ANNUAL
REPORT
22019
+ F O R M 1 0 - K
2019 ANNUAL REPORT
A WORD FROM THE CEO
This past year continued what has been perhaps the greatest era of change
in our company’s history. We are in an ongoing process of challenging every
aspect of our operation and then updating, adjusting, reinventing or eliminating
as needed. The objective: to get better and accomplish more every day.
I was once asked to name the biggest competitive threat to an established brand like RE/MAX.
My answer: Mediocrity, driven by complacency. The day we think we’re too good to improve, or
we ease up and start resting on our laurels, is the day we become susceptible to this threat. It
certainly won’t happen on my watch. The idea goes back to something our co-founder and chairman, Dave Liniger,
often says: “If you do business today the way you did business yesterday, you’ll be out of business tomorrow.”
That’s a rally cry for nonstop evolution and innovation, and it applies to both of our franchise brands. RE/MAX
has a deep-rooted culture of constant development, and in many ways operates more like an aggressive, modern
competitor than a traditional power. Motto Mortgage has the same genes. Unique. Disruptive (in the best sense of
the word). Action-Based. Entrepreneurial. Bold. And extremely confident of its mission and the positive impact it has
on its industry.
RE/MAX, THE REAL ESTATE LEADER
The RE/MAX of 2020 is a modern, tech-enabled enterprise providing members with exclusive digital marketing
resources, ever-expansive brand advantages, and 24/7 access to top-shelf professional development content. The
strategy creates a competitive edge for current agents and an appealing value proposition for others who might
consider joining the brand. The goal: growth in all aspects of the business, including productivity, agent count, brand
presence and market share.
A transformation in RE/MAX technology, which began with the 2018 acquisition of booj, accelerated throughout
2019. Last spring and summer saw the development of the booj Platform, a process that involved thousands of
RE/MAX affiliates. The platform launched at our Broker Owner Conference (BOC) in late August, and a phased
rollout of the CRM (customer relationship management) system and agent, office and team websites began soon
after.
Our tech evolution continued with the December purchase of another real estate innovator called First. First
produces an app that uses data and machine learning to analyze an agent’s contacts and identify those most likely
to move in the near future. Then the app, serving as an intelligent coaching platform, enables the agent to prepare
a strategic action plan to reach out, fortify the connection, and be top-of-mind before any potential move. The
intended result: Agents are able to better protect their database and close more sales among people they know.
The app is a very compelling product – and it’s now a RE/MAX exclusive (although current subscribers can continue
to use it until their contracts end this year). A U.S. product for now, the First app will be available to our membership
at a significant discount from its pre-acquisition prices.
The technology transformation took another leap forward in early February 2020, with the launch of a new, booj-
powered remax.com and consumer home-search app. The website links to our network of customized office, agent
and team sites, while the app uses augmented reality, finger-drawn search areas and other interactive features to
create an engaging consumer experience.
The booj and First initiatives are clear examples that no one at RE/MAX is sitting still. Because the brand has so
much more to accomplish all around the world.
MOTTO, GROWING QUICKLY IN MORTGAGE BROKERAGE
The 3-year-old Motto Mortgage brand is also making waves in the mortgage brokerage space. Continuous
improvement, constant growth, and expanding industry presence will do that.
The Motto footprint surpassed 100 open offices last year, and that growth rests on a strong foundation. It’s
interesting to see similarities to the RE/MAX culture within Motto. Deep engagement at events, for instance;
February’s successful 2020 Motto MILE convention being the latest example. Or the collaborative spirit among
the membership, as Motto brokers and loan originators enthusiastically share ideas and best practices. There’s
also a drive for relevant professional development, coaching and mentoring, another RE/MAX attribute. The list
goes on and on.
In many ways, Motto Mortgage remains a singularly unique concept within the space. It’s the first and only
national mortgage brokerage franchise in the U.S. – at a time when the mortgage brokerage channel is gaining
market share year-over-year. While the cost of originating a loan has gotten more expensive for the mortgage
lending and banking channels, brokerage is insulated from that pressure. It’s yet another reason we believe
Motto is the right business at the right time.
Motto’s revenue grew almost 80% in 2019 and the number of open Motto offices increased over 40%. The
brand averaged one franchise sale per week from the October 2016 launch through the end of 2019, putting it
in the top 5% of all emerging franchises, according to Franchise Grade based on a yearly analysis of over 2,800
franchise systems during the 36-month period ended December 31, 2018. And, although it’s too early to tell, we
may have hit an inflection point during the fall of 2019, as franchise sales accelerated, resulting in a record high
for the fourth quarter.
OUR VALUES DRIVE US FORWARD
Transformation at both RE/MAX and Motto Mortgage is grounded in the shared core values that shape the
culture at RE/MAX Holdings, Inc. Appropriately, they’re encapsulated by the word MORE:
• Deliver to the AX.
• Customer bsessed.
• Do the ight Thing.
• Together, veryone Wins.
RE/MAX Holdings, Inc. is the parent company of two growing, thriving franchise brands. Yes, our business
success is articulated in figures and balance sheets, but also in the impact those two brands – and the
thousands of professionals aligned with them – have on people’s lives. Ultimately, our brands exist to help
MORE people solve their problems, overcome their challenges and get what they want.
We do it better today than we did yesterday. And we’re determined to do it even better tomorrow.
Thank you for your investment in RE/MAX Holdings. We look forward to sharing many successes
in 2020 and beyond.
Sincerely,
Adam Contos
CEO
HIGHLIGHTS
(as of year-end 2019)
8,629
OFFICES
130,889
AGENTS
IN 118
COUNTRIES &
TERRITORIES
100%
FRANCHISED 1
REVENUE
2019 $282.3
2018 $212.6
2017 $193.7
($ in millions)
NET INCOME 2
2019 $46.9
2018 $49.8
2017 $31.3
($ in millions)
ADJUSTED EBITDA2,3
2019 $103.5
2018 $104.3
2017 $102.1
($ in millions)
1Excludes booj and First.
2 Excludes Adjustments attributable to the non-controlling interest.
3 See Item 7 herein for discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA
and Net Income.
111
OFFICES
*
**
***
*Motto Mortgage was named an Entrepreneur Magazine 2019 Fastest-Growing Franchise based on the net number of franchise units added in the U.S. and Canada between
July 2017 to July 2018 according to Entrepreneur magazine’s review of unit lists and Franchise Disclosure Documents of 1,094 participating franchises across all industries.
**Motto Mortgage was named as an Entrepreneur Magazine 2019 Top New Franchise based on Entrepreneur magazine’s analysis of data, including costs, fees, size, growth and
brand and financial strength, from franchise disclosure and related documents dated August 2017 to July 2018 of 274 participating franchise systems open for 5 years or less
as of July 31, 2018.
*** Motto Mortgage is among the top 5 percent fastest-growing emerging franchises from 2017 to 2019, based on an analysis of over 2,800 franchise systems performed by
Franchise Grade®, during the 36-month period ended December 3 1, 2018.
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, 2019
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
Trading Symbol
RMAX
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 every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒
Accelerated Filer ☐
Non-Accelerated Filer ☐
Smaller Reporting Company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2019, 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 $534.2 million, based on the number of shares held by non-affiliates as of June 30, 2019 and the closing price of
the registrant’s common stock on the New York Stock Exchange on June 30, 2019. 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, 2020 was 17,909,545 and 1, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2019 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, 2019.
RE/MAX HOLDINGS, INC.
2019 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
4
28
42
42
42
42
43
43
44
47
65
67
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . 107
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
ITEM 16. FORM 10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
2
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 are often identified by the use of words such
as “believe,” “intend,” “expect,” “estimate,” “plan,” “outlook,” “project,” “anticipate,” “may,” “will,” “would” and other
similar words and expressions that predict or indicate future events or trends that are not statements of historical matters.
Forward-looking statements include statements related to:
•
•
•
•
•
•
•
•
•
•
•
•
•
our expectations regarding consumer trends in residential real estate transactions;
our expectations regarding overall economic and demographic trends, including the health of the United States
(“U.S.”) and Canadian residential real estate markets, and how they affect our performance;
our growth strategies of growing our RE/MAX and Motto Mortgage brands, including (a) increasing RE/MAX
agent count, increasing the number of closed transaction sides and transaction sides per RE/MAX agent, and (b)
increasing the number of open Motto Mortgage offices;
the anticipated benefits of our technology initiatives;
the continued strength of our brands both in the U.S. and Canada and in the rest of the world;
the pursuit of future acquisitions of Independent Regions;
our intention to pay dividends;
our future financial performance including our ability to appropriately forecast;
the effects of laws applying to our business and our future compliance with laws;
our ability to retain our senior management and other key employees;
other plans and objectives for future operations, growth, initiatives, acquisitions or strategies, including
investments in our technology;
our ability to effectively implement and account for changes in tax laws;
the anticipated outcome of the Moehrl/Sitzer litigation, including any risks or uncertainties with regard to any
favorable or unfavorable judgements and implications to our industry.
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.
3
ITEM 1. BUSINESS
PART I
Overview
We are one of the world’s leading franchisors in the real estate industry with two brands and three reportable segments,
franchising real estate brokerages globally under the RE/MAX brand (“RE/MAX”) and mortgage brokerages within the
U.S. under the Motto Mortgage brand (“Motto”) and reporting our collective franchise marketing operations as the
Marketing Funds. RE/MAX and Motto are 100% franchised—we do not own any of the brokerages that operate under
these brands. We focus on enabling our franchisees’, RE/MAX agents’ and Motto loan originators’ success by providing
powerful technology, quality education and training, and valuable marketing to build the strength of the RE/MAX and
Motto brands. Although we partner with our franchisees to assist them in growing their brokerages, they fund the cost of
developing their brokerages. As a result, we maintain a low fixed-cost structure which, combined with our 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 affording our franchisees and
their agents 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. RE/MAX has held the
number one market share in the U.S. and Canada combined since 1999, as measured by total residential transaction sides
completed by our agents. On June 25, 2013, RE/MAX Holdings, Inc. (“Holdings”) was formed as a Delaware
corporation. On October 7, 2013, we completed an initial public offering of our Class A common stock, which trades on
the New York Stock Exchange under the symbol “RMAX”. In October 2016, we launched 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 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 our unique agent-centric approach, we have established a nearly 50-year track record of
helping millions of homebuyers and sellers achieve their goals, creating several competitive advantages in the process:
• Leading agent productivity. RE/MAX agents are, on average, substantially more productive than the industry
average. RE/MAX agents at large brokerages on average outsell competing agents more than two-to-one based
on a survey of the largest participating U.S. brokerages per the 2019 REAL Trends U.S. 500 Survey.
4
U.S. Transactions Per Agent
(Large Brokerages Only) (1)
(1) Transaction sides per agent are calculated by RE/MAX based on 2019 REAL Trends
500 data, citing 2018 transaction sides for the 1,757 largest participating U.S.
• Technology, Tools and Training. We have introduced the powerful booj Platform, a fully integrated
technology platform custom-built for RE/MAX's unique entrepreneurial culture, in our U.S. Company-owned
Regions with additional rollouts to U.S. Independent Regions and Canada scheduled in 2020. We are enhancing
the platform over time and will provide additional premium offerings and bolt-ons such as our recent
acquisition of First. We also provide agents and brokers the tools to help maximize their productivity through
approved supplier arrangements and top-quality education and training.
• Leading market share. Nobody in the world sells more real estate than RE/MAX, as measured by residential
transaction sides.
• Leading brand awareness. The RE/MAX brand has the highest level of unaided brand awareness in real estate
in the U.S. and Canada according to a consumer study 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.
• Leading global presence. We have a growing global presence and our agent count outside the U.S. and Canada
continues to increase. Today, the RE/MAX brand has over 130,000 agents operating in over 8,000 offices, and a
presence in more than 110 countries and territories—a global footprint bigger than any other real estate
brokerage brand in the world.
5
The majority of RE/MAX revenue—66% in 2019—is derived from fixed, contractual fees and dues paid to us based on
the number of agents in our franchise network, so agent count, primarily in the U.S. and Canada, is a key measure of our
business performance.
130,889 Agents
8,629 Offices
118 Countries and Territories
As of December 31, 2019
Motto Mortgage. The Motto Mortgage franchise model offers U.S. real estate brokers, real estate professionals and other
investors access to the mortgage brokerage business, which is highly complementary to our RE/MAX real estate
business and is designed to help Motto franchise owners comply with complex mortgage regulations. Motto franchisees
offer potential homebuyers an opportunity to find both real estate agents and independent Motto loan originators at
offices near each other. Further, Motto loan originators provide homebuyers with financing choices by providing access
to a variety of quality loan options from multiple leading wholesale lenders. In addition, Motto provides powerful
technology to its franchisees that simplifies the mortgage process. Motto franchisees are mortgage brokers and not
mortgage bankers. Likewise, we franchise the Motto system and are not lenders or brokers.
Motto’s revenue model consists of fixed, contractual fees paid monthly by the broker on a per-office basis for being a
part of the Motto network and for use of the Motto brand and technology, and from sales of individual franchises. We are
in the early stages of offering supplemental franchising models to existing Motto “bricks and mortar” franchises which
are offices with a unique physical address with rights granted by a full franchise agreement. The new “virtual” offices
and “branchises” are not required to have the same physical footprint. A virtual office is a right granted by Motto to a
franchisee to operate in an additional state. The rights for up to two virtual offices are granted to a Motto franchisee at
the time of purchase; the virtual office concept allows that franchisee to take advantage of business opportunities in an
additional, sometimes adjoining, state. There are no incremental franchise fees or monthly royalty fees directly
associated with a virtual office. A branchise is a scaled down Motto franchise. Branchises are designed for an existing
Motto franchise owner who desires to expand to an additional location where the franchisee is uncertain whether
anticipated loan origination volume will support full franchise fees. Motto franchisees pay a reduced franchise fee and
monthly royalty rate for a branchise. Motto Mortgage has grown to over 100 offices across more than 30 states and we
expect Motto to continue to grow as we expect to sell more Motto franchises in 2020 than we did in 2019.
6
Number of Open Motto Offices*
*only includes full physical Motto offices; excludes virtual offices and branchises
Industry Overview and Trends
We are a franchisor of businesses in two facets of the real estate industry—real estate brokerages and mortgage
brokerages. With approximately 95% of our revenue, approximately 65% of our RE/MAX agent count coming from our
franchising operations in the U.S. and Canada, and 100% of our Motto operations being in the U.S., we are significantly
affected by the real estate markets in the U.S. and Canada.
The U.S. and Canadian Real Estate Industries are Large Markets. The residential real estate markets in the U.S. and
Canada are approximately $1.9 trillion and $0.2 trillion, respectively, based on 2019 sales volume, according to existing
home sales information from the National Association of Realtors (“NAR”) and the Canadian Real Estate Association
(“CREA”).
The Residential Real Estate Industry is Cyclical in Nature. The residential real estate industry is cyclical in nature but
has shown strong long-term growth. As illustrated below, the number of existing home sales transactions in the U.S. and
Canada has generally increased during periods of economic growth:
7
U.S. Existing Home Sales
U.S. Housing Trends. The U.S. housing market had mixed results during 2019 as the existing home sales declines of
2018 continued in the first half of 2019. Sales recovered in the second half of 2019 with full year existing home sales
ending at the same level as 2018, according to NAR. Persistent price appreciation and low housing inventory, especially
at the lower end of the market, continued to challenge homebuyers seeking affordable inventory despite historically
moderate interest rates. NAR’s January 2020 forecast called for existing home sales to increase an average of 3.4% in
2020.
As we entered 2020, the growth in home sales transactions continued despite ongoing constraints related to shrinking
inventory and affordability. Although moderate interest rates, low unemployment and wage appreciation remain positive
for U.S. housing trends, continued constriction to inventory levels could stall the current momentum.
Canadian Existing Home Sales
Canadian Housing Trends. Most individual markets surveyed across Canada experienced moderate price increases
year-over-year from 2018 to 2019. We expect the market to grow in 2020 with the overall rate of price increases to be
greater than in 2019. CREA projects the average residential sale price for Canada will increase 6.2% in 2020, which
indicates that the desire for home ownership remains strong, particularly among Canadian millennials. And according to
the 2020 RE/MAX Housing Market Outlook Report, 51% of Canadians are considering buying a property in the next
five years, up from 36% in the prior year.
Favorable Long-Term Demand. We believe long-term demand for housing in the U.S. and Canada is driven by many
factors including the economic health of the domestic economy, demographic trends, affordability, interest rates and
local factors such as demand relative to supply. We also believe the residential real estate market in the U.S. and Canada
will benefit from fundamental demographic shifts over the long term, including:
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• An increase in demand from rising household formations, including as a result of immigration, population
growth and wealth accumulation and wage growth of minorities. According to The State of the Nation’s
Housing Report 2019 compiled by the Joint Center for Housing Studies of Harvard University (the “JCHS
Report”), U.S. household formations are projected to reach 12.0 million between 2018 and 2028. Likewise, the
U.S. Census Bureau projects that the U.S. will continue to experience long-term population growth and predicts
net immigration of 36 million individuals from 2014 to 2060. And in Canada, Statistics Canada reports that
Canada has the highest annual population growth rate of G7 nations and expects the nation’s population to grow
to more than 40 million individuals by 2068 even in its low-growth scenario.
• An increase in demand from generational shifts. We believe there is pent-up buying demand among adults in
the millennial generation, currently the nation’s largest living generation. The millennial generation is moving
into their prime home-buying years as they form households and are supported by strong employment,
relatively low interest rates, and rising consumer confidence. Similarly, we also believe there is pent-up selling
demand from generational shifts, such as many retirement age homeowners, from the “baby boom” generation,
who are likely to take advantage of improved housing market conditions in order to sell their existing residences
and retire in new areas of the country or purchase smaller homes.
• Pent-up demand from supply shortages. Supplies of single-family homes for sale remain relatively scarce,
particularly at the lower-cost end of the spectrum. The conversion of single-family homes to rental properties,
the ongoing decline in residential mobility rates and the low level of single-family construction are likely
contributors to the low level of supply, according to the JCHS Report. Additionally, while affordability
pressures have eased, the JCHS Report notes this issue remains widespread, a long-term trend which has not
been solved. Canada is faced with similar challenges with Statistics Canada noting more than 5% or more than
700 thousand households are in housing that is not suitable for their needs and nearly 20% of households do not
report being satisfied with their housing. Should these supply constraints be remedied, we believe the real estate
industry would see a substantial benefit.
Notable Broker and Agent Trends. Notable trends impacting residential real estate brokers and agents include:
• Almost 90% of all U.S. homebuyers and sellers use an agent – About 89% of sellers and purchasers were
represented by a real estate agent in 2019, according to NAR data. These figures have climbed over the last
decade and a half—a period of time during which technology has materially changed the typical home-buying
or selling transaction:
Percentage of Home Buyers and Sellers Using an Agent
Source: NAR Profile of Home Buyers and Sellers
• Competition for agents and listings remains fierce – Competition for agents, especially highly productive
agents, and listings has always been fierce and today is no different. Franchisors and brokers are continually
refining and fine-tuning their economic models in order to craft what they believe to be the most compelling
value proposition in order to attract and retain the most productive agents and to capture consumer listings. The
year 2019 remained heated in this regard as the industry witnessed the continuation of significant capital
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invested in relatively new entrants to our industry, resulting in many well-financed competitors offering a wide
variety of business models. See Competition for additional discussion.
• The importance of technology continues to increase – We believe industry market participants will continue to
focus on technology investments as evidenced by increased capital flowing into the industry. We believe mobile
platforms, artificial intelligence and predictive analytics are increasingly becoming a point of focus as the
industry looks to use technology to simplify and streamline the process of lead cultivation and completing
transactions. In response, many established brokers are favoring proprietary technology as opposed to
purchasing it from third parties.
• Alternate business models increase amid record venture capital investment – While the majority of home
buyers and sellers still use agents, the number of alternate business models continues to expand. Furthermore,
investments into real estate technology, especially as it relates to alternate models, continues to increase.
According to an October 2019 Real Estate Funding Report by T360, investment in residential real estate
technology through the third quarter of 2019 totaled $2.14 billion, or 121% of full-year 2018 levels. Nearly $1.5
billion, or 69% of total residential funding in 2019 through September, went to four iBuyer companies. iBuyers
are companies that make an online, all-cash offer to a potential home seller and if the offer is accepted, the
iBuyer takes ownership of the property and is responsible for reselling the home. As the iBuyer model is a
quicker alternative to a traditional real estate transaction, those sellers who need or want to sell their home
quickly find it particularly attractive. Some brokerages have begun to partner with iBuyers or offer their own
iBuyer program. Most iBuyer activity tends to be below the median price range. In addition to iBuyers who
operate as discussed above, other alternate business models exist including those companies who seek to
purchase an existing homeowner’s “move-up” or “dream” home for cash and then subsequently sell the
currently occupied property.
The Long-Term Value Proposition for Real Estate Brokerage Services. We believe the traditional agent-assisted
business model, especially those supported by professional and highly productive agents, compares favorably to
alternative channels of the residential brokerage industry, such as discount brokers, “for sale by owner” listings, iBuyers,
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)
the complexity and large monetary value involved in home sale transactions,
(ii)
the infrequency of home sale transactions,
(iii)
the high price variability in the home market,
(iv)
the intimate local knowledge necessary to advise clients on neighborhood characteristics,
(v)
the unique nature of each particular home, and
(vi)
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 favor the full-service agent model for residential real estate
transactions. In fact, a 2019 survey we commissioned from Camp & King of over 5,000 consumers across the U.S. and
Canada noted that more than three quarters of home buyers and sellers still see the value of a full-service agent. 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.
The Long-Term Value Proposition for Mortgage Brokerage Services. Likewise, we believe mortgage brokers provide
choice and 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.
In 2019, the percentage of mortgage originations handled by mortgage brokerages was still below average historical
levels, which we believe shows potential for growth in the mortgage brokerage production channel. In 2019, we began to
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realize that potential as the percentage of mortgage originations handled by mortgage brokerages began to rise. We
believe there is room for additional growth as the percentage of mortgage originations handled by mortgage brokerages
in 2019 has still not reached maximum levels seen in the past.
Total Mortgage Originations
Source: Inside Mortgage Finance Publications, Inc. Copyright © 2020 Used with permission.
Purchase-money mortgage originations correlate to the overall number of home sales and home prices. Home purchases
are driven primarily by the buyer’s personal and professional circumstances, whereas refinances depend mainly upon
interest rates.
According to Federal Home Loan Mortgage Corporation (known as “Freddie Mac”), purchase-money originations are
expected to increase gradually in the next few years. As compared to competitors, Motto has a significantly higher ratio
of purchase-money mortgage originations to refinances at an approximately 80/20 split. We believe that the expected
increase in purchase-money originations will provide a growth opportunity for a Motto franchise.
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Purchase Mortgage Originations
Our Franchise Model and Offering
Introduction to Franchising. Franchising is a distributed model for licensing the use of the franchisor’s brand and
technology, tools, and training. In return, the franchisee retains ownership and sole responsibility for the local business
and its risks, and therefore a substantial portion of the profits it generates. The successful franchisor provides its
franchisees: i) a unique product or service offering; ii) a distinctive brand name, and as the system gains market share,
the favorable consumer recognition that brand comes to symbolize; and iii) technology, tools and training to help
franchisees operate their business effectively, efficiently and successfully. 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 has 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.
How Brokerages Make Money. Residential real estate brokerages typically realize revenue by charging a commission
based on a percentage of the price of the home sold and/or by charging their agents, who are independent contractors,
fees for services rendered. 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
typically adversely impacted in periods of falling prices and home sale transactions (with the number of licensed real
estate agents generally decreasing during such periods).
Residential mortgage brokerages typically realize revenue by charging fees for their service, which is based on a
percentage of the mortgage loan amount. The mortgage brokerage industry generally benefits from periods of increasing
home sales activity and rising home prices, as this generally results in increased purchase-money mortgage originations
(loans that arise during the initial sale of a house), and periods when homeowners refinance to take advantage of lower
interest rates. The mortgage brokerage industry is usually adversely impacted in periods of decreasing home sales
activity, as this results in less purchase-money mortgage originations, and periods of less favorable interest rates making
homeowners less likely to refinance.
The RE/MAX “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 productive agents and
motivated franchisees to our network and drive growth in our business and profitability. Our model maximizes our
agent’s productivity by providing the following 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. That differentiation is most
evident when our brand advantages and services are factored in as part of the concept. 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
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commission compared to traditional brokerages where the broker typically takes 30% to 40% of the agent’s
commission, and it provides brokers with the resources to offer key services and support to their agents.
• Affiliation with the Best Brand in Residential Real Estate. With number one market share in the U.S. and
Canada combined as measured by total residential transaction sides completed by RE/MAX agents, and leading
unaided brand awareness in the U.S. and Canada, according to a consumer study 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 generally attract
driven, professional, entrepreneurially-minded franchisees, and we allow them autonomy to run their businesses
independently, including the freedom to set commission rates and oversee local advertising aligned with
RE/MAX standards.
• Powerful Technology and Marketing Tools. We believe we offer industry-leading technology highlighted by our
proprietary booj Platform, First mobile app, and the recently enhanced consumer facing app and remax.com.
