and our pre-tax income excludes
RIHI’s proportionate share of RMCO’s net income. RE/MAX Holding’s only source of cash flow from operations is in
the form of distributions from RMCO and management fees paid by RMCO pursuant to a management services
agreement between RE/MAX Holdings and RMCO.
Segments in Which We Operated Prior to 2016
Before 2016, we operated in two reportable segments, (1) Real Estate Franchise Services and (2) Brokerages. The Real
Estate Franchise Services reportable segment comprised the operations of our owned and independent global franchising
operations and corporate-wide professional services expenses. The Brokerages reportable segment contained the
operations of our owned brokerage offices in the U.S., which we sold in 2015 and January 2016. Therefore, we now
report as a single segment for 2016 and all prior segment information has been reclassified to reflect our new segment
structure.
Employees
As of December 31, 2016, we had 344 employees, plus six part time and 16 temporary employees. Our franchisees are
independent businesses. Their employees and independent contractor sales associates are therefore not included in our
employee count. None of our employees are represented by a union. We believe our relations with our employees are
good.
Seasonality
The residential housing market is seasonal, with transactional activity in the U.S. and Canada peaking in the second and
third quarter of each year. Our results of operations are somewhat affected by these seasonal trends. Our Adjusted
EBITDA margins are often lower in the first and fourth quarters due primarily to the impact of lower broker fees and
other revenue as a result of lower overall sales volume, as well as higher selling, operating and administrative expenses
in the first quarter for expenses incurred in connection with the RE/MAX annual convention.
Government Regulation
Franchise Regulation. The sale of franchises is regulated by various state laws, as well as by the Federal Trade
Commission (“FTC”). The FTC requires that franchisors make extensive disclosure to prospective franchisees but does
not require registration. A number of states require registration or disclosure by franchisors in connection with franchise
offers and sales. Several states also have “franchise relationship laws” or “business opportunity laws” that limit the
ability of the franchisor to terminate franchise agreements or to withhold consent to the renewal or transfer of these
agreements. The states with relationship or other statutes governing the termination of franchises include Arkansas,
California, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, Missouri,
Nebraska, New Jersey, Virginia, Washington and Wisconsin. Some franchise relationship statutes require a mandated
notice period for termination; some require a notice and cure period; and some require that the franchisor demonstrate
good cause for termination. Although we believe that our franchise agreements comply with these statutory
requirements, failure to comply with these laws could result in our company incurring civil liability. In addition, while
historically our franchising operations have not been materially adversely affected by such regulation, we cannot predict
the effect of any future federal or state legislation or regulation.
Real Estate and Mortgage Regulation. The Real Estate Settlement Procedures Act (“RESPA”) and state real estate
brokerage laws and mortgage regulations restrict payments which real estate brokers, mortgage brokers, and other
service providers in the real estate industry may receive or pay in connection with the sales of residences and referral of
settlement services, such as real estate brokerage, mortgages, homeowners insurance and title insurance. Such laws affect
the terms that we may offer in our franchise agreements with Motto franchisees and may to some extent restrict preferred
vendor programs, both for Motto and RE/MAX. Federal, state and local laws, regulations and ordinances related to the
22
origination of mortgages, may affect other aspects of the Motto business, including the extent to which we can obtain
data on Motto franchisees’ compliance with their franchise agreements. These laws and regulations include (i) the
Federal Truth in Lending Act of 1969 (“TILA”), and Regulation Z (“Reg Z”) thereunder; (ii) the Federal Equal Credit
Opportunity Act ("ECOA'') and Regulation B thereunder; (iii) the Federal Fair Credit Reporting Act and Regulation V
thereunder; (iv) RESPA, and Regulation X thereunder; (v) the Fair Housing Act; (vi) the Home Mortgage Disclosure
Act; (vii) the Gramm-Leach-Bliley Act and its implementing regulations; (viii) the Consumer Financial Protection Act
and its implementing regulations; (ix) the Fair and Accurate Credit Transactions Act-FACT ACT and its implementing
regulations; and (x) the Do Not Call/Do Not Fax Act and other state and federal laws pertaining to the solicitation of
consumers.
Available Information
RE/MAX Holdings, Inc. is a Delaware corporation and its principal executive offices are located at 5075 South Syracuse
Street, Denver, Colorado 80237, telephone (303) 770-5531. The Company’s Annual Report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge
through the “Investor Relations” portion of the Company’s website, www.remax.com, as soon as reasonably practical
after they are filed with the Securities and Exchange Commission (“SEC”). The content of the Company’s website is not
incorporated into this report. The SEC maintains a website, www.sec.gov, which contains reports, proxy and information
statements, and other information filed electronically with the SEC by the Company.
ITEM 1A. RISK FACTORS
RE/MAX Holdings, Inc. and its consolidated subsidiaries (collectively, the “Company,” “we,” “our” or “us”) could be
adversely impacted by various risks and uncertainties. An investment in our Class A common stock involves a high
degree of risk. You should carefully consider the following risk factors, as well as all of the other information contained
in this Annual Report on Form 10-K, including our audited consolidated financial statements and the related notes
thereto before making an investment decision. If any of these risks actually occur, our business, financial condition,
operating results, cash flow and prospects may be materially and adversely affected. As a result, the trading price of our
Class A common stock could decline and you could lose some or all of your investment.
We have grouped our risks according to:
• Risks Related to Our Business and Industry;
• Risks Related to Our Organizational Structure; and
• Risks Related to Ownership of Our Class A Common Stock.
Risks Related to Our Business and Industry
Our results are tied to the residential real estate market and we may be negatively impacted by downturns in this
market and general global economic conditions.
The residential real estate market tends to be cyclical and typically is affected by changes in general economic conditions
which are beyond our control. These conditions include short-term and long-term interest rates, inflation, fluctuations in
debt and equity capital markets, levels of unemployment, consumer confidence and the general condition of the U.S. and
the global economy. The residential real estate market also depends upon the strength of financial institutions, which are
sensitive to changes in the general macroeconomic and regulatory environment. Lack of available credit or lack of
confidence in the financial sector could impact the residential real estate market, which in turn could materially and
adversely affect our business, financial condition and results of operations.
For example, the U.S. residential real estate market has steadily improved in recent years after a significant and
prolonged downturn, which began in the second half of 2005 and continued through 2011. Based on our experience, we
23
believe gradually improving market conditions in the U.S. will enable us to continue to recruit and retain more agents,
increasing our revenue and profitability.
We cannot predict whether the market will continue to improve. If the residential real estate market or the economy as a
whole does not continue to improve, we may experience adverse effects on our business, financial condition and
liquidity, including our ability to access capital and grow our business.
Any of the following could cause a decline in the housing or mortgage markets and have a material adverse effect on our
business by causing periods of lower growth or a decline in the number of home sales and/or home prices which, in turn,
could adversely affect our revenue and profitability:
•
•
•
an increase in the unemployment rate;
a decrease in the affordability of homes due to changes in interest rates, home prices, and rates of wage and
job growth;
slow economic growth or recessionary conditions;
• weak credit markets;
•
low consumer confidence in the economy and/or the residential real estate market;
•
•
•
•
•
•
•
•
•
•
instability of financial institutions;
legislative, tax or regulatory changes that would adversely impact the residential real estate or mortgage
markets, including but not limited to potential reform relating to Fannie Mae, Freddie Mac and other
government sponsored entities (“GSEs”) that provide liquidity to the U.S. housing and mortgage markets;
increasing mortgage rates and down payment requirements and/or constraints on the availability of mortgage
financing, including but not limited to the potential impact of various provisions of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) or other legislation and regulations that
may be promulgated thereunder relating to mortgage financing, including restrictions imposed on mortgage
originators as well as retention levels required to be maintained by sponsors to securitize certain mortgages;
excessive or insufficient home inventory levels on a regional level;
high levels of foreclosure activity, including but not limited to the release of homes already held for sale by
financial institutions;
adverse changes in local or regional economic conditions;
the inability or unwillingness of homeowners to enter into home sale transactions due to negative equity in
their existing homes;
demographic changes, such as a decrease in household formations slowing rate of immigration or population
growth; decrease in home ownership rates, declining demand for real estate and changing social attitudes
toward home ownership
changes in local, state and federal laws or regulations that affect residential real estate transactions or
encourage ownership, including but not limited to tax law changes, such as limiting or eliminating the
deductibility of certain mortgage interest expense, the application of the alternative minimum tax, and real
property taxes and employee relocation expense; and/or
acts of nature, such as hurricanes, earthquakes and other natural disasters that disrupt local or regional real
estate markets.
24
The failure of the U.S. residential real estate market growth to be sustained, or a prolonged decline in the number of
home sales and/or home sale prices could adversely affect our revenue and profitability.
The U.S. residential real estate market has gradually improved since 2011. However, not all U.S. markets have
participated to the same extent in the improvement. A lack of a continued or widespread growth or a prolonged decline
in existing home sales, a decline in home sale prices or a decline in commission rates charged by our franchisees/brokers
could adversely affect our results of operations by reducing the recurring fees we receive from our franchisees and our
agents.
A lack of financing for homebuyers in the U.S. residential real estate market at favorable rates and on favorable
terms could have a material adverse effect on our financial performance and results of operations.
Our business is significantly impacted by the availability of financing at favorable rates or on favorable terms for
homebuyers, which may be affected by government regulations and policies. Certain potential reforms such as the U.S.
federal government’s conservatorship of Fannie Mae and Freddie Mac, proposals to reform the U.S. housing market,
attempts to increase loan modifications for homeowners with negative equity, monetary policy of the U.S. government,
increases in interest rates and the Dodd-Frank Act may adversely impact the housing industry, including homebuyers’
ability to finance and purchase homes.
The monetary policy of the U.S. government, and particularly the Federal Reserve Board, which regulates the supply of
money and credit in the U.S., significantly affects the availability of financing at favorable rates and on favorable terms,
which in turn affects the domestic real estate market. Policies of the Federal Reserve Board can affect interest rates
available to potential homebuyers. Further, we are affected by any rising interest rate environment. Changes in the
Federal Reserve Board’s policies, the interest rate environment and mortgage market are beyond our control, are difficult
to predict, and could restrict the availability of financing on reasonable terms for homebuyers, which could have a
material adverse effect on our business, results of operations and financial condition. Additionally, the possibility of the
elimination of the tax deductibility of mortgage interest could have an adverse effect on the housing market by reducing
incentives for buying or refinancing homes and negatively affecting property values. In both December 2015 and
December 2016, the Federal Open Market Committee of the Federal Reserve Board raised the target range for federal
funds, after leaving the federal funds interest rate near zero since late 2008. The pace of future increases in the federal
funds rate is uncertain, although the Federal Open Market Committee has indicated it expects additional increases to
occur. Historically, changes in the federal funds rate have led to changes in interest rates for other loans but the extent of
the impact on the future availability and price of mortgage financing cannot be predicted with certainty.
In addition, a reduction in government support for home financing, including the possible winding down of Fannie Mae
and Freddie Mac, could further reduce the availability of financing for homebuyers in the U.S. residential real estate
market. In connection with the U.S. federal government’s conservatorship of Fannie Mae and Freddie Mac, it provided
billions of dollars of funding to these entities during the real estate downturn, in the form of preferred stock investments
to backstop shortfalls in their capital requirements. No consensus has emerged in Congress concerning potential reforms
relating to Fannie Mae and Freddie Mac, so we cannot predict either the short or long term effects of such regulation and
its impact on homebuyers’ ability to finance and purchase homes.
Furthermore, many lenders significantly tightened their underwriting standards since the real estate downturn, and many
subprime and other alternative mortgage products are no longer common in the marketplace. If these mortgage loans
continue to be difficult to obtain, including in the jumbo mortgage markets, the ability and willingness of prospective
buyers to finance home purchases or to sell their existing homes could be adversely affected, which would adversely
affect our operating results.
The Dodd-Frank Act, which was passed to more closely regulate the financial services industry, created the Consumer
Financial Protection Bureau (“CFPB”), an independent federal bureau, which enforces consumer protection laws,
including various laws regulating mortgage finance. The Dodd-Frank Act also established new standards and practices
for mortgage lending, including a requirement to determine a prospective borrower’s ability to repay a loan, removing
incentives to originate higher cost mortgages, prohibiting prepayment penalties for non-qualified mortgages, prohibiting
mandatory arbitration clauses, requiring additional disclosures to potential borrowers and restricting the fees that
25
mortgage originators may collect. Rules implementing many of these changes protect creditors from certain liabilities for
loans that meet the requirements for “qualified mortgages.” The rules place several restrictions on qualified mortgages,
including caps on certain closing costs. These and other rules promulgated by the CFPB could have a significant impact
on the availability of home mortgages and how mortgage brokers and lenders transact business. In addition, the Dodd-
Frank Act contained provisions that require GSEs, including Fannie Mae and Freddie Mac, to retain an interest in the
credit risk arising from the assets they securitize. This may serve to reduce GSEs’ demand for mortgage loans, which
could have a material adverse effect on the mortgage industry, which may reduce the availability of mortgages to certain
borrowers.
While we are continuing to evaluate all aspects of legislation, regulations and policies affecting the domestic real estate
market, we cannot predict whether or not such legislation, regulation and policies may increase down payment
requirements, increase mortgage costs, or result in increased costs and potential litigation for housing market
participants, any of which could have a material adverse effect on our financial condition and results of operations.
We may fail to execute our strategies to grow our business, which could have a material adverse effect on our
financial performance and results of operations.
We intend to pursue a number of different strategies to grow our revenue and earnings and to deploy the cash generated
by our business. We constantly strive to increase the value proposition for our agents and brokers. If we do not reinvest
in our business in ways that support our agents and brokers and make the RE/MAX network attractive to agents and
brokers, we may become less competitive. Additionally, we are exploring opportunities to acquire other businesses,
including select RE/MAX independent regional franchises, or other businesses in the U.S. and Canada that are
complementary to our core business. If we fail to develop, execute, or focus on our business strategy, fail to make good
business decisions, fail to enforce a disciplined management process to ensure that our investment of resources aligns
with our strategic plan and our core management and franchising competencies or fail to properly focus resources or
management attention on strategic areas, any of these could negatively impact the overall value of the Company. If we
are unable to execute our business strategy, for these or any other reasons, our prospects, financial condition and results
of operations may be harmed and our stock price may decline.
We may be unable to reacquire regional franchise rights in independent RE/MAX regions in the U.S. and Canada or
successfully integrate the independent RE/MAX regions that we have acquired.
We are pursuing a key growth strategy of reacquiring select RE/MAX independent regional franchises in the U.S. and
Canada. The reacquisition of a regional franchise increases our revenue and provides an opportunity for us to drive
enhanced profitability. This growth strategy depends on our ability to find regional franchisees willing to sell the
franchise rights in their regions on favorable terms, as well as our ability to finance and complete these transactions. We
may have difficulty finding suitable regional franchise acquisition opportunities at an acceptable price. Further, in the
event we acquire a regional franchise, we may not be able to achieve the expected returns on our acquisition after we
integrate the reacquired region into our business.
Integrating acquired regions involves complex operational and personnel-related challenges and we may encounter
unforeseen difficulties and higher than expected integration costs or we may not be able to deliver expected cost and
growth synergies.
Future acquisitions may present other challenges and difficulties, including:
•
•
•
•
•
the possible departure of a significant number of key employees;
regulatory constraints and costs of executing our growth strategy may vary by geography;
the possible defection of franchisees and agents to other brands or independent real estate companies;
the disruption of our respective ongoing business;
problems we may discover post-closing with the operations, including the internal controls and procedures of
the regions we reacquire;
26
•
•
•
•
•
the failure to maintain important business relationships and contracts of the selling region;
impairment of acquired assets;
legal or regulatory challenges or litigation post-acquisition, which could result in significant costs;
unanticipated expenses related to integration; and
potential unknown liabilities associated with acquired businesses.
A prolonged diversion of management’s attention and any delays or difficulties encountered in connection with the
integration of any acquired region or region that we may acquire in the future could prevent us from realizing anticipated
cost savings and revenue growth from our acquisitions.
We may not be able to manage growth successfully.
In order to successfully expand our business, we must effectively recruit, develop and motivate new franchisees, and we
must maintain the beneficial aspects of our corporate culture. We may not be able to hire new employees with the
expertise necessary to manage our growth quickly enough to meet our needs. If we fail to effectively manage our hiring
needs and successfully develop our franchisees, our franchisee and employee morale, productivity and retention could
suffer, and our brand and results of operations could be harmed. Effectively managing our potential growth could require
significant capital expenditures and place increasing demands on our management. We may not be successful in
managing or expanding our operations or in maintaining adequate financial and operating systems and controls. If we do
not successfully manage these processes, our brand and results of operations could be adversely affected.
The failure to attract and retain highly qualified franchisees could compromise our ability to expand the RE/MAX
network.
Our most important asset is the people in our network, and the success of our franchisees depends largely on the efforts
and abilities of franchisees to attract and retain high quality agents. If our franchisees fail to attract and retain agents,
they may fail to generate the revenue necessary to pay the contractual fees owed to us.
Additionally, although we believe our relationship with our franchisees and agents is open and strong, the nature of such
relationships can give rise to conflict. For example, franchisees or agents may become dissatisfied with the amount of
contractual fees and dues owed under franchise or other applicable arrangements, particularly in the event that we decide
to increase fees and dues further. They may disagree with certain network-wide policies and procedures, including
policies such as those dictating brand standards or affecting their marketing efforts. They may also be disappointed with
any marketing campaigns designed to develop our brand. There are a variety of reasons why our franchisor-franchisee
relationship can give rise to conflict. If we experience any conflicts with our franchisees on a large scale, our franchisees
may decide not to renew their franchise agreements upon expiration or may file lawsuits against us or they may seek to
disaffiliate with us, which could also result in litigation. These events may, in turn, materially and adversely affect our
business and operating results.
Our financial results are affected by the ability of our franchisees to attract and retain agents.
Our financial results are heavily dependent upon the number of agents in our global network. The majority of our
revenue is derived from recurring dues paid by our agents and contractual fees paid by our franchisees or regional
franchise owners based on the number of agents within the franchisee’s or regional franchise owner’s network. If our
franchisees are not able to attract and retain agents (which is not within our direct control), our revenue may decline. In
addition, our competitors may attempt to recruit the agents of our franchisees.
27
Competition in the residential real estate franchising business is intense, and we may be unable to grow our business
organically, including increasing by our agent count, expanding our network of franchises and agents, and
increasing franchise and agent fees, which could adversely affect our brand, our financial performance, and results
of operations.
We generally face strong competition in the residential real estate services business from other franchisors and
brokerages (i.e. national, regional, independent, boutique, discount and web-based brokerages), as well as web-based
companies focused on real estate. As a real estate brokerage franchisor, one of our primary assets is our brand name.
Upon the expiration of a franchise agreement, a franchisee may choose to renew their franchise with us, operate as an
independent broker or to franchise with one of our competitors. Competing franchisors may offer franchises monthly
ongoing fees that are lower than those we charge, or that are more attractive in particular market environments. Further,
our largest competitors in this industry in the U.S. and Canada include the brands operated by Realogy Holdings, Corp.,
(which include Coldwell Banker, Century 21, ERA, Sothebys and Better Homes and Gardens, among others), Berkshire
Hathaway Home Services, Keller Williams Realty, Inc. and Royal LePage. Some of these companies may have greater
financial resources and larger budgets than we do to invest in technology to build their brands and enhance their value
proposition to agents, brokers and consumers. To remain competitive in the sale of franchises and to retain our existing
franchisees at the time of the renewal of their franchise agreements, we may have to reduce the cost of renewals and/or
the recurring monthly fees we charge our franchisees. Further, in certain areas, regional and local franchisors provide
additional competitive pressure.
As a result of this competition, we may face many challenges in achieving organic growth by adding franchises and
attracting agents in new and existing markets to expand our network in the U.S., Canada and globally, as well as other
challenges such as:
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selection and availability of suitable markets;
finding qualified franchisees in these markets who are interested in opening franchises on terms that are
favorable to us;
increasing our local brand awareness in new markets;
attracting and training of qualified local agents; and
general economic and business conditions.
A significant increase in private sales of residential property, including through the Internet, could have a material
adverse effect on our business, prospects and results of operations.
A significant increase in the volume of private sales completed without the involvement of a full-service real estate agent
or using a low cost provider due to, for example, increased access to information on real estate listings over the Internet
and the proliferation of websites and online tools that facilitate private sales, and a corresponding decrease in the volume
of sales through real estate agents could have a material adverse effect on our business, prospects and results of
operations.
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Our financial results are affected directly by the operating results of franchisees and agents, over whom we do not
have direct control.
Our real estate franchises generate revenue in the form of monthly ongoing fees, including monthly management fees
and broker fees (which are tied to agent gross commissions) charged by our franchisees to our agents. Our agents pay us
annual dues to have access to our network and utilize our services. Accordingly, our financial results depend upon the
operational and financial success of our franchisees and their agents, whom we do not control, particularly in
Independent Regions where we exercise less control over franchisees than in Company-owned Regions. If industry
trends or economic conditions are not sustained or do not continue to improve, our franchisees’ financial results may
worsen and our revenue may decline. We may also have to terminate franchisees more frequently in the future due to
non-reporting and non-payment. Further, if franchisees fail to renew their franchise agreements, or if we decide to
restructure franchise agreements in order to induce franchisees to renew these agreements, then our revenue from
ongoing monthly fees may decrease, and profitability from new franchisees may be lower than in the past due to reduced
ongoing monthly fees and other non-standard incentives we may need to provide.
Our franchisees and agents could take actions that could harm our business.
Our regional franchisees are independent businesses and the agents who work within these brokerages are independent
contractors and, as such, are not our employees, and we do not exercise control over their day-to-day operations. Broker
franchisees may not operate real estate brokerage businesses in a manner consistent with industry standards, or may not
attract and retain qualified independent contractor agents. If broker franchisees and agents were to provide diminished
quality of service to customers, engage in fraud, defalcation, misconduct or negligence or otherwise violate the law or
realtor codes of ethics, our image and reputation may suffer materially and we may become subject to liability claims
based upon such actions of our franchisees and agents. Any such incidence could adversely affect our results of
operations.
Brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable
negative publicity or result in litigation. Some of these incidents may relate to the way we manage our relationship with
our franchisees, our growth strategies or the ordinary course of our business or our franchisees’ business. Other incidents
may arise from events that are or may be beyond our control and may damage our brand, such as actions taken (or not
taken) by one or more franchisees or their agents relating to health, safety, welfare or other matters; litigation and claims;
failure to maintain high ethical and social standards for all of our operations and activities; failure to comply with local
laws and regulations; and illegal activity targeted at us or others. Our brand value could diminish significantly if any
such incidents or other matters erode consumer confidence in us, which may result in a decrease in our total agent count
and, ultimately, lower continuing franchise fees and annual dues, which in turn would materially and adversely affect our
business and results of operations.
The failure of Independent Region owners to successfully develop or expand within their respective regions could
adversely impact our revenue.
We have sold regional master franchises in the U.S. and Canada and have sold and continue to sell regional master
franchises in our global locations outside of Canada. While we are pursuing a strategy to reacquire select regional
franchise rights in a number of regions in the U.S. and Canada, we still rely on independent regional master franchises in
Independent Regions, and in all regions located outside the U.S. and Canada. We derive only a limited portion of our
revenue directly from master franchises. However, we depend on Independent Regions, which have the exclusive right to
grant franchises within a particular region, to successfully develop or expand within their respective regions and to
monitor franchisees’ use of our brand. The failure of any of these Independent Region owners to do these things, or the
termination of an agreement with a regional master franchisee could delay the development of a particular franchised
area, interrupt the operation of our brand in a particular market or markets while we seek alternative methods to develop
our franchises in the area, and weaken our brand image. Such an event could result in lower revenue for us, which would
adversely impact our business and results of operations.
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We are subject to a variety of additional risks associated with our franchisees.
Our franchise system subjects us to a number of risks, any one of which may impact our ability to collect recurring,
contractual fees and dues from our franchisees, may harm the goodwill associated with our brand, and/or may materially
and adversely impact our business and results of operations.
Bankruptcy of U.S. Franchisees. A franchisee bankruptcy could have a substantial negative impact on our ability to
collect fees and dues owed under such franchisee’s franchise arrangements. In a franchisee bankruptcy, the bankruptcy
trustee may reject its franchise arrangements pursuant to Section 365 under the U.S. bankruptcy code, in which case
there would be no further payments for fees and dues from such franchisee, and there can be no assurance as to the
proceeds, if any, that may ultimately be recovered in a bankruptcy proceeding of such franchisee in connection with a
damage claim resulting from such rejection.
Franchisee Insurance. The franchise arrangements require each franchisee to maintain certain insurance types and levels.
Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available
only at prohibitively expensive rates) with respect to many other risks. Moreover, any loss incurred could exceed policy
limits or the franchisee could lack the required insurance at the time the claim arises, in breach of the insurance
requirement, and policy payments made to franchisees may not be made on a timely basis. Any such loss or delay in
payment could have a material and adverse effect on a franchisee’s ability to satisfy its obligations under its franchise
arrangement, including its ability to make payments for contractual fees and dues or to indemnify us.
Franchise Arrangement Termination. Each franchise arrangement is subject to termination by us as the franchisor in the
event of a default, generally after expiration of applicable cure periods, although under certain circumstances a franchise
arrangement may be terminated by us upon notice without an opportunity to cure. The default provisions under the
franchise arrangements are drafted broadly and include, among other things, any failure to meet operating standards and
actions that may threaten the licensed intellectual property.
Franchise Nonrenewal. Each franchise agreement has an expiration date. Upon the expiration of the franchise
arrangement, we or the franchisee may or may not elect to renew the franchise arrangement. If the franchisee
arrangement is renewed, such renewal is generally contingent on the franchisee’s execution of the then-current form of
franchise arrangement (which may include terms the franchisee deems to be more onerous than the prior franchise
agreement), the satisfaction of certain conditions and the payment of a renewal fee. If a franchisee is unable or unwilling
to satisfy any of the foregoing conditions, the expiring franchise arrangement will terminate upon expiration of the term
of the franchise arrangement.
We may fail to protect the privacy and personally identifiable information of our franchisees, agents and consumers.
We rely on the collection and use of personally identifiable information from franchisees, agents and consumers to
conduct our business. We disclose our information collection and dissemination practices in a published privacy
statement on our websites, which we may modify from time to time. We may be subject to legal claims, government
action and damage to our reputation if we act or are perceived to be acting inconsistently with the terms of our privacy
statement, consumer expectations, or the law. In the event we, or the vendors with which we contract to provide services
on behalf of our customers, were to suffer a breach of personally identifiable information, our customers could terminate
their business with us. Further, we may be subject to claims to the extent individual employees or independent
contractors breach or fail to adhere to company policies and practices and personally identifiable information is
jeopardized as a result.
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The real estate business of our franchisees is highly regulated and any failure to comply with such regulations or any
changes in such regulations could adversely affect our business.
The businesses of our franchisees are highly regulated and must comply with the requirements governing the licensing
and conduct of real estate brokerage and brokerage-related businesses in the jurisdictions in which we and they do
business. These laws and regulations contain general standards for and prohibitions on the conduct of real estate brokers
and agents, including those relating to licensing of brokers and agents, fiduciary and agency duties, administration of
trust funds, collection of commissions, advertising and consumer disclosures. Under state law, the franchisees and our
real estate brokers have certain duties to supervise and are responsible for the conduct of their brokerage business.
Our franchisees (other than in commercial brokerage transactions) must comply with RESPA. RESPA and comparable
state statutes, among other things, restrict payments which real estate brokers, agents and other settlement service
providers may receive for the referral of business to other settlement service providers in connection with the closing of
real estate transactions. Such laws may to some extent restrict preferred vendor arrangements involving our franchisees.
RESPA and similar state laws also require timely disclosure of certain relationships or financial interests that a broker
has with providers of real estate settlement services. Pursuant to the Dodd-Frank Act, administration of RESPA has been
moved from the Department of Housing and Urban Development (“HUD”) to the Consumer Financial Protection Bureau
(“CFPB”). The CFPB’s interpretation or application of RESPA may differ from HUD’s, particularly with respect to a
range of informal interpretations that HUD staff provided over many years; that possibility presents an increased
regulatory risk.
There is a risk that we could be adversely affected by current laws, regulations or interpretations or that more restrictive
laws, regulations or interpretations will be adopted in the future that could make compliance more difficult or expensive.
There is also a risk that a change in current laws could adversely affect our business or our franchisees’ businesses.
Regulatory authorities also have relatively broad discretion to grant, renew and revoke licenses and approvals and to
implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend our franchisees
from carrying on some or all of our activities or otherwise penalize them if their financial condition or our practices were
found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements
by the regulatory authority. Our failure to comply with any of these requirements or interpretations could limit our ability
to renew current franchisees or sign new franchisees or otherwise have a material adverse effect on our operations.
We, or our franchisees, are also subject to various other rules and regulations such as:
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the Gramm-Leach-Bliley Act, which governs the disclosure and safeguarding of consumer financial
information;
various state and federal privacy laws protecting consumer data;
the USA PATRIOT Act;
restrictions on transactions with persons on the Specially Designated Nationals and Blocked Persons list
promulgated by the Office of Foreign Assets Control of the Department of the Treasury;
federal and state “Do Not Call,” “Do Not Fax,” and “Do Not E-Mail” laws;
the Fair Housing Act;
laws and regulations, including the Foreign Corrupt Practices Act, that impose sanctions on improper
payments;
laws and regulations in jurisdictions outside the U.S. in which we do business;
state and federal employment laws and regulations, including any changes that would require reclassification
of independent contractors to employee status, and wage and hour regulations;
increases in state, local or federal taxes that could diminish profitability or liquidity; and
consumer fraud statutes.
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Our failure to comply with any of the foregoing laws and regulations may subject us to fines, penalties, injunctions
and/or potential criminal violations. Any changes to these laws or regulations or any new laws or regulations may make
it more difficult for us to operate our business and may have a material adverse effect on our operations.
Our franchising activities are subject to a variety of state and federal laws and regulations regarding franchises, and
any failure to comply with such existing or future laws and regulations could adversely affect our business.
The sale of franchises is regulated by various state laws as well as by the Federal Trade Commission (“FTC”). The FTC
requires that franchisors make extensive disclosure to prospective franchisees but does not require registration. A number
of states require registration and/or disclosure in connection with franchise offers and sales. In addition, several states
have “franchise relationship laws” or “business opportunity laws” that limit the ability of franchisors to terminate
franchise agreements or to withhold consent to the renewal or transfer of these agreements. We believe that our
franchising procedures, as well as any applicable state-specific procedures, comply in all material respects with both the
FTC guidelines and all applicable state laws regulating franchising in those states in which we offer new franchise
arrangements. However, noncompliance could reduce anticipated revenue, which in turn may materially and adversely
affect our business and operating results.
Most of our domestic and global regional franchisees self-report their agent counts, agent commissions and fees due
to us, and we have limited tools to validate or verify these reports and a few of our domestic and global master
franchise agreements do not contain audit rights. This could impact our ability to collect revenue owed to us by our
Independent Regions, franchisees, and agents, and could affect our ability to forecast our performance accurately.
Under our regional franchise agreements, owners in our Independent Regions report the number of agents, monthly
management fees and broker service fees received by the brokers from the agents and the monthly ongoing fees
(continuing franchise fees and broker fees) payable to us by the brokers. Generally, our regional agreements require that
the regional franchisee provide us with certain financial reports, including reports that we may reasonably request from
time to time. Additionally, many of these agreements also provide us with audit rights. For those agreements that do not,
we may have limited methods of validating the monthly ongoing fees due to us from these regions and must rely on
reports submitted by such regional franchisees and our internal protocols for verifying agent counts. If such regional
franchisees were to underreport or erroneously report these amounts payable, even if unintentionally, we may not receive
all of the annual agent dues or monthly ongoing fees due to us. In addition, to the extent that we were underpaid, we may
not have a definitive method for determining such underpayment. If a material number of our regional franchisees were
to under report or erroneously report their agent counts, agent commissions or fees due to us, it could have a material
adverse effect on our financial performance and results of operations. Further, agent count is a key performance indicator
(KPI), and incomplete information, or information that is not reported in a timely manner could impair our ability to
evaluate and forecast key business drivers and financial performance.
