Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2024

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Condensed Consolidated Balance Sheet at December 31, 2023, which was derived from the audited consolidated financial statements at that date, and the unaudited interim condensed consolidated financial statements and notes thereto have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements are presented on a consolidated basis and 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 condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the Company’s financial position as of September 30, 2024 and the results of its operations and comprehensive income (loss), cash flows and changes in its stockholders’ equity (deficit) for the three and nine months ended September 30, 2024 and 2023. Interim results may not be indicative of full-year performance.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Annual Report on Form 10-K”). Please refer to that document for a fuller discussion of all significant accounting policies.

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Segment Reporting

The Company operates under the following four operating segments: Real Estate, Mortgage, Marketing Funds and Other. Due to quantitative insignificance, the “Other” operating segment is comprised of operations which do not meet the criteria of a reportable segment.

Revenue Recognition

The Company generates most of its revenue from contracts with customers. The Company’s major streams of revenue are:

● Continuing franchise fees, which are fixed contractual fees paid monthly by RE/MAX or Motto franchisees or RE/MAX Independent Region sub-franchisors based on the number of RE/MAX agents or Motto open offices.

● Annual dues, which are fees charged directly to RE/MAX agents.

● Broker fees, which are fees on real estate commissions when a RE/MAX agent assists a consumer with buying or selling a home.

● Marketing Funds fees, which are fixed contractual fees paid monthly by franchisees based on the number of RE/MAX agents or Motto open offices, which are obligated to be used for marketing campaigns to build brand awareness and to support agent and loan originator marketing technology.

● Franchise sales and other revenue, which consists of fees from initial sales of RE/MAX and Motto franchises, renewals of RE/MAX franchises and RE/MAX master franchise fees, as well as data services subscription revenue, preferred marketing arrangements, technology products and subscription revenue, events-related revenue from education and other programs and mortgage loan processing revenue.

Deferred Revenue and Commissions Related to Franchise Sales

Deferred revenue is primarily driven by Franchise sales and Annual dues, as discussed above, and is included in “Deferred revenue” and “Deferred revenue, net of current portion” on the Condensed Consolidated Balance Sheets. Other deferred revenue is primarily related to events-related revenue. The activity consists of the following (in thousands):
​

	Balance at				Revenue		Balance at
	January 1, 2024		New billings		recognized (a)		September 30, 2024
Franchise sales	$	24,613	$	3,892	$	(6,327)	$	22,178
Annual dues		13,282		23,897		(24,345)		12,834
Other		2,789		14,555		(14,249)		3,095
	$	40,684	$	42,344	$	(44,921)	$	38,107

(a) Revenue recognized related to the beginning balance for Franchise sales and Annual dues were $6.1 million and $12.2 million, respectively, for the nine months ended September 30, 2024.

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 Condensed Consolidated Balance Sheets) consist of the following (in thousands):

			Additions to
	Balance at		contract cost		Expense		Balance at
	January 1, 2024		for new activity		recognized		September 30, 2024
Capitalized contract costs for commissions	$	4,225	$	1,324	$	(2,034)	$	3,515

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):

	Remainder of 2024		2025		2026		2027		2028		2029		Thereafter		Total
Franchise sales	$	1,739	$	6,342	$	5,098	$	3,780	$	2,393	$	1,066	$	1,760	$	22,178
Annual dues		6,033		6,801		—		—		—		—		—		12,834
Total	$	7,772	$	13,143	$	5,098	$	3,780	$	2,393	$	1,066	$	1,760	$	35,012

Disaggregated Revenue

In the following table, segment revenue is disaggregated by Company-Owned or Independent Regions, where applicable, by segment and by geographical area (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
U.S. Company-Owned Regions	$	34,378	$	35,504	$	100,094	$	105,440
U.S. Independent Regions		1,549		1,668		4,591		4,896
Canada Company-Owned Regions		10,717		10,607		31,223		30,946
Canada Independent Regions		707		721		2,094		2,168
Global		3,659		3,251		10,636		9,653
Fee revenue (a)		51,010		51,751		148,638		153,103
Franchise sales and other revenue (b)		3,629		4,812		15,198		21,649
Total Real Estate		54,639		56,563		163,836		174,752
U.S.		14,889		15,638		45,219		48,043
Canada		4,932		4,956		14,352		14,440
Global		277		259		760		789
Total Marketing Funds		20,098		20,853		60,331		63,272
Mortgage (c)		3,741		3,640		11,051		10,444
Other (c)		—		167		—		603
Total	$	78,478	$	81,223	$	235,218	$	249,071

(a) Fee revenue includes Continuing franchise fees, Annual dues and Broker fees.

(b) Franchise sales and other revenue is mostly derived within the U.S. The decline in other revenue is primarily attributable to a reduction in revenue from the Company’s annual RE/MAX agent convention as a result of lower attendance due the 50^th anniversary celebration in the prior year and from revenue from previous acquisitions.

(c) Revenue from Mortgage and Other are derived exclusively within the U.S.

Cash, Cash Equivalents and Restricted Cash

The following table reconciles the amounts presented for cash, both unrestricted and restricted, in the Condensed Consolidated Balance Sheets to the amounts presented in the Condensed Consolidated Statements of Cash Flows (in thousands):

	September 30, 2024		December 31, 2023
Cash and cash equivalents	$	83,779	$	82,623
Restricted cash:
Marketing Funds (a)		17,599		15,640
Settlement Fund (b)		55,000		27,500
Total cash, cash equivalents and restricted cash	$	156,378	$	125,763

(a) All cash held by the Marketing Funds is contractually restricted, pursuant to the applicable franchise agreements.