The highly-customized booj Platform integrates a suite of digital products that empower high-producing agents,
brokers and teams to proactively establish, manage and grow client relationships. With Customer Relationship
Management (“CRM”) at the core of this ecosystem, the booj Platform utilizes deal management and lead
cultivation tools to streamline the work of agents from lead generation to post-close nurturing and beyond,
while integrating key partnerships that are widely adopted across the industry. The First mobile app leverages
data science, machine learning and human interaction to help real estate professionals better leverage the value
of their personal network. Photofy + RE/MAX gives our agents an exclusive social marketing tool to
complement the variety of marketing tools we offer our agents.
• 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.
• 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. Representing the majority of our Marketing Funds activities, 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 well-known 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 franchisees and their agents fund nearly all of the advertising, marketing and promotion supporting the
RE/MAX brand, which, in the U.S. and Canada, occurs primarily on two levels:
• Marketing Fund Regional, Pan-Regional and Local Marketing Campaigns. Funds are collected from
franchisees by our Marketing Funds entities in Company-owned Regions to support both regional and
pan-regional marketing campaigns to build brand awareness and to support the Company’s agent and
broker technology. The use of the fund balances is restricted by the terms of our franchise agreements.
Independent Regions may contribute to national or pan-regional creative and/or media campaigns to
achieve economies of scale in the purchase of advertising but are generally responsible for any
regional advertising in their respective areas.
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• Agent Sponsored 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.
RE/MAX “Growth Engine.” The RE/MAX Growth Engine is a virtuous circle whereby all of the key stakeholders in
our franchise network—RE/MAX, our franchisees, agents and consumers—benefit from mutual investment and
participation in the RE/MAX network or, as we say in RE/MAX, “Everybody wins.” By building our leading brand
around an agent-centric model, we believe we are able to attract and retain highly productive agents and motivated
franchisees. As a result, our agents and franchisees help to further enhance our brand and market share, expand our
franchise network, and ultimately grow our revenue, as illustrated below:
The RE/MAX Growth Engine leads to the following unique benefits for our franchisees and agents and RE/MAX:
RE/MAX Franchisee and Agent Benefits
• Affiliation with the best brand in the real estate industry
RE/MAX Benefits
• Network effect drives brand awareness
• Entrepreneurial culture
• Franchise fee structure provides recurring revenue
streams
• High agent commission split, low franchise fees and
highly productive agents
• Franchise model—highly profitable with low capital
• Access to our technology and tools
• Comprehensive, award-winning training programs
requirements—leads to strong cash flow
generation and high margins
RE/MAX Four-Tier Franchise Structure. RE/MAX is a 100% franchised business, with all of the RE/MAX branded
brokerage office locations being operated by franchisees. We franchise directly in 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 agents who represent real estate buyers and sellers. 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”), pursuant to
which those Independent Regions have the exclusive right to sell franchises in those regions. We have pursued a strategy
to acquire those regional franchise rights from Independent Regions in the U.S. and Canada.
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The following depicts our franchise structure and the location of our Company-owned versus Independent Regions:
Tier
Description
Services
Franchisor
(RE/MAX, LLC)
Owns the right to the RE/MAX brand and sells franchises and
franchising rights.
• Brand
• Technology
• Marketing
• Training & tools
Independent
Regional
Franchise
Owner
Franchisee
(Broker-Owner)
Owns rights to sell brokerage franchises in a specified region.
Typically, 20-year agreement with up to three 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.
• Local Services
• Regional Advertising
• Franchise Sales
In Company-owned Regions in the U.S.
and Canada, RE/MAX, LLC performs
these services.
• Office Infrastructure
• Sales Tools / Management
• Development & Coaching
• Broker of Record
• Represents real estate buyer or seller
• Typically sets own commission rate
Agent
Branded independent contractors who operate out of local
franchise brokerage offices.
Company-owned
Independent
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In general, the franchisees (or broker-owners) do not receive an exclusive territory in the U.S. 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.
The Motto Mortgage Franchise Offering. Through our Motto business, we are a mortgage brokerage franchisor, not a
lender or mortgage brokerage. Our franchisees are brokers, not lenders, and so neither we nor our franchisees fund or
service any loans. As a franchisor, we help our Motto franchisees establish independent mortgage brokerage companies,
with a model designed to comply with complex regulations, essentially providing a "mortgage brokerage in a box". This
model not only creates an ancillary business opportunity for current real estate brokerage firms, but also offers
opportunities for mortgage professionals seeking to open their own businesses and other independent investors interested
in financial services. The Motto Mortgage model offers value to our franchisees by offering:
Setup Guidance. We guide owners through every step of the setup process.
•
• Compliance, Training, and Support. We provide robust compliance support, including examination assistance
and a system built with transparency in mind. To help each franchise owner, we provide support structures that
allow them to spend their time getting more business.
• Access to multiple lenders. Motto Mortgage franchisees work with a pre-vetted group of wholesale lenders to
streamline the shopping process and to provide customers with competitive choices.
• Technology. We’ve seamlessly integrated industry leading systems into one, time-saving technological
ecosystem including best in class mortgage origination, CRM and marketing platforms.
• Franchising Expertise. As a member of a family of companies with over 45 years of franchising experience, we
provide best practices to franchisees.
Our Motto Mortgage brokerage franchisor, Motto Franchising, LLC, offers seven-year agreements with franchisees.
Motto sells franchises directly throughout the U.S. as there are no regional franchise rights in the Motto system. Our
customers are both RE/MAX and non-RE/MAX real estate brokers, real estate professionals and other investors seeking
access to the mortgage brokerage business. We are also in the early stages of offering supplemental franchising models
in which Motto offers brokers with an existing Motto franchise the ability to expand their physical and virtual presence
for a reduced contractual fee (aka “branchise”). The aim of these new models is to give franchisees the flexibility to
expand their business to places where it would not have been feasible to support a full additional franchise while keeping
offices compliant with state branch regulations. These alternative models are not included in our count of open Motto
offices. There are not presently any other national mortgage brokerage franchisors in the U.S.
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 RE/MAX and Motto franchisees, RE/MAX Independent Region franchise
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owners and RE/MAX agents. This combination helps us drive significant operating leverage through incremental
revenue growth, yielding healthy margins and significant cash flow.
(1) Revenue (less Marketing Funds fees) and Adjusted EBITDA are non-GAAP measures of financial performance that differ from
U.S. Generally Accepted Accounting Principles. Revenue (less Marketing Fund fees) is calculated directly from our consolidated
financial statements as Total revenue less Marketing Funds Fees. 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.
(2) Excludes adjustments attributable to the non-controlling interest. See "Corporate Structure and Ownership” below.
Revenue Streams.
Holdings. The chart below illustrates our revenue streams:
Holdings Revenue Streams as Percentage of 2019 Total Revenue*
*Excluding Marketing Funds
RE/MAX
The amount of the various RE/MAX fee types will vary significantly depending on whether coming from Company-
owned Regions, Independent Regions, or Global Regions, with the greatest amounts in Company-owned Regions. See
discussion of revenue per agent below.
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Continuing Franchise Fees. Continuing franchise fees are fixed contractual fees paid monthly by regional franchise
owners in Independent Regions or franchisees in Company-owned Regions based on the number of RE/MAX agents in
the respective franchised region or office or paid by Motto franchisees based on the number of offices open.
Annual Dues. Annual dues are a fixed membership fee paid annually by RE/MAX agents directly to us to be a part of the
RE/MAX network and to use the RE/MAX brand. Annual dues are a flat fee per agent.
Broker Fees. Broker fees are assessed against real estate commissions paid by customers when a RE/MAX agent sells a
home. Generally, the amount paid is 1% of the total commission on the transaction, although the percentage can vary
based on the specific terms of the broker fee agreement and in certain locations (mainly Canada and Texas) is capped at
a certain level of commissions, and in Independent Regions in Canada is not charged. 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. Additionally, agents in Company-owned Regions existing
prior to 2004, the year we began assessing broker fees, are generally “grandfathered” and continue to be exempt from
paying a broker fee. As of December 31, 2019, grandfathered agents represented approximately 17% of total agents in
U.S. Company-owned Regions. We expect that over time, exempt agents will be replaced by new agents who will pay
broker fees, which will have a positive impact on our broker fee revenue independent of changes in agent count, sales
volume and home sale prices. Motto franchisees do not pay any fees based on the number or dollar value of loans
brokered.
Franchise Sales and Other Revenue. Franchise sales and other revenue primarily consists of:
• Franchise Sales. Revenue from sales and renewals of individual franchises in RE/MAX Company-owned
Regions, Independent Regions, 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. The
franchise sale initial fees and commissions related to franchise sales are recognized over the contractual term of
the franchise agreement.
• Other Revenue. Revenue from (a) preferred marketing arrangements and approved supplier programs with such
revenue being either a flat fee or a percentage of revenue from products and services sold to RE/MAX agents),
(b) event-based revenue from training and conventions, including our RE/MAX annual convention, (c) revenue
from booj’s legacy business of supplying websites and other technology to independent real estate brokerages
and (d) technology subscription revenue such as for the First app.
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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. 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 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 2019, the average annual revenue per agent was as follows:
(1) Annual dues are currently a flat fee of US$410/CA$410 per agent annually for our U.S. and Canadian agents. The average per
agent for the year ended December 31, 2019 in both Independent Regions and Company-owned Regions reflects the impact of
foreign currency movements related to revenue received from Canadian agents. The ratio of Canadian agents to U.S. agents in
Independent Regions has increased as a result of U.S. Independent Region acquisitions.
Motto. Our Motto revenue is derived from continuing franchise fees and franchise sales.
• Continuing Franchise Fees. Motto continuing franchise fees are fixed contractual fees paid monthly by Motto
franchisees. The monthly fees paid by the brokers are initially discounted and take approximately 12 to 14
months after the sale of a Motto franchise for a franchisee to ramp up to paying a full set of monthly fees.
Motto franchisees do not pay any fees based on the number or dollar value of loans brokered.
• Franchise Sales. Revenue from sales and renewals of individual franchises. The franchise sale initial fees and
commissions related to franchise sales are recognized over the contractual term of the franchise agreement.
Value Creation and Growth Strategy
As a franchisor, we generate favorable margins and healthy amounts of cash flow, which facilitates our value creation
and growth strategy. As a leading franchisor in the residential real estate industry in the U.S., Canada and globally, we
create shareholder value by:
a) growing organically by building on our network of over 8,000 RE/MAX franchisees and 130,000 agents and
our network of over 100 open Motto mortgage brokerage franchises;
b) catalyzing growth by reacquiring regional RE/MAX franchise rights and acquiring other businesses
complementary to our RE/MAX and Motto franchises; and
c)
returning capital to shareholders.
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Organic Growth. We believe we have multiple opportunities to grow organically, including principally through: a)
RE/MAX agent count growth in the U.S. and Canada; b) RE/MAX and Motto franchise sales; c) organic growth from
global regions; d) pricing; and e) increases in agent productivity or higher home prices. Other potential organic growth
opportunities include monetizing our technology offerings and developing our approved supplier relationships to drive
additional revenue.
RE/MAX Agent Count Growth. With respect to RE/MAX agent count growth, we experienced agent losses during the
downturn, but we returned to a period of net global agent growth in 2012 and our total year-over-year growth in agent
count continued from 2013 through 2019.
RE/MAX Agent Count
Number of Agents at Quarter-End (1)
(1) Agents that converted from an Independent Region to a Company-owned Region are moved from the Independent Region agent
count to the Company-owned Region agent count during the quarter of the acquisition.
As shown in the following table, during the second half of 2018 our agent count growth in U.S. decelerated as U.S.
existing home sales decelerated, a correlation we have seen previously. This deceleration poses challenges to organic
growth from agent count which we have responded to with recruiting initiatives, including temporary fee waivers among
other things, that improved the trend in the fourth quarter of 2019.
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RE/MAX Agent Count Year-Over-Year Growth Rate by Geography
Contemporaneous with an abrupt decline in existing U.S. home sales in late 2018, we experienced a decline in our U.S.
agent count from the fourth quarter of 2018 through the third quarter of 2019. To reinvigorate U.S. agent growth, we
introduced several recruitment programs including some that incentivized recruitment through temporary waivers of fees
for new agents. We have several initiatives designed to improve the value proposition offered to both franchisees and
agents, which we believe will help recruiting and retention. Two key initiatives in 2020 are:
• Technology. We have introduced the powerful booj Platform, which is a custom-built, integrated platform with
products that interact and evolve with one another. With Customer Relationship Management (“CRM”) at the
core of this ecosystem, the booj Platform is a holistic real estate technology solution that allows agents to be
more strategic in their interactions with current transactions and new potential business, ultimately improving
our agents’ productivity. Currently, the platform is rolled out to U.S. Company-owned Regions and beginning
in 2020, we plan to offer the platform to Canada and participating U.S. Independent Regions, with the ultimate
plan to offer the booj Platform throughout our global network. As we continue to roll out the booj Platform,
successful adoption and training of our brokers and agents are key priorities in 2020. In addition, we will
continue to focus on enhancing and investing in the booj technology and evaluating complementary technology
through partnerships or smaller acquisitions. Providing the best online and offline experience for RE/MAX and
Motto affiliates and consumers is one of our primary strategic technology goals and we expect to continue to
invest meaningfully in technology as we seek to enhance our overall value proposition, as with the recent
acquisition of First.
• Agent Count Growth and Retention. We have increased our focus on the recruiting and retention of our agents
by partnering with our franchise owners. In late 2019, we launched an incentive-based growth campaign that
focused on maintaining and recruiting new agents. This campaign reinvigorated recruiting efforts within the
network and was well received as the overall participation of franchise owners in the campaign exceeded our
expectations. Heading into 2020, we will continue to expand our recruiting initiatives and will incorporate other
direct contact opportunities (such as the RE/MAX annual convention, speaking tours, and other company
events) with various contact points throughout 2020.
RE/MAX and Motto Franchise Sales. We intend to continue adding franchises in new and existing markets, and as a
result, increase our global market share and brand awareness. Each incremental franchise 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 through a range of new and existing programs and tools.
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RE/MAX Office Franchise Sales
Number of Motto Franchises Sold*
*only includes full physical Motto offices; excludes virtual offices and branchises
Organic Growth from Global Regions. We have a growing global presence with our agent count outside the U.S. and
Canada growing almost 16% in 2019 and 33% over the past two years. Over the last two decades, the size of the
RE/MAX network outside of the U.S. and Canada has grown to represent approximately a third of total RE/MAX agent
count. We believe offering the booj Platform internationally is another growth opportunity we plan to take advantage of.
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:
22
RE/MAX Agents by Geography
As of Year-end 2019
RE/MAX Revenue by Geography (a)
Percent of 2019 Revenue
(a) Excludes revenues from the Marketing Funds, Motto and booj.
Pricing. Given the low fixed infrastructure cost of our RE/MAX franchise model, modest increases in aggregate fees per
agent should positively affect our profitability. We may occasionally increase our aggregate fees per agent in our
Company-owned Regions as we enhance the value we offer to our network. 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. Following are the annualized average price increases for the
previous five years, reflected in the year in which the increase was effective.
Continuing Franchise Fees
Company-owned Regions - U.S. . . . . . . . . . . .
Company-owned Regions - Canada . . . . . . . .
Annual Dues
Company-owned Regions - U.S. . . . . . . . . . . .
Company-owned Regions - Canada . . . . . . . .
2015
2016
2017
2018
2019
-
-
-
-
3.9%
1.9%
-
-
-
1.9%
2.5%
2.5%
-
-
-
-
-
-
-
-
Growth Catalysts through Acquisitions. We intend to continue to pursue acquisitions 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 or support our core competencies in franchising and real estate and are complementary to our RE/MAX and
Motto businesses.
Independent Region Acquisitions. The acquisition of an Independent Region 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
acquiring regional franchise rights, we can capture 100% of these fees and substantially increase the average revenue per
agent for agents in the acquired region, which, as a result of our low fixed-cost structure, further increases our overall
margins. In addition, we believe we can establish operational efficiencies and improvements in financial performance of
an acquired region by leveraging our existing infrastructure and experience.
23
Flow through Independent Regions
Other Acquisitions. 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 and their agents in our existing businesses, such as
our recent acquisition of First. We may consider strategic acquisitions to compliment the functionality of the booj
Platform and enhance the value proposition.
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 the completion of our first full fiscal quarter as a publicly traded
company, or April of 2014. We have annually increased our quarterly dividends since then, as we have deemed
appropriate. On February 19, 2020, our Board of Directors announced a quarterly dividend of $0.22 per share.
Quarterly Dividends
Our disciplined approach to allocating capital allows us to return capital to shareholders while investing to drive future
organic growth and catalyzing growth through acquisitions.
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Competition
RE/MAX. The residential real estate brokerage business is fragmented and highly competitive. We compete against
many different types of competitors - traditional real estate brokerages; non-traditional real estate brokerages, including
some that offer deeply discounted commissions to consumers, and other newer entrants, including iBuyers. We compete
in different ways for franchisees, for agents, and for consumers.
The majority of brokerages are independent, with the best-known being regional players. At the individual office level,
oftentimes our most formidable competition is that of a local, independent brokerage. Brokerages affiliated with
franchises tend to be larger, on average, than independents and are part of a national network. Our largest national
competitors in the U.S. and Canada include the brands operated by Realogy Holdings Corp. (including Century 21,
Coldwell Banker, ERA, Sotheby’s and Better Homes and Gardens), Berkshire Hathaway Home Services, Keller
Williams Realty, Inc. and Royal LePage. Our franchisees also compete to attract and retain agents against real estate
franchisors which offer 100% commissions and low fees to agents. These competitors include HomeSmart and Realty
ONE Group.
We also compete against non-traditional real estate brokerages in the U.S. and Canada such as Redfin that offer deeply
discounted commissions to consumers. Even among competitors with traditional models, there are variations such as the
“hybrid” classification of Compass (a national bricks-and-mortar brokerage focusing on technology and funded by
venture capital), and the virtual brokerage (no brokerage offices) platform of eXp Realty.
Our efforts to target consumers and connect them with a RE/MAX agent via our websites also face competition from
major real estate portals, such as Zillow and Realtor.com.
We also compete for home sales against newer entrants, often referred to as iBuyers, which offer to buy homes directly
from homeowners at below-market rates in exchange for speed and convenience, and then resell them shortly thereafter
at market prices. Our largest national competitors in the U.S. in this category include Opendoor, Offerpad, Redfin and
Zillow. Some traditional brokerages have begun to adapt to iBuyers by either partnering their agents with an iBuyer
directly or by launching their own iBuyer program. Agents most often interact with iBuyers by evaluating iBuyer offers
for home sellers (comparing to what the seller might receive by selling their home on the MLS), referring home sellers to
an iBuyer for a referral fee or listing homes that are owned by iBuyers.
Likewise, the support services we provide to RE/MAX franchisees and agents also face competition from various
providers of training, back office management, marketing, social integration 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.
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 number and quality of the franchisee’s independent agents and the presence and market span of the
franchisee’s offices. A franchisee’s success may also be affected by general, regional and local housing conditions, as
well as overall economic conditions.
Motto. Motto 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. While there are no national
mortgage brokerage franchisors in the United States at the present time other than Motto, 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
25
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.
Intellectual Property
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 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 are the registered holder of a variety of domain names
that include “remax,” “motto,” and similar variations.
Corporate Structure and Ownership
Holdings is a holding company incorporated in Delaware and its only business is to act as the sole manager of RMCO,
LLC, (“RMCO”). In that capacity, Holdings operates and controls all of the business and affairs of RMCO. RMCO is a
holding company that is the direct or indirect parent of all of our operating businesses, including RE/MAX, LLC and
Motto Franchising, LLC. As of December 31, 2019, Holdings owns 58.7% of the common units in RMCO, while RIHI,
Inc. (“RIHI”) owns the remaining 41.3% of common units in RMCO. RIHI, Inc. is majority owned and controlled by
David Liniger, our Chairman and Co-Founder, and by Gail Liniger, our Vice Chair and Co-Founder.
The diagram below depicts our organizational structure:
The holders of Holdings Class A common stock collectively own 100% of the economic interests in Holdings, while
RIHI owns 100% of the outstanding shares of Holdings Class B common stock.
On October 7, 2018, pursuant to the terms of the Company’s Certificate of Incorporation, RIHI lost its previous effective
control of a majority of the voting power of Holdings common stock. RIHI owns all of Holdings’ Class B common stock
which, prior to October 7, 2018, entitled RIHI to a number of votes on matters presented to Holdings stockholders equal
to two times the number of RMCO common units that RIHI held. Effective October 7, 2018, the voting power of Class B
common stock was reduced to equal the number of RMCO common units held, and therefore RIHI lost the controlling
vote of Holdings. As a result of this change in the voting rights of the Class B common stock, RIHI no longer controls a
majority of the voting power of Holdings’ common stock, and Holdings no longer constitutes a “controlled company”
26
under the corporate governance standards of the New York Stock Exchange (the “NYSE”). RIHI remains a significant
stockholder of the Company, and through its ownership of the Class B common stock, holds approximately 41.3% of the
voting power of the Company’s stock. Mr. Liniger also owns Class A common stock with an additional 1.2% of the
voting power of the Company’s stock.
Holdings ownership of RMCO and Tax Receivable Agreements
Holdings has twice acquired significant portions of the ownership in RMCO; first in October 2013 at the time of IPO
when Holdings acquired its initial 11.5 million common units of RMCO and, second, in November and December 2015
when it acquired 5.2 million additional common units. Holdings issued Class A common stock, which it exchanged for
these common units of RMCO. RIHI then sold the Class A common stock to the market.
When Holdings acquired common units in RMCO, it received a step-up in tax basis on the underlying assets held by
RMCO. The step-up is principally equivalent to the difference between (1) the fair value of the underlying assets on the
date of acquisition of the common units and (2) their tax basis in RMCO, multiplied by the percentage of units acquired.
The majority of the step-up in basis relates to intangible assets, primarily franchise agreements and goodwill, and the
step-up is often substantial. These assets are amortizable under IRS rules and result in deductions on our tax return for
many years and, consequently, Holdings receives a future tax benefit. These future benefits are reflected within deferred
tax assets on our consolidated balance sheets.
If Holdings acquires additional common units of RMCO from RIHI, the percentage of Holdings’ ownership of RMCO
will increase, and additional deferred tax assets will be created as additional tax basis step-ups occur.
In connection with the initial sale of RMCO common units in October 2013, Holdings entered into Tax Receivable
Agreements (“TRAs”) which require that Holdings make annual payments to the TRA holders equivalent to 85% of any
tax benefits realized on each year’s tax return from the additional tax deductions arising from the step-up in tax basis.
We believe 85% is common for tax receivable agreements. The TRA holders as of December 31, 2019 are RIHI and
Parallaxes Rain Co-Investment, LLC (“Parallaxes”). TRA liabilities were established for the future cash obligations
expected to be paid under the TRAs and are not discounted. As of December 31, 2019, this liability was $37.2 million.
Similar to the deferred tax assets, the TRA liabilities would increase if Holdings acquires additional common units of
RMCO from RIHI.
Employees
As of December 31, 2019, we had approximately 500 employees. Our franchisees are independent businesses. Their
employees and independent contractor sales agents are therefore not included in our employee count. None of our
employees are represented by a union.
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 disclosures 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,
27
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 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.
28
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 fluctuations in short-term and long-term interest rates, inflation,
fluctuations in debt and equity capital markets, wage and job growth, levels of unemployment, home affordability, down
payment requirements, inventory levels, consumer confidence, demographic changes, local or regional economic
conditions and the general condition of the U.S., Canadian and global economies. 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. The residential real estate market could also be negatively impacted by acts of nature, such as fires,
hurricanes, earthquakes, and such events may lead us to waive fees in certain impacted areas. Climate change may
negatively affect the residential real estate market. Changes in local, state and federal laws or regulations that affect
residential real estate transactions or encourage ownership, including but not limited to changes in tax law in late 2017
that limit the deductibility of certain mortgage interest expenses and increase the standard deduction (thereby potentially
decreasing the tax benefits of homeownership) and potential future tax law changes, such as further limiting or
eliminating the deductibility of certain mortgage interest expense, the application of the alternative minimum tax, and
deductibility of real property taxes, could impact the residential real estate market.
Any of the above factors, and other factors discussed in this Annual Report on Form 10-K 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. This could lead to a decrease of the number of agents or
franchises in our networks and reduce the fees we receive from our franchisees and agents, which, in turn, could
adversely affect our financial condition and results of operations.
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.
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 was designed to enforce 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 perceived incentives to originate higher cost mortgages, requiring additional disclosures to potential
borrowers and restricting the fees that mortgage originators may collect. Rules implementing many of these changes
protect creditors from certain liabilities for loans that meet the requirements for “qualified mortgages.” (“QM loans”).
The rules placed several restrictions on qualified mortgages, including caps on certain closing costs as well as limits on
debt to income (“DTI”) ratios for qualified mortgages.
Certain potential regulatory changes such as the termination by the CFPB of a regulatory exemption known as the “QM
patch” for loans backed by Fannie Mae or Freddie Mac, the requirement to implement a new uniform residential loan
application (“URLA”) which may increase Equal Credit Opportunity Act (“ECOA”) and other operational risks, and
more activist supervision and regulation of housing finance at the state level 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. Changes in the Federal Reserve Board’s policies are beyond our
control, are difficult to predict, and could restrict the availability of financing on reasonable terms at favorable interest
29
rates for homebuyers, which could have a material adverse effect on our business, results of operations and financial
condition.