We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business
and financial condition.
We cannot predict with certainty the costs of defense, the costs of prosecution, insurance coverage or the ultimate
outcome of litigation and other proceedings filed by or against us, including remedies or damage awards, and adverse
results in such litigation and other proceedings may harm our business and financial condition.
Such litigation and other proceedings may include, but are not limited to, complaints from or litigation by franchisees,
usually related to alleged breaches of contract or wrongful termination under the franchise arrangements, actions relating
to intellectual property, commercial arrangements and franchising arrangements.
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In addition, litigation against a franchisee or its affiliated sales agents by third parties, whether in the ordinary course of
business or otherwise, may also include claims against us for liability by virtue of the franchise relationship. Franchisees
may fail to obtain insurance naming the Company as an additional insured on such claims. We could face similar claims
for direct liability related our former operation of Company-owned brokerages, the last of which we sold in 2015 and
early 2016. In addition to increasing franchisees’ costs and limiting the funds available to pay us contractual fees and
dues and reducing the execution of new franchise arrangements, claims against us (including vicarious liability claims)
divert our management resources and could cause adverse publicity, which may materially and adversely affect us and
our brand, regardless of whether such allegations are valid or whether we are liable.
Our global operations may be subject to additional risks related to litigation, including difficulties in enforcement of
contractual obligations governed by foreign law due to differing interpretations of rights and obligations, compliance
with multiple and potentially conflicting laws, new and potentially untested laws and judicial systems and reduced
protection of intellectual property. A substantial unsatisfied judgment against us or one of our subsidiaries could result in
bankruptcy, which would materially and adversely affect our business and operating results.
Our global operations, including those in Canada, are subject to risks not generally experienced by our U.S.
operations.
Although our global operations provide a relatively small portion of our revenue, they are subject to risks not generally
experienced by our U.S. operations. The risks involved in our global operations and relationships could result in losses
against which we are not insured and therefore affect our profitability. These risks include:
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fluctuations in foreign currency exchange rates, primarily related to changes in the Canadian dollar to U.S.
dollar exchange rates, as well as the Euro to U.S. dollar exchange rate and foreign exchange restrictions;
exposure to local economic conditions and local laws and regulations, including those relating to the agents of
our franchisees;
economic and/or credit conditions abroad;
potential adverse changes in the political stability of foreign countries or in their diplomatic relations with the
U.S.;
restrictions on the withdrawal of foreign investment and earnings;
government policies against businesses owned by foreigners;
investment restrictions or requirements;
diminished ability to legally enforce our contractual rights in foreign countries;
difficulties in registering, protecting or preserving trade names and trademarks in foreign countries;
restrictions on the ability to obtain or retain licenses required for operation;
increased franchise regulations in foreign jurisdictions;
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changes in foreign tax laws.
Our global operations outside Canada generally generate substantially lower average revenue per agent than our U.S. and
Canadian operations.
Loss or attrition among our senior management or other key employees or the inability to hire additional qualified
personnel could adversely affect our operations, our brand and our financial performance.
Our future success depends on the efforts and abilities of our senior management, including our Chief Executive Officer,
Chairman and Co-Founder, David Liniger, our senior management and other key employees. The loss of these
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employees’ services could make it more difficult to successfully operate our business and achieve our business goals. In
addition, we do not maintain key employee life insurance policies on David Liniger or our other key employees. As a
result, we may not be able to cover the financial loss we may incur in losing the services of any of these individuals.
In the event of the loss of the services of members of our senior management or other key employees, we may be unable
to implement or execute upon our corporate succession plan due to factors including the timing of the loss relative to the
development of key successor employees or the loss of those successors themselves.
Our ability to retain our employees is generally subject to numerous factors, including the compensation and benefits we
pay, our ability to provide pathways for professional development, and overall employee morale. As such, we could
suffer significant attrition among our current key employees unexpectedly. Competition for qualified employees in the
real estate franchising industry is intense, and we cannot assure you that we will be successful in attracting and retaining
qualified employees.
We only have one primary facility, which serves as our corporate headquarters, and are in the process of
implementing business continuity procedures. If we encounter difficulties associated with this facility, we could face
management issues that could have a material adverse effect on our business operations.
We only have one primary facility, in Denver, Colorado, which serves as our corporate headquarters where most of our
employees are located. A significant portion of our computer equipment and senior management, including critical
resources dedicated to financial and administrative functions, is also located at our corporate headquarters. Our
management and employees would need to find an alternative location if we were to encounter difficulties at our
corporate headquarters, including by fire or other natural disaster, which would cause disruption and expense to our
business and operations.
We recognize the need for, and continue to develop business continuity and document retention plans that would allow
us to be operational despite casualties or unforeseen events impacting our corporate headquarters. If we encounter
difficulties or disasters at our corporate headquarters and our business continuity and document retention plans are not
adequate, our operations and information may not be available in a timely manner, or at all, and this would have a
material adverse effect on our business.
Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our
ability to grow our business, particularly in new markets where we have limited brand recognition.
We have developed a strong brand that we believe has contributed significantly to the success of our business.
Maintaining, protecting and enhancing the “RE/MAX” brand is critical to growing our business, particularly in new
markets where we have limited brand recognition. If we do not successfully build and maintain a strong brand, our
business could be materially harmed. Maintaining and enhancing the quality of our brand may require us to make
substantial investments in areas such as marketing, community relations, outreach and employee training. We actively
engage in television, print and online advertisements, targeted promotional mailings and email communications, and
engage on a regular basis in public relations and sponsorship activities. These investments may be substantial and may
fail to encompass the optimal range of traditional, online and social advertising media to achieve maximum exposure and
benefit to the brand.
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We may be unable to obtain approval of independent regional owners to fund network wide advertising and
promotional initiatives.
Regional RE/MAX master franchisees, as independent business operators, may from time to time disagree with us and
our strategies regarding the business and how best to promote the RE/MAX brand on a national or network-wide basis.
Both Company-owned and Independent Regions in the U.S. concentrate advertising expenditures with our respective
regional advertising funds. Our focus on regional and local advertising in the U.S. may fail to leverage franchisee
contributions to achieve maximum group purchasing power in our media buys, having an adverse impact on our business
and results of operation in future periods. To the extent that the advertising funds in Independent Regions choose not to
contribute to national or pan-regional creative development and media purchases, this may reduce economies of scale in
the purchase of advertising, or may result in different marketing messages being associated with the RE/MAX brand in
different areas of the country. If Independent Regions and their advertising funds choose not to invest in common
technology platforms, this likewise may reduce economies of scale and may result in fragmented web presences for the
RE/MAX brand in various areas of the country and less web traffic to remax.com, resulting in fewer leads to RE/MAX
agents, potentially affecting our results of operations.
Loss of market leadership could weaken our brand awareness and brand reputation among consumers, agents, and
brokers.
We derive significant benefit from our market share leadership and our ability to make claims regarding the same,
including through use of our slogan that “Nobody sells more real estate than RE/MAX” as measured by residential
transaction sides. Loss of market leadership, and as a result an inability to tout the same, may hinder public and industry
perception of RE/MAX as a leader in the real estate industry and hurt agent recruitment and franchise sales as a result.
Infringement, misappropriation or dilution of our intellectual property could harm our business.
We regard our RE/MAX trademark, balloon logo and yard sign design trademarks as having significant value and as
being an important factor in the marketing of our brand. We believe that this and other intellectual property are valuable
assets that are critical to our success. Not all of the trademarks or service marks that we currently use have been
registered in all of the countries in which we do business, and they may never be registered in all of those countries.
There can be no assurance that we will be able to adequately maintain, enforce and protect our trademarks or other
intellectual property rights.
We are commonly involved in numerous proceedings, generally on a small scale, to enforce our intellectual property and
protect our brand. Unauthorized uses or other infringement of our trademarks or service marks, including uses that are
currently unknown to us, could diminish the value of our brand and may adversely affect our business. Effective
intellectual property protection may not be available in every market. Failure to adequately protect our intellectual
property rights could damage our brand and impair our ability to compete effectively. Even where we have effectively
secured statutory protection for our trademarks and other intellectual property, our competitors may misappropriate our
intellectual property, and in the course of litigation, such competitors occasionally attempt to challenge the breadth of
our ability to prevent others from using similar marks or designs. If such challenges were to be successful, less ability to
prevent others from using similar marks or designs may ultimately result in a reduced distinctiveness of our brand in the
minds of consumers. Defending or enforcing our trademark rights, branding practices and other intellectual property
could result in the expenditure of significant resources and divert the attention of management, which in turn may
materially and adversely affect our business and operating results. Even though competitors occasionally attempt to
challenge our ability to prevent infringers from using our marks, we are not aware of any challenges to our right to use,
and to authorize our franchisees to use, any of our brand names or trademarks.
In addition, franchisee noncompliance with the terms and conditions of our franchise agreements and our brand
standards may reduce the overall goodwill of our brand, whether through diminished consumer perception of our brand,
dilution of our intellectual property, the failure to meet the FTC guidelines or applicable state laws, or through the
participation in improper or objectionable business practices. Moreover, unauthorized third parties may use our
intellectual property to trade on the goodwill of our brand, resulting in consumer confusion or dilution. Any reduction of
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our brand’s goodwill, consumer confusion, or dilution is likely to impact sales, and could materially and adversely
impact our business and operating results.
Our new information technology infrastructure for certain key aspects of our internal operations may take more time
to integrate than we expected.
In 2016, we implemented a new information technology infrastructure for certain key aspects of our operations. The
systems may not perform as desired or we may experience cost overages, delays, or other factors that may distract our
management from our business, which could have an adverse impact on our results of operations.
Further, we may not be able to obtain future new technologies and systems, or to replace or introduce new technologies
and systems as quickly as our competitors or in a cost-effective manner. Also, we may not achieve the benefits
anticipated or required from any new technology or system, and we may not be able to devote financial resources to new
technologies and systems in the future.
We rely on third parties for certain important functions and/or technology. Any failures by those vendors and service
providers could disrupt our business operations.
We have outsourced certain key functions to external parties, including some that are critical to financial reporting, our
franchise and membership tracking/billing and a number of critical consumer- and franchise/agent-facing websites. We
may enter into other key outsourcing relationships in the future. If one or more of these external parties were not able to
perform their functions for a period of time, perform them at an acceptable service level, or handle increased volumes,
our business operations could be constrained, disrupted, or otherwise negatively affected. Our use of vendors also
exposes us to the risk of losing intellectual property or confidential information and to other harm. Our ability to monitor
the activities or performance of vendors may be constrained, which makes it difficult for us to assess and manage the
risks associated with these relationships.
We rely on traffic to our websites, including our flagship website, remax.com, directed from search engines like
Google and Bing. If our websites fail to rank prominently in unpaid search results, traffic to our websites could
decline and our business could be adversely affected.
Our success depends in part on our ability to attract home buyers and sellers to our websites, including our flagship
website, remax.com, through unpaid Internet search results on search engines like Google and Bing. The number of users
we attract from search engines is due in large part to how and where our websites rank in unpaid search results. These
rankings can be affected by a number of factors, such as changes in ranking algorithms, many of which are not under our
direct control, and they may change frequently. In addition, our website faces increasing competition for audience from
real estate portal websites, such as Zillow, Trulia and Realtor.com. As a result, links to our websites may not be
prominent enough to drive traffic to our websites, and we may not be in a position to influence the results. In some
instances, search engine companies may change these rankings in order to promote their own competing services or the
services of one or more of our competitors. Our websites have experienced fluctuations in search result rankings in the
past, and we anticipate fluctuations in the future. Any reduction in the number of users directed to our websites could
adversely impact our business and results of operations.
Any disruption or reduction in our information technology capabilities or websites or other threats to our
cybersecurity or the physical security of our business records could harm our business.
Our information technologies and systems and those of our third-party hosted services are vulnerable to breach, damage
or interruption from various causes, including: (i) natural disasters, war and acts of terrorism, (ii) power losses, computer
systems failure, Internet and telecommunications or data network failures, operator error, losses and corruption of data,
and similar events and (iii) computer viruses, penetration by individuals seeking to disrupt operations or misappropriate
information and other physical or electronic breaches of security. Our physical filing systems are vulnerable to security
breaches or damage from a variety of possible causes. We may not be able to prevent a disruption to or a material
adverse effect on our business or operations in the event of a disaster, theft of data or other business interruption. Any
extended interruption in our technologies or systems, significant breach or damage of electronic or physical files could
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significantly curtail our ability to conduct our business and generate revenue or could expose us to liability for improper
handling of personally identifiable information. Additionally, our business interruption insurance may be insufficient to
compensate us for losses that may occur.
We are vulnerable to certain additional risks and uncertainties associated with websites, which include our lead referral
system LeadStreet®, remax.com, global.remax.com, theremaxcollection.com and remaxcommercial.com. These risks
include changes in required technology interfaces, website downtime and other technical failures, security breaches and
consumer privacy concerns. We may experience service disruptions, outages and other performance problems due to a
variety of factors, including reliance on our third-party hosted services, infrastructure changes, human or software errors,
capacity constraints due to an overwhelming number of users accessing our platform simultaneously, and denial of
service, fraud or attacks. Our failure to address these risks and uncertainties successfully could reduce our Internet
presence, generate fewer leads for our agents and damage our brand.
Many of the risks relating to our website operations are beyond our control.
We are new to the mortgage brokerage industry, which, along with the intense competition within the industry, may
hinder our efforts to establish and grow our new mortgage brokerage franchising business, Motto Mortgage.
We are pursuing a growth strategy to offer and sell residential mortgage brokerage franchises in the U.S under the
“Motto Mortgage” brand and trademarks. Our investments in the new Motto business included the cost of our acquisition
of certain assets of Full House Mortgage Connection, Inc. (“Full House”) and initial funding for the business. We lack
operating experience in the mortgage brokerage industry. Our strategy hinges on our ability to recruit franchisees and
loan originators, to develop and maintain strong competencies within the mortgage brokerage market, on favorable
conditions in the related regulatory environment and on our success in developing a strong, respected brand. We may fail
to understand, interpret, implement and/or train franchisees adequately concerning compliance requirements related to
the mortgage brokerage industry or the relationship between us and our franchisees, any of which failures could subject
us or our franchisees to adverse actions from regulators. Motto Franchising, LLC, may also have regulatory obligations
arising from its relationship with Motto franchisees; we may fail to comply with those obligations, and that failure could
also subject us to adverse actions from regulators. As a start-up, the Motto Mortgage brand’s initial lack of brand
recognition, may hamper franchise sales efforts. We may experience impairment of acquired assets and/or potential
unknown liabilities associated with the acquisition of the business of Full House. This venture could divert resources,
including the time and attention of management and other key employees, from our RE/MAX business, and a prolonged
diversion could negatively impact operating results. In addition, residential mortgage brokerage is a highly competitive
industry and Motto will suffer if we are unable to attract franchisees, which will adversely affect Motto’s growth,
operations and profitability.
The terms of RE/MAX, LLC’s senior secured credit facility restrict the current and future operations of RMCO,
RE/MAX, LLC and their subsidiaries.
RE/MAX, LLC’s senior secured credit facility includes a number of customary restrictive covenants. These covenants
could impair the financing and operational flexibility of RMCO, RE/MAX, LLC and their subsidiaries and make it
difficult for them to react to market conditions and satisfy their ongoing capital needs and unanticipated cash
requirements. Specifically, such covenants may restrict their ability to, among other things:
incur additional debt;
•
• make certain investments, acquisitions and joint ventures;
•
enter into certain types of transactions with affiliates;
•
•
•
•
pay dividends or make distributions or other payments to us;
use assets as security in certain transactions;
repurchase their equity interests;
sell certain assets or merge with or into other companies;
37
•
•
guarantee the debts of others;
enter into new lines of business; and
• make certain payments on subordinated debt.
In addition, so long as any revolving loans are outstanding under the senior secured credit facility, RE/MAX, LLC is
required to maintain specified financial ratios. As of December 31, 2016, there were no outstanding revolving loans.
The ability to comply with the covenants and other terms of the senior secured credit facility will depend on the future
operating performance of RE/MAX, LLC and its subsidiaries. If RE/MAX, LLC fails to comply with such covenants and
terms, it would be required to obtain waivers from the lenders or agree with the lenders to an amendment of the facility’s
terms to maintain compliance under the facility. If RE/MAX, LLC is unable to obtain any necessary waivers or
amendments and the debt under our senior secured credit facility is accelerated or the lenders obtain other remedies, it
would likely have a material adverse effect on our financial condition and future operating performance.
We have significant debt service obligations and may incur additional indebtedness in the future.
We have significant debt service obligations, including principal, interest and commitment fee payments due quarterly
pursuant to RE/MAX, LLC’s senior secured credit facility. Our currently existing indebtedness, or any additional
indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our
liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to
refinance our debt, dispose of assets or issue additional equity to obtain necessary funds. We do not know whether we
would be able to take such actions on a timely basis, on terms satisfactory to us, or at all. Future indebtedness may
impose additional restrictions on us, which could limit our ability to respond to market conditions, to make capital
investments or to take advantage of business opportunities. Our level of indebtedness has important consequences to you
and your investment in our Class A common stock.
For example, our level of indebtedness may:
•
•
•
•
•
require us to use a substantial portion of our cash flow from operations to pay interest and principal on our
debt, which would reduce the funds available to us for working capital, capital expenditures and other general
corporate purposes;
limit our ability to pay future dividends;
limit our ability to obtain additional financing for working capital, capital expenditures, expansion plans and
other investments, which may limit our ability to implement our business strategy;
heighten our vulnerability to downturns in our business, the housing industry or in the general economy and
limit our flexibility in planning for, or reacting to, changes in our business and the housing industry; or
prevent us from taking advantage of business opportunities as they arise or successfully carrying out our plans
to expand our franchise base and product offerings.
We cannot assure you that our business will generate sufficient cash flow from operations or that future financing will be
available to us in amounts sufficient to enable us to make payments on our indebtedness or to fund our operations.
As a result of these covenants, we are limited in the manner in which we conduct our business and we may be unable to
engage in favorable business activities or finance future operations or capital needs. Our ability to make payments to
fund working capital, capital expenditures, debt service, and strategic acquisitions will depend on our ability to generate
cash in the future, which is subject to general economic, financial, competitive, regulatory and other factors that are
beyond our control.
38
Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase
significantly.
As of December 31, 2016, $232.9 million in term loans were outstanding under our senior secured credit facility, net of
an unamortized discount, which was at variable rates of interest, thereby exposing us to interest rate risk. We currently
do not engage in any interest rate hedging activity. As such, if interest rates increase, our debt service obligations on our
outstanding indebtedness would increase even if the amount borrowed remained the same, and our net income would
decrease.
Our operating results are subject to quarterly fluctuations, and results for any quarter may not necessarily be
indicative of the results that may be achieved for the full fiscal year.
Historically, we have realized, and expect to continue to realize, lower Adjusted EBITDA margins in the first and fourth
quarters due primarily to the impact of lower broker fees and other revenue primarily as a result of lower overall home
sale transactions, and higher selling, operating and administrative expenses in the first quarter for expenses incurred in
connection with our annual convention. Accordingly, our results of operations may fluctuate on a quarterly basis, which
would cause period to period comparisons of our operating results to not be necessarily meaningful and cannot be relied
upon as indicators of future annual performance.
Changes in accounting standards, subjective assumptions and estimates used by management related to complex
accounting matters could have a material adverse effect on our financial performance and results of operations.
Generally accepted accounting principles in the U.S. (“U.S. GAAP”) and related accounting pronouncements,
implementation guidance and interpretations with regard to a wide range of matters, such as revenue recognition,
accounting for leases, equity-based compensation, asset impairments, valuation reserves, income taxes and fair value
accounting, are highly complex and involve many subjective assumptions, estimates and judgments made by
management. Changes in these rules or their interpretations or changes in underlying assumptions, estimates or
judgments made by management could significantly change our reported results.
Risks Related to Our Organizational Structure
RIHI, Inc. (“RIHI”) has substantial control over us including over decisions that require the approval of
stockholders, and its interest in our business may conflict with yours.
RIHI, an entity controlled by David Liniger, our Chief Executive Officer, Chairman and Co-Founder, and Gail Liniger,
our Vice-Chair and Co-Founder, respectively, holds a majority of the combined voting power of our capital stock
through its ownership of 100% of our outstanding Class B common stock. Additionally, the shares of Class B common
stock entitle the holder, without regard to the number of shares of Class B common stock held, to a number of votes on
matters presented to stockholders of RE/MAX Holdings that is equal to two times the aggregate number of common
units of RMCO held by such holder, and unless certain events occur, may continue to do so until October 7, 2018.
Accordingly, RIHI, acting alone, has the ability to approve or disapprove substantially all matters submitted to a vote of
our stockholders. These rights may enable RIHI to consummate transactions that may not be in the best interests of
holders of our Class A common stock or, conversely, prevent the consummation of transactions that may be in the best
interests of holders of our Class A common stock. In addition, although RIHI has voting control of us, RIHI’s entire
economic interest in us is in the form of its direct interest in RMCO through the ownership of RMCO common units, the
payments it may receive from us under its tax receivable agreement and the proceeds it may receive upon any
redemption of its RMCO common units, including issuance of shares of our Class A common stock upon any such
redemption and any subsequent sale of such Class A common stock. As a result, RIHI’s interests may conflict with the
interests of our Class A common stockholders. For example, RIHI may have a different tax position from us which could
influence its decisions regarding certain transactions, especially in light of the existence of the tax receivable agreements
that we entered into in connection with our IPO, and whether and when we should terminate the tax receivable
agreements and accelerate our obligations thereunder. In addition, the structuring of future transactions may take into
consideration the tax or other considerations of RIHI, even in situations where no similar considerations are relevant to
us.
39
Failure to maintain effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-
Oxley could have a material adverse effect on our business and stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on
our internal control over financial reporting. Management has concluded that our internal controls over financial
reporting were effective as of December 31, 2016. However, if we identify one or more material weaknesses in our
financial reporting in the future, we will be unable to assert that our internal controls over financial reporting are
effective. Further, our independent registered public accounting firm is required to attest to the effectiveness of our
internal controls over financial reporting. Therefore, even if our management concludes in the future that our internal
controls over financial reporting are effective, our independent registered public accounting firm may issue a report that
is qualified if it is not satisfied with our controls.
If material weaknesses or other deficiencies are identified in the future, or if we fail to fully maintain effective internal
controls in the future, it could result in a material misstatement of our financial statements that would not be prevented or
detected on a timely basis, which could require a restatement, cause investors to lose confidence in our financial
information or cause our stock price to decline.
We have incurred and will continue to incur increased costs as a result of operating as a public company, and our
management is required to devote substantial time to compliance initiatives.
As a public company, we incur significant legal, accounting, insurance and other expenses, and our management and
other personnel devote a substantial amount of time to compliance initiatives resulting from operating as a public
company. We anticipate that these costs and compliance initiatives will increase as a result of the Company having
ceased to be an “emerging growth company,” as defined in the JOBS Act, as of December 31, 2016. In particular,
because we no longer qualify as an “emerging growth company,” we are required to include in our Annual Report on
Form 10-K for the year ended December 31, 2016, an attestation report as to the effectiveness of our internal control
over financial reporting that is issued by our independent registered public accounting firm. In addition, we have
previously taken advantage of the JOBS Act’s reduced disclosure requirements applicable to “emerging growth
companies” regarding executive compensation and exemptions from the requirements of holding advisory “say-on-pay”
votes on executive compensation. We are no longer eligible for such reduced disclosure requirements and exemptions.
We depend on distributions from RMCO to pay taxes and expenses, including payments under the tax receivable
agreements, but RMCO’s ability to make such distributions may be subject to various limitations and restrictions.
We have no material assets other than our ownership of common units of RMCO and have no independent means of
generating revenue. RMCO is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to
U.S. federal income tax. Instead, taxable income is allocated to RMCO’s partners, including us. As a result, we incur
income taxes on our allocable share of any net taxable income of RMCO and are responsible for complying with U.S.
and foreign tax laws. Under the terms of RMCO’s fourth amended and restated limited liability company operating
agreement, which became effective upon the completion of our IPO (the “New RMCO, LLC agreement”), RMCO is
obligated to make tax distributions to its members, including us. In addition to tax expenses, we also incur expenses
related to our operations and must satisfy obligations under the terms of the tax receivable agreements, which we expect
will be significant over the fifteen-year term. As RMCO’s managing member, we cause RMCO to make distributions in
an amount sufficient to allow us to pay our taxes and operating expenses, including any payments due under the tax
receivable agreements. However, RMCO’s ability to make such distributions may be subject to various limitations and
restrictions including, but not limited to, restrictions on distributions that would either violate any contract or agreement
to which RMCO is then a party, including debt agreements, or any applicable law, or that would have the effect of
rendering RMCO insolvent. If RMCO does not have sufficient funds to pay tax or other liabilities to fund our operations,
we may have to borrow funds, which could adversely affect our liquidity and financial condition and subject us to
various restrictions imposed by any such lenders. To the extent we are unable to make payments under the tax receivable
agreements for any reason, such payments will be deferred and will accrue interest until paid. If RMCO does not have
sufficient funds to make distributions, our ability to declare and pay cash dividends may also be restricted or impaired.
See “—Risks Related to Ownership of Our Class A Common Stock.”
40
Our tax receivable agreements require us to make cash payments based upon future tax benefits to which we may
become entitled, and the amounts that we may be required to pay could be significant.
In connection with our IPO, we entered into tax receivable agreements with our historical owners. After one of these
historical owners assigned its interest in its tax receivable agreement, these tax receivable agreements are now held by
RIHI and Oberndorf Investments LLC (“Oberndorf” and together, the “TRA Parties”). The amount of the cash payments
that we may be required to make under the tax receivable agreements could be significant and will depend, in part, upon
facts and circumstances that are beyond our control.
The amount of our obligations pursuant to the tax receivable agreement with RIHI will depend, in part, upon the
occurrence of future events, including any redemptions by RIHI of its ownership interest in RMCO. In general, future
redemptions by RIHI will increase our tax receivable agreement obligations to RIHI. Payments under the tax receivable
agreements are anticipated to be made, on an annual basis. Any payments made by us to the TRA Parties under the tax
receivable agreements will generally reduce the amount of overall cash flow that might have otherwise been available to
us. To the extent we are unable to make timely payments under the tax receivable agreements for any reason, the unpaid
amounts will be deferred and will accrue interest until paid by us. Furthermore, our future obligation to make payments
under the tax receivable agreements could make us a less attractive target for an acquisition, particularly in the case of an
acquirer that cannot use some or all of the tax benefits that may be deemed realized under the tax receivable agreements.
The payments under the tax receivable agreement with RIHI are not conditioned upon RIHI maintaining a continued
ownership interest in either RMCO or us, and payments under the tax receivable agreement with Oberndorf are not
conditioned upon Oberndorf holding any ownership interest in either RMCO or us.
The amounts that we may be required to pay to the TRA Parties under the tax receivable agreements may be
accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately
realize.
The tax receivable agreements provide that if certain mergers, asset sales, other forms of business combination, or other
changes of control were to occur, or that if, at any time, we elect an early termination of the tax receivable agreements,
then our obligations, or our successor’s obligations, to make payments under the tax receivable agreements would be
based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all
potential future tax benefits that are subject to the tax receivable agreements.
As a result, (i) we could be required to make cash payments to the TRA Parties that are greater than the specified
percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the tax receivable
agreements, and (ii) if we elect to terminate the tax receivable agreements early, we would be required to make an
immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the tax
receivable agreements, which payment may be made significantly in advance of the actual realization, if any, of such
future tax benefits. In these situations, our obligations under the tax receivable agreements could have a substantial
negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset
sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to
finance our obligations under the tax receivable agreements.
We will also not be reimbursed for any cash payments previously made to the TRA Parties (or their predecessors)
pursuant to the tax receivable agreements if any tax benefits initially claimed by us are subsequently challenged by a
taxing authority and are ultimately disallowed. Instead, any excess cash payments made by us to either of the TRA
Parties will be netted against any future cash payments that we might otherwise be required to make under the terms of
the tax receivable agreements. However, we might not determine that we have effectively made an excess cash payment
to either of the TRA Parties for a number of years following the initial time of such payment. As a result, it is possible
that we could make cash payments under the tax receivable agreements that are substantially greater than our actual cash
tax savings.
41
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940
Act”) as a result of our ownership of RMCO, applicable restrictions could make it impractical for us to continue our
business as contemplated and could have an adverse effect on our business.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company”
for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily,
in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business
of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment
securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash
items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in
either of those sections of the 1940 Act.
As the sole managing member of RMCO, we control and operate RMCO. On that basis, we believe that our interest in
RMCO is not an “investment security” as that term is used in the 1940 Act. However, if we were to cease participation in
the management of RMCO, our interest in RMCO could be deemed an “investment security” for purposes of the 1940
Act.
We and RMCO intend to conduct our operations so that we will not be deemed an investment company. However, if we
were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital
structure and our ability to transact with affiliates, could make it impractical for us to continue our business as
contemplated and could have a material adverse effect on our business.
Risks Related to Ownership of Our Class A Common Stock
RIHI directly (through ownership of our Class B common stock) and indirectly (through ownership of RMCO
common units) owns interests in us, and RIHI has the right to redeem and cause us to redeem, as applicable, such
interests pursuant to the terms of the New RMCO, LLC agreement. We may elect to issue shares of Class A common
stock upon such redemption, and the issuance and sale of such shares may have a negative impact on the market
price of our Class A common stock.
As of December 31, 2016, we had an aggregate of 149,787,852 shares of Class A common stock authorized but
unissued, including 12,559,600 shares of Class A common stock issuable upon redemption of RMCO common units that
are held by RIHI. In connection with our IPO, RMCO entered into the New RMCO, LLC agreement, and subject to
certain restrictions set forth therein, RIHI is entitled to potentially redeem the RMCO common units it holds for an
aggregate of up to 12,559,600 shares of our Class A common stock, subject to customary adjustments. We also have
entered into a registration rights agreement pursuant to which the shares of Class A common stock issued upon such
redemption are eligible for resale, subject to certain limitations set forth therein.
We cannot predict the size of future issuances of our Class A common stock or the effect, if any, that future issuances
and sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or
distributions of substantial amounts of our Class A common stock, including shares issued in connection with an
acquisition, or the perception that such sales or distributions could occur, may cause the market price of our Class A
common stock to decline.
The dual class structure of our common stock has the effect of concentrating voting control with RIHI and our Chief
Executive Officer, Chairman and Co-Founder.
The Class B common stock has no economic rights but entitles the holder, without regard to the number of shares of
Class B common stock held, to a number of votes on matters presented to stockholders of RE/MAX Holdings that is
equal to two times the aggregate number of common units of RMCO held by such holder. Our Class A common stock
has one vote per share.
Based on the voting rights associated with our Class B common stock, and the number of common units of RMCO that
RIHI currently owns, RIHI holds nearly 60% of the voting power of our outstanding capital stock. As a result, RIHI
controls a majority of the combined voting power of our common stock and therefore is able to control all matters
42
submitted to our stockholders for approval. This concentrated control will limit or preclude your ability to influence
corporate matters for the foreseeable future.
RIHI is a Delaware corporation that is majority owned and controlled by David Liniger, our Chief Executive Officer,
Chairman and Co-Founder, and Gail Liniger, our Vice Chair and Co-Founder.