(b) Represents the net amounts held in the Settlement Fund as part of the settlement of industry class-action lawsuits. See Note 11, Commitments and Contingencies for additional information.

Services Provided to the Marketing Funds by Real Estate

Real Estate charges the Marketing Funds for various services it performs. These services are primarily comprised of (a) building and maintaining the remax.com and remax.ca websites and mobile apps, (b) dedicated employees focused on consumer facing marketing initiatives, and (c) various administrative services including customer support of technology, accounting and legal.

Costs charged from Real Estate to the Marketing Funds are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Technology − operating	$	1,066	$	1,169	$	3,166	$	3,507
Technology − capital(a)		—		—		—		(203)
Marketing staff and administrative services		1,507		1,441		4,504		4,416
Total	$	2,573	$	2,610	$	7,670	$	7,720

(a) During the first quarter of 2023, the Company determined that certain development projects were no longer needed and therefore $0.2 million, reflecting the cost of work in process assets that would no longer be placed in service, was refunded to the Marketing Funds.

Accounts and Notes Receivable

As of September 30, 2024, and December 31, 2023, the Company had allowances against accounts and notes receivable of $11.1 million and $10.9 million, respectively.

Property and Equipment

As of September 30, 2024, and December 31, 2023 the Company had accumulated depreciation of $15.2 million and $13.1 million, respectively.

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. All of the Company’s material leases are classified as operating leases. The Company acts as the lessor for sublease agreements on its corporate headquarters, consisting solely of operating leases.

Restructuring and Reduction in Force Charges

During the third quarter of 2023, the Company announced a reduction in force and reorganization (the “Reorganization”) intended to streamline the Company’s operations and yield cost savings over the long term. The Reorganization reduced the Company’s overall workforce by approximately 7% and was substantially complete by September 30, 2023. As a result of the Reorganization, the Company incurred a pre-tax cash charge recorded in “Selling, operating and administrative expenses” within the Condensed Consolidated Statements of Income (Loss) for one-time termination benefits of severance and related costs of $4.3 million and accelerated equity compensation expense of $0.5 million in the third quarter of 2023. See Note 6, Accrued Liabilities for a roll forward of the liability related to the Reorganization as of September 30, 2024.

Severance and Retirement Plan

On May 24, 2023, the Compensation Committee of the Board of Directors approved a Severance and Retirement Plan (the “Plan”). The Plan replaces the Severance Pay Benefit Plan adopted by the Company on December 4, 2018. The Plan provides benefits to eligible employees and executive officers of RE/MAX, LLC and its subsidiaries, in the event of (i) involuntary termination of their employment due to position elimination, reduction in force, or other circumstances that the

employer determines should result in payment of benefits, or (ii) voluntary termination of employment due to retirement for employees who meet the retirement eligibility criteria in the Plan, subject in both cases to certain restrictions set forth in the Plan. In the case of involuntary termination, these benefits include salary continuation, a health benefits stipend, outplacement services and a possible pro-rated bonus. In the case of retirement, these benefits include modification of vesting of restricted stock awards (for employees who are eligible for restricted stock awards) and a possible pro-rated bonus. Any associated equity compensation expense will be accelerated through the employee's retirement eligibility date.

Foreign Currency Derivatives

The Company is exposed to foreign currency transaction gains and losses related to certain foreign currency denominated asset and liability positions, with the Canadian dollar representing the most significant exposure primarily from an intercompany Canadian loan between RMCO and the Canadian entity for RE/MAX INTEGRA (“INTEGRA”). The Company uses short duration foreign currency forward contracts, generally with maturities ranging from a few days to a few months, to minimize its exposures related to foreign currency exchange rate fluctuations. None of these contracts are designated as accounting hedges as the underlying currency positions are revalued through “Foreign currency transaction gains (losses)” on the Consolidated Statements of Income (Loss) along with the related derivative contracts. During the three months ended September 30, 2024 and 2023, the Company recognized a net realized loss of $0.6 million and a net realized gain of $0.7, respectively. During the nine months ended September 30, 2024, and 2023 the Company recognized a net realized gain of $1.2 million and a net realized loss of $0.4 million, respectively.

The Company has a short-term $44.0 million Canadian dollar forward contract that matures in the fourth quarter of 2024 that net settles in U.S. dollars based on the prevailing spot rates at maturity.

Recently Adopted Accounting Pronouncements

None.

New Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB “) issued Accounting Standards Update (“ASU”) ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, which requires greater disaggregation of income tax disclosures related to the income tax reconciliation and income taxes paid. The amendments improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The new standard is effective for annual periods beginning after December 15, 2024, and early adoption is permitted. The Company believes the amendments of ASU 2023-09 will not have a significant impact on the Company’s consolidated financial statements and will include all required disclosures upon adoption.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis, primarily disclosure of significant segment expense categories and amounts for each reportable segment. The new standard is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company will adopt ASU 2023-07 in the annual financial statements for the twelve months ended December 31, 2024, and for interim periods beginning in 2025. The Company believes the amendments of ASU 2023-07 will not have a significant impact on the Company’s consolidated financial statements and will include all required disclosures upon adoption.