In addition, a reduction in government support for home financing, including the possible winding down or privatization
of GSEs could further reduce the availability of financing for homebuyers in the U.S. residential real estate market. No
consensus has emerged in Congress concerning potential reforms relating to Fannie Mae and Freddie Mac and a
potential transition to alternative structures for the secondary market, 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 have tightened their underwriting standards since the real estate downturn, and many
subprime and other alternative mortgage products are no longer as common in the marketplace. While some loosening of
credit standards and a resurgence of alternative mortgage products, including non-qualified mortgages has occurred, if
these mortgage loans continue to be somewhat more 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.
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, particularly those offering differentiated technology. 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.
We may fail to continue our booj Platform rollout as expected or its effectiveness in attracting & retaining agents may
be more limited than anticipated.
During the first quarter of 2018, we acquired booj, a real estate technology company, primarily to develop and deliver
core technology solutions designed for RE/MAX affiliates. We anticipate that this new technology will improve the
RE/MAX value proposition and ultimately assist in attracting and retaining agents and franchisees. The technology
platform developed by booj has been delivered to our U.S. Company-owned Regions in 2019. If the booj Platform is (a)
delivered to additional regions later than expected, or (b) does not create a distinct competitive edge for franchisees and
agents, or (c) has a poorer than expected adoption rate by our franchisees and agents, the introduction of such platforms
may not be effective in attracting and retaining agents and franchisees.
We may be unable to acquire 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 continue to pursue a growth strategy of reacquiring select RE/MAX independent regional franchises in the U.S. and
Canada to support our growth. The acquisition of a regional franchise enables us to focus on a consistent delivery of the
RE/MAX value proposition, increases our revenue and provides an opportunity for us to enhance 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, complete and integrate these transactions. The number of remaining
30
independent regions in the United States and Canada is limited and therefore 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 acquired 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;
limits on growth due to exclusive territories granted to current franchisees by former region owners;
the failure to maintain important business relationships and contracts of the selling region;
legal or regulatory challenges or litigation post-acquisition, which could result in significant costs;
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.
The failure to attract and retain highly qualified franchisees could compromise our ability to expand the RE/MAX
and Motto networks.
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 and loan originators. If our franchisees fail to attract
and retain agents and loan originators, 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 their agents and loan originators is open and
strong, the nature of such relationships can give rise to conflict. For example, franchisees or agents/loan originators may
become dissatisfied with the amount of contractual fees and dues owed under franchise or other applicable arrangements,
particularly in the event that we increase fees and dues. They may disagree with certain network-wide policies and
procedures, including policies dictating brand standards or affecting their marketing efforts. They may also be
disappointed with our marketing campaigns. 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 and loan originators.
Our financial results are heavily dependent upon the number of RE/MAX agents and Motto offices in our global
networks. The majority of our revenue is derived from recurring dues paid by our franchisee’s agents and contractual
fees paid by our franchisees or regional franchise owners based on the number of agents or offices within their respective
networks. Competition for real estate agents and loan originators is fierce. Our competitors may attempt to recruit the
agents and loan originators of our franchisees. If our franchisees are not able to attract and retain agents and loan
originators (which is not within our direct control), our agent count and revenue may decline.
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Competition in the residential real estate franchising business is intense, and we may be unable to grow our business
organically, including increasing our agent count, expanding our network of franchises and their 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. There has recently been substantial investment in real estate technology, including
companies aiming to use innovative technology to disrupt the real estate market. 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 franchisees fees that are lower than those we charge, or
that are more attractive in particular markets. Further, some of our largest competitors may have greater financial
resources and larger budgets than we do to invest in technology 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. We may have to offer incentives to encourage franchisees to recruit new agents. In addition, even
with these measures, franchisees may choose not to renew their franchise, or may not recruit new agents.
As a result of this competition, we may face many challenges in adding franchises and attracting agents in new and
existing markets to expand our network, as well as other challenges such as:
•
•
•
•
•
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.
The real estate market may be negatively impacted by industry changes as the result of certain class action lawsuits.
In March and April of 2019, three putative class action complaints were filed against National Association of Realtors
(“NAR”), Realogy Holdings Corp., HomeServices of America, Inc, RE/MAX Holdings, and Keller Williams Realty,
Inc. The first was filed on March 6, 2019, by plaintiff Christopher Moehrl in the Northern District of Illinois. The second
was filed on April 15, 2019, by plaintiff Sawbill Strategies, Inc., also in the Northern District of Illinois. These two
actions have now been consolidated. A third action was filed by plaintiffs Joshua Sitzer and four other individual
plaintiffs in the Western District of Missouri. The complaints (collectively “Moehrl/Sitzer suits”) make substantially
similar allegations and seek substantially similar relief. The plaintiffs allege that a NAR rule requires brokers to make a
blanket, non-negotiable offer of buyer broker compensation when listing a property, resulting in inflated costs to sellers
in violation of federal antitrust law. They further allege that certain defendants use their agreements with franchisees to
require adherence to the NAR rule in violation of federal antitrust law. Amended complaints add allegations regarding
buyer steering and non-disclosure of buyer-broker compensation to the buyer. These lawsuits have also prompted
discussion of regulatory changes by various governments or rules established by local or state real estate boards or
multiple listing services. The resolution of these complaints and/or such regulatory changes may require changes to our
or our brokers business model, including changes in broker compensation. This could reduce the fees we receive from
our franchisees, which, in turn, could adversely affect our financial condition and results of operations.
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A significant adoption by consumers of alternatives to full-service agents or loan originators could have a material
adverse effect on our business, prospects and results of operations.
A significant increase in consumer use of technology that eliminates or minimizes the role of the real estate agent or
mortgage loan originator could have a materially adverse effect on our business, prospects and results of operations.
These options include direct-buyer companies (also called iBuyers) that purchase directly from the seller at below-
market rates in exchange for speed and convenience, and then resell them shortly thereafter at market prices, and
discounters who reduce the role of the agent in order to offer sellers a low commission or a flat fee while giving rebates
to buyers. How consumers want to buy or sell houses and finance their purchase will determine if these models reduce or
replace the long-standing preference for full-service agents and loan originators.
Our financial results are affected directly by the operating results of franchisees and their agents and loan
originators, over whom we do not have direct control.
Our financial results depend upon the operational and financial success of our franchisees and, for RE/MAX, their agents
and for Motto Mortgage, their loan originators. We have limited control over these parties, particularly in Independent
Regions where we exercise less control over franchisees than in Company-owned Regions. Our franchisees operate in
intensely competitive markets and we have little visibility into the results of their operations. If our franchisees’ financial
results worsen, our revenue may decline. We terminate franchisees for non-payment, non-reporting and other non-
compliance with their franchise agreements and we may terminate franchisees more frequently in the future.
Our franchisees and their agents or loan originators could take actions that could harm our business.
Our franchisees are independent businesses and the agents and loan originators who work within these brokerages are
independent contractors or employees of the brokerages and, as such, are not our employees, and we do not exercise
control over their day-to-day operations. Franchisees may not operate real estate and mortgage brokerage businesses in a
manner consistent with industry standards, or may not attract and retain qualified independent contractor agents and loan
originators. If franchisees and agents and loan originators were to provide diminished quality of service to customers,
engage in fraud, misconduct, 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. Any such incidents 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 and loan originators 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 and loan office count and, ultimately, lower revenues, which in turn would materially and adversely affect
our business and results of operations.
An organized franchisee association could pose risks to our ability to set the terms of our franchise agreements and our
pricing. A group of broker/owners from around the country have founded and committed to the continued success and
funding of the RMX Association (RMXA), an independent association of RE/MAX franchisees, whose goal is to work
in partnership with RE/MAX, LLC and each other to improve, enhance and grow the brand into the future and protect
assets and grow profitability as franchisees.
The failure of Independent Region owners to successfully develop or expand within their respective regions could
adversely impact our revenue and earnings.
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 acquire select regional
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franchise rights 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 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.
The real estate business 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 are subject to requirements governing the licensing and
conduct of real estate brokerage and brokerage-related businesses in the jurisdictions in which they do 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.
There is a risk that we and our franchisees 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.
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;
the European Union’s General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act,
and various other 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;
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consumer fraud statutes.
Our or our franchisees’ failure to comply with any of the foregoing laws and regulations may result in 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.
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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 RE/MAX franchisees self-report their agent counts and agent commissions which drives the fees due to
us, and we have limited tools to validate or verify these reports. 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 franchise agreements, franchisees, including independent regions, self-report (a) the number of agents and (b)
gross commissions and other statistics from home sale transactions. This data is used to determine our billings for
continuing franchise fees, annual dues and broker fees. We may have limited methods of validating the data and must
rely on reports submitted and our internal protocols for verifying the reasonableness of the data. If franchisees were to
underreport or erroneously report such data, even if unintentionally, we may not receive all of the revenues 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 franchisees were to underreport 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.
Attrition of legacy booj customers could have an adverse effect on our financial results.
The booj business we acquired in February 2018 continues to service legacy customers, unrelated to RE/MAX. Several
legacy customers have discontinued their relationship with booj, causing revenue to decrease. There is a risk that the
remaining legacy customers leave at a faster pace than anticipated resulting in an accelerating decline in revenue.
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, securities litigation including class actions and
shareholder derivative litigation, 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.
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. 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.
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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.
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 and Euro
to U.S. dollar exchange rates;
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;
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diminished ability to legally enforce our contractual rights in foreign countries;
• withholding and other taxes on remittances and other payments by subsidiaries; and
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changes in tax laws regarding taxation of foreign profits.
Our global operations outside Canada generally generate substantially lower average revenue per agent than our U.S. and
Canadian operations.
Our business depends on strong brands, 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.
RE/MAX is a strong brand that we believe has contributed significantly to the success of our business, and the Motto
brand is gaining recognition. Maintaining, protecting and enhancing the “RE/MAX” and Motto brands is critical to
growing our business. If we do not successfully build and maintain strong brands, our business could be materially
harmed.
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 in the world 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 market and hurt agent recruitment and franchise sales
as a result.
Inasmuch as our business is in part dependent on strong brands, our business may be subject to risks related to events
and circumstances that have a negative impact on our brands. If we are exposed to adverse publicity or events that do
damage to our brands and/or image, our business may suffer material adverse effects from the deterioration in our brand
and image.
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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 and our Motto trademarks as having
significant value and as being an important factor in the marketing of our brands. 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 brands. 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.
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.
Our business is heavily reliant on technology and product development 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, including those related to our recent technology acquisitions.
We rely on traffic to our websites, including our flagship websites, remax.com and mottomortgage.com, directed from
search engines. 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
websites, remax.com and mottomortgage.com through unpaid Internet search results on search engines. 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. 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.
Cyberattacks, security breaches and improper access to, disclosure or deletion of our data, personally identifiable
information we collect, or business records could harm our business, damage our reputation and cause losses.
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) employee error, malfeasance or otherwise. Of particular risk and focus in recent years is the
potential penetration of internal or outsourced systems by individuals seeking to disrupt operations or misappropriate
information (aka, cyberattacks). Cyberattacks, including the use of phishing and malware, continue to grow in
sophistication making it impossible for us to mitigate all of these risks. Any extended interruption of our systems or
exposure of sensitive data to third parties could cause significant damage to our business or our brand, for which our
business interruption insurance may be insufficient to compensate us for losses that may occur.
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In addition, we rely on the collection and use of personally identifiable information from franchisees, agents and
consumers to conduct our business and in certain instances such data may include social security numbers, payment card
numbers, or customer financial information. Global privacy legislation (including the recently enacted GDPR regulations
in the European Union), enforcement and policy activity are rapidly expanding and creating a complex compliance
environment. Changes in these laws may limit our data access, use, and disclosure, and may require increased
expenditures by us or may dictate that we not offer certain types of services. For example, California recently enacted the
California Consumer Privacy Act, which became effective on January 1, 2020 and requires covered businesses to, among
other things, provide disclosures to California consumers regarding the collection, use and disclosure of such consumers’
personal information and afford such consumers new rights with respect to their personal information, including the right
to opt out of certain sales of personal information. We believe that further increased regulation in additional jurisdictions
is likely in the area of data privacy. Should we misuse or improperly store the personally identifiable information that we
collect, or should we be the victim of a cyberattack that results in improper access to such personally identifiable
information, we may be subject to legal claims and regulatory scrutiny. Any legal claims, government action or damage
to our reputation due to actions, or the perception that we are taking actions, inconsistent with the terms of our privacy
statement, consumer expectations, or privacy-related or data protection laws and regulations, could expose us to liability
and adversely impact our business and results of operations.
Any disruption to our websites or lead generation tools could harm our business.
We are vulnerable to certain additional risks and uncertainties associated with websites, which include our lead referral
system, remax.com, global.remax.com, theremaxcollection.com, remaxcommercial.com and mottomortgage.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 only have two primary facilities, one of which serves as our corporate headquarters. If we encounter difficulties
associated with these facilities, we could face management issues that could have a material adverse effect on our
business operations.
We have two primary facilities both located in Denver, Colorado, where most of our employees are located. A
significant portion of our owned computer equipment, IT team focused on agent technology, and our management is
located in these facilities. 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 rely on third parties for certain important functions and technology. Any failures by those vendors 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, the Motto loan origination system, 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 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.
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We are relatively 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, which could have implications to the goodwill on our Consolidated Balance Sheet.
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. We continue to develop operating experience in the mortgage brokerage
industry. Our strategy hinges on our ability to recruit franchisees and help them recruit 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. The Motto Mortgage brand’s lack of brand recognition may hamper franchise sales efforts. 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.
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.
The discontinuation of London Interbank Offered Rate ("LIBOR") may adversely affect our borrowing costs.
The variable interest rate on our Senior Secured Credit Facility can be based on LIBOR at our option, and we have
chosen the LIBOR option on a regular basis. In 2017, the Chief Executive of the U.K. Financial Conduct Authority (the
“FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for
the calculation of LIBOR after 2021. The discontinuation of LIBOR as a reference rate may cause interest rates under
our current or future debt agreements to perform differently than in the past. The replacement with an alternative
reference rate may cause unanticipated consequences and our future borrowing costs may be adversely affected. At this
time, we are unable to predict what effect the discontinuance of LIBOR and the establishment of alternative reference
rates will have on our borrowing costs and results of operations.
Our operating results are subject to quarterly fluctuations due to home sales, 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 RE/MAX 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.
Expectations of the Company relating to environmental, social and governance factors may impose additional costs
and expose us to new risks.
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There is an increasing focus from certain investors, employees and other stakeholders concerning corporate
responsibility, specifically related to environmental, social and governance factors. Some investors may use these factors
to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating
to corporate responsibility are inadequate. Third-party providers of corporate responsibility ratings and reports on
companies have increased to meet growing investor demand for measurement of corporate responsibility performance.
The criteria by which companies’ corporate responsibility practices are assessed may change, which could result in
greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. If we elect not to or are
unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are
inadequate. We may face reputational damage in the event that our corporate responsibility procedures or standards do
not meet the standards set by various constituencies. Furthermore, if our competitors’ corporate responsibility
performance is perceived to be greater than ours, potential or current investors may elect to invest with our competitors
instead. In addition, in the event that we communicate certain initiatives and goals regarding environmental, social and
governance matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be
criticized for the scope of such initiatives or goals. If we fail to satisfy the expectations of investors, employees and other
stakeholders or our initiatives are not executed as planned, our reputation and financial results could be materially and
adversely affected.
Risks Related to Our Organizational Structure
RIHI has substantial influence over us including over decisions that require the approval of stockholders, and its
interest in our business may conflict with yours.
RIHI, a company controlled by David Liniger, our current Chairman and Co-Founder, and Gail Liniger, our Vice Chair
and Co-Founder, respectively, owns all of our outstanding Class B common stock. Although RIHI no longer controls a
majority of the voting power of RE/MAX Holdings’ common stock, RIHI remains a significant stockholder of the
Company and through its ownership of the Class B common stock holds approximately 41.3% of the voting power of the
Company’s stock. Mr. Liniger also owns Class A common stock with an additional 1.2% of the voting power of the
Company’s stock. Therefore, RIHI has the ability to significantly influence all matters submitted to a vote of our
stockholders.
In addition, 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, including whether and when we should terminate
the tax receivable agreements and accelerate our obligations thereunder. In addition, RIHI could have an interest in the
structuring of future transactions to take into consideration its tax or other considerations, even in situations where no
similar considerations are relevant to us.
Our tax receivable agreements require us to make cash payments based upon future tax benefits to which we may
become entitled. The amounts that we may be required to pay could be significant, may be accelerated in certain
circumstances and could significantly exceed the actual tax benefits that we ultimately realize.
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 Parallaxes Rain Co-Investment, LLC (“Parallaxes” 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 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
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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.
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.
Risks Related to Ownership of Our Class A Common Stock
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:
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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 our 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
41
•
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.
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. We also lease an office building in Denver, Colorado for our booj operations. The
lease consists of approximately 20,000 square feet and expires in February 2034.
ITEM 3. LEGAL PROCEEDINGS
As disclosed in Note 15 Commitments and Contingencies, from time to time we are involved in litigation, claims and
other proceedings relating to the conduct of our business, and the disclosures set forth in Note 15 relating to certain legal
matters is incorporated herein by reference. Such litigation and other proceedings may include, but are not limited to,
actions relating to intellectual property, commercial arrangements, franchising arrangements, brokerage disputes,
vicarious liability based upon conduct of individuals or entities outside of our control including franchisees and
independent agents, and employment law claims. Litigation and other disputes are inherently unpredictable and subject
to substantial uncertainties and unfavorable resolutions could occur. Often these cases raise complex factual and legal
issues, which are subject to risks and uncertainties and which could require significant time and resources from
management. Although we do not believe any currently pending litigation will have a material adverse effect on our
business, financial condition or operations, there are inherent uncertainties in litigation and other claims and regulatory
proceedings and such pending matters could result in unexpected expenses and liabilities and might materially adversely
affect our business, financial condition or operations, including our reputation.
ITEM 4. MINE SAFETY DISCLOSURES
None.
42
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “RMAX”. As of
February 20, 2020, we had 65 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.
4
For the years ended December 31, 2019 and 2018 we declared a $0.21 and $0.20 per share dividend for each quarter
during those calendar years, respectively. We intend to continue to pay a cash dividend on shares of Class A common
stock on a quarterly basis. However 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, 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. See Note 5, Earnings Per Share and Dividends to the consolidated financial statements included elsewhere
in this Annual Report on Form 10-K for further information.
Performance Graph
The following graph and table depict the total return to stockholders from December 31, 2013 through December 31,
2019, relative to the performance of the S&P 500 Index and S&P Homebuilders Select Industry Index. The graph
assumes that $100 was invested at the closing price on December 31, 2014 and that all dividends were reinvested.
The performance graph is not intended to be indicative of future performance. The performance graph 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.
4
43
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, 2019, 2018
and 2017, and the consolidated balance sheets data as of December 31, 2019 and 2018 have been derived from our
audited consolidated financial statements (“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, 2016 and 2015 and the selected
consolidated balance sheets data as of December 31, 2017, 2016 and 2015 have been derived from our audited financial
statements not included in this Annual Report on Form 10-K.
As of December 31, 2014, RE/MAX Holdings, Inc. (“Holdings”) owned 39.9% of the common membership units in
RMCO, LLC and its consolidated subsidiaries (“RMCO”), and as of December 31, 2019, Holdings owns 58.7% of the
common membership units in RMCO. 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 5.2 million common units in RMCO during the
fourth quarter of 2015. Holdings’ only business is to act as the sole manager of RMCO and in that capacity, Holdings
operates and controls all of the business and affairs of RMCO.
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 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.
44
Total revenue:
Continuing franchise fees . . . . . . . . . . . . . . $
Annual dues . . . . . . . . . . . . . . . . . . . . . . . . .
Broker fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing Funds fees . . . . . . . . . . . . . . . . .
Franchise sales and other revenue . . . . . . .
Brokerage revenue . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling, operating and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing Funds expenses . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
Loss (gain) on sale or disposition of assets,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on reduction in tax receivable
agreement liability . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings Per Share Data:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other Data:
Agent count at period end (unaudited) . . . . . . . . .
Cash dividends declared per share of Class A
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2019
2018
2017
2016
2015 (1)
(in thousands, except per share amounts and agent data)
99,928 $ 101,104 $
35,409
45,990
72,299
28,667
—
282,293
35,894
46,871
—
28,757
—
212,626
93,694 $
33,767
43,801
—
22,452
—
193,714
81,197 $
32,653
37,209
—
24,471
112
175,642
73,750
31,758
32,334
—
25,468
13,558
176,868
118,890
72,299
22,323
120,179
—
20,678
106,946
—
20,512
88,037
—
16,094
91,561
—
15,124
342
63
660
178
(3,397)
—
213,854
68,439
(6,145)
134,775
77,851
(12,229)
1,446
109
—
—
(10,674)
57,765
(10,909)
46,856
(12,051)
676
(312)
—
—
(11,687)
66,164
(16,342)
49,822
(32,736)
95,382
98,332
(9,996)
352
174
—
—
(9,470)
88,862
(57,542)
31,320
—
104,309
71,333
—
103,288
73,580
(8,596)
160
(86)
(796)
—
(9,318)
62,015
(15,167)
46,848
(10,413)
178
(1,661)
(94)
1,215
(10,775)
62,805
(12,030)
50,775
21,816
22,939
21,221
24,627
34,363
25,040 $
26,883 $
10,099 $
22,221 $
16,412
1.41 $
1.40 $
1.52 $
1.51 $
0.57 $
0.57 $
1.26 $
1.26 $
1.30
1.28
130,889
124,280
119,041
111,915
104,826
0.84 $
0.80 $
0.72 $
0.60 $
2.00
(1) Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic
606), the new revenue recognition standard, retrospectively. Financial results for 2015 have not been recast and are
therefore not comparable.
45
Cash and cash equivalents . . . . . . . . . . . . . . . . $
Restricted cash (2) . . . . . . . . . . . . . . . . . . . . . . . .
Franchise agreements, net . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable pursuant to tax receivable agreements,
including current portion . . . . . . . . . . . . . . . . . .
Debt, including current portion . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . .
As of December 31,
2019
2018
2017
2016
2015 (1)
(in thousands)
83,001 $
20,600
87,670
159,038
542,352
59,974 $
—
103,157
150,684
428,373
50,807 $
—
119,349
135,213
413,934
57,609 $ 110,212
—
61,939
71,871
383,786
—
109,140
126,633
444,683
37,223
225,681
98,376
40,787
227,787
75,014
53,175
228,986
45,408
98,809
230,820
40,615
100,035
200,357
39,414
(1) Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic
606), the new revenue recognition standard, retrospectively. Financial results for 2015 have not been recast and
therefore are not comparable.
(2) Restricted cash is attributable to the Marketing Funds, which were acquired January 1, 2019. See Note 6,
Acquisitions to the accompanying consolidated financial statements for more information.
46
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
(“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 “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. (“Holdings”) and its consolidated subsidiaries (collectively,
the “Company,” “we,” “our” or “us”).
Financial and Operational Highlights – Year Ended December 31, 2019
(Compared to the year ended December 31, 2018 unless otherwise noted)
• Deployed the booj Platform to the majority of agents in U.S. Company-owned Regions
• Acquired First, a data science and machine learning company.
• Total agent count increased by 5.3% to 130,889 agents.
• U.S. and Canada combined agent count increased 0.3% to 84,688 agents.
• Total open Motto Mortgage offices increased to 111 offices.
• Revenue of $282.3 million, up 32.8% from the prior year. Excluding the acquisition of the Marketing Funds,
revenue decreased $2.6 million from the prior year.
• Net income attributable to RE/MAX Holdings, Inc. of $25.0 million.
• Adjusted EBITDA of $103.5 million and Adjusted EBITDA margin of 36.7%. Adjusted EBITDA margin
decreased from the prior year because of the acquisition of the Marketing Funds, which increased revenue, but
had no impact to Adjusted EBITDA.
As of December 31, 2019, we grew our total agent count 5.3% as compared to 2018, surpassing 130,000 agents for the
first time in our history, led by strong growth in our international markets. During 2019, our stable business model
delivered resilient revenue and margin performance despite the soft housing market that prevailed during the first part of
the year. Agent count in the combined U.S. and Canada markets were virtually flat at 0.3% growth from the prior year,
with improvement in the fourth quarter. Rejuvenating agent count growth in the U.S. has been and will continue to be a
top priority. Some of the more impactful forces on our U.S. agent count growth in the fourth quarter of 2019 included:
our enterprise-wide focus on growth, our ongoing technology transformation, improving housing market conditions and
perhaps most notably, the introduction of several recruiting initiatives including some that incentivized recruitment
through temporary waivers of fees for new agents. Motto continued to expand with 111 open franchises as of December
31, 2019, which is an increase of 42.3% since December 31, 2018. Revenue, excluding the Marketing Funds, declined
1.2% during 2019 as compared to the prior year period, driven by weak housing market conditions in the U.S. and parts
of Canada during the first part of the year, decreased average agent count in the U.S. and Canada owned regions and
attrition of some of booj’s legacy customers, offset by the expansion of Motto and healthy international agent growth.
Adjusted EBITDA decreased $0.8 million primarily due to higher bad debt expense, higher property tax expense,
additional training expenses for the launch of the booj technology platform and lower organic revenue, partially offset by
lower professional fees and severance costs.