You may be diluted by future issuances of additional Class A common stock in connection with our incentive plans,
acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may
occur, could lower our stock price.
Our certificate of incorporation authorizes us to issue shares of Class A common stock and options, rights, warrants and
appreciation rights relating to Class A common stock for the consideration and on the terms and conditions established
by our board of directors in its sole discretion. This could include issuances as compensation pursuant to our 2013
Omnibus Incentive Plan, in connection with acquisitions (either by issuing shares to raise funds for such an acquisition,
or by issuing shares to the seller of the acquired business) or to raise capital for other purposes. Any Class A common
stock that we issue, including under our 2013 Omnibus Incentive Plan or other equity incentive plans that we may adopt
in the future, would dilute the percentage ownership held by the investors who own Class A common stock.
Our Class A common stock price may be volatile or may decline regardless of our operating performance and you
may not be able to resell your shares at or above the price you paid for them.
Many factors, which are outside our control, may cause the market price of our Class A common stock to fluctuate
significantly, including those described elsewhere in this “Risk Factors” section, as well as the following:
•
•
•
•
•
•
our operating and financial performance and prospects;
our quarterly or annual earnings or those of other companies in our industry compared to market expectations;
conditions that impact demand for our services, including the condition of the U.S. residential housing market
unrelated to our performance;
future announcements concerning our business or our competitors’ businesses;
the public’s reaction to our press releases, other public announcements and filings with the SEC;
the size of our public float;
coverage by or changes in financial estimates by securities analysts or failure to meet their expectations;
•
• market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
•
strategic actions by us or our competitors, such as acquisitions or restructurings;
•
•
•
•
•
•
•
changes in government and environmental regulation;
housing and mortgage finance markets;
changes in accounting standards, policies, guidance, interpretations or principles;
changes in senior management or key personnel;
issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock;
adverse resolution of new or pending litigation against us;
changes in general market, economic and political conditions in the U.S. and global economies or financial
markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such
events; and
• material weakness in our internal control over financial reporting.
43
Volatility in the market price of our common stock may prevent investors from being able to sell their common stock at
or above the price they paid for the stock. In addition, price volatility may be greater if the public float and trading
volume of our common stock is low. As a result, you may suffer a loss on your investment.
We cannot assure you that we will have the available cash to make dividend payments.
We intend to continue to pay cash dividends quarterly. Whether we will do so, however, and the timing and amount of
those dividends, will be subject to approval and declaration by our board of directors and will depend upon on a variety
of factors, including our financial results, cash requirements and financial condition, our ability to pay dividends under
our senior secured credit facility and any other applicable contracts, and other factors deemed relevant by our board of
directors. Any dividends declared and paid will not be cumulative.
Because we are a holding company with no material assets other than our ownership of common units of RMCO, we
have no independent means of generating revenue or cash flow, and our ability to pay dividends is dependent upon the
financial results and cash flows of RMCO and its subsidiaries and distributions we receive from RMCO. We expect to
cause RMCO to make distributions to fund our expected dividend payments, subject to applicable law and any
restrictions contained in RMCO’s or its subsidiaries’ current or future debt agreements.
Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts
for us that you might consider favorable.
Our certificate of incorporation and bylaws contain provisions that may make the acquisition of our company more
difficult without the approval of our board of directors. These provisions:
•
•
•
•
•
•
•
establish a classified board of directors so that not all members of our board of directors are elected at one
time;
authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares
of which may be issued without stockholder approval, and which may include super voting, special approval,
dividend or other rights or preferences superior to the rights of the holders of common stock;
provide that our board of directors is expressly authorized to make, alter or repeal our bylaws;
delegate the sole power to a majority of the board of directors to fix the number of directors;
provide the power of our board of directors to fill any vacancy on our board of directors, whether such
vacancy occurs as a result of an increase in the number of directors or otherwise;
eliminate the ability of stockholders to call special meetings of stockholders; and
establish advance notice requirements for nominations for elections to our board of directors or for proposing
matters that can be acted upon by stockholders at stockholder meetings.
Our certificate of incorporation also contains a provision that provides us with protections similar to Section 203 of the
Delaware General Corporation Law, and prevents us from engaging in a business combination with a person who
acquires at least 15% of our common stock for a period of three years from the date such person acquired such common
stock unless board or stockholder approval is obtained prior to the acquisition, except that David and Gail Liniger are
deemed to have been approved by our board of directors, and thereby not subject to these restrictions. These anti-
takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving
a change in control of our Company, even if doing so would benefit our stockholders. These provisions could also
discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing
and to cause us to take other corporate actions you desire.
44
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located in leased offices in Denver, Colorado. The lease consists of approximately 231,000
square feet and expires in April 2028. As of December 31, 2015, our Company-owned real estate brokerage business
leased approximately 23,000 square feet, respectively, of office space in the U.S. under three leases. These offices are
mainly located in shopping centers and small office parks, generally with lease terms of one to 10 years. As discussed in
Note 5 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we sold
certain operating assets and liabilities related to 21 Company-owned real estate brokerage offices during 2015 and the
first quarter of 2016. In connection with these sales, we assigned the related operating leases to the respective
purchasers. We believe that all of our properties and facilities are well maintained.
ITEM 3. LEGAL PROCEEDINGS
From time to time we are involved in litigation, claims and other proceedings relating to the conduct of our business.
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. Litigation and other claims and
regulatory proceedings against us could result in unexpected expenses and liabilities and could also materially adversely
affect our operations and our reputation.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Shares of our Class A common stock began trading on the New York Stock Exchange (“NYSE”) under the symbol
“RMAX” on October 2, 2013. Prior to that date, there was no public trading market for shares of our Class A common
stock. As of February 15, 2017, we had 22 stockholders of record of our Class A common stock. This number does not
include stockholders whose stock is held in nominee or street name by brokers. All shares of Class B common stock are
owned by RIHI, Inc. (“RIHI”), and there is no public market for these shares.
The following table shows the highest and lowest prices paid per share for our Class A common stock as well as
dividends declared per share during the calendar quarter indicated below for the years ended December 31, 2016 and
2015.
2016
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . $
Second quarter . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . .
2015
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . $
Second quarter . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . .
Class A Common Stock
Market Price
Highest
Lowest
Dividends
Declared
per Share
36.54 $
42.25
44.33
56.40
38.62 $
35.51
39.46
43.11
30.54 $
34.53
39.47
41.67
32.09 $
33.01
34.72
34.58
0.1500
0.1500
0.1500
0.1500
1.6250
0.1250
0.1250
0.1250
During 2016, our Board of Directors declared quarterly cash dividends of $0.15 per share of Class A common stock,
which were paid on March 23, 2016, June 2, 2016, August 31, 2016 and December 1, 2016. During 2015, our Board of
Directors declared quarterly cash dividends of $0.125 per share of Class A common stock, which were paid on April 8,
2015, June 4, 2015, September 3, 2015 and November 27, 2015. Additionally, our Board of Directors declared a special
cash dividend of $1.50 per share of Class A common stock during the first quarter of 2015, which was paid on April 8,
2015. On February 22, 2017, our Board of Directors declared a quarterly cash dividend of $0.18 per share on all
outstanding shares of Class A common stock, which is payable on March 22, 2017 to stockholders of record at the close
of business on March 8, 2017. We intend to continue to pay a cash dividend on shares of Class A common stock on a
quarterly basis. Whether we do so, however, and the timing and amount of those dividends will be subject to approval
and declaration by our Board of Directors and will depend on a variety of factors, including the financial results and cash
flows of RMCO, LLC and its consolidated subsidiaries (“RMCO”), distributions we receive from RMCO, our financial
results, cash requirements and financial condition, our ability to pay dividends under our senior secured credit facility
and any other applicable contracts, and other factors deemed relevant by our Board of Directors. All dividends declared
and paid will not be cumulative.
46
Performance Graph
The following graph and table depict the total return to stockholders from October 2, 2013 (the date our Class A
common stock began trading on the NYSE) through December 31, 2016, relative to the performance of the S&P 500
Index, Russell 2000 (Total Return) Index and a peer group of real estate and franchise related companies. The graph and
table assume $100 invested at the closing price of $27.00 on October 2, 2013 (rather than the IPO price of $22.00 per
share) and that all dividends were reinvested.
The performance graph and table are not intended to be indicative of future performance. The performance graph and
table shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject
to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of the Company’s
filings under the Securities Act of 1933, as amended, or the Exchange Act.
10/2/2013 12/31/2013
12/31/2014
12/31/2015
RE/MAX Holdings Inc.
Other franchise and real estate related companies
S&P 500 Index
12/31/2016
Russell 2000 (Total Return) Index
$220
$200
$180
$160
$140
$120
$100
Other franchise and real estate related companies include the following: Realogy Holding Corp., Dunkin’ Brands Group
Inc., Domino’s Pizza Inc., Yum! Brands Inc., Choice Hotels International Inc., Marriott International Inc., CBRE Group
Inc. and Jones Lang LaSalle Inc. For purposes of the chart and table, the companies in this peer group are weighted
according to their market capitalization.
RE/MAX Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . $ 100.00 $
100.00
Other franchise and real estate related companies . .
100.00
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
Russell 2000 (Total Return) Index . . . . . . . . . . . . . . .
October 2,
2013
December 31,
2013
118.78 $
110.46
109.12
107.83
December 31,
2014
127.94 $
137.23
121.55
113.11
December 31,
2015
147.85 $
133.28
120.67
108.12
December 31,
2016
225.31
163.62
132.17
131.16
47
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth our selected historical consolidated financial results and other data as of the dates and for
the periods indicated. The selected consolidated statements of income data for the years ended December 31, 2016, 2015
and 2014, and the consolidated balance sheets data as of December 31, 2016 and 2015 have been derived from our
audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The selected consolidated statements of income data for the years ended December 31, 2013 and 2012 and the selected
consolidated balance sheets data as of December 31, 2014, 2013 and 2012 have been derived from our audited
consolidated financial statements not included in this Annual Report on Form 10-K.
After the completion of our initial public offering on October 7, 2013, RE/MAX Holdings, Inc. (“RE/MAX Holdings”)
owned 39.56% of the common membership units in RMCO, LLC and its consolidated subsidiaries (“RMCO”) and as of
December 31, 2016, RE/MAX Holdings owns 58.43% of the common membership units in RMCO. RE/MAX Holdings’
economic interest in RMCO increased primarily due to the issuance of shares of Class A common stock as a result of
RIHI’s redemption of 5,175,000 common units in RMCO during the fourth quarter of 2015 (the “Secondary Offering”).
RE/MAX Holdings’ only business is to act as the sole manager of RMCO and, in that capacity, RE/MAX Holdings
operates and controls all of the business and affairs of RMCO. As a result, RE/MAX Holdings consolidates the financial
condition and results of operations of RMCO, and because RE/MAX Holdings and RMCO are entities under common
control, such consolidation has been reflected for all periods presented. Our selected historical financial data does not
reflect what our financial position, results of operations and cash flows would have been had we been a separate, stand-
alone public company during those periods.
Our selected historical financial data may not be indicative of our future financial condition, future results of operations
or future cash flows.
You should read the information set forth below in conjunction with our historical consolidated financial statements and
the notes to those statements and “Item 7.—Management’s Discussion and Analysis of Financial Condition and Results
of Operations” included elsewhere in this Annual Report on Form 10-K.
48
Total revenue:
Continuing franchise fees . . . . . . . . . . . . . . . .
Annual dues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise sales and other franchise revenue .
Brokerage revenue . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Year Ended December 31,
2016
2015
2014
2013
2012
(in thousands, except per share amounts and agent data)
$ 81,197 $
32,653
37,209
25,131
112
176,302
73,750 $ 72,706 $
31,758
32,334
25,468
13,558
176,868
30,726
28,685
23,440
15,427
170,984
64,465 $
29,524
24,811
23,574
16,488
158,862
56,350
28,909
19,579
22,629
16,210
143,677
87,629
16,094
178
103,901
72,401
Selling, operating and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . .
Loss (gain) on sale or disposition of assets,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses, net: . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction (losses) gains . .
Loss on early extinguishment of debt . . . . . .
Equity in earnings of investees . . . . . . . . . . . .
Total other expenses, net . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to non-controlling
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to RE/MAX Holdings, Inc. $ 22,737 $
Earnings Per Share Data:
Basic (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other Data:
Agent count at period end (unaudited) . . . . . . . . . . .
Cash dividends declared per share of Class A
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(8,596)
160
(86)
(796)
—
(9,318)
63,083
(15,273)
47,810
1.29 $
1.29 $
111,915
0.60 $
25,073
90,986
15,124
91,847
15,316
96,243
15,166
84,337
12,090
(3,397)
102,713
74,155
(14)
107,149
63,835
373
111,782
47,080
(10,413)
178
(1,661)
(94)
1,215
(10,775)
63,380
(12,030)
51,350
(9,295)
313
(1,348)
(178)
600
(9,908)
53,927
(9,948)
43,979
(14,647)
321
(764)
(1,798)
904
(15,984)
31,096
(2,844)
28,252
1,704
98,131
45,546
(11,686)
286
208
(136)
1,244
(10,084)
35,462
(2,138)
33,324
34,695
16,655 $ 13,436 $
30,543
26,746
1,506 $
33,324
—
1.31 $
1.30 $
1.16 $
1.10 $
0.13
0.12
104,826
98,010
93,228
89,008
2.00 $
0.25 $
— $
—
(1) We consummated our initial public offering on October 7, 2013. Since that date, we have consolidated the results of
RMCO due to our role as RMCO’s managing member. Therefore, all income for the periods prior to October 7,
2013 is entirely attributable to the non-controlling interests which existed prior to the initial public offering. As a
result, in the computation of earnings per share in accordance with U.S. generally accepted accounting principles,
only the net income attributable to our controlling interests from the period subsequent to the initial public offering
is considered. Additionally, the computation of weighted average basic and diluted shares of Class A common stock
outstanding for the year ended December 31, 2013 only considers the outstanding shares from the date our Class A
common stock started trading on the New York Stock Exchange, October 2, 2013, through December 31, 2013.
49
2016
2015
2014
2013
2012
As of December 31,
(in thousands)
68,501
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
78,338
Franchise agreements, net . . . . . . . . . . . . . . . . . $ 109,140 $
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126,633 $
71,039
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 437,153 $ 383,786 $ 356,431 $ 350,470 $ 248,486
Payable pursuant to tax receivable agreements,
—
including current portion . . . . . . . . . . . . . . . . . . $
Long-term debt, including current portion . . . $ 230,820 $ 200,357 $ 209,777 $ 226,051 $ 229,396
78,400
Redeemable preferred units . . . . . . . . . . . . . . . $
(96,769)
Total stockholders' equity/members' deficit . . $
57,609 $ 110,212 $ 107,199 $
75,505 $
61,939 $
72,463 $
71,871 $
88,375 $
89,071 $
72,781 $
98,809 $ 100,035 $
— $
39,283 $
— $
15,539 $
— $
60,709 $
— $
39,414 $
67,418 $
68,840 $
50
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and
accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This Management’s Discussion
and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Special Note
Regarding Forward-Looking Statements” and “Item 1A.—Risk Factors” for a discussion of the uncertainties, risks and
assumptions associated with these statements. Actual results may differ materially from those contained in any forward-
looking statements.
The historical 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. (“RE/MAX Holdings”) and its consolidated subsidiaries
(collectively, the “Company,” “we,” “our” or “us”), including RMCO, LLC. (“RMCO”).
Business Overview
We are one of the world’s leading franchisors in the real estate industry, franchising real estate brokerages globally under
the RE/MAX brand and mortgage brokerages within the U.S. under the Motto Mortgage brand. RE/MAX, founded in
1973, has over 110,000 agents operating in over 7,000 offices and a presence in more than 100 countries and
territories. RE/MAX has held the number one market share in residential real estate in the U.S. and Canada since 1999
as measured by total residential transaction sides completed by our agents. The RE/MAX brand has the highest level of
unaided brand awareness in real estate in the U.S. and Canada according to a 2016 consumer survey conducted by MMR
Strategy Group, and our iconic red, white and blue RE/MAX hot air balloon is one of the most recognized real estate
logos in the world. Motto Mortgage (“Motto”), founded in 2016, is the first mortgage brokerage franchise offering in the
U.S.
RE/MAX
The RE/MAX strategy is to recruit and retain the best agents and sell franchises. The RE/MAX brand is built on the
strength of its global franchise network, which is designed to attract and retain high quality, top performing agents by
maximizing their opportunity to retain a larger portion of their commissions. We believe that our agents are substantially
more productive than the industry average. We consider agent count to be a key measure of our business performance as
the majority of our revenue—approximately 65% in 2016—is derived from fixed, contractual fees and dues paid to us
based on the number of agents in our franchise network.
RE/MAX generates approximately 95% of its revenue from its operations in the U.S. and Canada, primarily from five
sources: (i) continuing franchise fees which are fixed contractual fees paid monthly by regional franchise owners in
Independent Regions or franchisees in Company-owned Regions based on the number of agents employed in the
franchise region or the franchisee’s office; (ii) annual dues which are membership fees that agents pay directly to
RE/MAX to be a part of the RE/MAX network and use the RE/MAX brand; (iii) fees which are assessed to the broker
against real estate commissions paid by customers when an agent sells a home for which the broker then pays to us is 1%
of the total commission on the transaction—what we refer to as broker fees—; (iv) franchise fees stemming from sales
and renewals of individual franchises; and (v) other franchise revenue which includes revenue from preferred marketing
arrangements and approved supplier programs, as well as event-based revenue from training and other programs,
including our annual conventions in the U.S.
RE/MAX franchisees fund the cost of developing their brokerages, which allows us to grow the RE/MAX network with
lower capital requirements. Combined with consistent revenue from fixed, contractual fees and dues based on agent
count, the RE/MAX business model can yield strong returns and significant cash flow. RE/MAX is 100% franchised—
we do not own any of our brokerages—which allows us to capitalize on the economic benefits of the attractive franchise
business model.
RE/MAX franchisees profit by attracting and retaining the most-productive real estate agents. In our markets outside the
U.S. and Canada, we grant geographical rights to the RE/MAX® brand to master franchisees. These master franchisees
51
are charged with developing RE/MAX in their geographical area, and they may profit by sub-franchising certain regions
within the area, as well as by franchising individual real estate brokerages.
Motto Mortgage
In October 2016, we launched Motto Mortgage, the first mortgage brokerage franchise offering in the U.S. The Motto
concept offers real estate brokers accessibility to the complementary mortgage brokerage business and a model designed
to help Motto franchise owners comply with all relevant mortgage regulations. Motto offers potential homebuyers the
opportunity to find both real estate agents and independent Motto loan originators at offices in one location. Further,
Motto loan originators provide home buyers with financing choices by providing access to a variety of loan options from
multiple leading wholesalers. Motto franchisees are mortgage brokers and not mortgage bankers; as a result, they will
not underwrite any loans. Likewise, we franchise the Motto system and are not lenders or brokers.
Motto will generate revenue for us primarily from three sources: (i) franchise fees stemming from sales and renewals of
individual franchises, (ii) continuing franchise fees which are fixed contractual fees paid monthly by the broker for being
a part of the Motto network and for use of the Motto brand, and (iii) additional fees paid monthly by the broker for
access to high quality technology products and services. Initially, Motto franchisees will not pay continuing franchise
fees as new franchisees will focus on opening offices and recruiting loan originators. Motto franchisees will start paying
a fraction of their monthly fees beginning three months after attending training, ultimately scaling to the full set of fees
after the franchise has been operational for twelve months. Due to the fourth quarter 2016 launch of Motto, minimal
revenue was recognized in 2016.
Motto franchisees will fund the cost of developing their brokerages, which will allow us to grow the Motto network with
relatively low capital requirements. Although we will have employees dedicated to our Motto business, we will also
leverage our existing shared services franchising infrastructure. As additional Motto franchises are sold and franchisees
begin paying their monthly fees, we expect the business to yield positive returns and cash flow over time.
Motto franchisees should profit by attracting and retaining high-quality, highly productive loan officers who provide
superior client service and value. We will not be compensated based on the volume of loans completed by a franchise;
rather, the franchisee retains all upside in the quantity of loans completed by a given Motto loan originator or franchise.
Financial and Operational Highlights – Year Ended December 31, 2016
(Compared to year ended December 31, 2015 unless otherwise noted)
• Total agent count grew by 6.8% to 111,915 agents
• U.S. and Canada combined agent count increased 3.5% to 82,402 agents
• Acquired the master franchise rights to six Independent Regions in the U.S.
• Launched Motto franchise on October 25, 2016
• Revenue of $176.3 million, down 0.3% from the prior-year; revenue would have increased 6.9% after adjusting
for the sale of our owned brokerage offices
• Operating income decreased $1.8 million and 2.4%
• Net income attributable to RE/MAX Holdings, Inc. increased $6.1 million and 36.5%
• Adjusted EBITDA of $94.6 million and Adjusted EBITDA margin of 53.7%
• Refinanced our credit agreement entered into on July 31, 2013 (“2013 Senior Secured Credit Facility”) on
December 15, 2016
52
During 2016, we grew our business organically through agent increases and franchise sales, supplemented by strategic
acquisitions and the launch of a second brand, Motto Mortgage. We also strategically disposed of our three remaining
owned brokerages early in the year. RE/MAX is now a 100%-franchised business. We grew our network agent count
6.8% and our U.S. and Canadian agent count by 3.5%, and we sold 903 RE/MAX franchises worldwide and 335
franchises in the U.S. and Canada combined.
In addition, we focused on growth catalysts by acquiring Independent Regions and businesses within our core
competencies of franchising and real estate. We successfully acquired six Independent Regions (New York, Alaska,
New Jersey, Georgia, Kentucky/Tennessee and Southern Ohio, collectively, the “2016 Acquired Regions”) for an
aggregate purchase price of $105.4 million. The 2016 Acquired Regions converted more than 8,000 agents and almost
500 offices into the Company-owned Regions. We also acquired the concept behind Motto along with certain assets
from a third-party mortgage brokerage franchisor, Full House Mortgage Connection, Inc., (“Full House”) for $8.0
million plus certain future contingent royalty payments.
Concurrent with our acquisitions, we reinvested in our business to enhance the value proposition to our network. We
continued our Momentum broker and agent development program, launched the new www.remax.com website and
introduced our Office and Agent Portal. Our new website features a fresh, dynamic design, an improved search and
mobile experience, and personalized features for consumers coupled with increased calls-to-action to improve lead
generation for our agents. The new Office and Agent Portal streamlines operations for our franchisees and simplifies
reporting from our franchisees to us. In recognition of the increase in value we offer to our network, on July 1, 2016 we
modestly increased the monthly continuing franchise fees paid by franchisees to us to be a part of the RE/MAX
network. We believe that our 2016 growth catalysts will contribute to our future organic growth in Company-owned
Regions and strengthen our brand in the future.
In December 2016, we refinanced our 2013 Senior Secured Credit Facility, referred to herein as the “2016 Senior
Secured Credit Facility,” in order to take advantage of favorable market conditions and to provide us with enhanced
flexibility to pursue the future execution of our growth strategy. Proceeds from our 2016 Senior Secured Credit Facility
were used to repay existing indebtness and fund the multi-territory region covering Georgia, Kentucky/Tennessee and
Southern Ohio.
Financial and Operational Highlights – Year Ended December 31, 2015
(Compared to year ended December 31, 2014 unless otherwise noted)
• Total agent count grew by 7.0% to 104,826 agents
• U.S. and Canada combined agent count increased 4.5% to 79,586 agents
• Revenue grew by 3.4% to $176.9 million
• Operating income increased $10.3 million and 16.2%
• Net income attributable to RE/MAX Holdings, Inc. increased $3.2 million and 24.0%.
• Adjusted EBITDA of $91.4 million and Adjusted EBITDA margin of 51.7%
• Strengthening U.S. dollar negatively impacted pre-tax income by $5.3 million on a constant currency basis
During 2015, we focused on helping our franchisees recruit quality agents and emphasized franchise sales. We grew our
total agent count 7.0% and our U.S. and Canadian agent count by 4.5%. We sold 929 RE/MAX franchises across the
globe, an increase of 23.5% over 2014. We also continued our commitment to reinvesting in our business, focusing on
our top priorities of training and technology. Through our Momentum broker and agent development program, we helped
shift the mindset of many of our brokers from expense management to profitable and sustainable growth of their
businesses through a renewed focus on recruiting and developing quality agents. From a technology perspective, we
invested in our new website and other critical technology infrastructure projects. Lastly, demonstrating our commitment
to the franchise model and in accordance with our strategic objectives, we sold six of our owned brokerages in April
2015 and 12 of our owned brokerages in December 2015 to independently owned, successful RE/MAX franchisees.
53
Selected Operating and Financial Highlights
For comparability purposes, the following tables set forth our agent count and results of operations for the periods
presented in our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The
period-to-period comparison of agent count, franchise sales and financial results is not necessarily indicative of future
performance.
Year Ended December 31,
Networkwide agent count growth . . . . . . . . . . . . . .
Agent Count:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. and Canada Total . . . . . . . . . . . . . . . . . . . . .
Outside U.S. and Canada . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
(in thousands, except percentages, agent data and franchise sales)
5.1 %
6.8 %
7.0 %
2014
61,730
20,672
82,402
29,513
111,915
59,918
19,668
79,586
25,240
104,826
57,105
19,040
76,145
21,865
98,010
Franchise sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
903
929
752
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total selling, operating and administrative expenses $
Total operating income . . . . . . . . . . . . . . . . . . . . . . . $
Net income attributable to RE/MAX Holdings, Inc. $
Adjusted EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjusted EBITDA margin(1) . . . . . . . . . . . . . . . . . . .
176,302
87,629
72,401
22,737
94,647
$
$
$
$
$
176,868
90,986
74,155
16,655
91,401
$
$
$
$
$
170,984
91,847
63,835
13,436
83,805
53.7 %
51.7 %
49.0 %
(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, which is the most comparable
GAAP measure for operating performance. Adjusted EBITDA margin represents Adjusted EBITDA as a
percentage of total revenue.
54
Results of Operations
Year Ended December 31, 2016 vs. Year Ended December 31, 2015
Revenue
A summary of the components of our revenue for the years ended December 31, 2016 and 2015 is as follows:
Year Ended December 31,
Change
2016
2015
($)
(%)
(in thousands, except percentages)
Revenue:
Continuing franchise fees . . . . . . . . . . . . . . . . . . $
Annual dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise sales and other franchise revenue . . . .
Brokerage revenue . . . . . . . . . . . . . . . . . . . . . . . .
81,197
32,653
37,209
25,131
112
Total revenue . . . . . . . . . . . . . . . . . . $ 176,302
$
73,750 $
31,758
32,334
25,468
13,558
$ 176,868 $
7,447
895
4,875
(337)
(13,446)
(566)
10.1 %
2.8 %
15.1 %
(1.3)%
(99.2)%
(0.3)%
Consolidated revenue decreased primarily due to the sale of our owned brokerages and would have increased $11.3
million or 6.9%, after adjusting for these sales. Organic growth increased revenue 5.3%, and the acquisitions of the 2016
Acquired Regions added $2.7 million or 1.5%. The sale of our owned brokerages negatively impacted revenue by $11.9
million or 6.7% and the strengthening of the U.S. dollar also reduced revenue by $0.8 million or 0.4%.
Continuing Franchise Fees
Revenue from continuing franchise fees increased primarily as a result of the following:
•
•
•
an increase of $4.5 million due to agent count growth in the U.S. and Canada and increases in our aggregate fee
revenue per agent;
contributions from the 2016 Acquired Regions that increased continuing franchise fees $1.5 million; and
an increase of $1.1 million as a result of a July 1, 2016 rate increase in our Company-owned Regions in the U.S.
These increases were partially offset by the strengthening of the U.S. dollar compared to the Canadian dollar.
Annual Dues
Revenue from annual dues increased due to the overall increase in total agent count, partially offset by the strengthening
of the U.S. dollar compared to the Canadian dollar.
Broker Fees
Revenue from broker fees increased $3.8 million due to organic growth primarily from increased agent count in the U.S.
and Canada. The 2016 Acquired Regions increased broker fees by $0.9 million. The aforementioned increases were
partially offset by the strengthening of the U.S. dollar compared to the Canadian dollar.
Franchise Sales and Other Franchise Revenue
Franchise sales and other franchise revenue decreased primarily due to a reduction in franchise sales outside the U.S. and
Canada offset by increases from the 2016 Acquired Regions.
Brokerage Revenue
Brokerage revenue, which principally represents fees assessed by our owned brokerages for services provided to their
affiliated real estate agents, decreased due to the dispositions of such brokerages.
55
Operating Expenses
A summary of the components of our operating expenses for the years ended December 31, 2016 and 2015 is as follows:
Operating expenses:
Year Ended December 31,
Change
2016
2015
($)
(%)
(in thousands, except percentages)
Selling, operating and administrative expenses . . . $ 87,629
16,094
Depreciation and amortization. . . . . . . . . . . . . . . . .
178
Loss (gain) on sale or disposition of assets, net . . .
Total operating expenses . . . . . . . . . . . $ 103,901
Percent of revenue . . . . . . . . . . . . . . . .
58.9 %
$ 90,986 $
15,124
(3,397)
$ 102,713 $
58.1 %
(3,357)
970
3,575
1,188
(3.7)%
6.4 %
(105.2)%
1.2 %
Selling, Operating and Administrative Expenses
Selling, operating and administrative expenses primarily consisted of personnel costs, professional fee expenses, rent and
related facility operations expense and other expenses, certain marketing and production costs that are not paid by our
related party advertising funds, including travel and entertainment costs, costs associated with our annual conventions in
the U.S. and other events. A summary of the components of our selling, operating and administrative expenses for the
years ended December 31, 2016 and 2015 is as follows:
Selling, operating and administrative expenses:
Year Ended December 31,
Change
2016
2015
($)
(%)
(in thousands, except percentages)
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent and related facility operations . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,354
13,311
8,673
23,291
Total selling, operating and administrative expenses $ 87,629
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 43,742 $ (1,388)
3,950
(3,290)
(2,629)
$ 90,986 $ (3,357)
9,361
11,963
25,920
(3.2)%
42.2 %
(27.5)%
(10.1)%
(3.7)%
49.7 %
51.4 %
Total selling, operating and administrative expenses decreased as follows:
• Personnel costs decreased $4.9 million due to a reduction in overall headcount as a result of the dispositions of
our owned brokerages, partially offset by personnel investments to support Motto and the 2016 Acquired
Regions and increases in general personnel costs and benefit related expenses.
• Professional fees increased primarily due to $2.1 million in costs incurred in connection with the 2016 Senior
Secured Credit Facility and $1.8 million in costs incurred related to the acquisition of the 2016 Acquired
Regions and the launch of Motto.
• Rent and related facility operations expense decreased primarily due to the sale of our owned brokerages.
• Other selling, operating and administrative expenses decreased primarily due to the sale of our owned
brokerages and expenses associated with a $2.7 million litigation judgment in 2015 related to our acquisition of
the net assets of HBN, Inc. (“HBN”), partially offset by an increase in bad debt expense in 2016 related to a
preferred marketing arrangement.
56
Depreciation and Amortization
Depreciation and amortization expense increased primarily due to the increase in amortization expense related to the
franchise agreements acquired with the acquisition of the 2016 Acquired Regions.
Loss (gain) on Sale or Disposition of Assets, Net
The decrease in the loss (gain) on sale or disposition of assets, net is due to the gains recognized for the dispositions of
eighteen owned brokerages during 2015, offset by the loss recognized for the sale of the remaining three owned
brokerages during the first quarter of 2016.
Other Expenses, Net
A summary of the components of our other expenses, net for the years ended December 31, 2016 and 2015 is as follows:
Year Ended December 31,
Change
2016
2015
($)
(%)
(in thousands, except percentages)
Other expenses, net:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction losses . . . . . . . . .