We continued to invest in our value proposition and began introducing the powerful, fully integrated booj Platform that
has been custom-built for RE/MAX’s unique entrepreneurial culture in the third quarter of 2019 in our U.S. Company-
owned Regions, with additional functionality added in the fourth quarter. We deployed an enhanced consumer facing app
and www.remax.com experience in January 2020 and plan to continue to innovate and release ongoing updates to the
47
Platform in the future. Later in 2020, we plan to offer the booj Platform to participating U.S. Independent Regions and to
Canada. Ultimately, we plan to offer the booj Platform throughout our global network. We will continue to invest in
future growth opportunities, including those that diversify our revenue like the exciting First mobile app, which we
expect to be accretive in 2021 but to adversely impact Adjusted EBITDA in 2020 by $1.5 million to $2.5 million.
Financial and Operational Highlights – Year Ended December 31, 2018
(Compared to year ended December 31, 2017 unless otherwise noted)
• Total agent count increased by 4.4% to 124,280 agents.
• U.S. and Canada combined agent count increased 0.2% to 84,449 agents.
• Total open Motto Mortgage franchises more than doubled to 78 offices.
• Revenue increased 9.8% to $212.6 million.
• Net income attributable to RE/MAX Holdings, Inc. of $26.9 million.
• Adjusted EBITDA of $104.3 million and Adjusted EBITDA margin of 49.1%.
During 2018, we grew organic revenue 4.5% primarily due to agent count increases, Motto expansion, rising average
home prices, event-based revenue from our annual convention in the U.S. and a July 1, 2017 annual dues fee increase in
the U.S. and Canada. Our 2018 revenue growth was also impacted by having waived approximately $2.0 million of
continuing franchise fees and brokers fees in the prior year for hurricane-impacted associates. We grew our network
agent count 4.4% and our U.S. and Canadian combined agent count by 0.2%, and we sold 1,120 RE/MAX franchises
worldwide, including 285 franchises in the U.S. and Canada combined.
Expenses increased primarily due to increased investments in technology, costs to support booj’s legacy operations
assisting its external customers, severance and other payroll related expenses, and operating costs to support Motto’s
growth. These increases were partially offset by a $3.7 million loss recognized in the prior year related to subleasing a
portion of our corporate office building and costs of a litigation settlement. Interest expense also increased $2.1 million
due to rising interest rates.
We also focused on pursuing potential growth catalysts by acquiring booj, a real estate technology company, for a
purchase price of $26.3 million. With booj, we expect to deliver core technology solutions designed for and with
RE/MAX affiliates in 2019. We believe this new technology will make our highly productive agents even more efficient
and successful and help RE/MAX franchisees recruit and retain agents.
48
Selected Operating and Financial Highlights
For comparability purposes, the following table sets forth our agent count, Motto open offices, franchise sales and results
of operations for the periods presented in our audited financial statements included elsewhere in this Annual Report on
Form 10-K. The period-to-period comparison of agent count, Motto open offices, franchise sales and financial results is
not necessarily indicative of future performance.
Total agent count growth . . . . . . . . . . . . . . . . . . . . . . . .
5.3 %
4.4 %
6.4 %
2019
December 31,
2018
2017
Agent Count:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. and Canada Total . . . . . . . . . . . . . . . . . . . . . . . .
Outside U.S. and Canada . . . . . . . . . . . . . . . . . . . . . . . .
Network-wide agent count . . . . . . . . . . . . . . . . . . . . . . .
63,121
21,567
84,688
46,201
130,889
63,122
21,327
84,449
39,831
124,280
63,162
21,112
84,274
34,767
119,041
Motto open offices (2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
111
78
31
RE/MAX franchise sales (1) . . . . . . . . . . . . . . . . . . . . .
Motto franchise sales (2) . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2019
2018
2017
1,030
52
1,120
49
1,059
60
(1) Includes franchise sales in the U.S., Canada and global regions.
(2) Excludes virtual offices and branchises.
Year Ended December 31,
2019
2018
2017
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total selling, operating and administrative expenses . . $
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income attributable to RE/MAX Holdings, Inc. . . . $
Adjusted EBITDA (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjusted EBITDA margin (1) . . . . . . . . . . . . . . . . . . . . .
282,293
118,890
68,439
25,040
103,515
$
$
$
$
$
212,626
120,179
77,851
26,883
104,316
$
$
$
$
$
193,714
106,946
98,332
10,099
102,145
36.7 %
49.1 %
52.7 %
(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
U.S. generally accepted accounting principles (“U.S. GAAP”) measure for operating performance. Adjusted
EBITDA margin represents Adjusted EBITDA as a percentage of total revenue. Adjusted EBITDA margins
decreased considerably from the prior year because of the acquisition of the Marketing Funds, which increased
revenue significantly, but had no impact to Adjusted EBITDA.
49
Results of Operations
Year Ended December 31, 2019 vs. Year Ended December 31, 2018
Revenue
A summary of the components of our revenue is as follows (in thousands except percentages):
Revenue:
Year Ended
December 31,
Change
Favorable/(Unfavorable)
2019
2018
$
%
Continuing franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Annual dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing Funds fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise sales and other revenue . . . . . . . . . . . . . . . . . . . . .
(1,176)
(485)
(881)
72,299
(90)
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 282,293 $ 212,626 $ 69,667
99,928 $ 101,104 $
35,409
45,990
72,299
28,667
35,894
46,871
—
28,757
(1.2)%
(1.4)%
(1.9)%
n/m
(0.3)%
32.8 %
n/m – not meaningful
Consolidated revenue increased due to acquisitions of the Marketing Funds and having a full year of booj revenue due to
acquisition timing, which added $73.4 million, or 34.6%, partially offset by a decrease in organic revenue of $3.1
million, or 1.5% and foreign currency movements of $0.6 million, or 0.3%.
Continuing Franchise Fees
Revenue from continuing franchise fees decreased primarily due to agent count decreases in the U.S. and Company-
owned Regions in Canada during most of the year, partially offset by Motto expansion. While U.S. agent count was flat
year-over-year, it was down a large portion of 2019 with most of the increases coming in the fourth quarter, driven
notably by the introduction of recruiting initiatives, some of which waived continuing franchise fees for a limited period
of time. We estimate that we will forgo $2.0 million to $3.0 million in revenue through the third quarter of 2020 from
these waivers.
Annual Dues
Revenue from annual dues declined due to agent count declines in the U.S. and Company-owned Regions in Canada.
Broker Fees
Revenue from broker fees decreased primarily due to agent count declines in the U.S. and Company-owned Regions in
Canada and lower total transactions per agent, partially offset by rising home prices.
Marketing Funds fees
Revenue from the Marketing Funds fees increased due to the acquisition of the Marketing Funds on January 1, 2019.
Franchise Sales and Other Revenue
Franchise sales and other revenue was relatively flat as lower revenue from preferred marketing arrangements, event-
based revenue from our RE/MAX annual convention in the U.S. and continued attrition of booj’s legacy customer base
was mostly offset by booj revenue in the current year for periods we did not own booj in the prior year. We expect the
continued booj legacy customer attrition to lower other revenue by approximately $3.0 million in 2020.
50
Operating Expenses
A summary of the components of our operating expenses is as follows (in thousands, except percentages):
Operating expenses:
Year Ended
December 31,
Change
Favorable/(Unfavorable)
2019
2018
$
%
Selling, operating and administrative expenses . . . . . . . . . . . . $ 118,890
Marketing Funds expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72,299
22,323
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale or disposition of assets, net . . . . . . . . . . . .
342
Gain on reduction in tax receivable agreement liability . . . . .
—
Total operating expenses . . . . . . . . . . . . . . . . . . . . $ 213,854
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . .
$ 120,179
—
20,678
63
(6,145)
$ 134,775
$
1,289
(72,299)
(1,645)
(279)
(6,145)
$ (79,079)
1.1 %
n/m
(8.0)%
(442.9)
100.0 %
(58.7)%
75.8 %
63.4 %
n/m – not meaningful
Selling, Operating and Administrative Expenses
Selling, operating and administrative expenses consisted of personnel costs, professional fee expenses, lease costs and
other expenses. Other expenses within selling, operating and administrative expenses include certain marketing and
production costs that are not paid by the Marketing Funds, including travel and entertainment costs, and costs associated
with our conventions in the U.S. and other events.
A summary of the components of our selling, operating and administrative expenses is as follows (in thousands, except
percentages):
Selling, operating and administrative expenses:
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,022
11,159
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,805
Lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,904
$ 62,935
15,631
9,104
32,509
$
(87)
4,472
299
(3,395)
(0.1)%
28.6 %
3.3 %
(10.4)%
Year Ended
December 31,
Change
Favorable/(Unfavorable)
2019
2018
$
%
Total selling, operating and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 118,890
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . .
42.1 %
$ 120,179
$
56.5 %
1,289
1.1 %
Total selling, operating and administrative expenses decreased as follows:
• Personnel costs remained relatively flat due to an increase in equity-based compensation expense of $1.8
million (See Note 13 Equity-Based Compensation) and other personnel costs, mostly offset by lower severance.
• Professional fees decreased primarily due to costs incurred in 2018 related to an investigation by a special
committee of our Board of Directors (the “Special Committee”) of $2.5 million and a decrease of $1.0 million
for technology costs (which includes the impact of charging certain costs to the Marketing Funds in 2019. See
Note 2 Summary of Significant Accounting Policies), partially offset by a slight increase in legal fees in the
current year, driven by the Moehrl/Sitzer suits (See Note 15 Commitments and Contingencies). We expect legal
fees will increase approximately $1.5 million in 2020.
• Other selling, operating and administrative expenses increased primarily due to a favorable fair value
adjustment to our contingent consideration liability in 2018 that did not recur in 2019 (See Note 11 Fair Value
Measurements), increases in bad debt expense, increases in property tax expense (driven by an increase in the
51
assessed value of our corporate headquarters) and additional training expenses for the launch of the booj
Platform.
Marketing Funds Expenses
Marketing Funds expenses increased due to the acquisition of the Marketing Funds on January 1, 2019. We recognize an
equal and offsetting amount of expenses to revenue such that there is no impact to our overall profitability.
Depreciation and Amortization
Depreciation and amortization expense increased primarily due to amortization expense related to the deployment of
various technology initiatives.
Gain on Reduction in TRA Liability
The gain on reduction in TRA liability during the year ended December 31, 2018 resulted from changes in tax law
arising from the Tax Cuts and Jobs Act, enacted in December 2017 and further clarified in 2018. These tax law changes
resulted in reductions to the value of deferred tax assets the Company holds and related reduction in the value of the
TRA liabilities. The gain of $6.1 million in 2018 is a result of changes in the taxation of foreign derived income, which
the Company recognized after performing a detailed review during 2018 of these complex provisions. See Note 12,
Income Taxes for additional information.
Other Expenses, Net
A summary of the components of our operating expenses is as follows (in thousands, except percentages):
Year Ended
December 31,
Change
Favorable/(Unfavorable)
2019
2018
$
%
Other expenses, net:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gains (losses) . . . . . . . .
Total other expenses, net . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . .
$
$
$
(12,229)
1,446
109
(10,674)
$
3.8 %
(12,051)
676
(312)
(11,687)
$
$
5.5 %
(178)
770
421
1,013
(1.5)%
113.9 %
134.9 %
8.7 %
Other expenses, net decreased due to an increase in interest income due to rising interest rates and having larger cash
balances to invest in 2019 compared to 2018, and foreign currency gains that were primarily a result of fluctuations of
the Canadian dollar against the U.S. dollar, partially offset by an increase in interest expense due to an increase in
interest rates on our Senior Secured Credit Facility.
Provision for Income Taxes
Our effective income tax rate decreased to 18.9% from 24.7% for the years ended December 31, 2019 and 2018,
respectively, primarily due to a valuation allowance recognized in 2018. 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 interests are not subject to corporate-level taxes because RMCO is classified as a partnership for U.S. federal
income tax purposes and therefore is treated as a “flow-through entity,” as well as annual changes in state and foreign
income tax rates. See Note 4, Non-controlling Interest for further details on the allocation of income taxes between
Holdings and the non-controlling interest.
52
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 $103.5 million for the year ended December 31, 2019, a decrease of $0.8 million from the
comparable prior year period. Adjusted EBITDA decreased primarily due to increases in bad debt expense, organic
revenue declines, property tax expense and technology training expenses, offset by lower event and advertising expenses,
severance, legal and other professional fees as compared to the prior year period.
Year Ended December 31, 2018 vs. Year Ended December 31, 2017
Revenue
A summary of the components of our revenue for the years ended December 31, 2018 and 2017 is as follows (in
thousands, except percentages):
Year Ended
December 31,
Change
Favorable/(Unfavorable)
2018
2017
$
%
Revenue:
Continuing franchise fees . . . . . . . . . . . . . . . . . . . . . . . $
Annual dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise sales and other revenue . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . .
$
101,104
35,894
46,871
28,757
212,626
$
$
93,694 $
33,767
43,801
22,452
193,714 $
7,410
2,127
3,070
6,305
18,912
7.9 %
6.3 %
7.0 %
28.1 %
9.8 %
Consolidated revenue increased $18.9 million, or 9.8%, due to:
•
•
•
organic growth of $8.8 million, or 4.5%, primarily as a result of agent count increases, Motto expansion, rising
average home prices, event-based revenue from our annual convention in the U.S. and contributions from the
July 1, 2017 annual dues fee increase, and the impact of having waived approximately $2.0 million of
continuing franchise fees and broker fees for hurricane-impacted associates during 2017;
acquisitions of Northern Illinois and booj added $10.0 million, or 5.2%; and
foreign currency movements increased revenue $0.2 million, or 0.1%.
Continuing Franchise Fees
Revenue from continuing franchise fees increased primarily as a result of contributions from the acquisition of RE/MAX
of Northern Illinois, which added $3.1 million, Motto expansion and agent count growth. Additionally, the Company
waived approximately $1.4 million of continuing franchise fees for hurricane-impacted associates during 2017.
53
Annual Dues
Revenue from annual dues increased primarily due to an increase in agent count in the U.S. and Canada and the July 1,
2017 fee increase. Revenue from annual dues is not affected by our acquisitions of Independent Regions because agents
in the U.S. and Canadian Independent Regions already pay annual dues to us in the same amounts as agents in
Company-owned Regions.
Broker Fees
Revenue from broker fees increased primarily due to contributions from the acquisition of RE/MAX of Northern Illinois,
which added $1.1 million, organic growth driven primarily by rising average home prices, and having waived
approximately $0.6 million of broker fees for hurricane-impacted associates during 2017, partially offset by declines in
total transactions per agent.
Franchise Sales and Other Revenue
Franchise sales and other revenue increased primarily due to revenue contributed from booj of $5.6 million and event-
based revenue from our annual convention in the U.S.
Operating Expenses
A summary of the components of our operating expenses for the years ended December 31, 2018 and 2017 is as follows
(in thousands, except percentages):
Year Ended
December 31,
Change
Favorable/(Unfavorable)
2018
2017
$
%
Operating expenses:
Selling, operating and administrative expenses . . . . . . . . . $ 120,179
20,678
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
63
Loss on sale or disposition of assets, net . . . . . . . . . . . . . .
(6,145)
Gain on reduction in tax receivable agreement liability . .
Total operating expenses . . . . . . . . . . . . . . . . . $ 134,775
Percent of revenue . . . . . . . . . . . . . . . . . . . . . .
$
63.4 %
$ 106,946
20,512
660
(32,736)
95,382
49.2 %
$ (13,233)
(166)
597
(26,591)
$ (39,393)
(12.4)%
(0.8)%
90.5 %
(81.2)%
(41.3)%
Selling, Operating and Administrative Expenses
Selling, operating and administrative expenses consisted of personnel costs, professional fee expenses, rent and related
facility operations expense (including losses on subleases) and other expenses. Other expenses include certain marketing
and production costs that are not paid by our related party advertising funds, including travel and entertainment costs,
and costs associated with our annual conventions in the U.S. and other events.
54
A summary of the components of our selling, operating and administrative expenses for the years ended December 31,
2018 and 2017 is as follows (in thousands, except percentages):
Year Ended
December 31,
Change
Favorable/(Unfavorable)
2018
2017
$
%
Selling, operating and administrative expenses:
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent and related facility operations . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,935
15,631
9,104
32,509
$
45,063
16,927
12,860
32,096
$ (17,872)
1,296
3,756
(413)
(39.7)%
7.7 %
29.2 %
(1.3)%
Total selling, operating and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,179
Percent of revenue . . . . . . . . . . . . . . . . . . . . . .
56.5 %
55.2 %
$ 106,946
$ (13,233)
(12.4)%
Total selling, operating and administrative expenses increased as follows:
• Personnel costs increased primarily due to $5.7 million in costs, including incremental stock-based
compensation expense, to support our increased investments in technology, $5.1 million in costs to support
booj’s legacy operations assisting its external customers, severance and other payroll related expenses, and
operating costs to support Motto.
• Professional fees decreased primarily due to a decrease in acquisition-related costs compared to the prior year
and costs incurred during the third quarter of 2017 in connection with litigation related to our 2013 acquisition
of the net assets of Tails (See Note 15, Commitments and Contingencies) and other legal fees, partially offset by
investments in technology.
• Rent and related facility operations decreased primarily due to a $3.7 million loss recognized during the third
quarter of 2017 related to subleasing a portion of our corporate office building.
• Other selling, operating and administrative expenses increased slightly primarily due to increased costs to
support booj’s legacy operations assisting its external customers, increased costs for RE/MAX of Northern
Illinois and Motto, increases in expenses related to higher attendance at our annual convention in the U.S., and
increases in bad debt expense. These increases were largely offset by charges in 2017 that did not recur,
including a $2.6 million net litigation settlement related to our 2013 acquisition of the net assets of Tails (See
Note 15, Commitments and Contingencies) and the refresh of the RE/MAX brand. Additionally, during the year
ended December 31, 2018, we adjusted the estimated fair value of the contingent consideration liability related
to the acquisition of Full House (See Note 11, Fair Value Measurements).
Depreciation and Amortization
Depreciation and amortization expense increased primarily due to an increase in amortization expense related to
intangibles acquired in connection with the acquisitions of RE/MAX of Northern Illinois and booj. See Note 6,
Acquisitions for additional information. These increases were largely offset by a reduction in amortization expense
related to certain acquired franchise agreements becoming fully amortized.
Loss on Sale or Disposition of Assets, Net
The change in loss on sale or disposition of assets, net was primarily due to the $0.5 million loss recognized during the
year ended December 31, 2017 for a final settlement of certain provisions of the asset sale agreement related to the
December 31, 2015 disposition of Sacagawea, LLC d/b/a/ RE/MAX Equity Group (“RE/MAX Equity Group”).
55
Gain on Reduction in TRA Liability
The gain on reduction in TRA liability resulted from changes in tax law arising from the Tax Cuts and Jobs Act, enacted
in December 2017 and further clarified in 2018. These tax law changes resulted in reductions to the value of deferred tax
assets the Company holds and related reduction in the value of the TRA liabilities. The gain of $6.1 million in 2018 is a
result of changes in the taxation of foreign derived income, which the Company recognized after performing a detailed
review during 2018 of these complex provisions. The gain on reduction in TRA liability of $32.7 million in 2017 is a
result of the reduction in the corporate tax rate from 35% to 21%. See Note 12, Income Taxes for additional information.
Other Expenses, Net
A summary of the components of our other expenses, net for the years ended December 31, 2018 and 2017 is as follows
(in thousands, except percentages):
Year Ended
December 31,
Change
Favorable/(Unfavorable)
2018
2017
$
%
Other expenses, net:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction (loss) gain . . . . . . . . . . .
Total other expenses, net . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . .
$
$
n/m – not meaningful
(12,051)
676
(312)
(11,687)
$
$
(9,996)
352
174
(9,470)
$
5.5 %
$
4.9 %
(2,055)
324
(486)
(2,217)
(20.6)%
92.0 %
n/m
(23.4)%
Other expenses, net increased primarily due to an increase in interest expense as a result of increasing interest rates on
our Senior Secured Credit Facility and a change in foreign currency transaction (losses) gains that were primarily as a
result of fluctuations of the Canadian dollar against the U.S. dollar.
Provision for Income Taxes
Our effective income tax rate decreased to 24.7% from 64.8% for the years ended December 31, 2018 and 2017,
respectively, primarily due to the Tax Cuts and Jobs Act enacted in December 2017 which resulted in a substantial
decrease in our corporate tax rate. See Note 12, Income Taxes for further information on the impact of the Tax Cuts and
Jobs Act. Our effective income tax rate depends on many factors, including a rate benefit attributable to the fact that the
portion of RMCO, LLC’s earnings attributable to the non-controlling interests are not subject to corporate-level taxes
because RMCO, LLC (“RMCO”) is classified as a partnership for U.S. federal income tax purposes and therefore is
treated as a “flow-through entity.” See Note 4, Non-controlling Interest for further details on the allocation of income
taxes between RE/MAX Holdings and the non-controlling interest.
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 $104.3 million for the year ended December 31, 2018, an increase of $2.2 million from the
comparable prior year period. Adjusted EBITDA increased primarily due to contributions from the acquisition of
RE/MAX of Northern Illinois, agent count growth, rising average home prices and the impact of having waived
continuing franchise fees and broker fees for hurricane-impacted associates during 2017. The increases were partially
offset by increased investments in technology and personnel, severance expense and operating costs to support booj’s
legacy operations assisting its external customers.
56
Non-GAAP Financial Measures
The Securities and Exchange Commission (“SEC”) has adopted rules to regulate the use in filings with the SEC and in
public disclosures of financial measures that are not in accordance with U.S. GAAP, such as 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 financial
statements included elsewhere in this Annual Report on Form 10-K), adjusted for the impact of the following items that
are either non-cash or that we do not consider representative of our ongoing operating performance: gain or loss on sale
or disposition of assets and sublease, equity-based compensation expense, acquisition related expense, gain on reduction
in tax receivable agreement liability, Special Committee investigation and remediation expense, expense or income
related to changes in the estimated fair value measurement of contingent consideration and other non-recurring items.
As Adjusted EBITDA omits certain non-cash items and other non-recurring cash charges or other items, we believe that
it is less susceptible to variances that affect our operating performance resulting from depreciation, amortization and
other non-cash and non-recurring cash charges or other items. We present Adjusted EBITDA, and the related Adjusted
EBITDA margin, because we believe they are useful as supplemental measures in evaluating the performance of our
operating businesses and provides greater transparency into our results of operations. Our management uses Adjusted
EBITDA and Adjusted EBITDA margin as factors in evaluating the performance of our business.
Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider these
measures either in isolation or as a substitute for analyzing our results as reported under U.S. GAAP. Some of these
limitations are:
•
•
•
•
•
•
•
•
these measures do not reflect changes in, or cash requirements for, our working capital needs;
these measures do not reflect our interest expense, or the cash requirements necessary to service interest or
principal payments on our debt;
these measures do not reflect our income tax expense or the cash requirements to pay our taxes;
these measures do not reflect the cash requirements to pay dividends to stockholders of our Class A common
stock and tax and other cash distributions to our non-controlling unitholders;
these measures do not reflect the cash requirements pursuant to the Tax Receivable Agreements (“TRAs”);
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will
often require replacement in the future, and these measures do not reflect any cash requirements for such
replacements;
although equity-based compensation is a non-cash charge, the issuance of equity-based awards may have a
dilutive impact on earnings per share; and
other companies may calculate these measures differently, so similarly named measures may not be
comparable.
57
A reconciliation of Adjusted EBITDA to net income is set forth in the following table (in thousands):
2019
Year Ended December 31,
2018
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale or disposition of assets and sublease, net . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related expense (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on reduction in tax receivable agreement liability (2) . . . . . .
Special Committee investigation and remediation expense (3) . . .
Fair value adjustments to contingent consideration (4) . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
46,856 $
22,323
12,229
(1,446)
10,909
90,871
342
10,934
1,127
—
—
241
103,515 $
49,822 $
20,678
12,051
(676)
16,342
98,217
(139)
9,176
1,634
(6,145)
2,862
(1,289)
104,316 $
2017
31,320
20,512
9,996
(352)
57,542
119,018
4,260
2,900
5,889
(32,736)
2,634
180
102,145
(1) Acquisition-related expense includes legal, accounting, advisory and consulting fees incurred in connection with the
acquisition and integration of acquired companies.
(2) Gain on reduction in tax receivable agreement liability is a result of the Tax Cuts and Jobs Act enacted in December
2017 and further clarified in 2018. See Note 12, Income Taxes for additional information.
(3) Special Committee investigation and remediation expense relates to costs incurred in relation to the previously
disclosed investigation by the special committee of independent directors of actions of certain members of our
senior management and the implementation of the remediation plan.
(4) Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair
value of the contingent consideration liability. See Note 11, Fair Value Measurements to the accompanying
consolidated financial statements for additional information
Liquidity and Capital Resources
Overview of Factors Affecting Our Liquidity
Our liquidity position is affected by the growth of our agent base and conditions in the real estate market. In this regard,
our short-term liquidity position from time to time has been, and will continue to be, affected by the number of factors
including agents in the RE/MAX network, particularly in Company-owned Regions. Our cash flows are primarily related
to the timing of:
(i)
cash receipt of revenues;
(ii)
payment of selling, operating and administrative expenses;
(iii)
investments in technology and Motto;
(iv)
cash consideration for acquisitions and acquisition-related expenses;
(v)
principal payments and related interest payments on our Senior Secured Credit Facility;
(vi) dividend payments to stockholders of our Class A common stock;
(vii) distributions and other payments to non-controlling unitholders pursuant to the terms of RMCO’s limited
liability company operating agreement (“the RMCO, LLC Agreement”);
(viii) corporate tax payments paid by the Company; and
(ix) 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 Senior Secured Credit Facility.
58
Financing Resources
RMCO and RE/MAX, LLC, a wholly owned subsidiary of RMCO, have a credit agreement with JPMorgan Chase Bank,
N.A., as administrative agent, and various lenders party thereto (the “Senior Secured Credit Facility”). The Senior
Secured Credit Facility provides to RE/MAX, LLC $235.0 million in term loans and a $10.0 million revolving facility.
The 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 Senior Secured Credit Facility also provides
for incremental facilities, subject to lender participation, as long as the total leverage ratio (calculated as net debt to
EBITDA as defined therein) remains below 4.00:1.00.
The 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 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 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 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 RE/MAX, LLC and
each guarantor.
Borrowings under the term loans and revolving loans accrue interest, at London Interbank Offered Rate (“LIBOR”),
provided LIBOR shall be no less than 0.75% plus an applicable margin of 2.75%.
The 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 Senior Secured Credit
Facility.
As of December 31, 2019, we had $225.3 million of term loans outstanding, net of an unamortized discount and issuance
costs, $0.4 million of long-term financing assumed with the acquisition of booj and no revolving loans outstanding under
our Senior Secured Credit Facility. As of December 31, 2019, the interest rate on the term loan facility was 4.55%. If any
loan or other amounts are outstanding under the revolving line of credit, the 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 needs arise, we may seek additional financing in the public capital markets. On October 15, 2019 we filed a
registration statement on Form S-3 (“shelf registration”) allowing for the sale of up to $400 million in additional
financing. The SEC declared the shelf registration effective on December 30, 2019.
59
Sources and Uses of Cash
As of December 31, 2019, and 2018, we had $83.0 million and $60.0 million, respectively, in cash and cash equivalents,
of which approximately $1.1 million were denominated in foreign currencies, respectively.
Cash provided by (used in):
Operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . .
Net change in cash, cash equivalents and restricted cash . . . . . . . . . . . . . $
78,975 $
(876)
(34,542)
70
43,627 $
76,064 $
(33,675)
(33,152)
(70)
9,167 $
63,288
(37,918)
(33,235)
1,063
(6,802)
Year Ended December 31,
2018
2017
2019
Operating Activities
During the year ended December 31, 2019, Adjusted EBITDA was relatively flat, but cash provided by operating
activities increased because of:
•
•
•
•
a decrease in TRA payments between years of $2.7 million driven by the impacts of the Tax Cut & Jobs Act;
a net payment in February 2018 of $2.6 million to satisfy the terms of a litigation settlement that occurred in
2018 that did not recur in 2019; partially offset by
lower receipts of initial franchise sales as compared to revenue recognized, with a net impact of $2.1 million
and
timing differences on various operating assets and liabilities.
During the year ended December 31, 2018, cash provided by operating activities increased because of:
•
•
•
an increase of Adjusted EBITDA of $2.2 million, which includes $3.3 million of severance costs accrued but
unpaid in the current year period versus the prior year period;
a decrease of $7.1 million in timing of TRA payments in the current year versus the prior year; and
timing differences on various operating assets and liabilities.
The increase in cash provided by operating activities was partially offset by the February 2018 net payment of $2.6
million to satisfy the terms of a litigation settlement in which no comparable transactions occurred in the prior year
period.
Investing Activities
During the year ended December 31, 2019, cash used in investing activities was primarily the result of the acquisition of
First and investments in technology, especially the booj Platform, mostly offset by restricted cash acquired in connection
with the acquisition of the Marketing Funds. See Note 6, Acquisitions to the accompanying consolidated financial
statements for more information.
During the year ended December 31, 2018, cash used in investing activities increased primarily because of the
acquisition of booj, investments in training materials and cash used for technology investments.
60
Financing Activities
During the year ended December 31, 2019, cash used in financing activities increased primarily due to:
•
•
an increase in distributions paid to non-controlling unitholders, and
an increase in cash paid to Class A common stockholders and non-controlling unitholders due to our Board of
Directors declaring a dividend of $0.21 per share on all outstanding shares of Class A common stock in all four
quarters of 2019 compared to a dividend of $0.20 per share on all outstanding shares of Class A common stock
in all four quarters of 2018.
During the year ended December 31, 2018, cash used in financing activities decreased primarily due to:
•
•
•
a decrease in distributions paid to non-controlling unitholders, offset by
an increase in cash paid to Class A common stockholders and non-controlling unitholders due to our Board of
Directors declaring a dividend of $0.20 per share on all outstanding shares of Class A common stock in all four
quarters of 2018 compared to a dividend of $0.18 per share on all outstanding shares of Class A common stock
in all four quarters of 2017, as well as
an increase in cash paid related to financing assumed with the acquisition of booj.
Capital Allocation 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 Senior Secured Credit Facility
available to support the needs of our business. Should additional liquidity needs arise, our recently filed shelf
registration, effective December 30, 2019, would permit access to public capital markets.
Acquisitions
As part of our growth strategy we may pursue reacquisitions of Independent Regions in the U.S. and Canada as well as
additional acquisitions or investments in complementary businesses, services and technologies that would provide access
to new markets, revenue streams, or otherwise complement our existing operations. We would fund any such growth
with existing cash balances, funds generated from operations, access to capital under our Senior Secured Credit Facility
and access to public capital markets via our recently filed shelf registration.
Capital Expenditures
The total aggregate amount for purchases of property and equipment and capitalization of software was $13.2 million,
$7.8 million and $2.2 million in 2018, 2017 and 2016, respectively. These amounts primarily related to investments in
technology and training materials. 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,
agents, and loan originators in our networks. Total capital expenditures for 2020 are expected to be between $17 million
and $19 million as a result of combined investments in technology and including between $7 million and $8 million
related to the refresh and efficiency enhancements of our corporate headquarters. See Financial and Operational
Highlights above for additional information.
Dividends
Our Board of Directors declared quarterly cash dividends of $0.21 and $0.20 per share on all outstanding shares of
Class A common stock every quarter in 2019 and 2018, respectively, as disclosed in Note 5, Earnings Per Share and
Dividends. On February 19, 2020, our Board of Directors announced a quarterly dividend of $0.22 per share on all
outstanding shares of Class A common stock, which is payable on March 18, 2020 to stockholders of record at the close
61
of business on March 4, 2020. 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 by RMCO
Distributions to Non-Controlling Unitholders Pursuant to the RMCO, LLC Agreement
As authorized by the RMCO, LLC Agreement, RMCO makes cash distributions to its members, Holdings and RIHI.
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.
Holdings’ only source of cash flow from operations is in the form of distributions from RMCO. Holdings receives
distributions from RMCO on a quarterly basis that are equal to the dividend payments Holdings makes to the
stockholders of its Class A common stock. As a result, absent any additional distributions, Holdings may have
insufficient funds to cover its estimated tax and TRA liabilities. Therefore, as necessary, RMCO makes a separate
distribution to 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.
Throughout the year until completion of its tax return with respect to such year, RMCO may pay required or pro-rata
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 4, Non-controlling Interest for further details on distributions made by RMCO.
Payments Pursuant to the Tax Receivable Agreements
As of December 31, 2019, the Company reflected a total liability of $37.2 million under the terms of its TRAs. The
liability pursuant to the TRAs will increase 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. Payments are made on this
liability as tax benefits are realized by Holdings.
Distributions and other payments pursuant to the RMCO, LLC Agreement and TRAs were comprised of the following
(in thousands):
Distributions and other payments pursuant to the 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 to RIHI and TRA payments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Year Ended December 31,
2018
2019
4,880
10,550
15,430
3,556
18,986
$
$
4,511
10,048
14,559
6,305
20,864
62
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2019 and the effect such obligations are
expected to have on our liquidity and cash flows in future periods (in thousands):
Total
Less than 1 year 1-3 years
3-5 years
Payments due by Period
Senior Secured Credit Facility (including current portion) (1) (2) . $
Other long-term financing (including current portion) (3) . . . . . .
Interest payments on credit facility (4) . . . . . . . . . . . . . . . . . . . .
Interest payments on other long-term debt (3) . . . . . . . . . . . . . .
Lease obligations (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments pursuant to tax receivable agreements (6) . . . . . . . . . .
Vendor contracts (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated undiscounted contingent consideration payments (8) .
227,363 $
362
40,688
24
74,944
37,223
49,904
9,052
2,350 $
298
10,466
23
7,868
3,583
38,403
402
4,700 $
64
20,550
1
16,433
7,273
11,413
1,750
$
439,560 $
63,393 $
62,184 $
220,313 $
—
9,672
—
17,005
6,803
88
2,864
After 5 years
—
—
—
—
33,638
19,564
—
4,036
57,238
256,745 $
(1) We have reflected full payment of our Senior Secured Credit Facility in December 2023 at maturity.
(2) The Senior Secured Credit Facility may require additional prepayments 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.
(3) Includes financing assumed with the acquisition of booj.
(4) The variable interest rate on the Senior Secured Credit Facility is assumed at the interest rate in effect as of
December 31, 2019 of 4.55%.
(5) 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 $4.7 million in the aggregate, are
included in the table above.
(6) As described elsewhere in this Annual Report on Form 10-K, we entered into TRAs, that will provide for the
payment by us of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise
tax that we realize as a result of tax deductions arising from the increase in tax basis in RMCO’s assets.
(7) Represents outstanding purchase orders with vendors initiated in the ordinary course of business for operating and
capital expenditures.
(8) Represents estimated payments to the former owner of Motto as required per the purchase agreement.
Commitments and Contingencies
Our management does not believe there are any matters involving us that could result, individually or in the aggregate, in
a material adverse effect on our financial condition, results of operations and cash flows.
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements as of December 31, 2019.
Critical Accounting Judgments and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts and disclosures in the financial statements and accompanying notes. 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.
63
Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies. 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.
Motto Goodwill and Contingent Consideration
We assess 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
segment management reviews operating results. We perform our required impairment testing annually on October 1.
During 2019, 2018 and 2017, we performed the qualitative impairment assessments for all reporting units. Except for the
Motto Franchising reporting unit, the fair value of the reporting units significantly exceeded their carrying values at the
latest assessment date.
The Motto Franchising segment, which has a carrying value of goodwill as of December 31, 2019 of $11.8 million, is an
early-stage business and its fair value is tied primarily to franchise sales over the next several years and the discount rate
used in our discounted cash flow analysis. Failure to achieve targeted franchise sales (which are currently estimated at
between 50 and 80 per year over the next 10 years) would likely result in an impairment of this goodwill balance.
We have not recorded any goodwill impairments during the years ended December 31, 2019, 2018 and 2017.
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 8% of gross receipts generated by the acquired business
each year through 2026 with no limitation as to the maximum payout. Contingent consideration is recorded at 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 Income. Similar to the goodwill discussion
above, estimates of the fair value of contingent consideration are also impacted by Motto franchise sales over the next
several years and discount rates. See Note 11, Fair Value Measurement for additional information. Contingent
consideration obligations were $5.0 million and $5.1 million at December 31, 2019 and 2018.
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.
We engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets, primarily
franchise rights. The timing and amount of expected future cash flows used in the valuation 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
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 above.
64
Deferred Tax Assets and TRA Liability
As discussed in Item 1. Business, Holdings has twice acquired significant portions of the ownership in RMCO. When
Holdings acquired this ownership in the form of common units, it received a significant step-up in tax basis on the
underlying assets held by RMCO. The step-up is principally equivalent to the difference between (1) the fair value of the
underlying assets on the date of acquisition of the common units and (2) their tax basis in RMCO, multiplied by the
percentage of units acquired. The majority of the step-up in basis relates to intangibles assets, primarily franchise
agreements and goodwill, and is included within deferred tax assets on our consolidated balance sheets. The computation
of the step-up requires valuations of the intangible assets of RMCO and has the same complexities and estimates as
discussed in Purchase Accounting for Acquisitions above. In addition, the step-up is governed by complex IRS rules that
limit which intangibles are subject to step-up, and also imposes further limits on the amount of step-up. Given the
magnitude of the deferred tax assets and complexity of the calculations, small adjustments to our model used to calculate
these deferred tax assets can result in material changes to the amounts recognized. If more common units of RMCO are
redeemed by RIHI, the percentage of RE/MAX Holdings’ ownership of RMCO will increase, and additional deferred tax
assets will be created as additional tax basis step-ups occur.
Pursuant to the TRA agreements, Holdings makes annual payments to RIHI and Parallaxes Rain Co-Investment, LLC
(“Parallaxes”) (a successor to the TRAs prior owners) equivalent to 85% of any tax benefits realized on each year’s tax
return from the additional tax deductions arising from the step-up in tax basis. A TRA liability of $37.2 million exists as
of December 31, 2019 for the future cash obligations expected to be paid under the TRAs and is not discounted. The
calculation of this liability is a function of the step-up described above and therefore has the same complexities and
estimates. Similar to the deferred tax assets, these liabilities would increase if RIHI redeems additional common units of
RMCO.
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 15, Commitments and Contingencies for more information related to litigation
matters.
New Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies for recently issued accounting pronouncements applicable to us
and the effect of those standards on our 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 Senior Secured Credit Facility which bear
interest at variable rates. At December 31, 2019, $227.4 million in term loans were outstanding under our Senior Secured
Credit Facility. We currently do not engage in any interest rate hedging activity, but given our variable rate borrowings,
65
we monitor interest rates and if appropriate, may engage in hedging activity prospectively. The interest rate on our
Senior Secured Credit Facility is currently based on LIBOR, subject to a floor of 0.75%, plus an applicable margin of
2.75%. As of December 31, 2019, the interest rate was 4.55%%. If LIBOR rises, then each hypothetical 0.25% increase
would result in additional annual interest expense of $0.6 million. To mitigate a portion of this risk, we invest our cash
balances in short-term investments that earn interest at variable rates.
Currency Risk
We have a network of global franchisees in over 110 countries and territories. Fluctuations in exchange rates of the U.S.
dollar against foreign currencies can result, and have resulted, in fluctuations in (a) revenue and operating income due to
a portion of our revenue being denominated in foreign currencies and (b) foreign exchange transaction gains and losses
due primarily to cash and accounts receivable balances denominated in foreign currencies, with the Canadian dollar
representing the most significant exposure. We currently do not engage in any foreign exchange hedging activity of our
revenues but may do so in the future; however, we actively convert cash balances into U.S. dollars to mitigate currency
risk on cash positions. During the year ended December 31, 2019, a hypothetical 5% strengthening/weakening in the
value of the U.S. dollar compared to the Canadian dollar would have resulted in a decrease/increase to operating income
of approximately $1.0 million.
66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017 . .
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017 . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
72
73
74
75
76
77
67
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
RE/MAX Holdings, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of RE/MAX Holdings, Inc. and subsidiaries
(the Company) as of December 31, 2019 and 2018, 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, 2019,
and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and
2018, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2019, 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) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission, and our report dated February 21, 2020 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has elected to change its method of
accounting for leases as of January 1, 2019 due to the adoption of ASC Topic 842, Leases.
Basis for Opinion
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 are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
T he critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates
to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
68
Assessment of the carrying value of goodwill for the Motto reporting unit
As discussed in notes 2 and 8 to the consolidated financial statements, the goodwill balance as of December 31,
2019 was $159.0 million, of which $11.8 million related to the Motto reporting unit. The Motto reporting unit
includes Motto Franchising, a mortgage brokerage franchisor. The Company performs goodwill impairment
testing on an annual basis and whenever events or changes in circumstances indicate that the carrying value of a
reporting unit might exceed its fair value.
We identified the assessment of the carrying value of goodwill for the Motto reporting unit as a critical audit
matter. Assessing the estimated fair value of the Motto reporting unit required the application of subjective
auditor judgment. Specifically, evaluating certain assumptions, such as franchise sales forecasts and the
discount rate, used to determine the fair value of the reporting unit required subjective auditor judgment.
The primary procedures we performed to address this critical audit matter included the following. We tested
certain internal controls over the Company’s goodwill impairment assessment process, including controls
related to the determination of the fair value of the reporting unit, the related franchise sales forecasts, and the
assumptions used to develop the discount rate. We evaluated the Company’s forecasted franchise sales by
comparing the growth assumptions to historical franchise sales of the Company. We compared the Company’s
historical franchise sales forecasts to historical actual results to assess the Company’s ability to accurately
forecast franchise sales. We involved a valuation professional with specialized skill and knowledge, who
assisted in:
• Evaluating the Company’s selected discount rate based on historic results, franchise sales
forecasts, discount rates used in prior valuations of the reporting unit, and discount rates from
publicly available venture capital studies; and
• Assessing the valuation methodology used by the Company to estimate the fair value of the Motto
reporting unit.
/s/KPMG LLP
We have served as the Company’s auditor since 2003.
Denver, Colorado
February 21, 2020
69
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
RE/MAX Holdings, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited RE/MAX Holdings, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, 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, 2019, and the related notes (collectively, the consolidated financial
statements), and our report dated February 21, 2020 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’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’s
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 are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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
70
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/KPMG LLP
Denver, Colorado
February 21, 2020
71
RE/MAX HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Assets
Current assets:
$
$
$
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts and notes receivable, current portion, less allowances of $12,538 and $7,980, respectively . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net of accumulated depreciation of $14,940 and $13,280, respectively . . . . . . . . . .
Operating lease right of use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise agreements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and stockholders' equity
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of payable pursuant to tax receivable agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable pursuant to tax receivable agreements, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable, net of current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (note 15)
Stockholders' equity:
As of December 31,
2019
2018
$
$
$
83,001
20,600
28,644
896
9,638
142,779
5,444
51,129
87,670
32,315
159,038
52,595
1,690
9,692
542,352
2,983
60,163
6,854
25,663
2,648
3,583
5,102
106,996
223,033
33,640
293
—
18,763
55,959
5,292
443,976
59,974
—
21,185
533
5,855
87,547
4,390
—
103,157
22,965
150,684
53,852
1,379
4,399
428,373
1,890
13,143
208
25,489
2,622
3,567
—
46,919
225,165
37,220
400
5,794
20,224
—
17,637
353,359
Class A common stock, par value $.0001 per share, 180,000,000 shares authorized; 17,838,233 shares
issued and outstanding as of December 31, 2019; 17,754,416 shares issued and outstanding as of
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B common stock, par value $.0001 per share, 1,000 shares authorized; 1 share issued and
outstanding as of December 31, 2019 and December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity attributable to RE/MAX Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2
2
—
466,945
30,525
414
497,886
(399,510)
98,376
542,352
$
—
460,101
20,559
328
480,990
(405,976)
75,014
428,373
See accompanying notes to consolidated financial statements
72
RE/MAX HOLDINGS, INC.
Consolidated Statements of Income
(In thousands, except share and per share amounts)
Year Ended December 31,
2018
2017
2019
Revenue:
Continuing franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Annual dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing Funds fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise sales and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99,928 $
35,409
45,990
72,299
28,667
282,293
101,104 $
35,894
46,871
—
28,757
212,626
Operating expenses:
Selling, operating and administrative expenses . . . . . . . . . . . . . . . . .
Marketing Funds expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale or disposition of assets, net . . . . . . . . . . . . . . . . . . . . . .
Gain on reduction in tax receivable agreement liability (note 4) . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118,890
72,299
22,323
342
—
213,854
68,439
120,179
—
20,678
63
(6,145)
134,775
77,851
Other expenses, net:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gains (losses) . . . . . . . . . . . . . . . . . . . .
Total other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: net income attributable to non-controlling interest (note 4)
Net income attributable to RE/MAX Holdings, Inc. . . . . . . . . . . . $
(12,229)
1,446
109
(10,674)
57,765
(10,909)
46,856 $
21,816
25,040 $
(12,051)
676
(312)
(11,687)
66,164
(16,342)
49,822 $
22,939
26,883 $
93,694
33,767
43,801
—
22,452
193,714
106,946
—
20,512
660
(32,736)
95,382
98,332
(9,996)
352
174
(9,470)
88,862
(57,542)
31,320
21,221
10,099
Net income attributable to RE/MAX Holdings, Inc. per share of Class
A common stock
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.41 $
1.40 $
1.52 $
1.51 $
0.57
0.57
Weighted average shares of Class A common stock outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per share of Class A common stock . . . . . . . . $
17,812,065
17,867,752
17,737,649
17,767,499
0.84 $
0.80 $
17,688,533
17,731,800
0.72
See accompanying notes to consolidated financial statements.
73
RE/MAX HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
(In thousands)
2019
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,856 $
Change in cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: comprehensive income attributable to non-controlling interest . . . . . .
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax . $ 25,126 $
166
166
47,022
21,896
Year Ended December 31,
2018
49,822 $
(253)
(253)
49,569
22,817
26,752 $
2017
31,320
1,037
1,037
32,357
21,752
10,605
See accompanying notes to consolidated financial statements.
74
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S
RE/MAX HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2018
2017
2019
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income to net cash provided by operating activities:
46,856 $
49,822 $
31,320
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale or disposition of assets and sublease, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustments to contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments pursuant to tax receivable agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash change in tax receivable agreement liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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, current and noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Purchases of property, equipment and capitalization of software . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired of $55, $362 and $0, respectively . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash acquired with the Marketing Funds acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
22,323
4,964
342
10,934
2,310
241
(3,556)
—
910
(5,614)
—
(6,084)
6,737
178
(1,566)
78,975
(13,226)
(14,945)
28,495
(1,200)
(876)
20,678
2,257
(139)
9,176
9,511
(1,289)
(6,305)
(6,145)
1,127
(3,241)
581
2,170
(3,466)
1,099
228
76,064
(7,787)
(25,888)
—
—
(33,675)
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions paid to non-controlling unitholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and dividend equivalents paid to Class A common stockholders . . . . . . . . . . . . . . . . . . . . .
Payment of payroll taxes related to net settled restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,601 $
Supplemental disclosures of cash flow information:
(2,622)
(15,430)
(15,074)
(1,110)
(306)
(34,542)
70
43,627
59,974
(3,171)
(14,559)
(14,306)
(895)
(221)
(33,152)
(70)
9,167
50,807
59,974 $
20,512
1,109
4,260
2,900
47,931
180
(13,371)
(32,736)
1,146
(2,825)
(106)
(2,724)
1,592
(605)
4,705
63,288
(2,198)
(35,720)
—
—
(37,918)
(2,366)
(17,260)
(12,793)
(816)
—
(33,235)
1,063
(6,802)
57,609
50,807
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
11,690 $
8,429 $
11,525 $
5,769 $
9,972
10,078
Schedule of non-cash investing activities:
Increase (decrease) in accounts payable and accrued liabilities for purchases of property, equipment
and capitalization of software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(94) $
1,080 $
295
See accompanying notes to consolidated financial statements.
76
1. Business and Organization
RE/MAX Holdings, Inc. (“Holdings”) completed an initial public offering (the “IPO”) of its shares of Class A common
stock on October 7, 2013. Holdings’ only business is to act as the sole manager of RMCO, LLC (“RMCO”). As of
December 31, 2019, Holdings owns 58.7% of the common membership units in RMCO, while RIHI, Inc. (“RIHI”) owns
the remaining 41.3%. 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 (“RE/MAX”) and mortgage brokerages within the United States (“U.S.”) under the Motto Mortgage brand
(“Motto”). RE/MAX, founded in 1973, has over 130,000 agents operating in over 8,000 offices and a presence in more
than 110 countries and territories. Motto, founded in 2016, is the first nationally franchised mortgage brokerage in the
U.S. During 2018, the Company acquired all membership interests in booj, LLC, formerly known as Active Website,
LLC, (“booj”), a real estate technology company. RE/MAX and Motto are 100% franchised and do not operate any real
estate or mortgage brokerage offices.
Holdings Capital Structure
Holdings has two classes of common stock, Class A common stock and Class B common stock:
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.
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 and is controlled by David Liniger, the Company’s Chairman and Co-
Founder, and Gail Liniger, the Company’s Vice Chair and Co-Founder. On October 7, 2018, pursuant to the terms of the
Company’s Certificate of Incorporation, RIHI lost its previous effective control of a majority of the voting power of
Holdings common stock. RIHI owns all Holdings’ Class B common stock which, prior to October 7, 2018, entitled RIHI
to a number of votes on matters presented to Holdings stockholders equal to two times the number of RMCO common
units that RIHI held. Effective October 7, 2018, the voting power of Class B common stock was reduced to equal the
number of RMCO common units held, and therefore RIHI lost the controlling vote of Holdings. As a result of this
change in the voting rights of the Class B common stock, RIHI no longer controls a majority of the voting power of
Holdings’ common stock, and Holdings is no longer considered a “controlled company” under the corporate governance
standards of the New York Stock Exchange (the “NYSE”).
Holders of shares of Class B common stock do not have preemptive, subscription, redemption or conversion rights.
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.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements (“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”). The accompanying financial statements include the accounts of Holdings and its consolidated subsidiaries. All
significant intercompany accounts and transactions have been eliminated. In the opinion of management, the
accompanying financial statements reflect all normal and recurring adjustments necessary to present fairly the
77
Company’s financial position as of December 31, 2019 and 2018, the results of its operations and comprehensive
income, changes in its stockholders’ equity and its cash flows for the years ended December 31, 2019, 2018 and 2017.