Loss on early extinguishment of debt . . . . . . . .
Equity in earnings of investees . . . . . . . . . . . . .
Total other expenses, net . . . . . . . .
Percent of revenue . . . . . . . . . . . . .
Other expenses, net decreased as follows:
$
$
(8,596)
160
(86)
(796)
—
(9,318)
$ (10,413)
178
(1,661)
(94)
1,215
$ (10,775)
$
1,817
(18)
1,575
(702)
(1,215)
1,457
(17.4)%
(10.1)%
(94.8)%
746.8 %
(100.0)%
(13.5)%
5.3 %
$
6.1 %
•
Interest expense decreased primarily due to a reduction in principal balance on the 2013 Senior Secured Credit
Facility as a result of the $12.7 million excess cash flow prepayment made on March 31, 2016.
• Foreign currency transaction losses decreased primarily due to the reduction in cash held in foreign currencies
subsequent to the repatriation of cash generated from our Canadian operations that began in February 2015.
• Loss on early extinguishment of debt increased primarily due to the refinancing of our 2016 Senior Secured
Credit Facility.
• Equity in earnings of investees decreased due to no longer recognizing equity in earnings of investees in 2016
due to the disposition of one of our owned brokerages on December 31, 2015.
Provision for Income Taxes
The provision for income taxes increased $3.2 million primarily due to the redemption of 5,175,000 common units in
exchange for shares of Class A common stock in the fourth quarter of 2015, which resulted in RE/MAX Holdings’
weighted average economic interest in RMCO increasing to 58.40% from 42.33% and due to the increase in RMCO’s
income before the provision for income taxes. As a result of these factors, our effective income tax rate increased to
24.2% for the year ended December 31, 2016 from 19.0% for the year ended December 31, 2015. Our effective income
tax rate depends on many factors, including a rate benefit attributable to the fact that the portion of RMCO’s earnings
attributable to the non-controlling interest is 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 income tax rates.
57
Net Income Attributable to Non-controlling Interest
Net income attributable to non-controlling interest, which represents the portion of earnings attributable to the economic
interest in RMCO held by RIHI, Inc. (“RIHI”), decreased $9.6 million primarily due to the redemption of 5,175,000 of
common units in exchange for shares of Class A common stock by RIHI in the fourth quarter of 2015, which resulted in
a decrease of the non-controlling unitholders weighted average economic interest in RMCO to 41.60% for the year ended
December 31, 2016 from 57.67% for the year ended December 31, 2015. RMCO’s net income increased $0.1 million
during the year ended December 31, 2016 over the prior period which also contributed to this decrease.
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, which is the most
comparable GAAP measure for operating performance.
Adjusted EBITDA was $94.6 million for the year ended December 31, 2016, an increase of $3.2 million from the
comparable prior year period. Adjusted EBITDA primarily increased due to agent count growth, contributions from the
2016 Acquired Regions and the positive impact from foreign currency transaction gains and losses driven primarily by
the repatriation of cash generated from certain of our Canadian operations that we began in February 2015. These
increases were offset by a decrease in Adjusted EBITDA from the sale of our owned brokerages, an increase in bad debt
expense related to a preferred marketing arrangement and costs incurred in connection with the launch of Motto.
Year Ended December 31, 2015 vs. Year Ended December 31, 2014
Total Revenue
A summary of the components of our revenue for the years ended December 31, 2015 and 2014 is as follows:
Year Ended December 31,
Change
2015
2014
($)
(%)
(in thousands, except percentages)
Revenue:
Continuing franchise fees . . . . . . . . . . . . . . . . . . $
Annual dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise sales and other franchise revenue . . . .
Brokerage revenue . . . . . . . . . . . . . . . . . . . . . . . .
73,750 $
31,758
32,334
25,468
13,558
Total revenue . . . . . . . . . . . . . . . . . . $ 176,868 $
72,706 $
30,726
28,685
23,440
15,427
170,984 $
1,044
1,032
3,649
2,028
(1,869)
5,884
1.4 %
3.4 %
12.7 %
8.7 %
(12.1)%
3.4 %
Consolidated revenue increased primarily due to organic agent count growth and franchise sales, partially offset by the
sale of six owned brokerage offices in April 2015 and the strengthening of the U.S. dollar compared to the Canadian
dollar and the euro.
Continuing Franchise Fees
Revenue from continuing franchise fees increased $3.6 million due to agent count growth in the U.S. and Canada.
Organic revenue growth was partially offset by a decrease in our aggregate fee revenue per agent associated with
recruiting incentives associated with our proprietary Momentum training program and the strengthening of the U.S.
dollar compared to the Canadian dollar, both of which adversely impacted continuing franchise fees by $0.9 million and
$1.8 million, respectively.
58
Annual Dues
Revenue from annual dues increased primarily from the overall increase in total agent count, partially offset by the
strengthening of the U.S. dollar compared to the Canadian dollar.
Broker Fees
Revenue from broker fees increased $4.6 million primarily due to increased agent count in the U.S. and Canada and
home sales transaction activity, partially offset by the strengthening of the U.S. dollar compared to the Canadian dollar,
which negatively impacted broker fees by $0.5 million and the divestiture of our Caribbean and Central America region.
Franchise Sales and Other Franchise Revenue
Franchise sales and other franchise revenue increased primarily due to an increase in registration and other related
income and an increase in the total number of office franchise sales in the U.S.
Brokerage Revenue
Brokerage revenue decreased due to the sale of six owned brokerage offices in April 2015, partially offset by an increase
in management fee revenue recognized by our remaining owned brokerages.
Operating Expenses
A summary of the components of our operating expenses for the years ended December 31, 2015 and 2014 is as follows:
Year Ended December 31,
Change
2015
2014
($)
(%)
(in thousands, except percentages)
Operating expenses:
Selling, operating and administrative expenses
Depreciation and amortization. . . . . . . . . . . . . .
Gain on sale or disposition of assets, net . . . . .
Total operating expenses . . . . . . . .
Percent of revenue . . . . . . . . . . . . .
* Calculation is not meaningful.
Selling, Operating and Administrative Expenses
$
90,986
15,124
(3,397)
$ 102,713
$ 91,847
15,316
(14)
$ 107,149
$
(861)
(192)
(3,383)
(4,436)
(0.9)%
(1.3)%
*
(4.1)%
58.1 %
$
62.7 %
A summary of the components of our selling, operating and administrative expenses for the years ended December 31, 2015
and 2014 is as follows:
Selling, operating and administrative expenses:
Year Ended December 31,
Change
2015
2014
($)
(%)
(in thousands, except percentages)
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,742
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,361
11,963
Rent and related facility operations . . . . . . . . . . . . . . . . . . . . . . . .
25,920
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total selling, operating and administrative expenses $ 90,986
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
51.4 %
$ 47,040
8,210
12,522
24,075
$ 91,847
$ (3,298)
1,151
(559)
1,845
(861)
$
53.7 %
(7.0) %
14.0 %
(4.5) %
7.7 %
(0.9) %
59
Selling, operating and administrative expenses decreased as follows:
• Personnel costs decreased primarily due to severance and other expenses in the fourth quarter of 2014 related to
the retirement of our former CEO and a restructuring plan which aggregated $4.6 million, both of which
reduced overall headcount. The sale of six owned brokerages in April 2015 also contributed $0.9 million to the
reduction in personnel expenses. These decreases were partially offset by an increase in general personnel costs
and benefit related expenses.
• Professional fees increased $1.1 million primarily due to investments in our information technology
infrastructure and expenses incurred in connection with the redemption of common units in exchange for shares
of Class A common stock in the fourth quarter of 2015, offset by a reduction in legal fees.
• Rent and related facility operations expense decreased primarily due to the sale of six owned brokerages in
April 2015.
• Other selling, operating and administrative expenses increased primarily due to a $2.7 million charge incurred
in connection with a litigation judgment related to our acquisition of the net assets of HBN, partially offset by a
decrease in other selling and marketing expenses.
Depreciation and Amortization
Depreciation and amortization expense decreased from the prior period primarily due to a decrease in amortization
expense related to software that became fully amortized.
Gain on Sale or Disposition of Assets, Net
The increase in the gain on sale or disposition of assets, net is due to the gains recognized for the dispositions of eighteen
brokerages during the year ended December 31, 2015.
Other Expenses, Net
A summary of the components of our other expenses, net for the years ended December 31, 2015 and 2014 is as follows:
Year Ended December 31,
Change
2015
2014
($)
(%)
(in thousands, except percentages)
Other expenses, net:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . $ (10,413) $
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction losses . . . . . . . . . .
Loss on early extinguishment of debt . . . . . . . . .
Equity in earnings of investees . . . . . . . . . . . . . .
178
(1,661)
(94)
1,215
Total other expenses, net . . . . . . . . . $ (10,775) $
6.1 %
Percent of revenue . . . . . . . . . . . . . .
(9,295) $
313
(1,348)
(178)
600
(9,908) $
5.8 %
(1,118)
(135)
(313)
84
615
(867)
12.0 %
(43.1)%
23.2 %
(47.2)%
102.5 %
8.8 %
Other expenses, net increased as follows:
•
Interest expense increased primarily due to $0.5 million of expenses incurred in connection with the amendment
to our 2013 Senior Secured Credit Facility on March 11, 2015 and $0.5 million in interest accrued for the 2015
litigation judgment concerning our acquisition of the net assets of HBN.
• Foreign currency transaction losses increased primarily due to the strengthening of the U.S. dollar against the
Canadian dollar and an increase in cash held in Canadian dollars prior to the repatriation of cash generated from
our Canadian operations that began in February 2015.
• Equity in earnings of investees increased primarily as a result of increased mortgage refinancing activity at one
of our owned brokerages that we divested on December 31, 2015.
60
Provision for Income Taxes
The provision for income taxes increased $2.1 million primarily due to an increase in the income before provision for
income taxes during the year ended December 31, 2015 as our effective income tax rate remained relatively consistent at
19.0% and 18.4% during the years ended December 31, 2015 and 2014, respectively.
Net Income Attributable to Non-controlling Interest
Net income attributable to non-controlling interest, which represents the portion of earnings attributable to the economic
interest in RMCO held by RIHI, increased primarily due to the increase in RMCO’s net income of $9.6 million during
the year ended December 31, 2015. For the years ended December 31, 2015 and 2014, the non-controlling unitholders
had a weighted average economic interest in RMCO of 57.67% and 60.43%, respectively.
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, which is the most
comparable GAAP measure for operating performance.
Adjusted EBITDA was $91.4 million for the year ended December 31, 2015, an increase of $7.6 million from the
comparable prior year period. Adjusted EBITDA primarily increased due to an increase in revenue as a result of organic
agent count growth, increase in other franchise revenue recognized from our annual convention and an increase in office
franchise sales. These increases were partially offset by the sale of six owned brokerages in April 2015, the strengthening
of the U.S. dollar compared to the Canadian dollar and an increase in selling, operating and administrative expenses.
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 not in accordance with U.S. generally accepted accounting principles (“U.S.
GAAP”), such as Adjusted EBITDA and the ratios related thereto. These measures are derived on the basis of
methodologies other than in accordance with U.S. GAAP.
We define Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest
expense, interest income and the provision for income taxes, each of which is presented in our audited consolidated
financial statements included elsewhere in this Annual Report on Form 10-K), adjusted for the impact of the following
items that we do not consider representative of our ongoing operating performance: loss or gain on sale or disposition of
assets and sublease, loss on early extinguishment of debt, equity-based compensation incurred in connection with grants
of RMCO common units prior to the IPO and fully vested restricted stock units granted in conjunction with the IPO,
non-cash straight-line rent expense, professional fees and certain expenses incurred in connection with the IPO and
subsequent secondary offerings, acquisition related expenses and severance related expenses. During the third quarter of
2014, we revised our definition of Adjusted EBITDA to eliminate the adjustment of equity-based compensation expense
incurred for equity awards granted since the IPO, and Adjusted EBITDA in prior periods was revised to reflect this
change for consistency of presentation. During the fourth quarter of 2014, we revised our definition of Adjusted
EBITDA to include an adjustment for severance related charges incurred during or after such quarter.
Because 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 and is more reflective of other factors that affect our
operating performance. We present Adjusted EBITDA because we believe it is useful as a supplemental measure in
evaluating the performance of our operating businesses and provides greater transparency into our results of operations.
Our management uses Adjusted EBITDA as a factor in evaluating the performance of our business.
61
Adjusted EBITDA has limitations as an analytical tool, and you should not consider Adjusted EBITDA either in
isolation or as a substitute for analyzing our results as reported under U.S. GAAP. Some of these limitations are:
•
•
•
•
•
•
•
•
this measure does not reflect changes in, or cash requirements for, our working capital needs;
this measure does not reflect our interest expense, or the cash requirements necessary to service interest or
principal payments on our debt;
this measure does not reflect our income tax expense or the cash requirements to pay our taxes;
this measure does not reflect historical cash expenditures or future requirements for capital expenditures or
contractual commitments;
this measure does 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;
this measure does not reflect the cash requirements to pay RIHI and Oberndorf Investments LLC
(“Oberndorf” and together, the “TRA Parties”) pursuant to the tax receivable agreements (“TRAs”);
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; and
other companies may calculate this measure differently so they may not be comparable.
A reconciliation of Adjusted EBITDA to net income for our consolidated results for the periods presented is set forth in
the following table:
Year Ended December 31,
2016
2015
2014
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale or disposition of assets and sublease (1) . . . . . . . . . . . . . .
Loss on early extinguishment of debt and debt modification expense(2)
Non-cash straight-line rent expense (3) . . . . . . . . . . . . . . . . . . . . . . . . . .
Public offering related expenses (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance related expenses (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition related expenses (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
47,810
16,094
8,596
(160)
15,273
(171)
2,893
748
193
1,472
1,899
94,647
$
$
51,350
15,124
10,413
(178)
12,030
(3,650)
94
889
1,097
1,482
2,750
91,401
$
$
43,979
15,316
9,295
(313)
9,948
(340)
178
812
—
4,617
313
83,805
(1) Represents (gains) losses on the sale or disposition of assets as well as the gains on the sublease of a portion of our
corporate headquarters office building.
(2) Represents losses incurred on early extinguishment of debt on our 2013 Senior Secured Credit Facility for each
period presented as well as costs associated with the 2016 Senior Secured Credit Facility during the year ended
December 31, 2016.
(3) Represents the non-cash charge to appropriately record rent expense on a straight-line basis over the term of the
lease agreement taking into consideration escalation in monthly cash payments.
62
(4) Represents costs incurred for compliance services in the period performed in connection with the Secondary
Offering.
(5) Includes severance and other related expenses due to organization changes in our executive leadership.
(6) Acquisition-related expenses include fees incurred in connection with our acquisitions of certain assets of HBN and
Tails, Inc. (“Tails”) in October 2013, the 2016 Acquired Regions and the acquisition of Motto. Costs include legal,
accounting and advisory fees as well as consulting fees for integration services.
Liquidity and Capital Resources
Overview of Factors Impacting Our Liquidity
Our liquidity position has been positively affected by the growth of our agent base and improving 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 the number of agents in the RE/MAX network. Our cash flows are primarily related to the timing of:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
cash receipt of revenues;
payment of selling, operating and administrative expenses;
cash consideration for acquisitions and acquisition-related expenses;
principal payments and related interest payments on our 2016 Senior Secured Credit Facility and 2013
Senior Secured Credit Facility;
dividend payments to stockholders of our Class A common stock;
distributions and other payments to non-controlling unitholders pursuant to the terms of RMCO’s
fourth amended and restated limited liability company operating agreement (“the New RMCO, LLC
Agreement”);
(vii)
corporate tax payments paid by the Company; and
(viii)
payments to the TRA Parties pursuant to the TRAs.
We have satisfied these needs primarily through our existing cash balances, cash generated by our operations and funds
available under our 2016 Senior Secured Credit Facility and 2013 Senior Secured Credit Facility.
Financing Resources
On December 15, 2016, RE/MAX, LLC, a wholly owned subsidiary of RMCO, entered into a credit agreement with
JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto (the “2016 Senior Secured Credit
Facility”), which amended and restated a prior credit agreement (the “2013 Senior Secured Credit Facility”). The 2016
Senior Secured Credit Facility provides to RE/MAX, LLC $235.0 million in term loans and a $10.0 million revolving
facility. The proceeds provided by these term loans were used to refinance and repay existing indebtedness under the
2013 Senior Secured Credit Facility of $188.4 million and to help fund the acquisition of RE/MAX Regional
Services. See Note 5: Acquisitions and Dispositions to the consolidated financial statements included elsewhere in this
Annual Report on Form 10-K for further information on the acquisition of RE/MAX Regional Services. In connection
with the 2016 Senior Secured Credit Facility, the Company incurred costs of $3.5 million of which $1.4 million was
recorded as unamortized debt issuance costs and is being amortized over the remaining term of the 2016 Senior Secured
Credit Facility and the remaining $2.1 million was expensed as incurred. See Note 9: Debt to the consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for further detail.
The maturity date on all of the term loans under the 2016 Senior Secured Credit Facility is December 15, 2023. Term
loans are repaid in quarterly installments of $0.6 million with the balance due at maturity. The quarterly installments
will be reduced pro-rata by the amount of any excess cash flow principal payments made annually in accordance with the
2016 Senior Secured Credit Facility. Term loans may be optionally repaid by RE/MAX, LLC at any time. All amounts
outstanding, if any, under the revolving line of credit must be repaid on December 15, 2021.
63
The 2016 Senior Secured Credit Facility requires RE/MAX, LLC to repay term loans and reduce revolving commitments
with (i) 100.0% of proceeds of any incurrence of additional debt not permitted by the 2016 Senior Secured Credit
Facility, (ii) 100.0% of proceeds of asset sales and 100.0% of amounts recovered under insurance policies, subject to
certain exceptions and a reinvestment right and (iii) 50.0% of excess cash flow at the end of the applicable fiscal year if
RE/MAX, LLC’s total leverage ratio as defined in the 2016 Senior Secured Credit Facility is in excess of 3.25:1.00, with
such percentage decreasing as RE/MAX, LLC’s leverage ratio decreases. The 2013 Senior Secured Credit Facility
required RE/MAX, LLC to repay term loans with 50% of excess cash flow at the end of the applicable year if its total
leverage ratio as defined therein was in excess of 2.50:1.00, with such percentage decreasing as RE/MAX, LLC’s
leverage ratio decreased.
The 2016 Senior Secured Credit Facility is guaranteed by RMCO and RE/MAX of Western Canada (1998), LLC, a
wholly owned subsidiary of RE/MAX, LLC, and is secured by a lien on substantially all of the assets of RMCO,
RE/MAX, LLC and each guarantor.
Borrowings under the term loans and revolving loans accrue interest, at our option on (a) London Interbank Offered
Rate (“LIBOR”), provided that LIBOR shall be no less than 0.75% plus a maximum applicable margin of 2.75% and,
provided further, that LIBOR shall be adjusted for reserve requirements for eurocurrency liabilities, if any (the
“Eurodollar Rate”) or (b) the greatest of (i) JPMorgan Chase Bank N.A.’s prime rate, (ii) the NYFRB Rate (as defined in
the 2016 Senior Secured Credit Facility) plus 0.50% and (iii) the one-month Eurodollar Rate plus 1%, (such greatest rate,
the “ABR”) plus, in each case, the applicable margin. The applicable margin for Eurodollar Rate loans is 2.75% and for
ABR loans is 1.75%.
RE/MAX, LLC had entered into the 2013 Senior Secured Credit Facility, which was paid off when RE/MAX, LLC
amended and restated the 2013 Senior Secured Credit Facility by entering into the 2016 Senior Secured Credit Facility,
in July 2013 with JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto. Under the
2013 Senior Secured Credit Facility, RE/MAX, LLC had borrowed $230.0 million in term loans and had a revolving line
of credit available of up to $10.0 million.
The 2016 Senior Secured Credit Facility, like the 2013 Senior Secured Credit Facility, provides for customary
restrictions on, among other things, additional indebtedness, liens, dispositions of property, dividends, transactions with
affiliates and fundamental changes such as mergers, consolidations and liquidations. 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 2016 Senior Secured Credit Facility. Certain of the restrictions under the 2016 Senior Secured Credit
Facility are less restrictive, as compared with the comparable terms in the 2013 Senior Secured Credit Facility.
The 2016 Senior Secured Credit Facility restricts the aggregate acquisition consideration for permitted acquisitions, in a
situation in which RE/MAX, LLC would not be in pro forma compliance with a 3.5:1.0 total leverage ratio (based on
how such term is defined therein), to $100.0 million in any fiscal year. The 2016 Senior Secured Credit Facility also
provides for incremental facilities as long as the total leverage ratio as defined therein remains below 4.00:1.00.
On March 11, 2015, the 2013 Senior Secured Credit Facility was amended, providing for an increase to the maximum
applicable margin for both LIBOR and ABR loans by 0.25%, and a modification of certain liquidity covenants in order
to increase the amounts RE/MAX, LLC could distribute to RMCO to enable RMCO to increase the dividends declared
and paid to its unitholders. On November 22, 2016, the 2013 Senior Secured Credit Facility was further amended,
providing for an increase in the revolving commitment by $20.0 million to a total of $30.0 million effective upon the
acquisition of RE/MAX Regional Services, and also waived certain limitations on acquisitions in order to enable us to
consummate such acquisition.
As of December 31, 2016, we had $230.8 million of term loans outstanding, net of an unamortized discount and issuance
costs, and no revolving loans outstanding under our 2016 Senior Secured Credit Facility. If any loan or other amounts
are outstanding under the revolving line of credit, the 2016 Senior Secured Credit Facility requires compliance with a
leverage ratio and an interest coverage ratio. A commitment fee of 0.5% per annum accrues on the amount of unutilized
revolving line of credit.
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Sources and Uses of Cash
As of December 31, 2016 and 2015, we had $57.6 million and $110.2 million, respectively in cash and cash equivalents,
of which approximately $11.6 million and $7.0 million were denominated in foreign currencies, respectively.
The following table summarizes our cash flows from operating, investing, and financing activities:
Year Ended December 31,
2016
2015
2014
(in thousands)
Cash provided by (used in):
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . $
64,379 $ 77,358 $
1,664
(75,186)
(823)
3,013 $
(117,332)
228
122
(52,603) $
64,445
(2,043)
(43,413)
(165)
18,824
Operating Activities
During the year ended December 31, 2016, cash provided by operating activities decreased primarily as a result of:
•
•
•
the February 2016 payment of $3.3 million to satisfy liabilities from a litigation judgment that did not occur in
the prior year period;
the $1.3 million payment pursuant to the TRAs that did not occur in the prior year period; and
an increase of $6.1 million in cash paid for income taxes as a result of changes in our ownership structure and
timing of our U.S. federal tax payments.
During the year ended December 31, 2015, cash provided by operating activities increased primarily a result of:
•
•
•
•
•
an increase of $5.6 million in cash provided by revenue activities primarily as a result of an increase in agent
count and office franchise sales in addition to augmented registration fees charged to participants who attended
our 2015 annual convention;
an increase of $0.6 million in distributions received from our investment in a mortgage brokerage company;
a decrease of $2.4 million in cash used in selling, operating and administrative activities; and
a decrease of $2.7 million in cash paid for income taxes due to the timing of our U.S. federal tax payments;
partially offset by
additional use of cash of $0.4 million related to amending our 2013 Senior Secured Credit Facility on March 11,
2015.
Investing Activities
During the year ended December 31, 2016, cash used in investing activities increased primarily as a result of the $112.9
million for the acquisitions of the 2016 Acquired Regions and Motto.
During the year ended December 31, 2015, cash provided by investing activities increased primarily as a result of the
$5.7 million for the dispositions of some of our owned brokerages in 2015, partially offset by an increase of $1.5 million
in the purchases of property, equipment and software for investments in our information technology infrastructure.
Financing Activities
During the year ended December 31, 2016 cash provided by financing activities increased as a result of:
•
net cash proceeds of $44.0 million received in connection with the 2016 Senior Secured Credit facility;
65
•
•
•
a net decrease of $38.3 million in cash paid to Class A common stockholders and non-controlling unitholders
due to our Board of Directors declaring a special dividend in March 2015 of $1.50 per share on all outstanding
shares of Class A common stock, which did not occur during the year ended December 31, 2016 offset by an
increase in the quarterly dividends declared in 2016 to $0.15 per share of all outstanding shares of Class A
common stock from $0.125 per share outstanding in 2015; partially offset by
an increase of $5.4 million in the mandatory excess cash flow prepayments made in March 2016 compared to
March 2015 pursuant to the terms of our 2013 Senior Secured Credit Facility; and
a reduction of $2.1 million in cash received from stock option exercises during the year ended December 31,
2016 compared to December 31, 2015.
During the year ended December 31, 2015 cash used in financing activities increased primarily as a result of:
•
•
•
•
•
•
•
an increase of $44.5 million in cash paid to Class A common stockholders and non-controlling unitholders due
to our Board of Directors declaring a special dividend in March 2015 of $1.50 per share on all outstanding
shares of Class A common stock, which did not occur in the comparable prior year period;
an increase of $7.6 million due to our Board of Directors doubling the quarterly dividends declared in 2015 to
$0.125 per share on all outstanding shares of Class A common stock;
an increase of $0.6 million in cash paid in connection with amending our 2013 Senior Secured Credit Facility;
partially offset by
a reduction of $10.4 million in tax and other distributions paid to our non-controlling unitholders pursuant to
the terms of the New RMCO, LLC Agreement;
a reduction of $7.3 million in mandatory excess cash flow prepayments made in March 2015 compared to
March 2014 pursuant to the terms of our 2013 Senior Secured Credit Facility
an increase of $1.8 million in cash received stock options exercises; and
a decrease of $1.5 million in withholding tax payments to satisfy statutory tax requirements of certain
employees upon delivery of vested restricted stock units.
Cash Priorities
Liquidity
Our objective is to maintain a strong liquidity position. We have existing cash balances, cash flows from operating
activities, access to our revolving line of credit and incremental facilities under our 2016 Senior Secured Credit Facility
available to support the needs of our business.
Acquisition of Businesses
In 2016 we acquired the 2016 Acquired Regions and launched the Motto franchise for $112.9 million in aggregate.
Capital Expenditures
The total aggregate amount paid for purchases of property and equipment and purchased and developed software was
$4.4 million, $3.5 million and $2.0 million in 2016, 2015 and 2014, respectively. Amounts paid for purchases of
property, equipment and software primarily related to investments in our information technology infrastructure and
leasehold improvements. In order to expand our technological capabilities, 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 franchisees and
agents in our network. Total capital expenditures for 2017 is expected to be between $4.5 million and $5.5 million.
Dividends
Our Board of Directors declared quarterly cash dividends of $0.15 and $0.125 per share on all outstanding shares of
Class A common stock every quarter in 2016 and 2015, respectively, as disclosed in Note 4 to our audited consolidated
66
financial statements included elsewhere in this Annual Report on Form 10-K. In addition, our Board of Directors
declared a special cash dividend of $1.50 per share on all outstanding shares of Class A common stock during the first
quarter of 2015. On February 22, 2017, our Board of Directors declared a quarterly cash dividend of $0.18 per share on
all outstanding shares of Class A common stock, which is payable on March 22, 2017 to stockholders of record at the
close of business on March 8, 2017. The declaration of additional future dividends, and, if declared, the amount of any
such future dividend, will be subject to our actual future earnings and capital requirements and will be at the discretion of
our Board of Directors; however, we currently intend to continue to pay a cash dividend on shares of Class A common
stock on a quarterly basis.
Distributions and Other Payments to Non-controlling Unitholders (RIHI, Inc.)
Distributions to Non-Controlling Unitholders Pursuant to the New RMCO, LLC Agreement
As authorized by the New RMCO, LLC Agreement, RMCO makes cash distributions to its unitholders, RE/MAX
Holdings and RIHI, also referred to as its members. In accordance with the New RMCO, LLC Agreement, distributions
are required to be made by RMCO to its members on a pro-rata basis in accordance with each members’ ownership
percentage in RMCO. These distributions have historically been either in the form of payments to cover its members’
estimated tax liabilities, dividend payments, or payments to ensure pro-rata distributions have occurred.
As a limited liability company (treated as a partnership for income tax purposes), RMCO does not incur significant
domestic federal, state or local income taxes, as these taxes are primarily the obligations of its members. RMCO is
generally required to distribute cash to its members to cover each member’s estimated tax liabilities, if any, with respect
to their allocable share of RMCO earnings. Such distributions are required if any other distributions from RMCO (i.e.,
in the form of dividend payments) for the relevant period are otherwise insufficient to enable each member to cover its
estimated tax liabilities. Distributions to RIHI to cover its estimated tax liabilities were $4.6 million during the year
ended December 31, 2016.
RE/MAX Holdings’ only source of cash flow from operations is in the form of distributions from RMCO. RE/MAX
Holdings receives distributions from RMCO on a quarterly basis that are equal to the dividend payments RE/MAX
Holdings’ make to the stockholders of its Class A common stock. As a result, absent any additional distributions,
RE/MAX Holdings may have insufficient funds to cover its estimated tax and TRA liabilities. Therefore, as necessary,
RMCO makes a separate distribution to RE/MAX Holdings, and because all distributions must be made on a pro-rata
basis, RIHI receives a separate payment to ensure such pro-rata distributions have occurred. The amount of these
additional pro-rata distributions received by RIHI during the year ended December 31, 2016 was $5.8 million.
Upon completion of its tax returns with respect to the prior year, RMCO may make other true-up distributions to its
members, if cash is available for such purposes, with respect to actual taxable income for the prior year. See Note 3 to
our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details
on distributions made by RMCO.
Payments Pursuant to the Tax Receivable Agreement
In connection with the IPO, we entered into two TRAs, which resulted in the recognition of a $98.8 million liability as of
December 31, 2016. The $98.8 million liability represents 85% of the tax benefits we expect to realize as a result of the
redemption of RMCO common units by RIHI, Weston Presidio V, L.P. (“Weston Presidio”) and us as part of the IPO.
In 2015, Weston Presidio assigned, transferred and conveyed to Oberndorf all of its rights, title and interest in and to, and
all of its liabilities and obligations under the TRA. The estimated liability assumes no material changes in the relevant
tax law and that we earn sufficient taxable income to realize all tax benefits subject to the TRAs.
Of the $98.8 million liability recorded as of December 31, 2016, $33.0 million relates to RIHI’s exchange of 5,175,000
common units for shares of our Class A common stock in the fourth quarter of 2015. The liability pursuant to the TRAs
will increase in the future upon future exchanges by RIHI of RMCO common units, with the increase representing 85%
of the estimated future tax benefits, if any, resulting from such exchanges. We receive funding from RMCO in order to
fund the payment of amounts due under the TRAs.
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The actual payments, and associated tax benefits, will vary depending upon a number of factors, including the timing of
exchanges by RIHI, the price of our Class A common stock at the time of such exchanges, the amount and timing of the
taxable income we generate in the future and the tax rate then applicable. During the year ended December 31, 2016,
payments of $1.3 million including interest were made to RIHI in accordance with the TRA agreements. We expect to
make payments of approximately $13.2 million in 2017 related to the TRAs.
Distributions and other payments to RIHI in 2016 were comprised of the following (in thousands):
Year Ended
December
31, 2016
Distributions and other payments pursuant to the New RMCO, LLC Agreement:
Required distributions for taxes and pro rata distributions as a result of distributions to RE/MAX Holdings
in order to satisfy its estimated tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Dividend distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total distributions to RIHI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments pursuant to the TRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total distributions and TRA payments to RIHI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10,391
7,536
17,927
1,344
19,271
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2016 and the effect such obligations are
expected to have on our liquidity and cash flows in future periods:
Total
Less than 1 year 1-3 years 3-5 years After 5 years
Payments due by Period
(in thousands)
Long-term debt (including current portion) (1) (2) . . $ 234,412 $
Interest payments on debt facilities (3) . . . . . . . . . .