On January 1, 2019 the Company acquired all of the regional and pan-regional advertising fund entities previously
owned by its founder and Chairman of the Board of Directors, David Liniger, for a nominal amount. During 2018, the
Company completed the acquisition of booj, and during 2017 the Company completed the acquisition of an independent
region. Their results of operations, cash flows and financial positions are included in the financial statements from their
respective dates of acquisition. See Note 6, Acquisitions for additional information.
Use of Estimates
The preparation of the accompanying financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain items in the Consolidated Statement of Cash Flows have been reclassified in the years ended December 31, 2018
and 2017 to conform with the current year presentation.
Segment Reporting
The Company operates under the following segments:
• RE/MAX Franchising – comprises the operations of the Company’s owned and independent global franchising
operations under the RE/MAX brand name and corporate-wide shared services expenses.
• Motto Franchising – comprises the operations of the Company’s mortgage broker franchising operations under
the Motto Mortgage brand name and does not include any charges related to the corporate-wide shared services
expenses.
• Marketing Funds – comprises the operations of the Company’s marketing campaigns designed to build and
maintain brand awareness and the development and operation of agent marketing technology.
• Other – comprises the legacy operations of booj (see Note 6, Acquisitions for additional information), which,
due to quantitative insignificance, do not meet the criteria of a reportable segment.
See Note 18 Segment Information for additional information about segment reporting.
Principles of Consolidation
Holdings consolidates RMCO and records a non-controlling interest in the accompanying Consolidated Balance Sheets
and records net income attributable to the non-controlling interest and comprehensive income attributable to the non-
controlling interest in the accompanying Consolidated Statements of Income and Consolidated Statements of
Comprehensive Income, respectively.
Revenue Recognition
The Company generates the substantial majority of its revenue from contracts with customers. The Company’s franchise
agreements offer the following benefits to the franchisee: common use and promotion of RE/MAX and Motto
trademarks; distinctive sales and promotional materials; access to technology; marketing tools and training; standardized
supplies and other materials used in RE/MAX and Motto offices; and recommended procedures for operation of
RE/MAX and Motto offices. The Company concluded that these benefits are highly related and all a part of one
performance obligation for each franchise agreement, a license of symbolic intellectual property that is billed through a
variety of fees including continuing franchise fees, annual dues, broker fees, marketing funds fees and franchise sales,
78
described below. The Company has other performance obligations associated with contracts with customers in other
revenue for training, marketing and events, and legacy booj customers. The method used to measure progress is over the
passage of time for most streams of revenue. The following is a description of principal activities from which the
Company generates its revenue.
Continuing Franchise Fees
Continuing franchise fees are fixed contractual fees paid monthly (a) by regional franchise owners in Independent
Regions or franchisees in Company-owned Regions based on the number of RE/MAX agents in the respective
franchised region or office or (b) by Motto franchisees based on the number of offices open. Motto offices reach the full
monthly billing once the Motto office has been open for 12 to 14 months. This revenue is recognized in the month for
which the fee is billed. This revenue is a usage-based royalty as it is dependent on the number of RE/MAX agents or
number of Motto offices.
Annual Dues
Annual dues are a fixed membership fee paid annually by RE/MAX agents directly to the Company to be a part of the
RE/MAX network and use the RE/MAX brand. Annual dues are a flat fee per agent. The Company defers the annual
dues revenue when billed and recognizes the revenue ratably over the 12-month period to which it relates. Annual dues
revenue is a usage-based royalty as it is dependent on the number of RE/MAX agents.
The activity in the Company’s deferred revenue for annual dues is included in “Deferred revenue” and “Deferred
revenue, net of current portion” on the Consolidated Balance Sheets, and consists of the following in aggregate (in
thousands):
Year ended December 31, 2019 . . . . . . . . $
Balance at
beginning of period New billings
15,877 $
35,514 $
Revenue recognized(a)
Balance at end
of period
(35,409) $
15,982
(a) Revenue recognized related to the beginning balance was $14.4 million for the year ended December 31, 2019.
(b)
Broker Fees
Broker fees are assessed against real estate commissions paid by customers when a RE/MAX agent sells a home.
Generally, the amount paid is 1% of the total commission on the transaction, although in Independent Regions in Canada
it is not charged. Additionally, agents in Company-owned Regions existing prior to 2004, the year the Company began
assessing broker fees, are generally “grandfathered” and continue to be exempt from paying a broker fee. As of
December 31, 2019, grandfathered agents represented approximately 17% of total agents in U.S. Company-owned
Regions. Revenue from broker fees is recognized as a sales-based royalty and recognized in the month when a home sale
transaction occurs. Motto franchisees do not pay any fees based on the number or dollar value of loans brokered.
Marketing Funds Fees
Marketing Funds fees are fixed contractual fees paid monthly by franchisees based on the number of RE/MAX agents in
the respective franchised region or office or the number of Motto offices. These revenues are obligated to be used for
marketing campaigns to build brand awareness and to support agent marketing technology. Amounts received into the
Marketing Funds are recognized as revenue in the month for which the fee is billed. This revenue is a usage-based
royalty as it is dependent on the number of RE/MAX agents or number of Motto offices.
All assets of the Marketing Funds are contractually restricted for the benefit of franchisees, and the Company recognizes
an equal and offsetting liability on the Company’s balance sheet for all amounts received. Additionally, this results in
recording an equal and offsetting amount of expenses against all revenues such that there is no impact to overall
profitability of the Company from these revenues.
Franchise Sales
Franchise sales comprises revenue from the sale or renewal of franchises. A fee is charged upon a franchise sale or
79
renewal. Those fees are deemed to be a part of the license of symbolic intellectual property and are recognized as
revenue over the contractual term of the franchise agreement, which is typically 5 years for RE/MAX and 7 years for
Motto franchise agreements. The activity in the Company’s franchise sales deferred revenue accounts consists of the
following (in thousands):
Year ended December 31, 2019 . . . . . . . . $
Balance at
beginning of period New billings
27,560 $
7,750 $
Revenue recognized(a)
Balance at end
of period
(9,426) $
25,884
(a) Revenue recognized related to the beginning balance was $8.4 million for the year ended December 31, 2019.
Commissions Related to Franchise Sales
Commissions paid on franchise sales are recognized as an asset and amortized over the contract life of the franchise
agreement. The activity in the Company’s capitalized contract costs for commissions (which are included in “other
current assets” and “other assets, net of current portion” on the Consolidated Balance Sheets) consist of the following (in
thousands):
Year ended December 31, 2019 . . . . . . . . $
3,748 $
(1,290) $
1,120 $
3,578
Balance at
beginning of period
Expense
recognized
Additions to contract
cost for new activity
Balance at end
of period
Other Revenue
Other revenue is primarily revenue from preferred marketing arrangements and event-based revenue from training and
other programs. Revenue from preferred marketing arrangements involves both flat fees paid in advance as well as
revenue sharing, both of which are generally recognized over the period of the arrangement and are recorded net as the
Company does not control the good or service provided. Event-based revenue is recognized when the event occurs and
until then amounts collected are included in “Deferred revenue”. Other revenue also includes revenue from booj’s legacy
operations for its external customers as booj continues to provide technology products and services, such as websites,
mobile apps, reporting and website tools, to its legacy customers and technology subscription revenue such as for the
First app.
Disaggregated Revenue
In the following table, segment revenue is disaggregated by geographical area (in thousands):
Year Ended December 31,
2019
2018
2017
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total RE/MAX Franchising . . . . . . . . . . . .
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Marketing Funds . . . . . . . . . . . . . . . . .
Motto Franchising (a) . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
164,867
23,024
11,745
199,636
64,906
6,559
834
72,299
4,542
5,816
282,293
$
170,496
23,771
10,237
204,504
—
—
—
—
2,536
5,586
212,626
(a) Revenue from the Motto Franchising segment is derived exclusively within the U.S.
160,538
23,189
9,431
193,158
—
—
—
—
556
—
193,714
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In the following table, segment revenue is disaggregated by Company-owned or Independent Regions in the U.S.,
Canada and Global (in thousands):
Year Ended December 31,
2019
2018
2017
Company-owned Regions . . . . . . . . . . . . . . . . .
Independent Regions . . . . . . . . . . . . . . . . . . . . .
Global and Other . . . . . . . . . . . . . . . . . . . . . . . .
Total RE/MAX Franchising . . . . . . . . . . . .
Marketing Funds . . . . . . . . . . . . . . . . . . . . . . . .
Motto Franchising . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
128,972
44,686
25,978
199,636
72,299
4,542
5,816
282,293
$
$
133,925
46,289
24,290
204,504
—
2,536
5,586
212,626
$
$
125,092
44,799
23,267
193,158
—
556
—
193,714
Transaction Price Allocated to the Remaining Performance Obligations
The following table includes estimated revenue by year, excluding certain other immaterial items, expected to be
recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the
reporting period (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total
Annual dues . . . . . . . . $ 15,982 $
Franchise sales . . . . . .
7,141
Total . . . . . . . . . . . . . $ 23,123 $
— $
5,801
5,801 $
— $
4,368
4,368 $
— $
2,881
2,881 $
— $
1,589
1,589 $
— $ 15,982
4,104
25,884
4,104 $ 41,866
Cash, Cash Equivalents and Restricted Cash
All cash held by the Marketing Funds is contractually restricted. The following table reconciles the amounts presented
for cash, both unrestricted and restricted, in the Consolidated Balance Sheets to the amounts presented in the
Consolidated Statements of Cash Flows (in thousands):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash, cash equivalents and restricted cash . . . . . . . . . . . . .
$
$
83,001
20,600
103,601
$
$
59,974
—
59,974
As of December 31,
2019
2018
Services Provided to the Marketing Funds by RE/MAX Franchising
RE/MAX Franchising charges the Marketing Funds for various services it performs. These services are primarily
comprised of (a) providing agent marketing technology, including customer relationship management tools, the
www.remax.com website, agent and office websites, and mobile apps, (b) dedicated employees focused on marketing
campaigns, and (c) various administrative services including accounting and legal. Because these costs are ultimately
paid by the Marketing Funds, they do not impact the net income of Holdings as the Marketing Funds have no reported
net income.
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Costs charged from RE/MAX Franchising to the Marketing Funds are as follows (in thousands):
Technology development - operating . . . . . . . . . . . . . . . . . .
Technology development - capital . . . . . . . . . . . . . . . . . . . . .
Marketing staff and administrative services (a) . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
6,244
5,095
3,763
15,102
Year Ended
December 31, 2019
(a) Costs charged to the Marketing Funds for the years ended December 31, 2018 and 2017, while the Marketing Funds
were a related party, were $3.8 million and $3.4 million, respectively.
Prior to January 1, 2019, the Marketing Funds were not owned by the Company (see Note 6 Acquisitions). During that
time, the Marketing funds still incurred significant technology costs, however, these services were provided by and paid
directly to third parties and were not provided by the Company. In 2019, RE/MAX Franchising (through the booj
technology team) began providing these services as noted above.
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, lease costs, as well as expenses for marketing to customers, to
expand the Company’s franchises and outsourced technology services.
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 arising from monthly billings do not bear interest. The Company provides limited financing of
certain franchise sales through the issuance of notes receivable with the associated interest 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.
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 and are included as a component of “Selling, operating and administrative expenses” in the accompanying
Consolidated Statements of Income. The allowance for doubtful accounts and notes is based on historical experience,
general economic conditions, and the credit quality of specific accounts.
The activity in the Company’s allowances against accounts and notes receivable consists of the following (in thousands):
Balance at
beginning of
period
Additions/charges to
cost and expense for
allowances for
doubtful accounts (a)
Deductions/write-
offs
Balance at end of
period
Year Ended December 31, 2019 . . . . . . . $
Year Ended December 31, 2018 . . . . . . . $
Year Ended December 31, 2017 . . . . . . . $
7,980 $
7,223 $
6,458 $
4,964 $
2,257 $
1,109 $
(406) $
(1,500) $
(344) $
12,538
7,980
7,223
(a) For the year ended December 31, 2019, $1.5 million of expense was attributable to the acquired Marketing Funds.
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Accumulated Other Comprehensive Income (Loss) and Foreign Currency Translation
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.
As of December 31, 2019, the Company, directly and through its franchisees, conducted operations in over 110 countries
and territories, including the U.S. and Canada. The functional currency for the Company’s operations is the U.S. dollar,
except for its Canadian subsidiary which is the Canadian Dollar.
Assets and liabilities of the Canadian subsidiary 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,” 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.
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) gains.”
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 franchise rights acquired from Independent Region acquisitions and
are initially recorded at fair value. The Company amortizes the franchise agreements over their estimated useful life on a
straight-line basis.
The Company also purchases and develops software for internal use. Software development costs and upgrade and
enhancement costs incurred during the application development stage that result in additional functionality are
capitalized. Costs incurred during the preliminary project and post-implementation-operation stages are expensed as
incurred. Capitalized software costs are generally amortized over a term of two to five years. 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 assessed by a comparison of the carrying amount of an asset group to
estimated undiscounted future cash flows expected to be generated from such asset. If not recoverable, the excess of the
carrying amount of an asset over its estimated discounted cash flows would be charged to operations as an impairment
loss. For each of the years ended December 31, 2019, 2018 and 2017, there were no material impairments indicated for
such assets.
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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 at the reporting unit level or whenever an event occurs that would indicate impairment may
have occurred. Reporting units are driven by the level at which segment management reviews operating results. The
Company performs its required impairment testing annually on October 1.
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
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 impairment test consists of comparing the estimated
fair value of each reporting unit with its carrying amount, including goodwill. The fair value of a reporting unit is
determined by forecasting results, such as franchise sales for Motto, and applying and assumed discount rate to
determine fair value as of the test date. 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. Goodwill impairment exists when the estimated implied fair
value of a reporting unit’s goodwill is less than its carrying value.
The Company did not record any goodwill impairments during the years ended December 31, 2019, 2018 and 2017.
Income Taxes
The Company accounts for income taxes under the asset and liability method. 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, future deductibility of the asset and changes in applicable tax
laws and other factors. If management determines that it is not likely 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.
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 share of U.S. income
allocable to Holdings results in a provision for income taxes for the federal and state taxes on that portion of income.
The share of U.S. income allocable to RIHI does not result in a provision for income taxes for federal and state taxes
given Holdings does not consolidate RIHI. RMCO is subject to certain global withholding taxes, which are ultimately
allocated to both Holdings and RIHI since they are paid by RMCO.
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 on the grant date, 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.
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Recently Adopted Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), which adjusts the classification of stranded
tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained
earnings. ASU 2018-02 became effective for the Company on January 1, 2019. The standard is to be applied either in the
period of adoption or retrospectively to each period affected by the Tax Cuts and Jobs Act. The Company completed the
majority of its accounting for the tax effects of the Tax Cuts and Jobs Act as of December 31, 2017. The amendments of
ASU 2018-02 did not have a significant impact on the Company’s consolidated financial statements and related
disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with several subsequent amendments, which
requires lessees to recognize the assets and liabilities that arise from operating and finance leases on the consolidated
balance sheets, with a few exceptions. ASU 2016-02 became effective for the Company on January 1, 2019 and replaced
the existing lease guidance in U.S. GAAP when it became effective. The Company did not retrospectively recast prior
periods presented and instead adjusted assets and liabilities on January 1, 2019. In addition, the Company elected the
package of practical expedients permitted under the transition guidance, which allowed the Company to forgo
reassessing (a) whether a contract contains a lease, (b) lease classification, and (c) whether capitalized costs associated
with a lease are initial direct costs. The practical expedient was applied consistently to all the Company’s leases,
including those for which the Company acts as the lessor. In addition, the Company elected the practical expedient
relating to the combination of lease and non-lease components as a single lease component. The Company chose not to
apply the hindsight practical expedient. The new lease guidance has been applied to all the Company’s leases as of
January 1, 2019, which impacted how operating lease assets and liabilities were recorded within the Consolidated
Balance Sheet, resulting in the recording of approximately $65.8 million of lease liabilities and approximately $55.6
million of right-of-use (“ROU”) assets on the Consolidated Balance Sheet. Deferred rent and sublease loss balances as of
January 1, 2019 of approximately $9.3 million and approximately $2.4 million, respectively, and intangible assets of
approximately $1.5 million were subsumed into the ROU asset at transition. Adoption of the new standard did not
materially affect the Company’s consolidated net earnings and had no impact on cash flows. See Note 3, Leases, for
more information.
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. The Company early
adopted ASU 2017-04 and it was effective for annual and interim impairment tests beginning January 1, 2019 using a
prospective approach. The adoption of this standard had no impact on the Company’s financial statements and related
disclosures.
New Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a
Service Contract, which clarifies that implementation costs incurred by customers in cloud computing arrangements are
deferred if they would be capitalized by customers in the software licensing arrangements under the internal-use
software guidance. ASU 2018-15 also clarifies that any capitalized costs should not be recorded to “Depreciation and
amortization” in the Consolidated Statements of Income. ASU 2018-15 is effective for the Company beginning January
1, 2020 and provides for the alternative to adopt the ASU (a) prospectively only for new costs incurred after the adoption
date or (b) by adjusting existing costs to comply with this standard, including the requirement to present the amortization
of costs outside “Depreciation and amortization”. The Company plans to adopt this ASU prospectively to all new
implementation costs incurred after adoption. Given this implementation approach, the adoption of the standard on
January 1, 2020 will have no immediate impact.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which eliminates certain
disclosure requirements for fair value measurements and requires new or modified disclosures. ASU 2018-13 is effective
for the Company beginning January 1, 2020; early adoption is permitted. Certain changes are applied retrospectively to
each period presented and others are to be applied either in the period of adoption or prospectively. The Company
believes the amendments of ASU 2018-13 will not have a significant impact on the Company’s financial statements and
related disclosures.
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3. Leases
The Company leases corporate offices, a distribution center, billboards and certain equipment. As all franchisees are
independently owned and operated, there are no leases recognized for any offices used by the Company’s franchisees.
The leases have remaining lease terms ranging from less than a year up to 14, some of which include one or more
options to renew, with renewal terms that can extend the lease term from one to 20 years depending on the lease. Of
these renewal options, the Company determined that none are reasonably certain to be exercised. All the Company’s
material leases are classified as operating leases.
The Company has a lease for its corporate headquarters office building (the “Master Lease”) that expires in 2028. 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 second optional renewal period resets to fair market rental value, and the rent escalates 3% each year until
expiration. The Company pays for insurance, property taxes and operating expenses of the leased space. The Master
Lease is the Company’s only significant lease.
The Company acts as the lessor for four sublease agreements on its corporate headquarters, consisting solely of
operating leases, each of which include a renewal option for the lessee to extend the length of the lease. Renewal options
for two of the sublease agreements are contingent upon renewal of the corporate headquarters lease, which is not
reasonably certain to be exercised in 2028. As such, the Company determined these sublease renewal options are not
reasonably certain to be exercised. Renewal options for the remaining two sublease agreements have already been
exercised and will expire before the end of the corporate headquarters lease in 2028.
The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise
from any of its short-term leases. All leases with a term of 12 months or less at commencement, for which the Company
is not reasonably certain to exercise available renewal options that would extend the lease term past 12 months, will be
recognized on a straight-line basis over the lease term.
The Company used its Senior Secured Credit Facility interest rate to extrapolate a rate for each of its leases to calculate
the present value of the lease liability and right-of-use asset. A summary of the Company’s lease cost is as follows (in
thousands, except for weighted-averages):
Year Ended
December 31, 2019
Lease Cost
Operating lease cost (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term lease cost (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
12,259
(1,508)
6,495
17,246
Other information
Cash paid for amounts included in the measurement of lease
liabilities
Operating cash outflows from operating leases . . . . . . . . . . . . . . $
Weighted-average remaining lease term in years - operating leases
Weighted-average discount rate - operating leases . . . . . . . . . . . . .
8,507
8.4
6.3 %
(a) Includes approximately $3.7 million of taxes, insurance and maintenance.
(b) Includes expenses associated with short-term leases of billboard advertisements and is included in “Marketing
Funds expenses” on the Consolidated Statements of Income.
86
Maturities under non-cancellable leases as of December 31, 2019 were as follows (in thousands):
Rent Payments Sublease Receipts
Total Cash
Outflows
Year ending December 31:
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
8,756 $
9,010
9,002
9,173
9,439
34,235
79,615 $
18,554
61,061
(888) $
(775)
(804)
(822)
(785)
(597)
(4,671) $
7,868
8,235
8,198
8,351
8,654
33,638
74,944
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, maturities
under non-cancellable leases as of December 31, 2018 were as follows (in thousands):
Rent Payments Sublease Receipts
Total Cash
Outflows
Year ending December 31:
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
9,402 $
9,601
9,341
9,011
9,169
43,556
90,080 $
(1,087) $
(873)
(775)
(804)
(827)
(1,382)
(5,748) $
8,315
8,728
8,566
8,207
8,342
42,174
84,332
4. Non-controlling Interest
Holdings is the sole managing member of RMCO and operates and controls all of the business affairs of RMCO. The
ownership of the common units in RMCO is summarized as follows:
As of December 31,
Shares
12,559,600
2019
Ownership %
Shares
41.3 % 12,559,600
2018
Ownership %
41.4 %
17,838,233
30,397,833
58.7 % 17,754,416
100.0 % 30,314,016
58.6 %
100.0 %
Non-controlling interest ownership of common units in RMCO . . . . .
Holdings outstanding Class A common stock (equal to Holdings
common units in RMCO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total common units in RMCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87
The weighted average ownership percentages for the applicable reporting periods are used to calculate the “Net income
attributable to RE/MAX Holdings, Inc.” A reconciliation of “Income before provision for income taxes” to “Net income
attributable to RE/MAX Holdings, Inc.” and “Net Income attributable to non-controlling interest” in the accompanying
Consolidated Statements of Income for the periods indicated is detailed as follows (in thousands, except percentages):
RE/MAX
Holdings,
Inc.
2019
Non-
controlling
interest
Total
Year Ended December 31,
2018
Non-
controlling
interest
Total
RE/MAX
Holdings,
Inc.
RE/MAX
Holdings,
Inc.
2017
Non-
controlling
interest
Total
Weighted average ownership
percentage of RMCO(a) . . . . . . . . . . . .
Income before provision for income
taxes(a) . . . . . . . . . . . . . . . . . . . . . . . . $ 33,850 $ 23,915 $ 57,765 $ 41,238 $ 24,926 $ 66,164 $ 65,493 $ 23,369 $ 88,862
Provision for income taxes(b)(c) . . . . . . . (8,810)
(57,542)
Net income . . . . . . . . . . . . . . . . . . . . . $ 25,040 $ 21,816 $ 46,856 $ 26,883 $ 22,939 $ 49,822 $ 10,099 $ 21,221 $ 31,320
(10,909)
(14,355)
(16,342)
(55,394)
100.0 %
100.0 %
41.4 %
58.6 %
41.4 %
41.5 %
58.5 %
58.6 %
(2,099)
(1,987)
(2,148)
100.0 %
(a) The weighted average ownership percentage of RMCO differs from the allocation of income before provision for
income taxes between Holdings and the non-controlling interest due to (i) certain relatively insignificant expenses
and (ii) the significant gain on reduction in TRA liability in 2018 and 2017 attributable only to Holdings. See Note
12, Income Taxes for additional information.
(b) The provision for income taxes attributable to Holdings is primarily comprised of U.S. federal and state income
taxes on its proportionate share of the pass-through income from RMCO. It also includes Holdings’ share of taxes
directly incurred by RMCO and its subsidiaries, related primarily to tax liabilities in certain foreign jurisdictions. In
2018 and 2017, the provision for income taxes attributable to Holdings also includes a significant decrease in the
value of deferred tax assets. See Note 12, Income Taxes for additional information.
(c) The provision for income taxes attributable to the non-controlling interest represents its share of taxes related
primarily to tax liabilities in certain foreign jurisdictions directly incurred by RMCO or its subsidiaries. Because
RMCO is a pass-through entity there is no U.S. federal and state income tax provision recorded on the non-
controlling interest.
Distributions and Other Payments to Non-controlling Unitholders
Under the terms of RMCO’s limited liability company operating agreement, RMCO makes cash distributions to non-
controlling unitholders on a pro-rata basis. The distributions paid or payable to non-controlling unitholders are
summarized as follows (in thousands):
Tax and other distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Dividend distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total distributions to non-controlling unitholders . . . . . . . . . . . . . . $
Year Ended
December 31,
2019
4,880 $
10,550
15,430 $
2018
4,511
10,048
14,559
On February 19, 2020, the Company declared a distribution to non-controlling unitholders of $2.8 million, which is
payable on March 18, 2020.
Holdings Ownership of RMCO and Tax Receivable Agreements
Holdings has twice acquired significant portions of the ownership in RMCO; first in October 2013 at the time of IPO
when Holdings acquired its initial 11.5 million common units of RMCO and, second, in November and December 2015
when it acquired 5.2 million additional common units. Holdings issued Class A common stock, which it exchanged for
these common units of RMCO. RIHI then sold the Class A common stock to the market.
When Holdings acquired common units in RMCO, it received a step-up in tax basis on the underlying assets held by
RMCO. The step-up is principally equivalent to the difference between (1) the fair value of the underlying assets on the
date of acquisition of the common units and (2) their tax basis in RMCO, multiplied by the percentage of units acquired.
The majority of the step-up in basis relates to intangibles assets, primarily franchise agreements and goodwill, and the
step-up is often substantial. These assets are amortizable under IRS rules and result in deductions on the Company’s tax
return for many years and consequently, Holdings receives a future tax benefit. These future benefits are reflected within
88
deferred tax assets on the Company’s consolidated balance sheets.
If Holdings acquires additional common units of RMCO from RIHI, the percentage of Holdings’ ownership of RMCO
will increase, and additional deferred tax assets will be created as additional tax basis step-ups occur.
In connection with the initial sale of RMCO common units in October 2013, Holdings entered into Tax Receivable
Agreements (“TRAs”) which require that Holdings make annual payments to the TRA holders equivalent to 85% of any
tax benefits realized on each year’s tax return from the additional tax deductions arising from the step-up in tax basis.
The TRA holders as of December 31, 2019 are RIHI and Parallaxes Rain Co-Investment, LLC (“Parallaxes”). TRA
liabilities were established for the future cash obligations expected to be paid under the TRAs and are not discounted. As
of December 31, 2019, this liability was $37.2 million and was recorded within “Current portion of payable pursuant to
tax receivable agreements” and “Payable pursuant to tax receivable agreement” in the Consolidated Balance Sheets.
Similar to the deferred tax assets, the TRA liabilities would increase if Holdings acquires additional common units of
RMCO from RIHI.
Both deferred tax assets and TRA liability were substantially reduced by the Tax Cuts and Jobs Act enacted in December
2017. The reduction in the corporate tax rate from 35% to 21% resulted in comparable reductions in both the deferred
tax asset amounts and the TRA liabilities. The deferred tax assets and TRA liabilities were further reduced in 2018 as a
result of the foreign tax provisions contained in the Tax Cuts and Jobs Act. See Note 12, Income Taxes for further
information on the impact of the Tax Cuts and Jobs Act.
5. 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 effect of time-based
restricted stock units. The dilutive effect of performance-based restricted stock units is measured using the guidance for
contingently issuable shares.
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. . . . . . . . . . . . . . . . . $
25,040 $
26,883 $
10,099
Denominator for basic net income per share of Class A common stock
Weighted average shares of Class A common stock outstanding . . . . . . 17,812,065 17,737,649 17,688,533
Denominator for diluted net income per share of Class A common stock
Weighted average shares of Class A common stock outstanding . . . . . . 17,812,065 17,737,649 17,688,533
Add dilutive effect of the following:
Year Ended December 31,
2018
2017
2019
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,267
Weighted average shares of Class A common stock outstanding, diluted 17,867,752 17,767,499 17,731,800
29,850
55,687
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.41 $
1.52 $
0.57
1.40 $
1.51 $
0.57
Outstanding Class B common stock does not share in the earnings of Holdings and is therefore not a participating
security. Accordingly, basic and diluted net income per share of Class B common stock has not been presented.
89
Dividends
Dividends declared and paid during each quarter ended per share on all outstanding shares of Class A common stock
were as follows (in thousands, except per share information):
2019
Year Ended December 31,
2018
2017
Quarter end declared
Date paid
March 31 . . . . . . . . . . . March 20, 2019
June 30 . . . . . . . . . . . . . May 29, 2019
September 30 . . . . . . . . August 29, 2019
December 31 . . . . . . . . . November 27, 2019
Per share
$
Date paid
0.21 March 21, 2018
0.21 May 30, 2018
0.21 August 29, 2018
0.21 November 28, 2018
0.84
Per share
$
Date paid
0.20 March 22, 2017
0.20 May 31, 2017
0.20 August 30, 2017
0.20 November 29, 2017
0.80
Per share
0.18
$
0.18
0.18
0.18
0.72
$
$
$
On February 19, 2020, the Company’s Board of Directors declared a quarterly dividend of $0.22 per share on all
outstanding shares of Class A common stock, which is payable on March 18, 2020 to stockholders of record at the close
of business on March 4, 2020.
6. Acquisitions
First
On December 16, 2019, the Company acquired First Leads, Inc. (“First”) for $15 million in cash generated from
operations. First is a mobile app that leverages data science, machine learning and human interaction to help real estate
professionals better leverage the value of their personal network and was acquired to complement the Company’s
technology offerings and booj Platform.
Marketing Funds
On January 1, 2019, the Company acquired all of the regional and pan-regional advertising fund entities previously
owned by its founder and Chairman of the Board of Directors, David Liniger, for a nominal amount. As in the past, the
Marketing Funds are contractually obligated to use the funds collected to support both regional and pan-regional
marketing campaigns designed to build and maintain brand awareness and to support the Company’s agent marketing
technology. The Company does not plan for the use of the funds to change because of this acquisition and consolidation.
The acquisitions of the Marketing Funds are part of the Company’s succession plan, and ownership of the Marketing
Funds by the franchisor is a common structure. Expenses incurred with the acquisition of the Marketing Funds were not
material.
The total assets equal the total liabilities of the Marketing Funds and beginning January 1, 2019, are reflected in the
consolidated financial statements of the Company. The Company also began recognizing revenue from the amounts
collected, which substantially increased its revenues and expenses.
The following table summarizes the Company’s allocation of the purchase price to the fair value of assets acquired and
liabilities assumed (in thousands):
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net of current portion . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . .
Total acquisition price . . . . . . . . . . . . . . . . . . . . . . . .
$
$
28,495
8,472
788
126
37,881
37,881
37,881
-
The Marketing Funds constitutes a business and was accounted for using the fair value acquisition method. The total
purchase price was allocated to the assets acquired based on their estimated fair values.
90
Booj, LLC
On February 26, 2018, the Company acquired all membership interests in booj using $26.3 million in cash generated
from operations, plus up to approximately $10.0 million in equity-based compensation to be earned over time, based on
grant date fair value, which will be accounted for as compensation expense in the future (see Note 13, Equity-Based
Compensation for additional information). The Company acquired booj in order to deliver core technology solutions
designed for and with RE/MAX affiliates.
The following table summarizes the Company’s allocation of the purchase price to the fair value of assets acquired and
liabilities assumed (in thousands):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreement . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net of current portion . . . . . . . . . . . . . . . . .
Total assets acquired, excluding goodwill . . . . . . . . .
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
362
367
625
7,400
500
1,200
800
1,589
336
13,179
(606)
(557)
(805)
(1,968)
15,039
26,250
Booj constitutes a business and was accounted for using the fair value acquisition method. The total purchase price was
allocated to the assets acquired based on their estimated fair values. The largest intangible assets acquired were valued
using an income approach which utilizes Level 3 inputs and are being amortized over a weighted-average useful life
using the straight-line method. The excess of the total purchase price over the fair value of the identifiable assets
acquired was recorded as goodwill. The goodwill is attributable to expected synergies and projected long-term revenue
growth for the RE/MAX network. All of the goodwill recognized is tax deductible.
Independent Region Acquisition
On November 15, 2017, the Company acquired certain assets of RE/MAX of Northern Illinois, Inc. for $35.7 million
using cash generated from operations. The Company acquired the franchise agreements issued by the Company
permitting the sale of RE/MAX franchises in the corresponding region as well as the franchise agreements between the
region and the franchisees. The Company acquired these assets in order to expand its owned and operated regional
franchising operations.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information reflects the consolidated results of operations of the Company
as if the acquisition of the Marketing Funds had occurred January 1, 2018, the acquisition of booj had occurred on
January 1, 2017 and the acquisition of RE/MAX of Northern Illinois had occurred on January 1, 2016. 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
91
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 Holdings . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
287,394
26,131
1.47
1.47
$
$
$
$
205,059
7,628
0.43
0.43
Year Ended December 31,
2018
2017
(in thousands, except per share amounts)
7. 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 . 2 - 10 years
Total property and equipment . . . . . . .
Less accumulated depreciation . . . . . . . . .
Total property and equipment, net . . .
$
As of December 31,
2019
2018
3,327 $
17,057
20,384
(14,940)
5,444 $
3,278
14,392
17,670
(13,280)
4,390
Depreciation expense was $1.7 million, $1.2 million and $0.9 million for the years ended December 31, 2019, 2018 and
2017, respectively.
8. 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, 2019
Accumulated
Amortization
Initial
Cost
Net
Balance
As of December 31, 2018
Accumulated
Amortization
Net
Balance
Initial
Cost
Franchise agreements . . . . . . .
Other intangible assets:
Software (a) . . . . . . . . . . .
Trademarks . . . . . . . . . .
Non-compete agreements
Training materials . . . . .
Other (b) . . . . . . . . . . . . . .
Total other intangible assets . .
12.5 $ 180,867 $ (93,197) $ 87,670 $ 180,867 $ (77,710) $ 103,157
4.0 $ 36,680 $
9.3
7.7
5.0
5.0
4.6 $ 45,484 $ (13,169) $ 32,315 $ 30,875 $
(9,653) $ 27,027 $ 20,579 $
867
(1,037)
2,154
(1,546)
1,760
(640)
507
(293)
1,857
3,700
2,350
2,389
1,904
3,700
2,400
800
(5,802) $ 14,777
1,018
2,804
2,193
2,173
(7,910) $ 22,965
(839)
(896)
(157)
(216)
(a) As of December 31, 2019, and December 31, 2018, capitalized software development costs of $10.5 million and
$4.5 million, respectively, were related to technology projects not yet complete and ready for their intended use and
thus were not subject to amortization.
(b) Other consists of customer relationships and a favorable market lease, both obtained in connection with the
acquisition of booj. The favorable market lease was subsumed into “Operating lease right of use assets” on the
accompanying Consolidated Balance Sheet upon adopting the new lease standard on January 1, 2019. See Note 2,
Summary of Significant Accounting Policies for additional information.
Amortization expense was $20.6 million, $19.5 million and $19.6 million for the years ended December 31, 2019, 2018
and 2017, respectively.
92
As of December 31, 2019, the estimated future amortization expense for the next five years related to intangible assets
includes the estimated amortization expense associated with the Company’s intangible assets assumed with the
acquisition of booj and is as follows (in thousands):
Year ending December 31:
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
25,438
25,122
21,946
14,594
12,146
99,246
The following table presents changes to goodwill for the period from January 1, 2018 to December 31, 2019 (in
thousands):
Balance, January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Goodwill recognized related to acquisitions(a) . . . . . . . . . . . . . . . . . . . . . .
Adjustments to acquisition accounting during the measurement period . . .
Effect of changes in foreign currency exchange rates . . . . . . . . . . . . . . . . .
Balance, December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill recognized related to acquisitions(a) . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in foreign currency exchange rates . . . . . . . . . . . . . . . . .
Balance, December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
RE/MAX
Franchising
123,413
15,039
700
(268)
138,884
8,207
147
147,238 $
Motto
Franchising
11,800 $
—
—
—
11,800
—
—
11,800 $
Total
135,213
15,039
700
(268)
150,684
8,207
147
159,038
(a) The purpose of the booj and First acquisitions is to deliver technology solutions to RE/MAX franchisees and agents.
As such, the Company allocated the goodwill arising from these acquisitions to RE/MAX Franchising. See Note 6,
Acquisitions for additional information.
9. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Marketing Funds (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and related employee costs . . . . . . . . . . . . . . . . . . . . .
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2019
2018
39,672
11,900
2,451
2,047
4,093
60,163
$
$
—
6,517
1,480
2,010
3,136
13,143
$
$
(a) Consists primarily of liabilities recognized to reflect the contractual restriction that all funds collected in the
Marketing Funds must be spent for designated purposes. See Note 2, Summary of Significant Accounting Policies
for additional information. As previously noted, the Marketing Funds were acquired on January 1, 2019.
93
10. Debt
Debt, net of current portion, consists of the following (in thousands):
Senior Secured Credit Facility . . . . . . . . . . . . . . . . . . . . $
Other long-term financing(a) . . . . . . . . . . . . . . . . . . . . . .
Less unamortized debt issuance costs . . . . . . . . . . . . . .
Less unamortized debt discount costs . . . . . . . . . . . . . .
Less current portion(a) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
As of December 31,
2019
227,363 $
362
(1,182)
(862)
(2,648)
223,033 $
2018
229,713
635
(1,481)
(1,080)
(2,622)
225,165
(a) Includes financing assumed with the acquisition of booj. As of December 31, 2019 and 2018, the carrying value of
this financing approximates the fair value.
Maturities of debt are as follows (in thousands):
Year Ended December 31, 2019
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2,648
2,414
2,350
220,313
227,725
Senior Secured Credit Facility
In July 2013, the Company entered into a credit agreement with several lenders and administered by a bank, referred to
herein as the “2013 Senior Secured Credit Facility.” In December 2016, the 2013 Senior Secured Credit Facility was
amended and restated, referred to herein as the “Senior Secured Credit Facility.” The Senior Secured Credit Facility
consists of a $235.0 million term loan facility which matures on December 15, 2023 and a $10.0 million revolving loan
facility which must be repaid on December 15, 2021. In connection with the Senior Secured Credit Facility, the
Company incurred costs of $3.5 million during 2016, of which $1.4 million was recorded in “Debt, net of current
portion” in the accompanying Consolidated Balance Sheets and is being amortized to interest expense over the term of
the Senior Secured Credit Facility and the remaining $2.1 million was expensed as incurred.
Borrowings under the term loans and revolving loans accrue interest, at the Company’s option on (a) LIBOR provided
LIBOR shall be no less than 0.75% plus an applicable margin of 2.75% and, provided further, that LIBOR shall be
adjusted for reserve requirements for eurocurrency liabilities, if any (the “LIBOR rate”) or (b) the greatest of (i)
JPMorgan Chase Bank N.A.’s prime rate, (ii) the NYFRB Rate (as defined in the 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 ABR loans is 1.75%. As of December 31, 2019, the Company selected the
LIBOR rate resulting in an interest rate on the term loan facility of 4.55%.
The 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 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 Senior Secured Credit Facility is in excess of 3.25:1.00, with such
percentage decreasing to zero as RE/MAX, LLC’s leverage ratio decreases below 2.75 to 1.0. The Company’s total
leverage ratio was less than 2.75 to 1.0 as of December 31, 2019, and as a result, the Company does not expect to make
an excess cash flow principal prepayment within the next 12-month period. 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, 2019.
Whenever amounts are drawn under the revolving line of credit, the 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, 2019, no amounts were drawn on the revolving line of credit.
94
11. Fair Value Measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined
based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering
assumptions, the Company follows a three-tier fair value hierarchy, which 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. The fair value of the Company’s debt reflects a Level 2 measurement and was
estimated based on quoted prices for the Company’s debt instruments in an inactive market.
• 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 Motto.
A summary of the Company’s liabilities measured at fair value on a recurring basis is as follows (in thousands):
Fair Value Level 1
Level 3
Fair Value Level 1 Level 2 Level 3
As of December 31, 2019
As of December 31, 2018
Liabilities
Contingent consideration . . . $ 5,005 $
—
— $
5,005 $ 5,070 $
— $
— $ 5,070
The Company is required to pay additional purchase consideration totaling 8% of gross receipts collected by Motto each
year (the “Revenue Share Year”) through September 30, 2026, with no limitation as to the maximum payout. The annual
payment is required to be made within 120 days of the end of each Revenue Share Year. Each Revenue Share Year ends
September 30. The fair value of the contingent purchase consideration represents the forecasted discounted cash
payments that the Company expects to pay. 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 revenues. The
forecasted revenue growth assumption that is most sensitive related to assumed franchise sales count for which the
forecast assumes between 50 and 80 franchises sold annually. This assumption is based on historical sales and an
assumption of growth over time. A 10% reduction in the number of franchise sales would decrease the liability by $0.3
million. A 1% change to the discount rate applied to the forecast changes the liability by approximately $0.2 million.
The Company measures this liability each reporting period and recognizes changes in fair value, if any, in “Selling,
operating and administrative expenses” in the accompanying Consolidated Statements of Income.
The table below presents a reconciliation of the contingent consideration (in thousands):
Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustments (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustments (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
6,580
(1,289)
(221)
5,070
241
(306)
5,005
(a) Fair value adjustments relate to realignment of future franchise sales assumptions to more closely reflect historical
sales trends from inception to date.
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, 2019.
95
The following table summarizes the carrying value and estimated fair value of the Senior Secured Credit Facility (in
thousands):
Senior Secured Credit Facility . . . . . . . $
225,319
$
227,363 $
227,152 $
221,673
December 31,
2019
December 31,
2018
Carrying
Amount
Fair Value
Level 2
Carrying
Amount
Fair Value
Level 2
12. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
44,343 $
13,422
57,765 $
52,798 $
13,366
66,164 $
77,346
11,516
88,862
Components of the “Provision for income taxes” in the accompanying Consolidated Statements of Income consist of the
following (in thousands):
Year Ended December 31,
2018
2019
2017
Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred expense
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2018
2019
2017
2,533 $
4,929
1,137
8,599
2,084
(142)
368
2,310
10,909 $
1,393 $
4,738
700
6,831
8,795
12
704
9,511
16,342 $
3,239
5,203
1,169
9,611
47,045
323
563
47,931
57,542
The provision for income taxes attributable to Holdings includes all U.S. federal and state income taxes on Holdings’
proportionate share of RMCO’s net income. The provision for income taxes attributable to entities other than Holdings
represents taxes imposed directly on RMCO and its subsidiaries, primarily foreign taxes that are allocated to the non-
controlling interest.
96
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 . . . . .
Non-creditable foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign derived intangible income deduction . . . . . . . . . . . . . . . .
Income attributable to non-controlling interests . . . . . . . . . . . . . .
Uncertain Tax Positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of TRA adjustment on NCI (a) . . . . . . . . . . . . . . . . . . . . . .
Effect of permanent difference - TRA adjustment (b) . . . . . . . . . .
Tax Reform Rate Change (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance recognized on basis step-ups . . . . . . . . . . . .
Year Ended December 31,
2018
2019
2017
21.0 %
3.1
1.1
(1.5)
(7.2)
1.0
1.4
18.9
-
-
-
-
18.9 %
21.0 %
3.1
1.2
(1.3)
(7.3)
0.8
(0.8)
16.7
0.7
(2.2)
-
9.5
24.7 %
35.0 %
2.6
-
-
(12.5)
0.6
(0.8)
24.9
4.5
(13.6)
49.0
-
64.8 %
(a) Reflects additional impact of non-controlling interest adjustment being on a larger base of income that includes the
gain on reduction in TRA liability.
(b) Reflects the impact of gain on TRA liability reduction, which is not taxable.
(c) Reflects reduction in deferred tax assets and resulting increase in deferred tax expense due to U.S. Federal rate
declining from 35% to 21%.
In December 2017, the Tax Cut and Jobs Act (the “TCJA”) was enacted, which included a significant reduction in the
U.S. corporate income tax rate from 35% to 21% along with several changes to taxation of foreign derived income. In
2017, the Company recorded a $42.8 million charge to “Provision for income taxes” in the accompanying Consolidated
Statements of Income for the reduction in the value of its deferred tax assets related to this tax rate change (reflected in
the rate reconciliation table above as a 49.0% adjustment in 2017). Correspondingly, the TRA liabilities were reduced
because of the rate change, resulting in a benefit to operating income of $32.7 million. The net effect of these two
adjustments was a reduction to 2017 net income of $10.1 million. When the aforementioned adjustments were recorded
in 2017, the Company was still evaluating several aspects of the TCJA, most notably around foreign derived income.
In 2018, the Company completed its evaluation of the impacts to its foreign derived income, particularly the tax credits
received for foreign taxes and deductions allowed under the newly created foreign-derived intangible income deduction.
The SEC staff issued Staff Accounting Bulletin 118 and later ASU 2018-05, which provided all companies through
December of 2018 to finalize provisional estimates of the impacts of the TCJA.
Starting with tax year 2018, the Company has foreign tax credit limitation due to the U.S. federal tax rate being lower
than many foreign jurisdictions, particularly Canada. Certain of the tax basis step-ups, described in Note 4, Non-
controlling interest, are related to intangible assets from the Company’s Western Canada operations. The deductions
expected to be taken from these tax basis step-ups are no longer expected to be realized by the Company due to now
being subject to a foreign tax credit limitation. As a result, the Company recognized a $6.3 million valuation allowance
against the related deferred tax assets and an increase in “Provision for income taxes” in the accompanying Consolidated
Statements of Income (reflected in the rate reconciliation table above as a 9.5% adjustment in 2018). The loss in value of
the step-up, along with other less significant changes, also reduced the value of the TRA liabilities, resulting in a $6.1
benefit to operating income. The net impact of these items was insignificant to net income. In addition, the Company is
now limited on the amount of foreign tax credit that can be claimed in its U.S. return.
The Company will continue to evaluate tax planning opportunities as well as monitor any changes that might be
contained in the final regulations related to foreign derived income. Such remaining final regulations are expected in
2020.
Income taxes (payable) receivable, net were ($4.3) million and $0.3 million at December 31, 2019 and 2018,
respectively.
97
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.
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,
2019
2018
Long-term deferred tax assets
Goodwill, other intangibles and other assets . . . . . . . . . . . . . . . . . . . $
Imputed interest deduction pursuant to tax receivable agreements .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Motto contingent liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credit carryforward. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term deferred tax assets, net of valuation allowance .
42,800 $
2,651
1,618
3,043
1,629
783
3,706
1,862
2,641
950
61,683
(7,184)
54,499
Long-term deferred tax liabilities
Property and equipment and other long lived assets . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term deferred tax liabilities . . . . . . . . . . . . . . . . . . . . .
Net long-term deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . $
(1,494)
(703)
(2,197)
52,302
52,302 $
48,427
2,719
1,845
2,131
944
748
3,939
1,259
—
1,435
63,447
(7,051)
56,396
(2,944)
—
(2,944)
53,452
53,452
(a) Includes a valuation allowance on deferred tax assets for goodwill and intangibles in the Company’s Western
Canada operations, as well as foreign tax credit carryforwards.
As of December 31, 2019, the Company generated $1.1 million in unutilized foreign tax credits. These credits may be
carried back one year and carried forward for 10 years until utilized. This amount is included in the valuation allowance
as of December 31, 2019.
Net deferred tax assets are recorded related to differences between the financial reporting basis and the tax basis of
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 determines
whether 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. If not expected to be realized, a valuation allowance is recognized to offset the
deferred tax asset.
The Company and its subsidiaries file, or will file, income tax returns in the U.S. federal jurisdiction and various states
and foreign jurisdictions. Holdings will file its 2019 income tax returns by October 15, 2020. 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. 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. As such, income tax returns filed since 2015 are subject to examination.
Uncertain Tax Positions
In 2019, the Company corrected immaterial errors to recognize uncertain tax position liabilities, and related tax expense
for certain foreign tax matters, along with deferred tax assets for amounts of such foreign taxes expected to be creditable
98
in the U.S. The Company concluded that the omission of tax expense for these matters from prior period financials was
immaterial to each of the affected reporting periods and therefore amendment of previously filed reports was not
required. However, the Company corrected those amounts in the prior years included herein. These adjustments resulted
in an increase in “Provision for income taxes” of $0.5 million for each of the years ended December 31, 2018, and 2017,
respectively. In addition, the Company recognized an uncertain tax position liability of $5.8 million (including interest
and penalties), an income tax receivable of $1.4 million, a deferred tax asset of $0.2 million and a resulting reduction in
“Total stockholders’ equity” of $4.2 million as of December 31, 2018 in the Consolidated Balance Sheets. The Company
recognized a $3.7 million reduction in “Total stockholders’ equity” in the Consolidated Statements of Stockholders’
Equity as of December 31, 2017 in relation to this correction.
While the Company believes the liabilities recognized for uncertain tax positions are adequate to cover reasonably
expected tax risks, there can be no assurance that an issue raised by a tax authority will be resolved at a cost that does not
exceed the liability recognized. Interest and penalties are accrued on uncertain tax positions and included in the
“Provision for income taxes” in the accompanying Consolidated Statements of Income.
Uncertain tax position liabilities represent the aggregate tax effect of differences between the tax return positions and the
amounts otherwise recognized in the consolidated financial statements and are recognized in “Income taxes payable” in
the Consolidated Balance Sheets. A reconciliation of the beginning and ending amount, excluding interest and penalties
is as follows:
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Increase related to current period tax positions . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
As of December 31,
2019
2018
4,278 $
532
4,810 $
3,703
575
4,278
(a) Excludes accrued interest and penalties of $1.9 million and $1.5 million for the years ended December 31, 2019 and
2018, respectively. These related interest and penalties are recognized in “Income taxes payable” within the
Consolidated Balance Sheets.
The Company’s uncertain tax position has a reasonable possibility of being paid within the next 12 months.
13. Equity-Based Compensation
The RE/MAX Holdings, Inc. 2013 Omnibus Incentive Plan (the “Incentive Plan”) includes restricted stock units which
may have time-based or performance-based vesting criteria. 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 vesting of restricted stock units in “Provision for
income taxes” in the accompanying Consolidated Statements of Income.
Employee stock-based compensation expense under the Company’s Incentive Plan, net of the amount capitalized in
internally developed software, is as follows (in thousands):
Expense from Time-based awards (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Expense from Performance-based awards (a)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense from bonus to be settled in shares (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation capitalized (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from equity-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deficit / (excess) tax benefit from equity-based compensation . . . . . . . . . . . . . . . .
Net compensation cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2018
5,189 $
4,126
—
(139)
9,176
(1,297)
(145)
7,734 $
2019
7,554 $
(179)
3,788
(229)
10,934
(1,548)
55
9,441 $
2017
2,523
377
—
—
2,900
(637)
(324)
1,939
(a) Includes expense recognized and costs capitalized in connection with the awards granted to booj employees and
former owners at the time of acquisition.