Lease obligations (4) . . . . . . . . . . . . . . . . . . . . . . . . .
Payments pursuant to tax receivable agreements (5)
Severance payments (6) . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 493,641 $
59,296
100,141
98,809
983
2,350 $
8,784
7,412
13,235
983
4,700 $ 222,662
16,236
16,973
59,451
17,571
60,414
12,765
—
—
32,764 $ 50,105 $ 52,009 $ 358,763
4,700 $
17,303
15,707
12,395
—
(1) We are required to make quarterly principal payments on our 2016 Senior Secured Credit Facility of $0.6 million
through December 2023. We have also reflected full payment of long-term debt at maturity of our 2016 Senior
Secured Credit Facility in December 2023. The total amount excludes the unamortized discount.
(2) The 2016 Senior Secured Credit Facility only requires mandatory prepayments and commitment reductions
throughout the term of the loan if the total leverage ratio as of the last day of such fiscal year is greater than 2.75 to
1.0. If the total leverage ratio as of the last day of such fiscal year is not greater than 2.75 to 1.0 no excess cash flow
principal prepayment is required. No excess cash flow principal prepayments are included as our total leverage ratio
as of December 31, 2016 was not greater than 2.75 to 1.0 and we don’t anticipate our total leverage ratio to be
greater than 2.75 to 1.0 in future periods.
(3) The interest payments in the above table are determined assuming that principal payments on debt are made on their
applicable maturity dates. The variable interest rate on the 2016 Senior Secured Credit Facility is assumed at the
interest rate in effect as of December 31, 2016 of 3.71%, which is subject to the interest rate floor of 1.75% is
specified within the definition sections of the credit agreement. Our current interest rate could increase if LIBOR
rates increase above the 0.75% floor or if we elect a different interest option under the 2016 Senior Secured Credit
Facility.
(4) We are obligated under non-cancelable leases for offices and equipment. Future payments under these leases and
commitments, net of payments to be received under sublease agreements of $2.5 million in the aggregate, are
included in the table above.
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(5) As described elsewhere in this Annual Report on Form 10-K, we entered into separate TRAs with each of the TRA
Parties, that will provide for the payment by us to RIHI and Oberndorf of 85% of the amount of cash savings, if any,
in U.S. federal, state and local income tax or franchise tax that we actually realize, or in some circumstances are
deemed to realize, as a result of an expected increase in our share of tax basis in RMCO’s tangible and intangible
assets, including increases attributable to payments made under the TRAs, and deductions attributable to imputed
and actual interest that accrues in respect of such payments.
(6) As described in Note 14 to our audited consolidated financial statements included elsewhere in this Annual Report
on Form 10-K, as a result of the retirement of our former Chief Executive Officer on December 31, 2014, we are
required to pay the aggregate amount of $1.8 million in the form of salary continuation as well as related tax and
benefits over a 36-month period, which began in October 2015, pursuant to the terms of her separation agreement. In
addition, as a result of the retirement of our former President, we are required to pay the aggregate amount of $0.5
million in the form of salary continuation as well as related tax over a 24-month period, beginning in September
2015 pursuant to the terms of his retirement agreement. The estimated undiscounted payments are included in the
table above.
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements as of December 31, 2016.
Critical Accounting Judgments and Estimates
In presenting our financial statements in conformity with U.S. GAAP, we are required to make estimates and
assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make
relate to matters that are inherently uncertain as they pertain to future events. We base estimates on historical experience
and other assumptions believed to be reasonable under the circumstances and evaluate these estimates on an ongoing
basis. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are discussed in Note 2 to our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. We believe that the accounting policies and estimates discussed below
are critical to understanding our historical and future performance, as these policies relate to the more significant areas
involving management’s judgments and estimates.
Goodwill
Goodwill represents the excess of purchase price over the fair value of tangible and intangible assets acquired, less
liabilities assumed arising from business combinations. We assess goodwill for impairment at least annually on August
31, or more frequently if an event occurs or circumstances change that would indicate an impairment may have occurred
at the reporting unit level. Reporting units are driven by the level at which management reviews operating results and
are one level below the operating segment.
Our impairment assessment begins with a qualitative assessment to determine if it is more likely than not that a reporting
unit’s fair value is less than the carrying amount. The initial qualitative assessment includes comparing the overall
financial performance of the reporting units against the planned results as well as other factors which might indicate that
the reporting unit’s value has declined since the last assessment date.
If it is determined in the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less
than its carrying value, then the standard two-step quantitative impairment test is performed. First, the fair value of the
reporting unit is calculated and is then compared to its carrying value. If the fair value is less than the carrying value, we
would then determine the implied fair value of a reporting unit’s goodwill by allocating the determined fair value to all
of the reporting unit’s assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had
been acquired in a business combination. The remaining fair value of the reporting unit, if any, is deemed to be the
implied fair value of the goodwill and an impairment is recognized in an amount equal to the excess of the carrying
amount of goodwill above its implied fair value.
69
The determination of the reporting units and which reporting units to include in the qualitative assessment requires
significant judgment. Also, all of the assumptions used in the qualitative assessment require judgment. The results of
our qualitative assessments conducted in 2016 did not indicate that it was more likely than not that the fair value of any
of our reporting units were less than their carrying amounts. Thus, no quantitative goodwill impairment test was
performed.
We could be required to evaluate the recoverability of goodwill if we experience disruptions to the business, unexpected
significant declines in operating results, a divestiture of a significant component of our business, or other triggering
events. In addition, as our business or the way we manage our business changes, our reporting units may also change.
The carrying value of goodwill as of December 31, 2016 was $126.6 million, which represented approximately 29.0% of
our consolidated assets. The fair value of our reporting units significantly exceeded their carrying values at our latest
assessment date.
We did not record any goodwill impairments during the years ended December 31, 2016, 2015 and 2014.
Franchise Agreements and Other Intangible Assets
Franchise agreements of reacquired regions are recorded initially based on the remaining contractual term and do not
consider potential renewal periods in the determination of fair value. The franchise agreements are amortized on a
straight-line basis over their remaining contractual term. The value ascribed to the franchise agreements requires
management to make assumptions and apply judgment in the initial determination, primarily through the use of a
discounted cash flow analysis. With respect to the discounted cash flow analysis, the timing and amount of expected
future cash flows requires estimates, among other items, of revenue and agent growth rates, operating expenses and
expected operating cash flow margins. The development of these cash flows, and the discount rate applied to the cash
flows, is subject to inherent uncertainties.
We also purchase and develop software for internal use. Software development costs are capitalized during the
application development stage and upgrades and enhancements that result in additional functionality are also capitalized.
Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Software
development costs and purchased software licenses are generally amortized over a term of three to five years, their
estimated useful lives.
We review our franchise agreements and other intangible assets subject to amortization for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated from such assets. Undiscounted cash flow analyses require us to make
estimates and assumptions, including among other things, revenue growth rates and operating margins based on our
financial budgets and business plans.
Disruptions to contractual relationships, significant deterioration in the use of software capitalized for internal use, or
other issues significantly impacting the future cash flows associated with our franchise agreements and other intangible
assets would cause us to evaluate their recoverability. If an event described above occurs and causes us to determine that
an asset has been impaired, that could result in an impairment charge. The net carrying value of our franchise
agreements and other intangible assets as of December 31, 2016 was $109.1 million and $61.9 million, respectively. We
have not recorded any impairment charges during the years ended December 31, 2016, 2015 and 2014.
Purchase Accounting for Acquisitions
We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair
values. The excess of the purchase price over the amount allocated to the identifiable assets less liabilities is recorded as
goodwill. Purchase price allocations require management to make assumptions and apply judgment to estimate the fair
value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities primarily using
discounted cash flow analysis.
70
We engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets, primarily
reacquired franchise rights. We adjust the preliminary purchase price allocation, as necessary, after the acquisition
closing date through the end of the measurement period of one year or less as we finalize valuations for the assets
acquired and liabilities assumed. If estimates or assumptions used to complete the initial purchase price allocation and
estimate the fair value of acquired assets and liabilities significantly differed from assumptions made in the final
valuation, the allocation of purchase price between goodwill and intangibles could significantly differ. Such a difference
would impact future earnings through amortization expense of these intangibles. In addition, if forecasts supporting the
valuation of the intangible assets or goodwill are not achieved, impairments could arise, as discussed further in
“Goodwill” and “Franchise Agreements and Other Intangible Assets” above.
Contingent Consideration
Contingent consideration consists of an earn-out obligation in connection with the acquisition of Full House, in which
we are required to pay additional purchase consideration totaling eight percent of gross revenues generated by the
acquired business each year for the first ten years subsequent to the acquisition with no limitation as to the maximum
payout. Contingent consideration is recorded at the acquisition date fair value, which is measured at the present value of
the consideration expected to be transferred. The fair value of contingent consideration is re-measured at the end of each
reporting period with the change in fair value recognized in selling, operating and administrative expenses in the
Consolidated Statements of Operations. Estimates of the fair value of contingent consideration are impacted by the
timing and amount of revenue and agent growth rates, discount rates and credit risk. A 1% change to the discount rates
changes the liability by approximately $300,000. Contingent consideration obligations were $6.4 million at December
31, 2016, with $0.2 million classified as current in our Consolidated Balance Sheets.
Income Tax Accounting
We are required to estimate the amount of tax payable or refundable for the current year and the deferred tax assets and
liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts
and income tax basis of assets and liabilities and the expected benefits, if any, of utilizing net operating loss and tax
credit carryforwards, using enacted tax rates in effect for each taxing jurisdiction in which we operate for the year in
which those temporary differences are expected to be recovered or settled.
Management judgment is required in developing our provision for income taxes, including the determination of deferred
tax assets and liabilities and any valuation allowance that might be required against our deferred tax assets. As of
December 31, 2016, we have not recorded a significant valuation allowance on our deferred tax assets, which were
primarily attributable to an increase in the tax basis of RMCO’s tangible and intangible assets resulting from RMCO’s
election under Section 754 of the Internal Revenue Code. Our accounting for deferred tax assets represents our best
estimate of future events. In the event that sufficient taxable income of the same character does not result in future years,
among other things, a valuation allowance for certain of our deferred tax assets may be required.
As of December 31, 2016, we recorded a net deferred tax asset of $105.8 million and a net deferred tax liability of $0.1
million. We expect to realize future tax benefits related to the utilization of these assets.
Payments Pursuant to the TRAs
Payments are anticipated to be made under the TRAs indefinitely subsequent to the annual filing of RE/MAX Holdings’
federal income tax return. The payments are to be made in accordance with the terms of the TRAs. The timing of the
payments is subject to certain contingencies including RE/MAX Holdings having sufficient taxable income to utilize all
of the tax benefits defined in the TRAs. If RE/MAX Holdings failed to generate sufficient taxable income in future
periods, tax benefits realized pursuant to the terms of the TRAs may not materialize, resulting in payment default or the
necessity to record a valuation allowance, which would adversely impact our financial position and results of operations.
As of December 31, 2016, we recorded a liability of $98.8 million, representing the payments due to the TRA Parties
under the TRAs. Within the next 12-month period, we expect to pay $13.2 million of the total amount of the estimated
TRA liability. To determine the current amount of the payments due to the TRA Parties pursuant to the TRAs for 2016,
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we estimated the amount of taxable income that RE/MAX Holdings generated during 2016. Next, we estimated the
amount of the specified deductions subject to the TRAs which are expected to be realized by RE/MAX Holdings in its
2016 tax return. This amount was then used as a basis for determining the estimated tax cash savings as a result of such
deductions on which a 2016 TRA obligation became due (i.e. payable within 12 months of December 31, 2016).
General Litigation Matters
We are subject to litigation claims arising in the ordinary course of business. We accrue for contingencies related to
litigation matters if it is probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. Because these matters are inherently unpredictable and unfavorable developments or resolutions can occur,
assessing litigation matters is highly subjective and requires judgments about future events. We regularly review
litigation matters to determine whether our accruals and related disclosures are adequate. The amount of ultimate loss
may differ from these estimates. See Note 14 to our audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K for more information related to litigation matters.
New Accounting Pronouncements
New Accounting Pronouncements Not Yet Adopted
Leases
In February 2016, the FASB issued authoritative guidance intended to increase transparency and comparability among
organizations by requiring lessees to recognize lease assets and liabilities on the balance sheet and disclosing key
information about leasing arrangements. The new standard is effective for fiscal years, and interim reporting periods
within those years, beginning after December 15, 2018. Early adoption is permitted in any interim or annual reporting
period. The standard requires a modified retrospective transition approach for leases that exist or are entered into after
the beginning of the earliest comparative period in the financial statements. Any leases that expire before the initial
application date will not require any accounting adjustment. We are currently evaluating the potential impact on our
financial position and results of operations upon adoption of this guidance.
Revenue Recognition
In May 2014 the Financial Accounting Standards Board (“FASB”) issued authoritative guidance related to new
accounting requirements for the recognition of revenue from contracts with customers. The guidance requires an entity
to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to
customers. The guidance also includes enhanced disclosure requirements which are intended to help financial statement
users better understand the nature, amount, timing and uncertainty of revenue being recognized. Subsequent to the
release of this guidance, the FASB has issued additional updates intended to provide interpretive clarifications and to
reduce the cost and complexity of applying the new revenue recognition standard both at transition and on an ongoing
basis. The new standard and related amendments are effective for fiscal years, and interim reporting periods within those
years, beginning after December 15, 2017. Upon adoption of the new standard, the use of either a full retrospective or
cumulative effect transition method is permitted. We are currently in the process of evaluating the potential impact this
new guidance will have on our financial statements and will not early adopt. We expect the adoption of the new
guidance to change the timing of recognition of franchise sales and franchise renewal revenue. Currently we recognize
revenue upon completion of a sale or renewal. Under the new guidance, franchise sales and renewal revenue, which are
included in Franchise Sales and Other Franchise Revenue in the Consolidated Statement of Income, will be recognized
over the general contractual term of the franchise agreement. We have not completed our evaluation, however, based on
preliminary work completed we do not believe there will be a significant impact to our financial statements. We
currently anticipate that we will utilize the full retrospective transition method, however, this expectation may change
following the completion of our evaluation of the impact of this guidance on our consolidated financial statements and
related disclosures.
Other than the items noted above, there have been no new accounting pronouncements not yet effective that we believe
have a significant impact, or potential significant impact, to our consolidated financial statements.
72
See Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
recently issued accounting pronouncements applicable to us and the effect of those standards on our consolidated
financial statements and related disclosures.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We have operations both within the U.S. 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 inflation risks, as well as risks relating to
changes in the general economic conditions in the countries where we conduct business. To reduce certain of these risks,
we monitor the financial condition of our large franchisees. In addition, our investment strategy has been to invest in
financial instruments that are highly liquid and mature within three months from the date of purchase. We do not
currently use derivative instruments to mitigate the impact of our market risk exposures nor do we use derivatives for
trading or speculative purposes.
Interest Rate Risk
We are subject to interest rate risk in connection with borrowings under our 2016 Senior Secured Credit Facility which
bear interest at variable rates. At December 31, 2016, $232.9 million in term loans were outstanding under our 2016
Senior Secured Credit Facility, net of an unamortized discount. As of December 31, 2016, the undrawn borrowing
availability under the revolving line of credit under our 2016 Senior Secured Credit Facility was $10.0 million. 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. The interest rate on our 2016 Senior Secured
Credit Facility entered into in December 2016 is currently subject to a LIBOR rate floor of 0.75%, plus an applicable
margin of 2.75%. An interest rate floor of 1.75% is specified within the definition sections of the credit agreement.
Based on the Eurodollar rate in effect at December 31, 2016, the interest rate was 3.71%. If the Eurodollar rate rises, then
each hypothetical 1/8% increase would result in additional annual interest expense of $0.3 million.
Borrowings under the term loan and outstanding revolving loan, if any, accrue interest, at our option on (a) LIBOR,
provided that LIBOR shall be no less than 0.75% plus a maximum applicable margin of 2.75% and, provided further,
that LIBOR shall be adjusted for reserve requirements for eurocurrency liabilities, if any (the “Eurodollar Rate”) or (b)
the greatest of (i) JPMorgan Chase Bank N.A.’s prime rate, (ii) the NYFRB Rate (as defined in the 2016 Senior Secured
Credit Facility) plus 0.50% and (iii) the one-month Eurodollar Rate plus 1%, (such greatest rate, the “ABR”) plus, in
each case, the applicable margin. The applicable margin for Eurodollar Rate loans is 2.75% and for ABR loans is 1.75%.
An interest rate floor of 1.75% is specified within the definition sections of the credit agreement. A commitment fee of
0.5% per annum accrues on the amount of unutilized revolving line of credit.
Currency Risk
We have a network of global franchisees in over 100 countries and territories, including the U.S. and Canada. Fees paid
to us by our global master franchisors are in either local currency or U.S. dollars, depending on the contractual terms of
the various agreements. Fees imposed by our global master franchisors on independent franchisees and agents are
charged in local currency. Fluctuations in exchange rates of the U.S. dollar against foreign currencies and cash held in
foreign currencies can result, and have resulted, in fluctuations in our operating income and foreign exchange transaction
gains and losses. As the U.S. dollar has strengthened compared to most foreign currencies, including the Canadian dollar
and the Euro during 2016, 2015 and 2014, our financial position and results of operations have been adversely affected.
We had foreign currency transaction losses of approximately $0.1 million, $1.7 million and $1.3 million during the years
ended December 31, 2016, 2015 and 2014, respectively. We currently do not engage in any foreign exchange hedging
activity but may do so in the future. Beginning in the first quarter of 2015, we began to repatriate cash generated by
certain of our Canadian operations to the U.S. on a regular basis and expect to continue to do so prospectively. During
the year ended December 31, 2016, a hypothetical 5% strengthening or weakening in the value of the U.S. dollar
compared to the Canadian dollar would have resulted in a decrease/increase to pre-tax income of approximately $1.0
million.
73
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
77
Consolidated Balance Sheets as of December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014 . . . . . . . . . . . . . . . . .
79
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 . . . .
80
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014 . . . . . .
81
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 . . . . . . . . . . . . . .
82
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
RE/MAX Holdings, Inc:
We have audited the accompanying consolidated balance sheets of RE/MAX Holdings, Inc. and subsidiaries (the
Company) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2016.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of RE/MAX Holdings, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 24, 2017 expressed an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting.
/s/ KPMG LLP
Denver, Colorado
February 24, 2017
75
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
RE/MAX Holdings, Inc.:
We have audited RE/MAX Holdings, Inc. and subsidiaries (the Company) internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). RE/MAX Holdings, Inc.’s management
is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying management report on internal
controls over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, RE/MAX Holdings, Inc. and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of RE/MAX Holdings, Inc. and subsidiaries as of December 31, 2016 and 2015,
and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each
of the years in the three-year period ended December 31, 2016, and our report dated February 24, 2017 expressed an
unqualified opinion on those consolidated financial statements.
Denver, Colorado
February 24, 2017
/s/ KPMG LLP
76
RE/MAX HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts and notes receivable, current portion, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise agreements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and stockholders' equity
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of payable pursuant to tax receivable agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable pursuant to tax receivable agreements, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (note 15)
Stockholders' equity:
Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 17,652,548 shares
issued and outstanding as of December 31, 2016; 17,584,351 shares issued and outstanding as of
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B common stock, par value $0.0001 per share, 1,000 shares authorized; 1 share issued and
outstanding as of December 31, 2016 and December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity attributable to RE/MAX Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
As of December 31,
2016
2015
$
$
$
57,609
19,419
—
4,186
81,214
2,691
109,140
9,811
126,633
105,770
1,894
437,153
855
145
13,098
379
16,306
2,350
13,235
—
170
46,538
228,470
85,574
133
15,729
376,444
110,212
16,769
354
4,079
131,414
2,395
61,939
4,941
71,871
109,365
1,861
383,786
449
66
16,082
451
16,501
14,805
8,478
351
71
57,254
185,552
91,557
120
9,889
344,372
2
2
—
447,001
16,808
(28)
463,783
(403,074)
60,709
437,153
$
—
445,081
4,693
(105)
449,671
(410,257)
39,414
383,786
See accompanying notes to consolidated financial statements
77
RE/MAX HOLDINGS, INC.
Consolidated Statements of Income
(In thousands, except share and per share amounts)
Year Ended December 31,
2016
2015
2014
Revenue:
Continuing franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Annual dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise sales and other franchise revenue . . . . . . . . . . . . . . . . . . . . .
Brokerage revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling, operating and administrative expenses . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale or disposition of assets, net . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses, net:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: net income attributable to non-controlling interest . . . . . . . .
Net income attributable to RE/MAX Holdings, Inc. . . . . . . . . . . . . $
81,197
32,653
37,209
25,131
112
176,302
87,629
16,094
178
103,901
72,401
(8,596)
160
(86)
(796)
—
(9,318)
63,083
(15,273)
47,810
25,073
22,737
$
73,750 $
31,758
32,334
25,468
13,558
176,868
90,986
15,124
(3,397)
102,713
74,155
(10,413)
178
(1,661)
(94)
1,215
(10,775)
63,380
(12,030)
51,350 $
34,695
16,655 $
$
$
72,706
30,726
28,685
23,440
15,427
170,984
91,847
15,316
(14)
107,149
63,835
(9,295)
313
(1,348)
(178)
600
(9,908)
53,927
(9,948)
43,979
30,543
13,436
Net income attributable to RE/MAX Holdings, Inc. per share of Class A
common stock
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.29
1.29
$
$
1.31 $
1.30 $
1.16
1.10
Weighted average shares of Class A common stock outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,628,741
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,677,768
0.60
Cash dividends declared per share of Class A common stock . . . . . . . . . $
12,671,051
11,611,164
12,829,214
$
2.00 $
12,241,977
0.25
See accompanying notes to consolidated financial statements.
78
RE/MAX HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
(In thousands)
Year Ended December 31,
2015
2014
2016
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,810 $ 51,350 $ 43,979
(485)
Change in cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(485)
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . . .
43,494
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: comprehensive income attributable to non-controlling interest . . . . . . .
30,250
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax . . $ 22,814 $ 15,664 $ 13,244
(1,289)
(1,289)
50,061
34,397
165
165
47,975
25,161
See accompanying notes to consolidated financial statements.
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8
RE/MAX HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
$
47,810
$
51,350
$
43,979
2016
Year Ended December 31,
2015
2014
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale or disposition of assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions received from equity investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts and notes receivable, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances from/to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current and noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current and noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable/payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue and deposits, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment pursuant to tax receivable agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Purchases of property, equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization of trademark costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired of $466 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost to sell assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from issuance of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance and capitalized debt amendment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions paid to non-controlling unitholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to Class A common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of payroll taxes related to net settled restricted stock units . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental disclosures of cash flow information:
Cash paid for interest and debt amendment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule of non-cash investing and financing activities:
Establishment of amounts payable under tax receivable agreements . . . . . . . . . . . . . . . . . . . . . . . .
Establishment of deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note receivable received as consideration for sale of brokerage operations assets . . . . . . . . . . . . .
Capital leases for property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in accounts payable for capitalization of trademark costs and purchases of property,
equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration issued in a business acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
16,094
1,195
178
796
—
—
2,330
445
3,473
(3,841)
71
362
(2,865)
(71)
(254)
(1,344)
64,379
(4,395)
50
(107)
(112,934)
200
(146)
(117,332)
233,825
(203,223)
(1,379)
(17,927)
(10,578)
(75)
101
(516)
228
122
(52,603)
110,212
57,609
7,797
11,912
—
—
150
48
150
6,400
$
$
$
15,124
433
(3,397)
94
(1,215)
1,178
1,453
439
2,531
(999)
(771)
502
7,000
2,770
866
—
77,358
(3,546)
25
(82)
—
5,650
(383)
1,664
—
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(555)
(42,827)
(24,003)
(322)
2,248
(327)
(75,186)
(823)
3,013
107,199
110,212
9,319
5,841
33,018
43,774
851
412
667
—
$
$
$
15,316
630
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178
(600)
549
2,002
365
1,865
(1,466)
(161)
100
1,816
(222)
1,094
(986)
64,445
(2,026)
5
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—
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—
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—
(16,816)
—
(22,197)
(2,901)
(204)
486
(1,781)
(43,413)
(165)
18,824
88,375
107,199
8,880
8,521
436
917
—
18
165
—
See accompanying notes to consolidated financial statements.
81
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements
1. Business and Organization
RE/MAX Holdings, Inc. (“RE/MAX Holdings”) was formed as a Delaware corporation on June 25, 2013 and was
capitalized on July 8, 2013. On October 7, 2013, RE/MAX Holdings completed an initial public offering (the “IPO”) of
11,500,000 shares of Class A common stock at a public offering price of $22.00 per share. A portion of the proceeds
received by RE/MAX Holdings from the IPO was used to acquire the net business assets of HBN, Inc. (“HBN”) and
Tails, Inc. (“Tails”) in the Southwest and Central Atlantic regions of the United States (“U.S.”), respectively, which were
subsequently contributed to RMCO, LLC and subsidiaries (“RMCO”), and the remaining proceeds were used to
purchase common membership units in RMCO.
After completion of the IPO, RE/MAX Holdings owned 39.56% of the common membership units in RMCO. During the
fourth quarter of 2015, RIHI, Inc. (“RIHI”) redeemed 5,175,000 common units in RMCO in exchange for newly issued
shares of RE/MAX Holdings’ Class A common stock on a one-for-one basis. Immediately upon redemption, RIHI sold
its 5,175,000 shares of Class A common stock at $36.00 per share, less underwriting discounts and commissions (the
“Secondary Offering”). As of December 31, 2016, RE/MAX Holdings owns 58.43% of the common membership units
in RMCO. RE/MAX Holdings’ only business is to act as the sole manager of RMCO. As a result, RE/MAX Holdings
consolidates the financial position and results of operations of RMCO, and because RE/MAX Holdings and RMCO are
entities under common control, such consolidation has been reflected for all periods presented. RE/MAX Holdings and
its consolidated subsidiaries, including RMCO, are referred to hereinafter as the “Company.”
The Company is a franchisor in the real estate industry, franchising real estate brokerages globally under the RE/MAX
brand and mortgage brokerages within the U.S. under the Motto Mortgage brand. RE/MAX, founded in 1973, has over
110,000 agents operating in over 7,000 offices located in more than 100 countries and territories. Motto Mortgage
(“Motto”), founded in 2016, is the first nationally franchised mortgage brokerage in the U.S. As discussed in Note 5,
Acquisitions and Dispositions, the Company sold certain operating assets and liabilities of its owned brokerage offices
during 2015 and the first quarter of 2016 to existing RE/MAX franchisees. Subsequent thereto, the Company is 100%
franchised, no longer operates any real estate brokerage offices and no longer recognizes brokerage revenue (which
consisted of fees assessed by the Company’s owned brokerages for services provided to their affiliated real estate
agents).
The Company’s revenue is derived as follows:
• Continuing franchise fees which consist of fixed contractual fees paid monthly by regional franchise owners
and franchisees based on the number of agents in the respective franchised region or office;
• Annual dues from agents;
• Broker fees which consist of fees paid by regional franchise owners and franchisees for real estate commissions
paid by customers when an agent sells a home;
• Franchise sales and other franchise revenue which consist of fees from initial sales and renewals of franchises;
regional franchise fees, preferred marketing arrangements, approved supplier programs and event-based
revenue from training and other programs; and
• Brokerage revenue prior to the sale of the Company’s 21 owned brokerage offices during 2015 and the first
quarter of 2016.
Basis of Presentation
The accompanying consolidated financial statements and notes thereto included in this Annual Report on Form 10-K
have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and with Article
10 of Regulation S-X. The accompanying consolidated financial statements are presented on a consolidated basis and
include the accounts of RE/MAX Holdings and its consolidated subsidiaries. All significant intercompany accounts and
transactions have been eliminated. In the opinion of management, the accompanying consolidated financial statements
82
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
reflect all normal and recurring adjustments necessary to present fairly the Company’s financial position as of December
31, 2016 and 2015, the results of its operations and comprehensive income for the years ended December 31, 2016, 2015
and 2014, changes in its stockholders’ equity for the years ended December 31, 2016, 2015 and 2014 and results of its
cash flows for the years ended December 31, 2016, 2015 and 2014.
During 2016, the Company completed the acquisitions of six independent regions. Their results of operations, cash
flows and financial positions are included in the consolidated financial statements from their respective dates of
acquisition. See Note 5, Acquisitions and Dispositions, for additional information.
2. Summary of Significant Accounting Policies
Principles of Consolidation
As described in Note 1, Business and Organization, RE/MAX Holdings owns a 58.43% economic interest in RMCO, but
as its managing member consolidates RMCO and records a non-controlling interest in the accompanying Consolidated
Balance Sheets and records net income and comprehensive income attributable to the non-controlling interest in the
accompanying Consolidated Statements of Income and Consolidated Statements of Comprehensive Income,
respectively.
Use of Estimates
The preparation of the accompanying 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 disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Significant areas in which management uses assumptions include,
among other things, the establishment of the allowance for doubtful accounts and notes receivable, the determination of
the estimated lives of intangible assets, the estimates for amounts accrued for litigation matters, the estimates for
determining the fair value of assets acquired and liabilities assumed in business combinations, the estimates related to the
accounting for income taxes, the estimates of the fair value of reporting units used in the annual assessment of goodwill,
the estimates for determining the fair value of the contingent consideration and the amounts due to RIHI and Oberndorf
Investments LLC (“Oberndorf”) pursuant to the terms of the TRAs discussed in more detail in Note 3, Non-controlling
Interest. Actual results could differ from those estimates.
Reclassifications
In conjunction with the adoption of several recent accounting pronouncements, certain items in the accompanying
consolidated financial statements as of and for the years ended December 31, 2015 and 2014 have been reclassified to
conform to the current year’s presentation. These reclassifications did not affect the Company’s consolidated results of
operations.
Segment Reporting
During the first quarter of 2016, the Company began to operate in one reportable segment, Real Estate Franchise
Services. All prior segment information has been reclassified to reflect the Company’s new segment structure. Prior to
2016, the Company operated in two reportable segments, (1) Real Estate Franchise Services and (2) Brokerages. The
Real Estate Franchise Services reportable segment comprised the operations of the Company’s owned and independent
global franchising operations under the RE/MAX brand name, intersegment revenue from the Company’s owned
brokerages and corporate-wide professional services expenses. The Brokerages reportable segment contained the
operations of the Company’s owned brokerage offices in the U.S., the results of operations of a mortgage brokerage
company in which the Company owned a non-controlling interest and reflected the elimination of intersegment revenue
and other consolidation entries. During 2015 and the first quarter of 2016, the Company sold its 21 owned brokerage
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RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
offices, as discussed in Note 5, Acquisitions and Dispositions. These dispositions resulted in the cessation of operations
for the Company’s Brokerages reportable segment.
Revenue Recognition
The Company generates revenue from continuing franchise fees, annual dues, broker fees, franchise sales and other
franchise revenue and, through January 2016, brokerage revenue. Revenue is recognized when there is persuasive
evidence of an arrangement, the service has been rendered, the price is fixed or determinable and collection of the fees is
reasonably assured.
Continuing Franchise Fees
The Company provides an ongoing trademark license, operational, training and administrative services and systems to
franchisees, which include systems and tools that are designed to help the Company’s franchisees and their agents serve
their customers and attract new or retain existing independent agents. Revenue from continuing franchise fees principally
consists of fixed fees earned monthly from franchisees on a per agent basis. Revenue from continuing franchise fees is
recognized in income when it is earned and becomes due and payable, as stipulated in the related franchise agreements.
Annual Dues
Annual dues revenue represents amounts assessed to agents for membership affiliation in the RE/MAX network. The
Company defers the annual dues revenue when billed and recognizes the revenue ratably over the 12-month period to
which it relates. As of December 31, 2016 and 2015, the Company had deferred annual dues revenue totaling
approximately $14,227,000 and $13,106,000, respectively.
The activity in the Company’s annual dues deferred revenue consists of the following (in thousands):
Balance at
beginning of
period
New billings
Revenue
recognized
Balance at end of
period
Year ended December 31, 2016 . . $
Year ended December 31, 2015 . . $
Year ended December 31, 2014 . . $
13,106 $
12,912 $
12,344 $
33,774 $
31,952 $
31,294 $
(32,653) $
(31,758) $
(30,726) $
14,227
13,106
12,912
Broker Fees
Revenue from broker fees represents fees received from the Company’s franchise offices that are primarily based on a
percentage of agents’ gross commission income. Revenue from broker fees is determined upon close of the home-sale
transaction and recognized as revenue when the fees become due and payable, as stipulated in the related franchise
agreements.
Franchise Sales and Other Franchise Revenue
Franchise sales and other franchise revenue is primarily comprised of revenue from the sale or renewal of franchises, as
well as other revenue including revenue from preferred marketing arrangements and affinity programs with various
suppliers, and registration revenue from conventions held for agents and broker owners in the RE/MAX network.
Upon the sale of a real estate brokerage franchise, the Company recognizes revenue from franchise sales when it has no
significant continuing operational obligations, substantially all of the initial services have been performed by the
Company and other conditions affecting consummation of the sale have been met. In the event the franchisee fails to
perform under the franchise agreement or defaults on the purchase obligations, the Company has the right to reacquire
the franchise and to resell or operate that specific franchise. Franchise sales revenue recognized during the years ended
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RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014 was $8,825,000, $9,697,000 and $8,965,000, respectively. Other franchise revenue
is recognized when all revenue recognition criteria are met.
Upon the sale of a mortgage brokerage franchise, the Company’s continuing operational obligations are expected to take
longer to satisfy. Due to the fourth quarter 2016 launch of Motto, only a nominal amount of revenue was recognized in
the current year.
Brokerage Revenue
As discussed in Note 5, Acquisitions and Dispositions, the Company sold certain operating assets and liabilities of
brokerage offices during 2015 and the first quarter of 2016 and, subsequent thereto, no longer operates any real estate
brokerage offices and no longer recognizes brokerage revenue. Prior to the sale of the Company’s brokerage offices,
brokerage revenue principally represented fees assessed by the Company-owned brokerages for services provided to
their affiliated real estate agents. The Company recognized brokerage revenue when all revenue recognition criteria were
met. Because the independent contractors in the Company-owned brokerage offices operated as agents in a real estate
transaction, their commissions earned and the related commission expenses incurred by the Company-owned brokerages
were recorded on a net basis.
Selling, Operating and Administrative Expenses
Selling, operating and administrative expenses primarily consist of personnel costs, including salaries, benefits, payroll
taxes and other compensation expenses, professional fees, rent and related facility operations expense, as well as other
selling, operating and administrative expenses incurred in connection with marketing, expanding and supporting the
Company’s franchise and, through January 2016, brokerage operations.
Cash and Cash Equivalents
Cash and cash equivalents include bank deposits and other highly liquid investments purchased with an original purchase
maturity of three months or less.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, net of any allowances, including cash equivalents, accounts and notes
receivable, accounts payable and accrued expenses approximate fair value due to their short-term nature.
Accounts and Notes Receivable
Accounts receivable from the Company’s franchise operations are recorded at the time the Company is entitled to bill
under the terms of the franchise agreements and other contractual arrangements and do not bear interest. The Company
provides limited financing of certain franchise sales through the issuance of notes receivable that either bear interest at a
rate of prime plus 2% or at a stated amount, which is fixed at the inception of the note with the associated earnings
recorded in “Interest income” in the accompanying Consolidated Statements of Income. Amounts collected on notes
receivable are included in “Net cash provided by operating activities” in the accompanying Consolidated Statements of
Cash Flows.
In circumstances where the Company has the contractual right to bill its franchisees, but where collectability is not
sufficiently assured, the Company records a receivable and deferred revenue, which amounted to $1,012,000 and
$930,000 as of December 31, 2016 and 2015, respectively.
The Company records allowances against its accounts and notes receivable balances for estimated probable losses.
Increases and decreases in the allowance for doubtful accounts are established based upon changes in the credit quality
of receivables for which revenue has been recognized and are included as a component of “Selling, operating and
administrative expenses” in the accompanying Consolidated Statements of Income. The allowance for doubtful accounts
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RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
and notes receivable are the Company’s best estimate of the amount of probable credit losses, and is based on historical
experience, industry and general economic conditions, and the attributes of specific accounts. The Company’s reserve for
accounts and notes receivable where collectability is remote is related to accounts and notes receivable for which
revenue has not been recognized and is increased, with a corresponding reduction to deferred revenue, after the
Company has determined that the potential for recovery is considered remote. Subsequently, if amounts contractually
due from such accounts are collected, revenue is recognized on a cash basis. During the years ended December 31, 2016,
2015 and 2014, the Company recognized revenue of $329,000, $472,000 and $484,000, respectively upon the receipt of
cash payments related to amounts that were contractually billed but for which collectability was either not sufficiently
assured or considered remote.
The activity in the Company’s allowances against accounts and notes receivable consists of the following (in thousands):
Additions/charges
to cost and
expense for
allowances for
doubtful accounts
Balance at
beginning of
period
Adjustments
(to)/from
deferred
revenue, net,
for accounts
where
collectability is
remote
Deductions/write-
offs
Balance at end
of period
Year ended December 31, 2016 . . . . . $
Year ended December 31, 2015 . . . . . $
Year ended December 31, 2014 . . . . . $
4,483 $
4,495 $
4,122 $
1,195 $
433 $
630 $
130 $
(80) $
228 $
(273) $
(365) $
(485) $
5,535
4,483
4,495
For the years ended December 31, 2016, 2015 and 2014, bad debt expense related to trade accounts and notes receivable
was $1,195,000, $433,000 and $630,000, respectively, and is reflected in “Selling, operating and administrative
expenses” in the accompanying Consolidated Statements of Income.
Non-controlling interest
Non-controlling interest is the equity ownership interest in RMCO that is owned by RIHI and that the Company does not
own. The Company reports non-controlling interest of consolidated companies within equity in the consolidated balance
sheets and the amount of net income attributable to the parent and to the non-controlling interest is presented in the
consolidated statements of operations.
Foreign Operations and Foreign Currency Translation
As of December 31, 2016, the Company, directly and through its franchisees, conducted operations in over 100 countries
and territories, including the U.S. and Canada. On December 31, 2014, the Company sold substantially all of the assets
of its owned and operated regional franchising operations located in the Caribbean and Central America as described in
Note 5, Acquisitions and Dispositions. As a result, since December 31, 2014, the only consolidated foreign subsidiary
where the Company directly conducted franchise operations was in Western Canada.
The functional currency for the Company’s domestic operations is the U.S. dollar and for its consolidated foreign
subsidiaries is the applicable local currency for each foreign subsidiary. Assets and liabilities of foreign subsidiaries are
translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of income and cash
flows are translated at the average exchange rates in effect during the applicable period. Exchange rate fluctuations on
translating consolidated foreign currency financial statements into U.S. dollars that result in unrealized gains or losses
are referred to as translation adjustments. Cumulative translation adjustments are recorded as a component of
“Accumulated other comprehensive income,” a separate component of stockholders’ equity, and periodic changes are
included in comprehensive income. When the Company sells a part or all of its investment in a foreign entity resulting in
the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had
resided, it releases any related cumulative translation adjustment into net income.
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RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
Foreign currency denominated monetary assets and liabilities and transactions occurring in currencies other than the
Company’s or the Company’s consolidated foreign subsidiaries’ functional currencies are recorded based on exchange
rates at the time such transactions arise. Changes in exchange rates with respect to amounts recorded in the
accompanying Consolidated Balance Sheets related to these non-functional currency transactions result in transaction
gains and losses that are reflected in the accompanying Consolidated Statements of Income as “Foreign currency
transaction losses.”
Property and Equipment
Property and equipment, including leasehold improvements, are initially recorded at cost. Depreciation is provided for on
a straight-line method over the estimated useful lives of each asset class and commences when the property is placed in
service. Amortization of leasehold improvements is provided for on a straight-line method over the estimated benefit
period of the related assets or the lease term, if shorter.
Franchise Agreements and Other Intangible Assets
The Company’s franchise agreements result from reacquired franchise rights, and are initially recorded at fair value
based on the remaining contractual term of the franchise agreement and do not consider potential renewals in the
determination of fair value. The Company amortizes the franchise agreements over their remaining contractual term on a
straight-line basis.
The Company also purchases and develops software for internal use. Software development costs incurred during the
application development stage as well as upgrades and enhancements that result in additional functionality are
capitalized. Costs incurred during the preliminary project and post-implementation-operation stages are expensed as
incurred. Software development costs are generally amortized over a term of three to five years, its estimated useful life.
Purchased software licenses are amortized over their estimated useful lives.
In addition, the Company owns the principal trademarks, service marks and trade names that it uses in conjunction with
operating its business. These intangible assets increase when the Company pays to file trademark applications in the U.S.
and certain other jurisdictions globally. The Company’s trademarks are amortized on a straight-line basis over their
estimated useful lives.
The Company reviews its franchise agreements and other intangible assets subject to amortization for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to
estimated undiscounted future cash flows expected to be generated from such asset. Any excess of the carrying amount
of an asset that exceeded its estimated cash flows would be charged to operations as an impairment loss. For each of the
years ended December 31, 2016, 2015 and 2014, there were no impairments indicated for such assets.
Goodwill
Goodwill is an asset representing the future economic benefits arising from the other assets acquired in a business
combination that are not individually identified and separately recognized. The Company assesses goodwill for
impairment at least annually or whenever an event occurs or circumstances change that would indicate impairment may
have occurred at the reporting unit level. Reporting units are driven by the level at which management reviews operating
results and are one level below the operating segment. The Company performs its required impairment testing annually
on August 31.
The Company’s impairment assessment begins with a qualitative assessment to determine if it is more likely than not
that a reporting unit’s fair value is less than the carrying amount. The initial qualitative assessment includes comparing
the overall financial performance of the reporting units against the planned results as well as other factors which might
indicate that the reporting unit’s value has declined since the last assessment date. If it is determined in the qualitative
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RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the
standard two-step quantitative impairment test is performed. The first step of the quantitative impairment test consists of
comparing the estimated fair value of each reporting unit with its carrying amount, including goodwill. If the estimated
fair value of a reporting unit exceeds its carrying value, then it is not considered impaired and no further analysis is
required. If the first step of the quantitative impairment test indicates that the estimated fair value of a reporting unit is
less than its carrying value, then impairment potentially exists and the second step of the quantitative impairment test is
performed to measure the amount of goodwill impairment. Goodwill impairment exists when the estimated implied fair
value of a reporting unit’s goodwill is less than its carrying value.
During 2016, 2015 and 2014, the Company performed the qualitative impairment assessment for all of its reporting units
by evaluating, among other things, market and general economic conditions, entity-specific events, events affecting a
reporting unit and the Company’s results of operations and key performance measures. The Company concluded
subsequent to the completion of the qualitative impairment assessment that the fair value of each of the Company’s
reporting units significantly exceeded their respective carrying values. As a result, the Company did not perform the
quantitative test, and no indicators of impairment existed during the years ended December 31, 2016, 2015 and 2014.
Investments in Equity-Method Investees
The investments in entities in which the Company does not have a controlling interest (financial or operating), but where
it has the ability to exercise significant influence over operating and financial policies are accounted for using equity-
method investment accounting.
As described in Note 5, Acquisitions and Dispositions, the Company sold certain operating assets and liabilities of
Sacagawea, LLC on December 31, 2015, including the Company’s equity-method investments. As a result, the Company
had no investments in equity-method investees reflected in the accompanying Consolidated Balance Sheets as of
December 31, 2015 and 2016.
Prior to December 31, 2015, the primary equity-method investment of the Company was a 50% interest in a residential
mortgage operation. As the Company exerted significant influence over this investment, but did not control it, the
Company recorded its share of earnings and distributions from this investment using the equity method of accounting.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes all changes in equity during a period that have yet to be
recognized in income, except those resulting from transactions with stockholders and is comprised of foreign currency
translation adjustments. The assets and liabilities of the Company’s consolidated foreign subsidiaries whose functional
currency is not the U.S. dollar are translated using the appropriate exchange rate as of the end of the year. Foreign
currency translation adjustments represent unrealized gains and losses on assets and liabilities arising from the difference
in the foreign country currency compared to the U.S. dollar. These gains and losses are accumulated in Comprehensive
Income. When a foreign subsidiary is substantially liquidated, the cumulative translation gain or loss is removed from
“Accumulated other comprehensive income” and is recognized as a component of the gain or loss on the sale of the
subsidiary.
Income Taxes
The Company accounts for income taxes under the asset and liability method. As a result of RE/MAX Holdings’
acquisition of Common Units from RMCO, RE/MAX Holdings expects to benefit from amortization and other tax
deductions reflecting the step-up in tax basis and share of RE/MAX Holdings’ inside tax basis in the acquired assets.
Those deductions will be used by RE/MAX Holdings and will be taken into account in determining RE/MAX Holdings’
taxable income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
basis. Management periodically assesses the recoverability of its deferred tax assets based upon expected future earnings,
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RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
future deductibility of the asset, changes in applicable tax laws and other factors. If management determines that it is not
probable that the deferred tax asset will be fully recoverable in the future, a valuation allowance may be established for
the difference between the asset balance and the amount expected to be recoverable in the future. The allowance will
result in a charge to the Company’s Consolidated Statements of Income. Further, the Company records its income taxes
receivable and payable based upon its estimated income tax liability.
RMCO complies with the requirements of the Internal Revenue Code that are applicable to limited liability companies
that have elected to be treated as partnerships, which allow for the complete pass-through of taxable income or losses to
RMCO’s unitholders, who are individually responsible for any federal tax consequences. The tax provision includes the
federal income tax obligation related to RE/MAX Holdings’ allocated portion of RMCO’s income. RMCO is subject to
certain state and local taxes, and its global subsidiaries are subject to tax in certain jurisdictions.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being
sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Equity-Based Compensation
The Company recognizes compensation expense associated with equity-based compensation as a component of “Selling,
operating and administrative expenses” in the accompanying Consolidated Statements of Income. All equity-based
compensation is required to be measured at fair value, is expensed over the requisite service, generally over a three year
period, and forfeitures are accounted for as they occur. The Company recognizes compensation expense on awards on a
straight-line basis over the requisite service period for the entire award. Refer to Note 13, Equity-Based Compensation,
for additional discussion regarding details of the Company’s equity-based compensation plans.
Recently Adopted Accounting Pronouncements
In December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-19, Technical Corrections and Improvements, to clarify guidance, correct errors and make minor improvements
affecting a variety of topics. Most of the amendments of ASU 2016-19 are effective immediately, while others take
effect for interim and annual reporting periods beginning after December 15, 2016. The Company has implemented the
amendments of ASU 2016-19 that were applicable to the Company. However, the adoption of this standard did not have
a significant impact on the Company’s consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting, which simplifies certain aspects of accounting for share-based payment
transactions, including income tax consequences, statutory tax withholding requirements, forfeitures and classification in
the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim reporting periods within those years,
beginning after December 15, 2016. Early adoption is permitted in any interim or annual reporting period. The standard
requires the guidance related to forfeitures and the timing of when excess tax benefits are recognized to be applied using
a modified retrospective transition method, the guidance related to the accounting for income taxes to be applied
prospectively, and the guidance related to the presentation of excess tax benefits on the statement of cash flows to be
applied either prospectively or retrospectively. The Company early adopted ASU 2016-09 in the first quarter of 2016 and
elected to account for forfeitures as they occur. As a result, the Company recorded a net cumulative-effect adjustment of
$44,000 to “Retained earnings” in the accompanying Consolidated Balance Sheets and Statement of Stockholders’
Equity. Furthermore, the Company elected to apply the retrospective transition method to the amendments related to the
presentation of excess tax benefits in the statements of cash flows. This resulted in an increase in cash flows provided by
operating activities of $2,770,000 and $736,000 and a net increase of $2,770,000 and $736,000 in cash flows used in
financing activities in the accompanying Consolidated Statements of Cash Flows for the years ended December 31, 2015
and 2014, respectively. During the year ended December 31, 2016, the Company recorded a $261,000 income tax benefit
relating to excess tax benefits from the exercise of stock options and vesting of restricted stock units in “Provision for
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RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
income taxes” in the accompanying Consolidated Statements of Income. Prior to 2016, such excess tax benefits were
recorded in “Additional paid-in capital” in the accompanying Consolidated Balance Sheets.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes, which requires that deferred tax assets and liabilities be classified as non-current in a classified balance sheet.
ASU 2015-17 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15,
2016. The standard permits the use of either the retrospective or prospective transition method and permits early
adoption as of the beginning of an interim or annual reporting period. The Company elected to early adopt this standard
retrospectively in the first quarter of 2016 and $3,332,000 previously presented in “Other current assets” was reclassified
to “Deferred tax assets, net” in the accompanying Consolidated Balance Sheets and related disclosures as of December
31, 2015, but the Company’s consolidated results of operations were not affected.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting
Measurement-Period Adjustments, which eliminates the requirement for an entity to retrospectively adjust the financial
statements for measurement-period adjustments that occur in periods after a business combination is completed. ASU
2015-16 became effective prospectively for the Company on January 1, 2016. The adoption of this standard did not have
a significant impact on the Company’s consolidated financial statements and related disclosures.
In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements, which both clarifies and
simplifies content in the FASB Accounting Standards Codification and corrects unintended application of U.S. GAAP.
ASU 2015-10 became effective for the Company on January 1, 2016. The adoption of this standard did not have a
significant impact on the Company’s consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance on fees
paid in a cloud computing arrangement and clarifies the accounting for a software license element of a cloud computing
arrangement. ASU 2015-05 became effective prospectively for the Company on January 1, 2016. The adoption of this
standard did not have a significant impact on the Company’s consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs, which requires an entity to present debt issuance costs related to a debt liability as a
direct deduction from the debt liability rather than as an asset. ASU 2015-03 became effective retrospectively for the
Company on January 1, 2016. The adoption of this standard resulted in $1,527,000 of net debt issuance costs previously
reported as “Debt issuance costs, net” to be reclassified to “Debt, net of current portion” in the accompanying
Consolidated Balance Sheets and related disclosures as of December 31, 2015, but did not affect the Company’s
consolidated results of operations.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-
40): Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern, which requires an entity to
establish a going concern assessment process. ASU 2014-15 became effective for the Company on January 1, 2016.
The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements and
related disclosures.
New Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the
subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. ASU 2017-04 is
effective for annual and interim impairment tests in fiscal years beginning after December 15, 2019 and is required to be
adopted using a prospective approach. Early adoption is allowed for annual goodwill impairment tests performed on
testing dates after January 1, 2017. The Company has not yet determined the effect of the standard on its consolidated
financial statements and related disclosures.
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RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business, which clarifies when transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
ASU 2017-01 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15,
2017 and is required to be adopted using a prospective approach. Early adoption is permitted for transactions not
previously reported in issued financial statements. The Company has not yet determined the effect of the standard on its
consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments, which clarifies classification for certain cash receipts and cash payments on the
consolidated statement of cash flow. ASU 2016-15 is effective for fiscal years, and interim reporting periods within
those years, beginning after December 15, 2017. Early adoption is permitted in any interim or annual reporting period.
The standard requires a retrospective transition method for each period presented. The Company has not yet determined
the effect of the standard on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize the assets and
liabilities that arise from all leases on the consolidated balance sheets. ASU 2016-02 is effective for fiscal years, and
interim reporting periods within those years, beginning after December 15, 2018. Early adoption is permitted in any
interim or annual reporting period. The standard requires a modified retrospective approach for leases that exist or are
entered into after the beginning of the earliest comparative period in the financial statements. The Company has not yet
determined the effect of the standard on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an
entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services
to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes
effective. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date, which defers the effective date of the guidance in ASU 2014-09 by one year. In April
2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance
Obligations and Licensing, which provides clarification on identifying performance obligations and accounting for
licenses of intellectual property. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers
(Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides clarification on assessing
collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at
transition. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606,
Revenue from Contracts with Customers, which amended several items of 2014-09. ASU 2014-09 is now effective for
fiscal years, and interim reporting periods within those years, beginning after December 15, 2017. Early application is
permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within
that reporting period. The standard permits the use of either the retrospective or cumulative effect transition method. The
Company has not yet determined the effect of the standard on its consolidated financial statements and related
disclosures.
3. Non-controlling Interest
RE/MAX Holdings is the sole managing member of RMCO and subsequent to the IPO, began to operate and control all
of the business affairs of RMCO. RE/MAX Holdings owns a 58.43% and 58.33% economic interest in RMCO as of
December 31, 2016 and 2015, respectively, and records a non-controlling interest for the remaining 41.57% and 41.67%
economic interest in RMCO as of December 31, 2016 and 2015, respectively. RE/MAX Holdings’ economic interest in
RMCO increased due to an increase in common units, which were issued concurrently with the issuance of shares of
Class A common stock upon the exercise of 28,057 stock options and upon the vesting of 40,140 restricted stock units,
net of shares withheld as discussed in Note 13, Equity-Based Compensation. RE/MAX Holdings’ only sources of cash
flow from operations are distributions from RMCO and management fees received pursuant to the management services
agreement between RE/MAX Holdings and RMCO. “Net income attributable to non-controlling interest” in the
accompanying Consolidated Statements of Income represents the portion of earnings attributable to the economic interest
91
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
in RMCO held by the non-controlling unitholders. “Non-controlling interest” in the accompanying Consolidated
Balance Sheets is adjusted to reflect tax and other cash distributions made to, and the income allocated to, the non-
controlling unitholders as well as any redemptions of Common Units in RMCO pursuant to the terms of RMCO’s fourth
amended and restated limited liability company operating agreement (“the New RMCO, LLC Agreement”). The
ownership of the common units in RMCO is summarized as follows:
d
As of December 31,
2016
Ownership %
Shares
2015
Ownership %
Shares
Non-controlling unitholders ownership of common
units in RMCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,559,600
RE/MAX Holdings, Inc. outstanding Class A
common stock (equal to RE/MAX Holdings, Inc.
common units in RMCO) . . . . . . . . . . . . . . . . . . . . . .
17,652,548
Total common units in RMCO . . . . . . . . . . . . . . . . . . 30,212,148
41.57 % 12,559,600
41.67 %
58.43 % 17,584,351
100.00 % 30,143,951
58.33 %
100.00 %
The weighted average ownership percentages for the applicable reporting periods are used to calculate the net income
attributable to RE/MAX Holdings. RE/MAX Holdings’ weighted average ownership percentage in RMCO was 58.40%,
42.33% and 39.57% for the years ended December 31, 2016, 2015 and 2014. In 2015 RE/MAX Holdings’ economic
interest in RMCO significantly increased due to the increase in common units from the issuance of shares of Class A
common stock as a result of the Secondary Offering described in Note 1, Business and Organization. A reconciliation of
“Income before provision for income taxes” to “Net income attributable to RE/MAX Holdings, Inc.” for the periods
indicated is detailed as follows (in thousands, except percentages):
Year Ended
Year Ended
December 31, 2016 December 31, 2015 December 31, 2014
Year Ended
Income before provision for income taxes
attributable to RE/MAX Holdings, Inc. . . . . . . . . . . .
Provision for income taxes attributable to RE/MAX
Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to RE/MAX Holdings, Inc. . $
$
36,787
$
26,797
$
21,339
(14,050)
22,737 $
(10,142)
16,655
$
(7,903)
13,436
A reconciliation of the “Provision for income taxes” in the accompanying Consolidated Statements of Income for the
periods indicated is detailed as follows (in thousands):
Year Ended
Year Ended
December 31, 2016 December 31, 2015 December 31, 2014
Year Ended
Provision for income taxes attributable to RE/MAX
Holdings, Inc. (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes attributable to entities
other than RE/MAX Holdings, Inc. (b) . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . $
$
(14,050)
$
(10,142)
$
(7,903)
(1,223)
(15,273) $
(1,888)
(12,030) $
(2,045)
(9,948)
(a) The provision for income taxes attributable to RE/MAX Holdings includes all U.S. federal and state income taxes as
well as RE/MAX Holdings’ proportionate share of the net assets of RMCO of the taxes imposed directly on
RE/MAX, LLC, a wholly-owned subsidiary of RMCO, related to tax liabilities in certain foreign jurisdictions of
approximately $1,676,000, $1,280,000 and $1,339,000 for the years ended December 31, 2016, 2015 and 2014,
respectively.
92
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
(b) The provision for income taxes attributable to entities other than RE/MAX Holdings primarily represents taxes
imposed directly on RE/MAX, LLC, a wholly-owned subsidiary of RMCO, related to tax liabilities in certain
foreign jurisdictions that are allocated to the non-controlling interest.
Distributions and Other Payments to Non-controlling Unitholders
As authorized by the New RMCO, LLC Agreement, RMCO makes cash distributions to non-controlling unitholders. As
a limited liability company (treated as a partnership for income tax purposes), RMCO does not incur significant domestic
federal, state or local income taxes, as these taxes are primarily the obligations of its members. RMCO is generally
required to distribute cash on a pro-rata basis to its members to the extent necessary to cover each member’s estimated
tax liabilities, if any, with respect to their allocable share of RMCO earnings. In addition, other cash distributions may
be made to non-controlling unitholders based on their ownership percentage in RMCO as determined in accordance with
the RMCO, LLC Agreement. Upon completion of its tax returns with respect to the prior year, RMCO may make other
true-up distributions to its members, if cash is available for such purposes, with respect to actual taxable income for the
prior year.
In addition, RMCO pays other distributions on a quarterly basis equal to the dividend payments to the stockholders of
the Company’s Class A common stock. The dividend distributions are discussed further in Note 4, Earnings Per Share
and Dividends. The tax and other distributions are recorded in “Non-controlling interest” in the accompanying
Consolidated Balance Sheets and Consolidated Statements of Stockholders’ Equity and the paid portion is reported in
“Distributions paid to non-controlling unitholders” in the accompanying Consolidated Statements of Cash Flows.
On February 22, 2017, the Company declared a distribution to non-controlling unitholders of $2,261,000, which is
payable on March 22, 2017.
The distributions paid or payable to or on behalf of non-controlling unitholders under the New RMCO, LLC Agreement
are summarized as follows:
Tax and other distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Tax Receivable Agreements
Year Ended
December 31,
2016
2015
10,391
7,536
17,927
$
$
7,358
35,469
42,827
At the time of the Company’s IPO, RE/MAX Holdings entered into separate tax receivable agreements (“TRAs”) with
its historical owners, RIHI and Weston Presidio V, L.P. (“Weston Presidio”), that provide for the payment by RE/MAX
Holdings to RIHI and Weston Presidio of 85% of the amount of cash savings, if any, in U.S. federal, state and local
income tax or franchise tax that RE/MAX Holdings actually realizes, or in some circumstances is deemed to realize, as a
result of an increase in its share of tax basis in RMCO’s tangible and intangible assets, including increases attributable to
payments made under the TRAs, and deductions attributable to imputed and actual interest that accrues in respect of such
payments. These tax benefit payments are not necessarily conditioned upon one or more of RIHI or Weston Presidio
maintaining a continued ownership interest in either RMCO or RE/MAX Holdings. RE/MAX Holdings expects to
benefit from the remaining 15% of cash savings, if any, that it may actually realize, which has been reflected as an
increase in “Additional paid-in capital” in the accompanying Consolidated Balance Sheets and Consolidated Statements
of Stockholders’ Equity. The provisions of the separate TRAs that RE/MAX Holdings entered into with RIHI and
Weston Presidio were substantially identical.
93
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
During the second quarter of 2015, Weston Presidio assigned, transferred and conveyed to Oberndorf all of its rights,
title and interest in and to, and all of its liabilities and obligations under, the TRA dated as of October 7, 2013 by and
between RE/MAX Holdings and Weston Presidio. In connection therewith, the Company entered into a joinder to the
TRA on May 29, 2015 with Weston Presidio and Oberndorf (the “Joinder Agreement”). Neither the assignment and
transfer nor the Joinder Agreement impacted the financial position, results of operations or cash flows of the Company.
Payments Pursuant to the Tax Receivable Agreements
As of December 31, 2016, the Company reflected a liability of $98,809,000 representing the payments due to RIHI and
Oberndorf under the terms of the TRAs (see current and non-current portion of “Payable pursuant to tax receivable
agreements” in the accompanying Consolidated Balance Sheets).
As of December 31, 2016, the Company estimates that amounts payable pursuant to the TRAs within the next 12-month
period will be approximately $13,235,000, of which $2,602,000 is related to RE/MAX Holdings’ 2014 federal and state
tax returns, $4,605,000 is related to RE/MAX Holdings’ 2015 federal and state tax returns and the remainder is related to
RE/MAX Holdings’ 2016 federal and state tax returns. To determine the current amount of the payments due to RIHI
and Oberndorf, the Company estimated the amount of taxable income that RE/MAX Holdings generated as well as the
amount of the specified deductions subject to the TRAs which were realized by RE/MAX Holdings in its federal and
state tax returns. This amount was then used as a basis for determining the Company’s increase in estimated tax cash
savings as a result of such deductions on which a current TRA obligation became due (i.e. payable within 12 months of
the Company’s year-end). These calculations are performed pursuant to the terms of the TRAs. The Company paid
$1,344,000 and $0 pursuant to the terms of the TRAs during the years ended December 31, 2016 and 2015, respectively.
On January 20, 2017, the Company paid $1,931,000 pursuant to the TRAs.
The timing and amount of the payments to be made under the TRAs are subject to certain contingencies, including
RE/MAX Holdings having sufficient taxable income to utilize all of the tax benefits defined in the TRAs. If the
Company elects to terminate the TRAs early, the Company would be required to make an immediate cash payment equal
to the present value of the anticipated future tax benefits that are the subject of the TRAs, which payment may be made
significantly in advance of the actual realization, if any, of such future tax benefits.
Obligations pursuant to the TRAs are obligations of RE/MAX Holdings. They do not impact the non-controlling interest.
These obligations are not income tax obligations and have no impact on the “Provision for income taxes” in the
accompanying Consolidated Statements of Income. In general, items of income, gain, loss and deduction are allocated on
the basis of the members’ ownership interests pursuant to the New RMCO, LLC Agreement after taking into
consideration all relevant sections of the Internal Revenue Code.
4. Earnings Per Share and Dividends
Earnings Per Share
Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted EPS measures
the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that
were outstanding during the period. The treasury stock method is used to determine the dilutive potential of stock options
and restricted stock units.
94
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations (in
thousands, except shares and per share information):
Numerator
Net income attributable to RE/MAX Holdings, Inc. . . . . . . . $
22,737 $
16,655 $
13,436
Year Ended
Year Ended
Year Ended
December 31, 2016 December 31, 2015 December 31, 2014
Denominator for basic net income per share of Class A
common stock
Weighted average shares of Class A common stock
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Denominator for diluted net income per share of Class A
common stock
Weighted average shares of Class A common stock
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add dilutive effect of the following: . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares of Class A common stock
outstanding, diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share of Class A common stock
Net income attributable to RE/MAX Holdings, Inc. per share
of Class A common stock, basic . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to RE/MAX Holdings, Inc. per share
of Class A common stock, diluted . . . . . . . . . . . . . . . . . . . . . .