99
(b) Expense recognized for performance-based awards is re-assessed each quarter based on expectations of
achievement against the performance conditions. For the year ended December 31, 2019, the Company reversed
expense that had been recognized in 2018 for awards granted for certain booj work deliverables. This reversal was
primarily a result of modifying the awards to extend the due date of the performance conditions, primarily through
December 31, 2019, as the achievement of the goals at the previous date was no longer probable. Accounting for
these modifications resulting in the reversal of the cumulative expense previously recognized and expensing the
modified awards over the new vesting period resulting in a net $0.3 million recognized in 2019. Also, for the year
ended December 31, 2019, certain conditions were no longer deemed probable of being met for other performance
awards tied to the achievement of a revenue target measured over a three-year performance period. The cumulative
expense previously recognized was reversed in the current period, resulting in a negative expense of ($0.5) million
in 2019.
(c) In 2019, the Company revised its annual bonus plan so that half of the bonus for most employees will be settled in
shares. The share amounts to be issued will be determined based on the stock price at the time of vesting in early
2020. These amounts are recognized as “Accrued liabilities” in the accompanying Consolidated Balance Sheets and
are not included in “Additional paid-in capital” until shares are issued.
Time-based Restricted Stock Units
Time-based restricted stock units (“RSUs”) are valued using the Company’s closing stock price on the date of grant.
Grants awarded to the Company’s Board of Directors generally vest over a one-year period. Grants awarded to the
Company’s employees, other than booj employees and former owners in connection with the acquisition, generally vest
equally in annual installments over a three-year period. Grants awarded to booj employees and former owners in
connection with the acquisition vest in three installments over a four-year period. Compensation expense is recognized
on a straight-line basis over the vesting period.
The following table summarizes equity-based compensation activity related to RSUs:
RSUs
Weighted average
grant date fair
value per share
Balance, January 1, 2019 . . . . . . . . . . . . . . . . . . . . . . .
Granted (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares vested (including tax withholding) (b) . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2019 . . . . . . . . . . . . . . . . . . . .
298,610 $
257,087 $
(80,008) $
(20,237) $
455,452 $
51.97
38.43
43.30
45.41
46.15
(a) The weighted average grant date fair value for the years ended December 31, 2018 and 2017 were $53.04 and
$55.45 per RSU granted, respectively.
(b) Pursuant to the terms of the 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.
At December 31, 2019, there was $12.6 million of total unrecognized RSU expense. This compensation expense is
expected to be recognized over the weighted-average remaining vesting period of 2.1 years for RSUs.
Performance-based Restricted Stock Units
Performance-based restricted stock units (“PSUs”) granted to employees, other than booj employees and former owners
in connection with the acquisition, are stock-based awards in which the number of shares ultimately received depends on
the Company’s achievement of either a specified revenue target or the Company’s total shareholder return (“TSR”)
relative to a peer company index over a three-year performance period or achievement of both. If the minimum threshold
conditions are not met, no shares will vest. The number of shares that could be issued range from 0% to 150% of the
participant’s target award. PSUs are valued on the date of grant using a Monte Carlo simulation for the TSR element of
the award. PSUs that vest upon achievement of a specified revenue target are valued using the Company’s closing stock
price on the date of grant. The Company’s expense will be adjusted based on the estimated achievement of revenue
versus target. Earned PSUs cliff-vest at the end of the three-year performance period. Compensation expense is
recognized on a straight-line basis over the vesting period based on the Company’s probable performance, with
cumulative to-date adjustments made when revenue performance expectations change.
100
PSUs granted to booj employees and former owners in connection with the acquisition are stock-based awards in which
the number of shares ultimately received depends on the achievement of certain technology milestones set forth in the
related purchase agreement. The number of shares that could be issued range from 0% to 100% of the participant’s target
award. The awards were valued using the Company’s closing stock price on the date of grant. The Company’s expense
will be adjusted based on the estimated achievement of the milestones. The majority of these PSUs vested July 29, 2019
and December 31, 2019. The remaining PSUs vest on February 15, 2020 to the extent the corresponding milestones are
achieved and provided the participant is still an employee of the Company at the time of vesting. Compensation expense
is recognized on a straight-line basis over the vesting period based on the Company’s estimated performance, subject to
adjustment for changes in expectations of the achievement of the technology milestones.
The following table summarizes equity-based compensation activity related to PSUs:
Balance, January 1, 2019 . . . . . . . . . . . . . . . . . . . . .
Granted (a)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares vested . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2019 . . . . . . . . . . . . . . . . . .
PSUs
Weighted average
grant date fair
value per share
179,615 $
119,410 $
(97,436) $
(61,625) $
139,964 $
55.75
38.87
36.20
56.24
45.31
(a) Represents the total participant target award.
(b) The weighted average grant date fair value for the years ended December 31, 2018 and 2017 were $55.38 and
$57.88 per PSU granted, respectively.
At December 31, 2019, there was $2.3 million of total unrecognized PSU expense. This compensation expense is
expected to be recognized over the weighted-average remaining vesting period of 1.8 years for PSUs.
After giving effect to all outstanding awards (assuming maximum achievement of performance goals for performance-
based awards), there were 2,122,970 additional shares available for the Company to grant under the Incentive Plan as of
December 31, 2019.
14. Leadership Changes and the New Service Model
On February 9, 2018, the Company announced the retirement of the Company’s President. The Company entered into a
Separation Agreement with the President, and pursuant to the terms of this agreement, the Company incurred a total cost
of $1.8 million which was recorded to “Selling, operating and administrative expenses” in the accompanying
Consolidated Statements of Income during the year ended December 31, 2018, which will be paid over a 39-month
period.
In addition, the Company announced a new service model in early 2019 designed to deliver more value to franchisees, as
well as support franchisee growth and professional development (the “New Service Model”). In connection with the
New Service Model, the Company incurred a total of approximately $2.1 million in expenses related to severance and
outplacement services provided to certain former employees of the Company, of which $1.4 million in expense was
recognized during the year ended December 31, 2018 and the remainder was recognized in 2019. These expenses are
included in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income.
All of the above costs were attributable to the RE/MAX Franchising reportable segment.
15. Commitments and Contingencies
Contingencies
In connection with the sale of the assets and liabilities related to the Company’s previously owned brokerages, 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 through July 2021
under the respective lease agreements and accordingly, as of December 31, 2019, the Company has outstanding lease
101
guarantees of $1.1 million. This amount represents the maximum potential amount of future payments under the
respective lease guarantees.
In addition, the Company maintains a self-insurance program for health benefits. As of December 31, 2019, and 2018,
the Company recorded a liability of $0.3 million and $0.3 million, respectively, related to this program.
Litigation
In March and April of 2019, three putative class action complaints were filed against National Association of Realtors
(“NAR”), Realogy Holdings Corp., HomeServices of America, Inc, RE/MAX Holdings, and Keller Williams Realty,
Inc. The first was filed on March 6, 2019, by plaintiff Christopher Moehrl in the Northern District of Illinois. The second
was filed on April 15, 2019, by plaintiff Sawbill Strategies, Inc., also in the Northern District of Illinois. These two
actions have now been consolidated. A third action was filed by plaintiffs Joshua Sitzer and four other individual
plaintiffs in the Western District of Missouri. The complaints (collectively “Moehrl/Sitzer suits”) make substantially
similar allegations and seek substantially similar relief. The plaintiffs allege that a NAR rule requires brokers to make a
blanket, non-negotiable offer of buyer broker compensation when listing a property, resulting in inflated costs to sellers
in violation of federal antitrust law. They further allege that certain defendants use their agreements with franchisees to
require adherence to the NAR rule in violation of federal antitrust law. Amended complaints add allegations regarding
buyer steering and non-disclosure of buyer-broker compensation to the buyer. Additionally, plaintiffs in the action filed
by Sitzer et al allege violations of the Missouri Merchandising Practices Act. By agreement, RE/MAX, LLC was
substituted for RE/MAX Holdings as defendant in the actions. Among other requested relief, plaintiffs seek damages
against the defendants and an injunction enjoining defendants from requiring sellers to pay the buyer broker. The
Company intends to vigorously defend against all claims.
On October 7, 2013, RE/MAX Holdings acquired the net assets, excluding cash, of Tails for consideration paid of $20.2
million. Following earlier litigation that was dismissed, several shareholders of Tails filed a complaint 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"). On February 13, 2018, the parties
signed a formal Settlement Agreement and Mutual General Release resulting in the Company recording a charge of $2.6
million in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income
during the year ended December 31, 2017. In February 2018, the Company received $1.9 million from its insurance
carriers as reimbursement of attorneys’ fees and a portion of the settlement and paid $4.5 million to satisfy the terms of
the Settlement Agreement. As a result of the settlement, the litigation was dismissed with prejudice on March 1, 2018.
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, 2019, 2018 and 2017, the Company recognized expense of
$2.1 million, $1.8 million and $1.5 million, respectively, for matching contributions to the 401(k) Plan.
17. Related-Party Transactions
The majority stockholders of RIHI, specifically the Company’s current Chairman and Co-Founder and the Company’s
Vice Chair and Co-Founder have made and continue to make a golf course they own available to the Company for
business purposes. The Company used the golf course and related facilities for business purposes at minimal charge
during the years ended December 31, 2019, 2018 and 2017. Additionally, the Company recorded expense of $0.5 million
for the value of the benefits provided to Company personnel and others for the complimentary use of the golf course
during each year ended December 31, 2019, 2018 and 2017, with an offsetting increase in additional paid in capital.
The Company also provided support services to the Marketing Funds prior to their acquisition on January 1, 2019. See
Note 2 Summary of Significant Accounting Policies and Note 6 Acquisitions for additional information.
102
18. Segment Information
The Company operates under the following four operating segments: RE/MAX Franchising, Motto Franchising,
Marketing Funds and booj. Due to quantitative insignificance, the booj operating segment does not meet the criteria of a
reportable segment and is included in “Other”. Motto Franchising does not meet the quantitative significance test;
however, management has chosen to report results for the segment as it believes it will be a key driver of future success
for Holdings. Management evaluates the operating results of its segments based upon revenue and adjusted earnings
before interest, the provision for income taxes, depreciation and amortization and other non-cash and non-recurring cash
charges or other items (“Adjusted EBITDA”). The Company’s presentation of Adjusted EBITDA may not be
comparable to similar measures used by other companies. Except for the adjustments identified below in arriving at
Adjusted EBITDA, the accounting policies of the reportable segments are the same as those described in Note 2,
Summary of Significant Accounting Policies.
The following table presents revenue from external customers by segment (in thousands):
$
Year Ended December 31,
2018*
98,828
35,894
46,871
22,911
204,504
2,276
260
2,536
—
5,586
212,626
*Amounts in the years ended December 31, 2018 and 2017 have been recast to show Motto separately.
Continuing franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise sales and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total RE/MAX Franchising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise sales and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Motto Franchising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing Funds fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
95,853
35,409
45,990
22,383
199,635
4,075
468
4,543
72,299
5,816
282,293
$
$
$
$
$
2017*
93,232
33,767
43,801
22,357
193,157
462
95
557
—
—
193,714
103
The following table presents a reconciliation of Adjusted EBITDA by segment to income before provision for income
taxes (in thousands):
$
$
$
Year Ended December 31,
2018*
108,669
Adjusted EBITDA: RE/MAX Franchising . . . . . . . . . . . . . . . . . . . . .
(3,436)
Adjusted EBITDA: Motto Franchising . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA: Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(917)
Adjusted EBITDA: Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104,316
Gain (loss) on sale or disposition of assets and sublease, net (a) . . . .
139
(9,176)
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related expense (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,634)
Gain on reduction in TRA liability (c) . . . . . . . . . . . . . . . . . . . . . . . . .
6,145
Special Committee investigation and remediation expense (d) . . . . . .
(2,862)
Fair value adjustments to contingent consideration (e) . . . . . . . . . . . .
1,289
676
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12,051)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20,678)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66,164
Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . .
*Amounts in the years ended December 31, 2018 and 2017 have been recast to show Motto separately.
2019
106,810
(2,709)
(586)
103,515
(342)
(10,934)
(1,127)
—
—
(241)
1,446
(12,229)
(22,323)
57,765
$
$
$
2017*
105,184
(3,039)
—
102,145
(4,260)
(2,900)
(5,889)
32,736
(2,634)
(180)
352
(9,996)
(20,512)
88,862
(a) Represents gain (loss) on the sale or disposition of assets as well as the gains (losses) on the sublease of a portion of
our corporate headquarters office building.
(b) Acquisition-related expense includes legal, accounting, advisory and consulting fees incurred in connection with the
acquisition and integration of acquired companies.
(c) Gain on reduction in tax receivable agreement liability is a result of the Tax Cuts and Jobs Act enacted in December
2017 and further clarified in 2018. See Note 12, Income Taxes for additional information.
(d) Special Committee investigation and remediation expense relates to costs incurred in relation to the previously
disclosed investigation by the special committee of independent directors of actions of certain members of our
senior management and the implementation of the remediation plan.
(e) Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair
value of the contingent consideration liability. See Note 11, Fair Value Measurements for additional information.
The following table presents total assets of the Company’s segments (in thousands):
RE/MAX Franchising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Motto Franchising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
*Amounts as of December 31, 2018 have been recast to show Motto separately.
As of December 31,
2019
479,370
41,090
20,161
1,731
542,352
2018*
406,643
—
21,346
384
428,373
$
$
The following table presents long-lived assets, net of accumulated depreciation disaggregated by geographical area (in
thousands):
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
5,406
38
5,444
$
$
4,342
48
4,390
As of December 31,
2019
2018
104
19. Quarterly Financial Information (unaudited)
Summarized quarterly results were as follows (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 Holdings . . . . . . . . $
Net income attributable to Holdings per share
of Class A common stock
March 31, 2019 June 30, 2019
71,178 $
58,233
12,945
(2,780)
10,165
(1,908)
8,257
71,381 $
49,311
22,070
(2,751)
19,319
(3,186)
16,133
September 30, 2019 December 31, 2019
68,193
58,213
9,980
(2,416)
7,564
(2,362)
5,202
71,541 $
48,097
23,444
(2,727)
20,717
(3,453)
17,264
3,848
4,409
$
7,563
8,570
$
8,091
9,173
$
2,314
2,888
Basic . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . $
0.25
0.25
$
$
0.48
0.48
$
$
0.51
0.51
$
$
0.16
0.16
Weighted average shares of Class A common
stock outstanding
Basic . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . .
17,775,381
17,817,620
17,808,321
17,833,958
17,826,332
17,840,158
17,837,386
17,978,431
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 Holdings . . . . . . . . $
Net income attributable to Holdings per share
of Class A common stock
March 31, 2018
June 30, 2018
52,642 $
38,925
13,717
(2,688)
11,029
(1,997)
9,032
54,277 $
33,363
20,914
(3,176)
17,738
(3,283)
14,455
September 30, 2018 December 31, 2018
50,841
29,428
21,413
(2,977)
18,436
(7,507)
10,929
54,866 $
33,059
21,807
(2,846)
18,961
(3,555)
15,406
4,089
4,943
$
6,848
7,607
$
7,307
8,099
$
4,695
6,234
Basic . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . $
0.28
0.28
$
$
0.43
0.43
$
$
0.46
0.46
$
$
0.35
0.35
Weighted average shares of Class A common
stock outstanding
Basic . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . .
17,709,095
17,762,133
17,746,042
17,769,641
17,746,184
17,771,212
17,748,745
17,771,180
105
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
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (Exchange Act), that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our
management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Principal Executive Officer and Principal
Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the 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
December 31, 2019 our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) under the Exchange Act. Our internal control 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 U.S. generally accepted accounting principles. Our 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 assets of the company, (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements for external purposes in accordance with U.S. 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 assets that could have a material effect on the consolidated 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.
Our management assessed the effectiveness of the Company's internal control over financial reporting as of
December 31, 2019, using the criteria in the Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management
concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019.
KPMG LLP, an independent registered public accounting firm, has independently assessed the effectiveness of our
internal control over financial reporting as of December 31, 2019 and its report is included herein.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation
required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during our fourth fiscal quarter ended
December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
106
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a Code of Conduct and a Supplemental Code of Ethics for the 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, 2019 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
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
595,416 (1) $
—
595,416 (1) $
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
— (2)
—
— (2)
2,122,970
—
2,122,970
(1) Represents 595,416 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.
107
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, 2019 and December 31, 2018
• Consolidated Statements of Income for the fiscal years ended December 31, 2019, December 31, 2018 and
December 31, 2017
• Consolidated Statements of Comprehensive Income for the fiscal years ended December 31,
2019, December 31, 2018 and December 31, 2017
• Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 31, 2019, December 31,
2018 and December 31, 2017
• Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2019, December 31, 2018 and
December 31, 2017
• 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.
108
Exhibit No.
Exhibit Description
Form File Number Date of First Filing Exhibit Number Filed Herewith
INDEX TO EXHIBITS
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10-Q
001-36101
11/14/2013
8-K
001-36101
2/22/2018
S-1 333-190699
9/27/2013
Amended and Restated
Certificate of Incorporation
Bylaws of RE/MAX
Holdings, Inc.
Form of RE/MAX Holdings,
Inc.’s Class A common stock
certificate.
Description of the
Registrant’s Securities
Registered under Section 12
of the Securities Exchange
Act of 1934, as amended.
2013 Omnibus Incentive Plan
and related documents.†
Lease, dated April 16, 2010,
by and between Hub
Properties Trust and RE/MAX
International, LLC.
S-8 333-191519
10/1/2013
S-1 333-190699
8/19/2013
3.1
3.2
4.1
4.2
10.5
10-Q
001-36101
11/14/2013
10.8
Registration Rights
Agreement, dated as of
October 1, 2013, by and
among RE/MAX Holdings,
Inc. and RIHI, Inc.
10-Q
Management Services
Agreement, dated as of
October 1, 2013, by and
among RMCO, LLC,
RE/MAX, LLC and RE/MAX
Holdings, Inc.
001-36101
11/14/2013
10.9
RMCO, LLC Fourth
Amended and Restated
Limited Liability Company
Agreement.**
Tax Receivable Agreement,
dated as of October 7, 2013,
by and between RIHI, Inc.
and RE/MAX Holdings, Inc.
10-Q
001-36101
11/14/2013
10.11
10-Q
Tax Receivable Agreement,
dated as of October 7, 2013,
by and between Weston
Presidio V, L.P. and RE/MAX
Holdings, Inc.
001-36101
11/14/2013
10.12
109
X
X
Exhibit No.
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Exhibit Description
Form of Indemnification
Agreement by and between
RE/MAX Holdings, Inc. and
each of its directors and
executive officers.†
Form of Time-Based
Restricted Stock Unit
Award.†
Form of Performance-Based
Restricted Stock Unit
Award.†
Form of Restricted Stock
Award (Directors and Senior
Officers).†
Form of Restricted Stock
Award (General).†
Form of Stock Option Award
(Directors and Senior
Officers).†
Form of Stock Option Award
(General).†
Joinder, dated May 29, 2015,
among RE/MAX Holdings,
Inc., Weston Presidio V., L.P.
and Oberndorf Investments
LLC
Joinder, dated October 4,
2018, among RE/MAX
Holdings, Inc., Oberndorf
Investments LLC and
Parallaxes Capital
Opportunities fund I LP
Joinder, dated December 19,
2018, among RE/MAX
Holdings, Inc., Parallaxes
Capital Opportunities Fund I
LP and Parallaxes Rain
Co-Investment, LLC
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.*
Form File Number Date of First Filing Exhibit Number Filed Herewith
S-1 333-190699
9/27/2013
10.3
10-K 333-190699
2/24/2017
10.11
10-K
001-36101
2/22/2019
10.12
S-1 333-190699
9/27/2013
10.15
S-1 333-190699
9/27/2013
10.16
S-1 333-190699
9/27/2013
10.17
S-1 333-190699
9/27/2013
10.18
10-Q
001-36101
8/7/2015
10.3
10-K
001-36101
2/22/2019
10.18
10-K
001-36101
2/22/2019
10.19
8-K
001-36101
12/21/2016
10.1
110
Exhibit Description
Form File Number Date of First Filing Exhibit Number Filed Herewith
8-K
001-36101
11/15/17
10.1
8-K
001-36101
12/26/17
10.1
Consent and Waiver, dated
November 14, 2017 with
respect to the Amended and
Restated Credit Agreement,
dated as of December 15,
2016 among RE/MAX, LLC;
RMCO, LLC; the several
banks and other financial
institutions or entities from
time to time party thereto; and
JPMorgan Chase Bank, N.A.,
as administrative agent.
Second Consent and Waiver,
dated December 19, 2017
with respect to the Amended
and Restated Credit
Agreement, dated as of
December 15, 2016 among
RE/MAX, LLC; RMCO,
LLC; the several banks and
other financial institutions or
entities from time to time
party thereto; and JPMorgan
Chase Bank, N.A., as
administrative agent.
Equity Purchase Agreement,
dated January 1, 2019, by and
between RADF, LLC and
David Liniger.*
Asset Purchase Agreement,
dated January 1, 2019, by and
between RE/MAX Texas Ad
Fund, Inc.
Exhibit No.
10.19
10.20
10.21
10.22
10.23
10.24
10.25
21.1
10-K
001-36101
2/22/2019
10.23
10-K
001-36101
2/22/2019
10.24
10-K
Share Purchase Agreement,
dated January 1, 2019, by and
between RE/MAX of Western
Canada (1998), LLC and
David Liniger
001-36101
2/22/2019
10.25
Share Purchase Agreement,
dated January 1, 2019, by and
between Motto Franchising,
LLC and David Liniger
10-K
001-36101
2/22/2019
10.26
Severance Pay Benefit Plan
8-K
001-36101
4/11/2019
10.1
List of Subsidiaries
X
111
Form File Number Date of First Filing Exhibit Number Filed Herewith
X
X
X
X
X
X
X
Exhibit No.
23.1
24.1
31.1
31.2
32.1
101
104
Exhibit Description
Consent of Independent
Registered Public Accounting
Firm.
Power of Attorney (included
on signature page)
Certification of Chief
Executive Officer pursuant to
Rule 13a-14(a) of the
Securities Exchange Act of
1934, as amended.
Certification of Chief
Financial Officer pursuant to
Rule 13a-14(a) of the
Securities Exchange Act of
1934, as amended.
Certification of Chief
Executive Officer 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
The following materials from
the Company’s Annual Report
on Form 10-K for the year
ended December 31, 2019
formatted in Inline Extensible
Business Reporting Language
(iXBRL): (i) the Consolidated
Statements of Income, (ii) the
Consolidated Statements of
Comprehensive Income,
(iii) the Consolidated Balance
Sheets, (iv) the Consolidated
Statements of Cash Flows,
(v) the Consolidated
Statements of Stockholders’
Equity and (vi) related notes
Cover Page Interactive Data
File – The cover page
interactive data file does not
appear in the Interactive Data
File because its XBRL tags
are embedded within the
Inline XBRL document.
† Indicates a management contract or compensatory plan or arrangement.
* 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.
**Exhibit refiled to correct certain section references.
112
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 21, 2020
Date: February 21, 2020
Date: February 21, 2020
RE/MAX Holdings, Inc.
(Registrant)
By:
By:
By:
/s/ Adam M. Contos
Adam M. Contos
Director and Chief Executive Officer
(Principal Executive Officer)
/s/ Karri R. Callahan
Karri R. Callahan
Chief Financial Officer
(Principal Financial Officer)
/s/ Brett A. Ritchie
Brett A. Ritchie
Chief Accounting Officer
(Principal Accounting Officer)
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Adam M.
Contos and Karri R. Callahan, and each of them, as such person’s true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all
capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto
each said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or
their or such person’s substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
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
Title
Date
/s/ Adam M. Contos
Adam M. Contos
/s/ Karri R. Callahan
Karri R. Callahan
/s/ Brett A. Ritchie
Brett A. Ritchie
/s/ David L. Liniger
David L. Liniger
/s/ Gail A. Liniger
Gail A. Liniger
/s/ Kathleen J. Cunningham
Kathleen J. Cunningham
/s/ Roger J. Dow
Roger J. Dow
Director and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
February 21, 2020
February 21, 2020
February 21, 2020
Chairman and Co-Founder
February 21, 2020
Vice Chair and Co-Founder
February 21, 2020
Director
Director
113
February 21, 2020
February 21, 2020
/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
Director
Director
Director
Director
Director
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
114
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BOARD OF DIRECTORS
DAVID LINIGER
Chairman of the Board and
Co-Founder
GAIL LINIGER
Vice Chair of the Board and
Co-Founder
ADAM CONTOS
Chief Executive Officer and
Director
ROGER DOW
Lead Independent Director
RONALD HARRISON
Director
DANIEL PREDOVICH
Director
DR. CHRISTINE RIORDAN
Director
KATHLEEN CUNNINGHAM
Director
TERESA VAN DE BOGART
Director
JOSEPH DESPLINTER
Director
EXECUTIVE
MANAGEMENT TEAM
ADAM CONTOS
Chief Executive Officer
KARRI CALLAHAN
Chief Financial Officer
SERENE SMITH
Chief Operating Officer
and Chief of Staff
NICK BAILEY
Chief Customer Officer
WARD MORRISON
President of Motto Franchising
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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