$
$
17,628,741
12,671,051
11,611,164
17,628,741
12,671,051
11,611,164
5,059
43,968
130,001
28,162
578,888
51,925
17,677,768
12,829,214
12,241,977
1.29 $
1.31 $
1.29 $
1.30 $
1.16
1.10
There were no anti-dilutive shares for the years ended December 31, 2016, 2015 and 2014. The one share of Class B
common stock outstanding does not share in the earnings of RE/MAX Holdings and is therefore not a participating
security. Accordingly, basic and diluted net income per share of Class B common stock has not been presented.
Dividends
Dividends declared and paid to holders of the Company’s Class A common stock during the years ended December 31,
2016, 2015 and 2014 were $10,578,000, $24,003,000 and $2,901,000, respectively. Dividends declared and paid
quarterly per share on all outstanding shares of Class A common stock during years ended December 31, 2016, 2015 and
2014 were as follows:
2016
Year Ended December 31,
2015
2014
Per share
Date paid
Per share
Date paid
Per share
Date paid
Dividend declared
during quarter ended:
March 31 . . . . . . . . . . . $ 0.1500 March 23, 2016
June 30 . . . . . . . . . . . . .
September 30 . . . . . . . .
December 31 . . . . . . . .
0.1500 June 2, 2016
0.1500 August 31, 2016 0.1250 September 3, 2015 0.0625 September 3, 2014
0.1500 December 1, 2016 0.1250 November 27, 2015 0.0625 December 4, 2014
$ 1.6250 April 8, 2015
0.1250 June 4, 2015
$ 0.0625 April 18, 2014
0.0625 June 5, 2014
$ 0.6000
$ 2.0000
$ 0.2500
95
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
On February 22, 2017, the Company’s Board of Directors declared a quarterly dividend of $0.18 per share on all
outstanding shares of Class A common stock, which is payable on March 22, 2017 to stockholders of record at the close
of business on March 8, 2017.
5. Acquisitions and Dispositions
Acquisitions
RE/MAX of Georgia, Inc., RE/MAX of Kentucky/Tennessee, Inc. and RE/MAX of Southern Ohio, Inc.
On December 15, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of Georgia, Inc. (“RE/MAX of Georgia”),
RE/MAX of Kentucky/Tennessee, Inc. (“RE/MAX of Kentucky/Tennessee”), and RE/MAX of Southern Ohio, Inc.
(“RE/MAX of Southern Ohio”), collectively (“RE/MAX Regional Services”) including the regional franchise
agreements issued by the Company permitting the sale of RE/MAX franchises in the states of Georgia, Kentucky and
Tennessee and in the Southern Ohio area for cash consideration of $50,400,000. RE/MAX, LLC acquired these assets in
order to expand its owned and operated regional franchising operations. The Company funded the acquisition by
refinancing its 2013 Senior Secured Credit Facility (See Note 9: Debt) and using cash from operations.
The regional franchise agreements acquired were preliminarily valued using an income approach which utilizes level 3
inputs, and are being amortized over the remaining contractual terms of approximately one year for RE/MAX of
Georgia, Inc. and ten years for both RE/MAX of Kentucky/Tennessee, Inc. and RE/MAX of Southern Ohio, Inc. using
the straight-line method. The preliminary estimated fair value of the assets acquired is subject to adjustments based on
the Company’s final assessment of the fair values of the franchise agreements, which is the acquired asset with the
highest likelihood of changing upon finalization of the valuation process.
RE/MAX of New Jersey, Inc.
On December 1, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of New Jersey, Inc. (“RE/MAX of New
Jersey”), including the regional franchise agreements issued by the Company permitting the sale of RE/MAX franchises
in the state of New Jersey for cash consideration of $45,000,000. RE/MAX, LLC acquired these assets in order to
expand its owned and operated regional franchising operations. The Company used cash generated from operations to
fund the acquisition.
The regional franchise agreements acquired were preliminarily valued using an income approach, which utilizes level 3
inputs, and are being amortized over the remaining contractual term of approximately eight years using the straight-line
method. The preliminary estimated fair value of the assets acquired is subject to adjustments based on the Company’s
final assessment of the fair values of the franchise agreements, which is the acquired asset with the highest likelihood of
changing upon finalization of the valuation process.
Full House Mortgage Connection, Inc.
Motto Franchising, LLC (“Motto Franchising”), a wholly-owned subsidiary of RE/MAX, LLC, was formed and
developed to franchise mortgage brokerages. On September 12, 2016, Motto Franchising acquired certain assets of Full
House Mortgage Connection, Inc. (“Full House”), a franchisor of mortgage brokerages that created concepts used to
develop Motto, for initial cash consideration of $8,000,000. Motto Franchising, as a franchisor, grants each franchisee a
license to use the Motto Mortgage brand, trademark, promotional and operating materials and concepts. The Company
used cash generated from operations to initially fund the acquisition. Additional cash consideration may be required
based on future revenues generated, as discussed below.
96
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the estimated consideration transferred at the acquisition (in thousands):
8,000
Cash consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Contingent purchase consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,300
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,300
The Company is required to pay additional purchase consideration totaling eight percent of gross revenues generated by
Motto each year for the next ten years, excluding certain fees, with no limitation as to the maximum payout. The
consideration is payable following each anniversary of the acquisition, beginning October 1, 2017 and ending September
30, 2026. The acquisition date fair value of the contingent purchase consideration of $6,300,000 represents the forecasted
discounted cash payments that the Company expects to pay Full House with respect to the acquired business. The
Company’s accrued contingent purchase consideration is categorized in Level 3 of the fair value hierarchy. See Note 10,
Fair Value Measurements, for further detail.
The Company will amortize the non-compete agreement over a useful life of 10 years using the straight-line method,
which approximates the timing in which the Company expects to receive the benefit from the agreement. As of
December 31, 2016, the Company has finalized its purchase allocations related to the acquisition of Full House.
RE/MAX of Alaska, Inc.
On April 1, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of Alaska, Inc. (“RE/MAX of Alaska”), including
the regional franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of
Alaska for cash consideration of $1,500,000. RE/MAX, LLC acquired these assets in order to expand its owned and
operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.
The regional franchise agreements acquired were valued using an income approach, which utilizes level 3 inputs, and are
being amortized over the remaining contractual term of approximately five years using the straight-line method. As of
December 31, 2016, the Company has finalized its purchase allocations related to the acquisition of RE/MAX of Alaska.
RE/MAX of New York, Inc.
On February 22, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of New York, Inc. (“RE/MAX of New
York”), including the regional franchise agreements issued by the Company permitting the sale of RE/MAX franchises
in the state of New York for cash consideration of $8,500,000. RE/MAX, LLC acquired these assets in order to expand
its owned and operated regional franchising operations. The Company used cash generated from operations to fund the
acquisition.
The regional franchise agreements acquired were valued using an income approach, which utilizes level 3 inputs, and are
being amortized over the remaining contractual term of approximately eleven years using the straight-line method. As of
December 31, 2016, the Company has finalized its purchase allocations related to the acquisition of RE/MAX of New
York.
97
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the allocation of the purchase price to the fair value of assets acquired for the
aforementioned acquisitions (in thousands):
Cash and cash equivalents . . . . . . . . . . . . $
Franchise agreements . . . . . . . . . . . . . . . .
Non-compete agreement . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . $
Acquisition-related costs(a) . . . . . . . . . . . . $
Revenue since acquisition date(b) . . . . . . . $
RE/MAX
Regional
Services
- $
28,000
-
-
22,400
50,400 $
495 $
265 $
RE/MAX
of New
Jersey
335 $
28,200
-
-
16,465
45,000 $
458 $
424 $
Full
House
- $
-
2,500
-
11,800
14,300 $
130 $
3 $
RE/MAX
of Alaska
- $
529
-
-
971
1,500 $
15 $
182 $
RE/MAX
of New
York
Total
466
131 $
61,729
5,000
2,500
-
340
340
3,029
54,665
8,500 $ 119,700
1,239
2,741
141 $
1,867 $
(a) Includes acquisition-related costs such as legal, accounting and advisory fees as well as consulting fees for
integration services for the year ended December 31, 2016 that are included in “Selling, operating and
administrative expenses” in the accompanying Consolidated Statements of Income.
(b) Includes the amount of revenue of the acquiree since the acquisition date through the year ended December 31, 2016
that are included in the accompanying Consolidated Statements of Income.
The acquired assets of RE/MAX Regional Services, RE/MAX of New Jersey, RE/MAX of Alaska and RE/MAX of New
York each constitute a business and were accounted for using the fair value acquisition method. The acquired assets of
Full House constitute a business and were accounted for as a business combination using the fair value acquisition
method. The total purchase price for all 2016 acquisitions was allocated to the assets acquired based on their estimated
fair values. The excess of the total purchase price over the estimated fair value of the identifiable assets acquired was
recorded as goodwill. The goodwill recognized for all 2016 acquisitions is attributable to expected synergies and
projected long term revenue growth. All of the goodwill recognized is tax deductible.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information reflects the consolidated results of operations of the Company
as if the acquisitions of RE/MAX Regional Services, RE/MAX of New Jersey, Full House, RE/MAX of Alaska and
RE/MAX of New York had occurred on January 1, 2015. The historical financial information has been adjusted to give
effect to events that are (1) directly attributed to the acquisitions, (2) factually supportable and (3) expected to have a
continuing impact on the combined results, including additional amortization expense associated with the valuation of
the acquired franchise agreements. This unaudited pro forma information should not be relied upon as necessarily being
indicative of the historical results that would have been obtained if the acquisitions had actually occurred on that date,
nor of the results that may be obtained in the future.
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income attributable to RE/MAX Holdings, Inc. . . . . . . . . $
Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . $
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . $
188,352 $
23,735 $
1.35 $
1.34 $
189,397
16,825
1.33
1.31
Year Ended December 31,
2016
2015
(In thousands, except per share amounts)
98
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
Dispositions
STC Northwest, LLC d/b/a RE/MAX Northwest Realtors
On January 20, 2016, the Company sold certain operating assets and liabilities related to three owned brokerage offices
located in the U.S., of STC Northwest, LLC d/b/a RE/MAX Northwest Realtors, a wholly owned subsidiary of the
Company. The Company recognized a loss on the sale of the assets and the liabilities transferred of approximately
$90,000 during the first quarter of 2016, which is reflected in “Loss (gain) on sale or disposition of assets, net” in the
accompanying Consolidated Statements of Income. In connection with this sale, the Company transferred separate office
franchise agreements to the purchaser, under which the Company will receive ongoing monthly continuing franchise
fees, broker fees and franchise sales revenue.
Sacagawea, LLC d/b/a RE/MAX Equity Group
On December 31, 2015, the Company sold certain operating assets and liabilities related to 12 owned brokerage offices
located in the U.S., of Sacagawea, LLC d/b/a RE/MAX Equity Group (“RE/MAX Equity Group”), a wholly owned
subsidiary of the Company. The Company recognized a gain on the sale of the assets of approximately $2,794,000
during the fourth quarter of 2015, which is reflected in “Loss (gain) on sale or disposition of assets, net” in the
accompanying Consolidated Statements of Income. In connection with this sale, the Company transferred separate office
franchise agreements to the purchaser, under which the Company will receive ongoing monthly continuing franchise
fees, broker fees and franchise sales revenue.
RB2B, LLC d/b/a RE/MAX 100
On April 10, 2015, the Company sold certain operating assets and liabilities related to six owned brokerage offices
located in the U.S., of RB2B, LLC d/b/a RE/MAX 100 (“RE/MAX 100”), a wholly owned subsidiary of the Company.
The Company recognized a gain on the sale of the assets and the liabilities transferred of $615,000 during the second
quarter of 2015, which is reflected in “Loss (gain) on sale or disposition of assets, net” in the accompanying
Consolidated Statements of Income. In connection with this sale, the Company transferred separate office franchise
agreements to the purchaser, under which the Company will receive ongoing monthly continuing franchise fees, broker
fees and franchise sales revenue.
Disposition of RE/MAX Caribbean Islands, Inc.
On December 31, 2014, the Company sold substantially all of the assets of its owned and operated regional franchising
operations located in the Caribbean and Central America for a net purchase price of approximately $100,000 and
recognized a gain on the sale of the assets of approximately $12,000 which is reflected in “Loss (gain) on sale or
disposition of assets, net” in the accompanying Consolidated Statements of Income. In connection with the sale of the
assets, the Company entered into separate regional franchise agreements effective January 1, 2015 with a term of 20
years with the purchasers, under which the Company will receive ongoing monthly continuing franchise fees, broker fees
and franchise sales revenue.
99
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
6. Property and Equipment
Property and equipment consist of the following (in thousands):
Leasehold improvements . . . . . . .
Depreciable Life
Shorter of estimated useful life or
life of lease
Office furniture, fixtures and
equipment . . . . . . . . . . . . . . . . . . . .
Equipment under capital leases . . Shorter of estimated useful life or
2 - 10 years
life of lease
Less accumulated depreciation . . .
As of December 31,
2016
2015
$
3,063
$
2,258
11,660
164
14,887
(12,196)
2,691
$
12,046
1,274
15,578
(13,183)
2,395
$
Depreciation expense was $868,000, $1,045,000 and $1,110,000 for the years ended December 31, 2016, 2015 and 2014,
respectively.
7. 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
Amortization
Period
As of December 31, 2016
As of December 31, 2015
Initial
Cost
Accumulated
Amortization
Net
Balance
Initial
Cost
Accumulated
Amortization
Net
Balance
Franchise agreements . .
Other intangible assets:
Software(a) . . . . . .
Trademarks . . . . .
Non-compete . . . .
Total other intangible
assets . . . . . . . . . . . . . . . .
11.6 $ 224,167 $ (115,027) $ 109,140 $ 162,438 $ (100,499) $ 61,939
4.6 $ 13,207 $ (7,154) $
14.2
10.0
(1,782)
(62)
3,102
2,500
6,053 $ 10,885 $ (7,325) $
1,320
2,438
(1,604)
—
2,985
—
3,560
1,381
—
7.9 $ 18,809 $ (8,998) $
9,811 $ 13,870 $ (8,929) $
4,941
(a) As of December 31, 2016 and December 31, 2015, capitalized software development costs of $356,000 and
$3,165,000, respectively, were recorded in “Other intangible assets” in the accompanying Consolidated Balance
Sheets. As of these dates, the associated information technology infrastructure projects were not complete and ready
for their intended use and thus were not subject to amortization.
Amortization expense was $15,226,000, $14,079,000 and $14,206,000 for the years ended December 31, 2016, 2015 and
2014, respectively.
100
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2016, the estimated future amortization expense for the next five years related to intangible assets
with definite lives is as follows (in thousands):
Year ending December 31:
2017(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,643
14,807
2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,632
2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,441
2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,065
2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 77,588
(a) The decrease in estimated future amortization expense is due to certain acquired franchise agreements reaching the
end of their contractual term during the year ended December 31, 2017.
The following table presents changes to goodwill for the years ended December 31, 2016 and 2015 (in thousands):
Balance, January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Effect of changes in foreign currency exchange rates . . . . . . . . . . . . . . . .
Balance, December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill recognized related to current year acquisitions . . . . . . . . . . . . . .
Effect of changes in foreign currency exchange rates . . . . . . . . . . . . . . . .
Balance, December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
68,809 $
-
68,809
54,665
-
123,474 $
Domestic
Owned Regions
8. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Global Owned
Regions
3,654 $
(592)
3,062
-
97
Total
72,463
(592)
71,871
54,665
97
3,159 $ 126,633
As of December 31,
Accrued payroll and related employee costs . . . . . . . . . . . . . . . . . . . $
Accrued property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease-related accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2016
7,035 $ 8,040
1,594
1,554
981
1,382
354
353
5,113
2,774
$ 13,098 $ 16,082
(a) Other accrued liabilities as of December 31, 2015 include $3,251,000 payable in connection with the December 28,
2015 judgment resulting from the litigation matter concerning the Company’s acquisition of the net assets of HBN,
which was paid on February 2, 2016, as discussed in Note 15, Commitments and Contingencies.
101
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
9. Debt
Debt consists of the following (in thousands):
Senior Secured Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . .
Less unamortized debt discount costs . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
As of December 31,
2016
234,412 $
(2,076)
(1,516)
(2,350)
228,470 $
2015
202,635
(1,527)
(751)
(14,805)
185,552
Maturities of debt are as follows as of December 31, 2016 (in thousands):
Year ending December 31:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,350
2,350
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,350
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,350
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,350
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
222,662
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 234,412
Senior Secured Credit Facility
On July 31, 2013, the Company entered into a new credit agreement with several lenders and administered by a bank,
referred to herein as the “2013 Senior Secured Credit Facility.” The 2013 Senior Secured Credit Facility consisted of a
$230,000,000 term loan facility and a $10,000,000 revolving loan facility.
On March 11, 2015, the 2013 Senior Secured Credit Facility was amended, providing for an increase to the maximum
applicable margin for both London Interbank Offered Rate (“LIBOR”) and Alternate Base Rate (“ABR”) loans by
0.25%, and a modification of certain liquidity covenants in order to increase the amounts the Company may distribute in
the form of dividends to its non-controlling unitholders and stockholders of its Class A common stock, referred to herein
as the “First Amendment.” In connection with the First Amendment, the Company incurred costs of $1,086,000 during
the year ended December 31, 2015, of which $555,000 was recorded as an unamortized debt discount and are being
amortized over the remaining term of the 2013 Senior Secured Credit Facility and the remaining $531,000 was expensed
as incurred.
On November 22, 2016, the 2013 Senior Secured Credit Facility was further amended, providing for an increase in the
revolving commitment by $20,000,000 to a total of $30,000,000 effective upon the acquisition of RE/MAX Regional
Services, and also waived certain limitations on acquisitions in order to enable us to consummate such acquisition.
On December 15, 2016, the 2013 Senior Secured Credit Facility was amended and restated, referred to herein as the
“2016 Senior Secured Credit Facility.” The 2016 Senior Secured Credit Facility consists of a $235,000,000 term loan
facility which matures on December 15, 2023 and a $10,000,000 revolving loan facility which must be repaid on
December 15, 2021. The proceeds provided by the term loan were used to refinance and repay existing indebtedness and
fund the acquisition of RE/MAX Regional Services. In connection with the 2016 Senior Secured Credit Facility, the
Company incurred costs of $3,476,000 during the year ended December 31, 2016, of which $1,379,000 was recorded in
“Debt, net of current portion” in the accompanying Consolidated Balance Sheets and are being amortized to interest
102
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
expense over the term of the 2016 Senior Secured Credit Facility and the remaining $2,097,000 was expensed as
incurred.
Borrowings under the term loans and revolving loans accrue interest, at our option on (a) LIBOR provided that LIBOR
shall be no less than 0.75% plus a maximum applicable margin of 2.75% and, provided further, that LIBOR shall be
adjusted for reserve requirements for eurocurrency liabilities, if any (the “Eurodollar Rate”) or (b) the greatest of (i)
JPMorgan Chase Bank N.A.’s prime rate, (ii) the NYFRB Rate (as defined in the 2016 Senior Secured Credit Facility)
plus 0.50% and (iii) the one-month Eurodollar Rate plus 1%, (such greatest rate, the “ABR”) plus, in each case, the
applicable margin. The applicable margin for Eurodollar Rate loans is 2.75% and for ABR loans is 1.75%.
The 2013 Senior Secured Credit Facility required RE/MAX, LLC to repay term loans with 50% of excess cash flow at
the end of the applicable year if its total leverage ratio as defined therein was in excess of 2.50:1.00, with such
percentage decreasing as RE/MAX, LLC’s leverage ratio decreased. Under the 2013 Senior Secured Credit Facility, the
Company was required to make principal payments out of excess cash flow, as well as from the proceeds of certain asset
sales, proceeds from the issuance of indebtedness and from insurance recoveries. The Company made excess cash flow
prepayments of $12,727,000, $7,320,000 and $14,627,000 during the years ended December 31, 2016, 2015 and 2014,
respectively. The Company accounted for the mandatory principal excess cash flow prepayments as early
extinguishments of debt and recorded a loss during the years ended December 31, 2016, 2015 and 2014 of $136,000,
$94,000 and $178,000, respectively, related to unamortized debt discount and issuance costs.
The 2016 Senior Secured Credit Facility requires RE/MAX, LLC to repay term loans and reduce revolving commitments
with (i) 100.0% of proceeds of any incurrence of additional debt not permitted by the 2016 Senior Secured Credit
Facility, (ii) 100.0% of proceeds of asset sales and 100.0% of amounts recovered under insurance policies, subject to
certain exceptions and a reinvestment right and (iii) 50.0% of excess cash flow at the end of the applicable fiscal year if
RE/MAX, LLC’s total leverage ratio as defined in the 2016 Senior Secured Credit Facility is in excess of 3.25:1.00, with
such percentage decreasing as RE/MAX, LLC’s leverage ratio decreases. No mandatory prepayment and commitment
reduction is required if the total leverage ratio as defined by the 2016 Senior Secured Credit Facility as of the last day of
such fiscal year is less than 2.75 to 1.0. The Company’s total leverage ratio was less than 2.75 to 1.0 as of December 31,
2016, and as a result, the Company does not expect to make an excess cash flow principal prepayment within the next
12-month period. Mandatory principal payments of approximately $588,000 are due quarterly until the facility matures
on December 15, 2023. The Company may make optional prepayments on the term loan facility at any time without
penalty; however, no such optional prepayments were made during the year ended December 31, 2016.
As of December 31, 2016, we had $230.8 million of term loans outstanding, net of an unamortized discount and issuance
costs, and no revolving loans outstanding under our 2016 Senior Secured Credit Facility. Whenever amounts are drawn
under the revolving line of credit, the 2016 Senior Secured Credit Facility requires compliance with a leverage ratio and
an interest coverage ratio. A commitment fee of 0.5% per annum accrues on the amount of unutilized revolving line of
credit. As of December 31, 2016, no amounts were drawn on the revolving line of credit.
The 2016 Senior Secured Credit Facility requires compliance with certain operational and financial covenants to the
extent the Company has an outstanding balance on its revolving loan facility at the end of each quarter. The Company
did not have an outstanding balance on the revolving loan facility as of December 31, 2016 and 2015, as such, no
operational or financial covenants were in effect.
103
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
10. 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 should be
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 prioritizes the inputs used in
measuring fair value as follows:
• Level 1: Quoted prices for identical instruments in active markets.
• Level 2: Quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-derived valuations, in which all significant inputs are
observable in active markets. Level 2 liabilities that are measured, but not carried, at fair value on a recurring
basis include the Company’s debt. The fair value of the Company’s debt was estimated using a market
approach based on the amount at the measurement date that the Company would pay to enter into the identical
liability, since quoted prices for the Company’s debt instruments are not available.
• Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to
develop its own assumptions. Level 3 liabilities that are measured at fair value on a recurring basis consist of
the Company’s contingent consideration related to the acquisition of Full House.
A summary of the Company’s liabilities measured at fair value on a recurring basis as of December 31, 2016 is as
follows (in thousands):
Liability
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,400 $
- $
- $
6,400
Fair Value
As of December 31, 2016
Level 1
Level 2
Level 3
The Company did not have assets or liabilities measured at fair value on a recurring basis as of December 31, 2015.
The Company is required to pay additional purchase consideration totaling eight percent of gross revenues generated by
Motto each year for the next ten years with no limitation as to the maximum payout. The consideration is payable
following each anniversary, beginning October 1, 2017 and ending September 30, 2026. The acquisition date fair value
of the contingent purchase consideration of $6,300,000 represents the forecasted discounted cash payments that the
Company expects to pay the former owner of Full House with respect to Motto. The Company measures this liability
each reporting period and recognizes changes in fair value, if any, in earnings of the Company and included in “Selling,
operating and administrative expenses” in the accompanying Consolidated Statements of Income. Increases or decreases
in the fair value of the contingent purchase consideration can result from changes in discount rates as well as the timing
and amount of forecasted cash payments derived from anticipated gross revenues. The change in value from September
30, 2016 to December 31, 2016 is primarily due to a change in the discount rate used.
104
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
The table below presents a reconciliation of all assets and liabilities of the Company measured at fair value on a
recurring basis using significant unobservable inputs for the period from January 1, 2016 to December 31, 2016 (in
thousands):
Balance at January 1, 2016 . . . . . . . . . . . . . . . . . . . . $
Full House acquisition . . . . . . . . . . . . . . . . . . . . . . . .
Fair market value adjustments. . . . . . . . . . . . . . . . . .
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . $
Fair value of Contingent
Consideration Liability
-
6,300
100
6,400
The following table summarizes the carrying values and estimated fair values of the 2016 Senior Secured Credit Facility
for the year ended December 31, 2016 and the 2013 Senior Secured Credit Facility for the year ended December 31,
2015 including the current portion (in thousands):
As of December 31,
Senior Secured Credit Facility . . . . . . . . . . . . . . . $
230,820 $
2016
Carrying
Amounts
Fair Value
Level 2
233,240 $
2015
Carrying
Amounts
200,357 $
Fair Value
Level 2
198,583
The Company assesses categorization of assets and liabilities by level at each measurement date, and transfers between
levels are recognized on the actual date of the event or change in circumstances that caused the transfer. There were no
transfers between Levels I, II and III during the year ended December 31, 2016.
11. Income Taxes
“Income before provision for income taxes” as shown in the accompanying Consolidated Statements of Income is
comprised of the following (in thousands):
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended December 31,
2016
51,778 $
11,305
63,083 $
2015
52,127 $
11,253
63,380 $
2014
40,103
13,824
53,927
105
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
Components of the “Provision for income taxes” in the accompanying Consolidated Statements of Income consist of the
following (in thousands):
Year Ended December 31,
2016
2015
2014
Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current expense . . . . . . . . . . . . . . . . . . . . .
$
Deferred expense
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred expense . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . $
8,002 $
2,855
943
11,800
3,222
13
238
3,473
15,273 $
5,451 $
3,019
1,029
9,499
2,333
25
173
2,531
12,030 $
4,304
3,383
396
8,083
1,741
(5)
129
1,865
9,948
The provision for income taxes is comprised of a provision for income taxes attributable to RE/MAX Holdings and to
entities other than RE/MAX Holdings. The provision for income taxes attributable to RE/MAX Holdings includes all
U.S. federal and state income taxes on RE/MAX Holdings’ proportionate share of RMCO’s net income. The provision
for income taxes attributable to entities other than RE/MAX Holdings represents taxes imposed directly on RE/MAX,
LLC that are allocated to the non-controlling interest.
A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:
U.S. statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to state and local taxes, net of federal benefit
Effect of permanent differences . . . . . . . . . . . . . . . . . . . . .
Income attributable to non-controlling interests . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
2015
2014
35.0 %
2.6
(0.4)
(14.1)
1.1
24.2 %
35.0 %
2.6
1.0
(19.7)
0.1
19.0 %
35.0 %
2.6
0.6
(18.7)
(1.1)
18.4 %
The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate
as a series of limited liability companies which are not themselves subject to federal income tax. Accordingly, the
portion of the Company’s subsidiaries earnings attributable to the non-controlling interest are subject to tax when
reported as a component of the non-controlling interests’ taxable income and are excluded from the Provision for Income
Taxes (See Note 3: Non-controlling Interest).
Income taxes payable were $379,000 and $451,000 at December 31, 2016 and 2015, respectively.
Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability
and its reported amount in the accompanying Consolidated Balance Sheets.
106
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
These temporary differences result in taxable or deductible amounts in future years. Details of the Company’s deferred
tax assets and liabilities are summarized as follows (in thousands):
As of December 31,
2016
2015
Deferred tax assets
Goodwill, other intangibles and other assets and
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Imputed interest deduction pursuant to tax receivable
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . .
Contingent acquisition liability . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .
90,686 $
95,275
8,483
2,037
1,606
15
979
1,405
840
106,051
8,476
1,981
2,056
713
768
—
442
109,711
Deferred tax liabilities
Property and equipment and other long lived assets . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets and liabilities . . . . . . . . . . . . . . . $
(414)
(414)
105,637 $
(466)
(466)
109,245
Net deferred tax assets are also recorded related to differences between the financial reporting basis and the tax basis of
RE/MAX Holdings’ proportionate share of the net assets of RMCO. Based on the Company’s historical taxable income
and its expected future earnings, management evaluates the uncertainty associated with booking tax benefits and
determined that the deferred tax assets are more likely than not to be realized, including evaluation of deferred tax
liabilities and the expectation of future taxable income.
The Company does not believe it has any significant uncertain tax positions. Accordingly, the Company did not record
any adjustments or recognize interest expense for uncertain tax positions for the years ended December 31, 2016, 2015
and 2014. In the future, if uncertain tax positions arise, interest and penalties will be accrued and included in the
“Provision for income taxes” in the accompanying Consolidated Statements of Income.
The Company and its subsidiaries file, or will file, income tax returns in the U.S. federal jurisdiction and various states
and foreign jurisdictions. RE/MAX Holdings will file its 2016 income tax return by September 15, 2017. RE/MAX
Holdings filed its 2015 tax return on September 14, 2016, its 2014 tax return on September 9, 2015 and its initial income
tax return for the period from October 7, 2013 through December 31, 2013 on September 12, 2014. RMCO is not subject
to domestic federal income taxes as it is a flow-through entity, however, RMCO is still required to file an annual U.S.
Return of Partnership Income. The Company was notified on January 6, 2016 that RMCO’s 2013 U.S. Return of
Partnership Income was selected for examination by the Internal Revenue Service. The audit commenced in April 2016
and concluded in June 2016 and no changes were made as a result of the audit. With respect to state and local
jurisdictions and countries outside of the U.S., the Company and its subsidiaries are typically subject to examination for
three to four years after the income tax returns have been filed.
12. Capital Structure
RE/MAX Holdings Capital Structure
RE/MAX Holdings has two classes of common stock, Class A common stock and Class B common stock, which are
described as follows:
107
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
Class A common stock
Holders of shares of Class A common stock are entitled to one vote for each share held of record on all matters submitted
to a vote of stockholders. Additionally, holders of shares of Class A common stock are entitled to receive dividends
when and if declared by the Company’s Board of Directors, subject to any statutory or contractual restrictions on the
payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding
preferred stock.
Upon dissolution, liquidation or the sale of all or substantially all of the Company’s assets, after payment in full of all
amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the
holders of shares of Class A common stock will be entitled to receive the Company’s remaining assets available for
distribution on a pro-rata basis.
Holders of shares of Class A common stock do not have preemptive, subscription, redemption or conversion rights.
Class B common stock
RIHI is the sole holder of Class B common stock. The holder of Class B common stock is entitled to two votes for each
Common Unit in RMCO held by the holder, without regard to the number of shares of Class B common stock held.
Accordingly, Common Unitholders of RMCO collectively have a number of votes in RE/MAX Holdings that is equal to
two times the aggregate number of Common Units that they hold.
The voting rights of the Class B common stock will be reduced to one times the aggregate number of RMCO Common
Units held after any of the following events: (i) October 7, 2018; (ii) the death of David Liniger, the Company’s Chief
Executive Officer, Chairman and Co-Founder; or (iii) at such time as RIHI’s ownership of RMCO Common Units falls
below 30% of the number of RMCO common units held by RIHI immediately after the IPO. Additionally, if any
Common Units of RMCO are validly transferred in accordance with the terms of the New RMCO, LLC Agreement, the
voting rights of the corresponding shares of Class B common stock transferred will also be reduced to one times the
aggregate number of RMCO Common Units held by such transferee, unless the transferee is David Liniger.
Holders of shares of Class A common stock and Class B common stock vote together as a single class on all matters
presented to the Company’s stockholders for their vote or approval, except as otherwise required by applicable law.
Holders of Class B common stock do not have any right to receive dividends or to receive a distribution upon a
dissolution or liquidation or the sale of all or substantially all of the Company’s assets. Additionally, holders of shares of
Class B common stock do not have preemptive, subscription, redemption or conversion rights.
13. Equity-Based Compensation
On September 30, 2013, the Company’s Board of Directors adopted the RE/MAX Holdings, Inc. 2013 Omnibus
Incentive Plan (the “2013 Incentive Plan”), which authorized 2,365,793 shares. The 2013 Incentive Plan became
effective on September 30, 2013 and provides for the grant of incentive stock options to the Company’s employees, and
for the grant of shares of the RE/MAX Holdings Class A common stock, non-qualified stock options, stock appreciation
rights, restricted stock, restricted stock units (“RSUs”), dividend equivalent rights, cash-based awards and any
combination thereof to employees, directors and consultants of the Company.
The Company recognizes equity-based compensation expense in “Selling, operating and administrative expenses” in the
accompanying Consolidated Statements of Income. The Company recognizes corporate income tax benefits relating to
the exercise of options and vesting of restricted stock units in “Provision for income taxes” in the accompanying
Consolidated Statements of Income.
108
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
Employee stock-based compensation expense under the Company’s 2013 Incentive Plan was as follows (in thousands):
Expense from RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Excess tax benefit from share-based compensation . . . . . . . . . . . . . . . . . . . . . . .
Net compensation cost (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2016
2,330 $
(261)
2,069 $
2015
1,453 $
(2,770)
(1,317) $
2014
2,002
(736)
1,266
Restricted Stock Units
The following table summarizes the Company’s activity for restricted stock units for the year ended December 31, 2016:
Nonvested at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares vested (including tax withholding) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
average
grant date
fair value
per share
30.80
33.24
29.75
30.02
33.00
Restricted Stock
Units
96,765 $
89,359 $
(53,779) $
(5,334) $
127,011 $
(a) Pursuant to the terms of the 2013 Incentive Plan, RSUs withheld by the Company for the payment of the employee's
tax withholding related to an RSU vesting are added back to the pool of shares available for future awards.
The following table summarizes information about our RSU grants during the years ended December 31, 2016, 2015 and
2014:
Weighted average grant date fair value per RSU granted . . . . . . . . . . . . . . . . . . $
Year ended December 31,
2016
33.24 $
2015
32.45 $
2014
-
As of December 31, 2016, there was $2,603,000 of total unrecognized stock-based compensation expense related to
unvested RSUs. This compensation expense is expected to be recognized over the weighted-average remaining vesting
period of 1.83 years.
At December 31, 2016, there were 2,168,516 additional shares available for the Company to grant under the 2013
Incentive Plan.
Stock Options
During 2012, RMCO adopted an equity-based compensation plan (the “Plan”) pursuant to which RMCO’s Board of
Managers granted 31,500 RMCO Class B common unit options to certain employees. On October 1, 2013 and in
connection with the IPO, the Class B common unit options were split 25 for 1 and then substituted for 787,500 options to
acquire shares of RE/MAX Holdings’ Class A common stock.
109
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the Company’s stock option activity for the year ended December 31, 2016:
Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Aggregate
Contractual Term Intrinsic Value
Options Outstanding at January 1, 2016 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Outstanding at December 31, 2016 . . . . .
Exercisable at December 31, 2016 . . . . . . . . . . . . .
28,057 $
—
(28,057) $
—
—
—
3.60
3.60
(in years)
(in thousands)
— $
— $
—
—
The Company received $101,000, $2,248,000 and $486,000 in cash proceeds related to the exercise of stock options
during the years ended December 31, 2016, 2015 and 2014, respectively. Upon the exercise of stock options, shares of
Class A common stock are issued from authorized common shares. The total intrinsic value of stock options exercised
during the years ended December 31, 2016, 2015 and 2014 were $915,000, $19,154,000 and $3,839,000 respectively.
14. Leadership Changes and Restructuring Activities
On January 7, 2016, the Company’s former Chief Financial Officer and Chief Operating Officer entered into a separation
and transition agreement (the “Separation and Transition Agreement”) pursuant to which he served as Co-Chief
Financial Officer from January 15, 2016 through March 31, 2016 and separated from the Company effective March 31,
2016. The Company recorded a liability, measured at its estimated fair value, for payments to be made under the
Separation and Transition Agreement, with a corresponding charge to “Selling, operating and administrative expenses”
in the accompanying Consolidated Statements of Income. The Company incurred a total cost of $1,043,000, including
$331,000 of equity-based compensation expense during the year ended December 31, 2016. All amounts were paid
during the year ended December 31, 2016.
On May 4, 2015, the Company’s former President entered into a retirement agreement with the Company (the
“Retirement Agreement”) pursuant to which he retired on August 19, 2015. Subject to the terms of the Retirement
Agreement, the Company is required to provide retirement benefits over a 24-month period, beginning in September
2015. The Company recorded a liability, measured at its estimated fair value, for payments that will be made under the
Retirement Agreement, with a corresponding charge to “Selling, operating and administrative expenses” in the
accompanying Consolidated Statements of Income. The Company incurred a total cost of $877,000, including $216,000
of equity-based compensation expense, during the year ended December 31, 2015. As of December 31, 2016 and
December 31, 2015, the short-term portion of the liability was $175,000 and $250,000, respectively, and is included in
“Accrued liabilities” in the accompanying Consolidated Balance Sheets. As of December 31, 2016 and December 31,
2015, the long-term portion of the liability was $0 and $175,000, respectively, and is included in “Other liabilities, net of
current portion” in the accompanying Consolidated Balance Sheets.
On December 31, 2014, the Company’s former Chief Executive Officer retired and pursuant to the terms of the
Separation and Release of Claims Agreement (the “Separation Agreement”), the Company is required to provide
severance and other related benefits over a 36-month period, beginning in October 2015. The Company recorded a
liability, measured at its estimated fair value, for payments that will be made under the Separation Agreement, with a
corresponding charge to “Selling, general and administrative expenses” The Company will incur a total cost of
$3,581,000, including $1,007,000 of equity-based compensation expense related to this retirement. Of this amount, the
Company has recognized a total of $3,569,000, of which $12,000 was incurred during the year ended December 31,
2016. As of December 31, 2016 and 2015, the short-term portion of the liability was $789,000 and $759,000,
110
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
respectively, and is included in “Accrued liabilities” in the accompanying Consolidated Balance Sheets. As of December
31, 2016 and 2015, the long-term portion of the liability was $0 and $789,000, respectively, and is included in “Other
liabilities, net of current portion” in the accompanying Consolidated Balance Sheets.
In addition, management of the Company approved and implemented a restructuring plan during the fourth quarter of
2014 designed to improve operating efficiencies, which reduced the Company’s overall headcount at its corporate
headquarters (the “Restructuring Plan”). In connection with the Restructuring Plan, the Company incurred a total of
$1,303,000 in expenses related to severance and outplacement services provided to certain former employees of the
Company, all of which was recorded during the year ended December 31, 2014. These expenses are included in “Selling,
general and administrative expenses” in the accompanying Consolidated Statements of Income.
The Company’s severance and other related expenses incurred for the aforementioned leadership changes and
restructuring activities were $1,055,000, $1,091,000 and $4,848,000 for the years ended December 31, 2016, 2015 and
2014, respectively, which is included in “Selling, operating and administrative expenses” in the accompanying
Consolidated Statements of Income.
The following table presents a rollforward of the estimated fair value liability established for the aforementioned
leadership changes and restructuring activities during the years ended December 31, 2016 and 2015 (in thousands):
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Severance and other related expenses . . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash adjustment (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
1,973 $
1,055
59
(1,792)
(331)
964 $
2015
2,408
1,091
82
(1,392)
(216)
1,973
(a) For the year ended December 31, 2016, the non-cash adjustment represents the non-cash equity-based compensation
expense recorded for the accelerated vesting of restricted stock units pursuant to the terms of the Separation and
Transition Agreement. For the year ended December 31, 2015, the non-cash adjustment represents the non-cash
equity-based compensation expense recorded for the accelerated vesting of restricted stock units pursuant to the
terms of the Retirement Agreement.
111
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
15. Commitments and Contingencies
Commitments
The Company leases offices and equipment under noncancelable leases, subject to certain provisions for renewal options
and escalation clauses. Future minimum payments (including those allocated to an affiliate) under these leases and
commitments, net of payments under sublease agreements, are as follows (in thousands):
Year ending December 31:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent Payments
Sublease Receipts Total Cash Outflows
$
$
8,327 $
8,504
8,624
8,875
8,815
59,451
102,596 $
(915) $
(894)
(527)
(119)
—
—
(2,455) $
7,412
7,610
8,097
8,756
8,815
59,451
100,141
Minimum rent payments under noncancelable operating leases are recognized on a straight-line basis over the terms of
the leases. Rent expense, excluding amounts related to gain or loss on sublease, was $7,531,000, $10,629,000 and
$12,362,000 for the years ended December 31, 2016, 2015 and 2014, respectively, net of amounts recorded under
sublease agreements of $1,142,000, $1,163,000 and $1,126,000 for the years ended December 31, 2016, 2015 and 2014,
respectively.
In April 2010, the Company entered into an 18-year lease for its corporate headquarters office building (the “Master
Lease”). The Company may, at its option, extend the Master Lease for two renewal periods of 10 years. Under the terms
of the Master Lease, the Company pays an annual base rent, which escalates 3% each year, including the first optional
renewal period. The first year of the second optional renewal period is at a fair market rental value, and the rent escalates
3% each year until expiration. The Company pays for operating expenses in connection with the ownership,
maintenance, operation, upkeep and repair of the leased space. The Company may assign or sublet an interest in the
Master Lease only with the approval of the landlord.
Upon entering into the Master Lease, the Company became the primary lessee for all facilities located on the headquarter
property and issued subleases to two retail tenants already established on the property. The subleases range from 4,000
square feet to 10,500 square feet, have initial lease terms ranging from 5 to 10 years and renewal options ranging from
two 5-year renewal options to nine 5-year renewal options. The lease for one of the retail tenants expired in November
2016 and was not renewed. The Company is currently seeking a new tenant for that property.
On November 15, 2013, the Company entered into a sublease agreement with a tenant with a sublease term of five years
to lease up to 20,000 square feet of office space under the Master Lease. At that time, the Company’s expected costs
related to the subleased space exceeded the anticipated revenues the Company expected to receive, and as a result, the
Company recorded a loss related to the subleased office space of $1,179,000 during the year ended December 31, 2013.
As of December 31, 2016 and 2015, the short-term portion of the liability was approximately $353,000 and $349,000,
respectively, and is included in “Accrued liabilities” in the accompanying Consolidated Balance Sheets. As of
December 31, 2016 and 2015, the long-term portion of the liability was approximately $446,000 and $799,000,
respectively, and is included in “Other liabilities, net of current portion” in the accompanying Consolidated Balance
Sheets.
Contingencies
In connection with the Purchase of Full House, as described in Note 5, Acquisitions and Dispositions, the Company
entered into an arrangement to pay additional purchase consideration based on Motto’s future gross revenues, excluding
112
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
certain fees, over the next ten years. As of December 31, 2016, this liability was estimated to be $6,400,000 and the
short-term portion of the liability of $160,000 is included in “Accrued liabilities” in the accompanying Consolidated
Balance Sheets and the long-term portion of the liability of $6,240,000 is recorded in “Other liabilities, net of current
portion” in the accompanying Consolidated Balance Sheets.
In connection with the sale of the assets and liabilities related to the Company’s owned brokerage offices as described in
Note 5, Acquisitions and Dispositions, the Company entered into three Assignment and Assumption of Leases
Agreements (the “Assignment Agreements”) pursuant to which the Company assigned its obligations under and rights,
title and interest in 21 leases to the respective purchasers. For certain leases, the Company remains secondarily liable for
future lease payments over approximately the next 55-month period under the respective lease agreements and
accordingly, as of December 31, 2016, the Company has outstanding lease guarantees of $6,222,000. This amount
represents the maximum potential amount of future payments under the respective lease guarantees. In the event of
default by the purchaser, the indemnity and default clauses in the Assignment Agreements govern the Company’s ability
to pursue and recover damages incurred, if any, against the purchaser. As of December 31, 2016, the likelihood of
default by the purchaser on one of the Assignment Agreements was deemed to be reasonably possible and as such, the
Company recognized a loss of $243,000 in “Loss (gain) on sale or disposition of assets, net” in the accompanying
Consolidated Statements of Income during the year ended December 31, 2016. As of December 31, 2016, the short-term
portion of the liability was $49,000 and is included in “Accrued liabilities” in the accompanying Consolidated Balance
Sheets. The long-term portion of the liability was $151,000 and is recorded in “Other liabilities, net of current portion” in
the accompanying Consolidated Balance Sheets.
In addition, the Company maintains a self-insurance program for health benefits. As of December 31, 2016 and 2015, the
Company recorded a liability of $292,000 and $309,000, respectively, related to this program.
Litigation
The Company is subject to litigation claims arising in the ordinary course of business. The Company believes that it has
adequately accrued for legal matters as appropriate. The Company records litigation accruals for legal matters which are
both probable and estimable and for related legal costs as incurred. The Company does not reduce these liabilities for
potential insurance or third-party recoveries and any insurance recoveries are recorded in “Accounts and notes
receivable, current portion” in the accompanying Consolidated Balance Sheets with a corresponding reduction to
“Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income.
In connection with the IPO effective October 7, 2013, RE/MAX Holdings acquired the net assets, excluding cash, of
HBN and Tails for consideration paid of $7,130,000 and $20,175,000, respectively. Regarding the acquisition of the net
assets of HBN, several shareholders of HBN (the “Defendants”) dissented from the transaction and demanded payment
for their shares in excess of consideration paid. Pursuant to the dissenters’ rights statute in the State of Colorado, HBN
petitioned the District Court of Denver County, Colorado (the “Court”) to determine the fair value of HBN. The Court
rendered a decision on December 28, 2015 and concluded that the fair value of HBN on October 7, 2013 was higher than
the amount paid. Accordingly, the Court awarded the Defendants $3,153,000, which represents the amount of the
Defendants’ share of HBN’s fair value as determined by the Court in excess of the consideration paid, as well as accrued
interest from October 7, 2013 through the date of judgment. In addition, the Court’s decision provided for the payment of
certain costs incurred in connection with the litigation and additional interest from the judgment date until the payment
date. As a result of this conclusion, the Company recorded an accrual of $3,251,000 as of December 31, 2015, which was
paid on February 2, 2016.
In connection with the Company’s acquisition of the net assets of Tails, several shareholders of Tails challenged the
terms of the transaction and filed a shareholder action entitled Robert B. Fisher, Carla L. Fisher, Bradley G. Rhodes and
James D. Schwartz v. Tails, Inc. in the Circuit Court of Henrico County, Virginia ("Tails I"). The Court dismissed Tails I
on December 23, 2013. The shareholders appealed that decision. On January 8, 2015, the Virginia Supreme Court
affirmed the lower court's dismissal of Tails I. On March 7, 2016, the same Tails I plaintiffs filed a shareholder
113
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
derivative complaint and complaint for individual claims entitled Robert B. Fisher, Carla L. Fisher, Bradley G. Rhodes
and James D. Schwartz v. Gail Liniger, Dave Liniger, Bruce Benham, RE/MAX Holdings, Inc. and Tails Holdco, Inc. in
Denver District Court ("Tails II"). The Tails II defendants, including the Company, filed a motion to dismiss the Tails II
complaint in its entirety on April 15, 2016. On July 26, 2016, the Denver District Court dismissed all of the Tails II
plaintiffs’ shareholder derivative claims. The Court did not dismiss the Tails II plaintiffs’ individual claims seeking
$384,000 in total for interest allegedly owed. On August 24, 2016, the Plaintiffs moved to amend their Complaint to add
additional individual claims alleging breach of fiduciary duty. The Tails II defendants intend to vigorously defend their
position that the Tails II plaintiffs are not entitled to the relief sought. The Company believes a range for the potential
impact to its financial position and results of operation is not determinable as of December 31, 2016. Accordingly, the
Company currently has not recorded an accrual in the accompanying Consolidated Balance Sheets.
Except for the ongoing litigation concerning the acquisition of the net assets of Tails, management of the Company
believes other such litigation matters involving a reasonably possible chance of loss will not, individually or in the
aggregate, result in a material adverse effect on the Company's financial condition, results of operations and cash flows.
16. Defined-Contribution Savings Plan
The Company sponsors an employee retirement plan (the “401(k) Plan”) that provides certain eligible employees of the
Company an opportunity to accumulate funds for retirement. The Company provides matching contributions on a
discretionary basis. During the years ended December 31, 2016, 2015 and 2014, the Company recognized expense of
$1,364,000, $1,300,000 and $990,000, respectively, for matching contributions to the 401(k) Plan.
17. Related-Party Transactions
The Company’s owned real estate brokerage operations paid advertising fees to regional and national advertising funds,
which promote the RE/MAX brand. These advertising funds are corporations owned by a majority stockholder of RIHI,
who is also the Company’s Chief Executive Officer, Chairman and Co-Founder. This individual does not receive any
compensation from these corporations, as all funds received by the corporations are, as a result of contractual
commitments in our franchise agreements, required to be spent on advertising and technology for the respective regions.
During the years ended December 31, 2016, 2015 and 2014, the Company’s owned real estate brokerage operations paid
$11,000, $917,000 and $1,152,000, respectively, to these advertising funds. These payments are included in “Selling,
operating and administrative expenses” in the accompanying Consolidated Statements of Income.
The majority stockholders of RIHI, including the Company’s current Chief Executive Officer, Chairman and Co-
Founder and the Company’s Vice-Chairman have made and continue to make a golf course they own available to the
Company for business purposes. During the years ended December 31, 2016, 2015 and 2014, the Company used the golf
course for business purposes at minimal charge.
The Company provides services, such as accounting, legal, marketing, technology, human resources and public relations
services, to certain affiliated entities, and it allows these companies to share its leased office space. During the years
ended December 31, 2016, 2015 and 2014, the total amounts allocated for services rendered and rent for office space
provided on behalf of affiliated entities were $1,969,000, $1,720,000 and $2,186,000, respectively. Such amounts are
generally paid within 30 days and no such amounts were outstanding at December 31, 2016 and 2015. In addition,
affiliated regional franchisors have current outstanding continuing franchise fees, broker fees and franchise sales revenue
amounts due from the Company of $145,000 and $66,000 as of December 31, 2016 and December 31, 2015,
respectively. Such amounts are included in “Accounts payable to affiliates” in the accompanying Consolidated Balance
Sheets.
114
RE/MAX HOLDINGS, INC.
Notes to Consolidated Financial Statements (Continued)
18. Quarterly Financial Information (unaudited)
Summarized quarterly results for the years ended December 31, 2016 and 2015 were as follows:
March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016
(in thousands, except shares and per share amounts)
For the Quarter Ended
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to non-controlling interest . . . . . .
Net income attributable to RE/MAX Holdings, Inc. . . . . . . . . . $
42,917 $
27,060
15,857
(2,202)
13,655
(3,259)
10,396
5,456
4,940 $
43,404 $
22,703
20,701
(2,036)
18,665
(4,285)
14,380
7,419
6,961 $
45,559 $
24,203
21,356
(2,204)
19,152
(4,632)
14,520
7,609
6,911
$
44,422
29,935
14,487
(2,876)
11,611
(3,097)
8,514
4,589
3,925
Net income attributable to RE/MAX Holdings, Inc. per share
of Class A common stock
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.28 $
0.28 $
0.39 $
0.39 $
0.39
0.39
$
$
0.22
0.22
Weighted average shares of Class A common stock outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,584,351
17,638,667
17,636,590
17,668,995
17,645,696
17,691,641
17,647,930
17,706,070
March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015
(in thousands, except shares and per share amounts)
For the Quarter Ended
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to non-controlling interest . . . . . .
Net income attributable to RE/MAX Holdings, Inc. . . . . . . . . . $
44,207 $
28,884
15,323
(4,045)
11,278
(2,148)
9,130
6,379
2,751 $
44,277 $
22,921
21,356
(1,841)
19,515
(3,457)
16,058
11,088
4,970 $
45,110 $
24,498
20,612
(2,142)
18,470
(3,277)
15,193
10,396
4,797
$
43,274
26,410
16,864
(2,747)
14,117
(3,148)
10,969
6,923
4,046
Net income attributable to RE/MAX Holdings, Inc. per share
of Class A common stock
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.23 $
0.22 $
0.41 $
0.40 $
0.39
0.39
$
$
0.28
0.28
Weighted average shares of Class A common stock outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,817,605
12,293,505
12,225,678
12,399,527
12,333,690
12,420,748
14,283,839
14,351,911
115
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
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 Securities Exchange Act of 1934) as of the end of the period covered by this Annual Report on Form 10-K.
Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that as of the
end of the period covered by this Annual Report, our disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and
include controls and procedures designed to ensure that the information required to be disclosed by us in such reports is
accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial
Officer, as appropriate, to allow timely decisions regarding required disclosures.
Management’s Report on Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting as
defined in Rule 13a-15(f) under the Exchange Act. Our internal controls over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Our management assessed the effectiveness of the Company's internal controls over financial reporting as of
December 31, 2016, using the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management believes
that our internal controls over financial reporting was effective as of December 31, 2016.
KPMG has independently assessed the effectiveness of our internal controls over financial reporting and its report is
included herein.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls 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 our fourth fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
116
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a Code of Business Conduct and Ethics and a Supplemental Code of Ethics for Chief Executive Officer
and Senior Financial Officers. Both of these codes apply to our chief executive officer, principal financial officer,
principal accounting officer and controller, or persons performing similar functions. Both of these codes are available on
our website at www.remax.com.
The remaining information required by this Item 10 will be included in our definitive proxy statement for its annual
meeting of stockholders (the “Proxy Statement”) and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table provides information as of December 31, 2016 with respect to shares of our Class A common stock
issuable under our equity compensation plan:
Equity Compensation Plan Information
Plan Category
Equity compensation plans approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Securities to Weighted-Average
be Issued Upon Exercise Exercise Price of
of Outstanding Options, Outstanding Options, Securities Reflected in
Warrants and Rights
Warrants and Rights
Column (a))
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
127,011 (1) $
—
127,011 (1) $
— (2)
—
— (2)
2,168,516
—
2,168,516
(1) Includes 127,011 shares issuable upon vesting of unvested restricted stock units.
(2) The weighted average exercise price does not take into account shares issuable upon vesting or delivery of restricted
stock units because these have no exercise price.
The remaining information required by this Item 12 will be included in the Proxy Statement and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this Item 13 will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 will be included in the Proxy Statement and is incorporated herein by reference.
117
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1.
Consolidated Financial Statements
The following financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K:
• Consolidated Balance Sheets as of December 31, 2016 and December 31, 2015
• Consolidated Statements of Income for the fiscal years ended December 31, 2016, December 31, 2015
and December 31, 2014
• Consolidated Statements of Comprehensive Income for the fiscal years ended December 31,
2016, December 31, 2015 and December 31, 2014
• Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 31, 2016,
December 31, 2015 and December 31, 2014
• Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2016, December 31,
2015 and December 31, 2014
• Notes to Consolidated Financial Statements
• Report of Independent Registered Public Accounting Firm
2.
Financial Statement Schedules
Separate financial statement schedules have been omitted because such information is inapplicable or is
included in the financial statements or notes described above.
3.
Exhibits
The exhibits listed in the Index to Exhibits, which appears immediately following the signature page and is
incorporated herein by reference, are filed or incorporated by reference as part of this Annual Report on
Form 10-K.
ITEM 16. FORM 10-K SUMMARY
None.
118
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: February 24, 2017
RE/MAX Holdings, Inc.
(Registrant)
By:
/s/ David L. Liniger
David L. Liniger
Chief Executive Officer, Chairman and
Co-Founder (Principal Executive Officer)
Date: February 24, 2017
By:
/s/ Karri R. Callahan
Karri R. Callahan
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/s/ David L. Liniger
David L. Liniger
/s/ Karri R. Callahan
Karri R. Callahan
/s/ Gail A. Liniger
Gail A. Liniger
/s/ Richard O. Covey
Richard O. Covey
/s/ Kathleen J. Cunningham
Kathleen J. Cunningham
/s/ Roger J. Dow
Roger J. Dow
/s/ Ronald E. Harrison
Ronald E. Harrison
/s/ Daniel J. Predovich
Daniel J. Predovich
/s/ Christine M. Riordan
Christine M. Riordan
/s/ Joseph A. DeSplinter
Joseph A. DeSplinter
/s/ Teresa S. Van De Bogart
Teresa S. Van De Bogart
Title
Chief Executive Officer, Chairman and Co-Founder
(Principal Executive Officer)
Date
February 24, 2017
Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
February 24, 2017
Vice Chair and Co-Founder
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
Director
Director
Director
Director
Director
Director
Director
Director
119
INDEX TO EXHIBITS
Exhibit Description
Form File Number Date of First Filing Exhibit Number Filed Herewith
Exhibit No.
2.1
Asset Purchase Agreement, dated November 3,
8-K
001-36101
11/3/2016
2.1
2016, by and among RE/MAX, LLC; RE/MAX of
New Jersey, Inc.; Joseph L. Ventresca; Jeffrey L.
Snyder; and Maximum Trust.*
2.2
Asset Purchase Agreement, dated November 22,
8-K
001-36101
11/28/2016
2.1
2016, by and among RE/MAX, LLC; RE/MAX of
Kentucky/Tennessee, Inc.; RE/MAX of Georgia,
Inc.; RE/MAX of Southern Ohio, Inc.; Lisa
McPherson, Scott McPherson, Robin McPherson,
and Frank McCarty, each in their respective
capacity as co-trustee for The McPherson Family
Trust; Dane Ellison; and David Smith.*
3.1
Amended and Restated Certificate of
10-Q
001-36101
11/14/2013
Incorporation
3.2
4.1
Bylaws of RE/MAX Holdings, Inc.
10-Q
001-36101
11/14/2013
Form of RE/MAX Holdings, Inc.’s Class A
S-1 333-190699
9/27/2013
common stock certificate.
10.1
2013 Omnibus Incentive Plan and related
S-8 333-191519
10/1/2013
3.1
3.2
4.1
4.2
documents.
10.2
Credit Agreement, dated as of July 31, 2013,
S-1 333-190699
8/19/2013
10.4
among RMCO, LLC, RE/MAX, LLC, the several
lenders from time to time parties thereto and
JPMorgan Chase Bank, N.A., as administrative
agent.
Lease, dated April 16, 2010, by and between Hub
Properties Trust and RE/MAX International, LLC.
Employment Agreement, dated as of July 1, 2010,
by and between RE/MAX International Holdings,
Inc., RE/MAX, LLC and Geoffrey Lewis.
S-1 333-190699
8/19/2013
10.5
S-1 333-190699
9/19/2013
10.8
Registration Rights Agreement, dated as of
October 1, 2013, by and among RE/MAX
Holdings, Inc. and RIHI, Inc.
Management Services Agreement, dated as of
October 1, 2013, by and among RMCO, LLC,
RE/MAX, LLC and RE/MAX Holdings, Inc.
RMCO, LLC Fourth Amended and Restated
Limited Liability Company Agreement.
10-Q
001-36101
11/14/2013
10.8
10-Q
001-36101
11/14/2013
10.9
10-Q
001-36101
11/14/2013
10.10
Tax Receivable Agreement, dated as of October 7,
2013, by and between RIHI, Inc. and RE/MAX
Holdings, Inc.
10-Q
Tax Receivable Agreement, dated as of October 7,
2013, by and between Weston Presidio V, L.P.
and RE/MAX Holdings, Inc.
10-Q
001-36101
11/14/2013
10.11
001-36101
11/14/2013
10.12
10.3
10.4
10.5
10.6
10.7
10.8
10.9
120
Exhibit Description
Form File Number Date of First Filing Exhibit Number Filed Herewith
Exhibit No.
10.10
Form of Indemnification Agreement by and
S-1 333-190699
9/27/2013
10.3
between RE/MAX Holdings, Inc. and each of its
directors and executive officers.
10.11
Form of Restricted Time-Based Stock Unit
Award.
10.12
Form of Performance-Based Restricted Stock Unit
Award.
10.13
Form of Restricted Stock Award (Directors and
S-1 333-190699
9/27/2013
10.15
Senior Officers).
10.14
Form of Restricted Stock Award (General).
S-1 333-190699
9/27/2013
10.15
Form of Stock Option Award (Directors and
S-1 333-190699
9/27/2013
Senior Officers).
10.16
Form of Stock Option Award (General).
S-1 333-190699
9/27/2013
10.17
First Amendment to Credit Agreement, dated as
10-K
001-36101
3/13/2015
10.16
10.17
10.18
10.24
of March 11, 2015, among RMCO, LLC,
RE/MAX, LLC, the several lenders from time to
time parties thereto and JPMorgan Chase Bank,
N.A., as administrative agent.
10.18
Joinder, dated May 29, 2015, among RE/MAX
Holdings, Inc., Weston Presidio V., L.P. and
Oberndorf Investments LLC
10-Q
001-36101
8/7/2015
10.3
10.19
Separation and Transition Agreement, dated as of
8-K
001-36101
1/7/2016
10.1
January 7, 2016, between David Metzger,
RE/MAX Holdings, Inc., RE/MAX, LLC and
RIHI, Inc.
Amended and Restated Credit Agreement, dated
as of December 15, 2016, among RMCO, LLC,
RE/MAX, LLC, the several lenders from time to
time parties thereto, and JPMorgan Chase Bank,
N.A., as administrative agent.*
List of Subsidiaries
Consent of Independent Registered Public
Accounting Firm.
10.20
21.1
23.1
31.1
Certification of Chief Executive Officer,
Chairman and Co-Founder pursuant to Rule 13a-
14(a) of the Securities Exchange Act of 1934, as
amended.
31.2
Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) of the Securities Exchange Act
of 1934, as amended.
32.1
Certification of Chief Executive Officer,
Chairman and Co-Founder and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
8-K
001-36101
12/21/2016
10.1
121
X
X
X
X
X
X
X
Exhibit No.
101.INS XBRL Instance Document
Exhibit Description
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB XBRL Taxonomy Extension Label Linkbase
Document
101.PRE
XBRL Taxonomy Extension Presentation
Linkbase Document
Form File Number Date of First Filing Exhibit Number Filed Herewith
X
X
X
X
X
X
* Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish
supplemental copies of any omitted exhibits and schedules upon request by the SEC.
122
BOARD OF DIRECTORS
DAVID LINIGER
Chief Executive Officer,
Chairman of the Board & Co-Founder
GAIL LINIGER
Vice Chair of the Board & Co-Founder
RICHARD COVEY
Lead Director
KATHLEEN CUNNINGHAM
Director
JOSEPH DESPLINTER
Director
ROGER DOW
Director
RONALD HARRISON
Director
DANIEL PREDOVICH
Director
DR. CHRISTINE RIORDAN
Director
TERESA VAN DE BOGART
Director
EXECUTIVE MANAGEMENT TEAM
DAVID LINIGER
Chief Executive Officer,
Chairman of the Board & Co-Founder
GEOFFREY LEWIS
President
ADAM CONTOS
Chief Operating Officer
KARRI CALLAHAN
Chief Financial Officer
CORPORATE INFORMATION
INVESTOR RELATIONS
(303) 224-5458
investorrelations@remax.com
TRANSFER AGENT INFORMATION
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
(800) 733-1121
shareholder.broadridge.com
shareholder@broadridge.com
EXCHANGE INFORMATION
New York Stock Exchange
Ticker Symbol: RMAX
CORPORATE HEADQUARTERS
RE/MAX Holdings, Inc.
5075 S. Syracuse Street
Denver, CO 80237
remax.com
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OUR MISSION
To be the worldwide real estate leader, achieving our goals by
helping others achieve theirs. Everybody wins.
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©2017 RE/MAX Holdings, Inc.
RE/MAX and the RE/MAX Balloon are trademarks of RE/MAX, LLC.
Motto and the Motto logo are trademarks of Motto Franchising, LLC.
Each RE/MAX office and each Motto office is independently
owned, operated and licensed. 17_148017
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