What changed in this filing

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Item 1. Financial Statements

2022-11-02 compared with 2022-08-03 · 80 added, 86 removed, 330 unchanged (33% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

June 30, 2022

September 30, 2022

December 31, 2021

36 unchanged sentences

(In thousands, except share amounts and per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating expenses

6 unchanged sentences

Other (income) expense, net

Equity in losses of unconsolidated affiliates

Equity in (income) losses of unconsolidated affiliates

Total other (income) expense, net

Income before income tax expense

Income tax (benefit) expense

Income (loss) before income tax expense

Income tax benefit

Net income attributable to noncontrolling interest

12 unchanged sentences

(In thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Common stock:

5 unchanged sentences

Repurchases of common stock

Issuance of treasury stock, for acquisition

Balance, end of period

22 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

20 unchanged sentences

Purchases of property, plant and equipment

Acquisition of businesses

Acquisition of businesses, net of cash acquired

Investments in unconsolidated affiliates

NET CASH USED IN INVESTING ACTIVITIES

13 unchanged sentences

Termination of lease liabilities

Issuance of treasury stock, for acquisition

Lease liabilities arising from obtaining right-of-use assets

Property, plant and equipment purchases in accounts payable

9 unchanged sentences

This unique enabling platform helps businesses increase their effectiveness and reduce costs from operating in traditional “brick and mortar” office spaces.

Through various operating subsidiaries, the Company primarily operates a cloud-based real estate brokerage operating throughout the United States, most of the Canadian provinces, the United Kingdom (U.K.), Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, The Dominican Republic, Greece, and New Zealand.

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

4 unchanged sentences

In our opinion, the accompanying interim unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation.

Operating results for the three and six month periods ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Operating results for the three and nine month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

14 unchanged sentences

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company regularly evaluates estimates and assumptions related to allowance for credit losses, legal contingencies, income taxes, revenue recognition, stock-based compensation,

goodwill, and deferred income tax asset valuation allowances.

The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

The Company regularly evaluates estimates and assumptions related to allowance for credit losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill, and deferred income tax asset valuation allowances.

The Company bases its estimates and assumptions on current facts,

historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.

7 unchanged sentences

Once the cash transfers from escrow, the Company reduces the respective customers’ deposit liability.

Restricted cash also includes cash held in escrow for acquisitions.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows.

2 unchanged sentences

Balance, December 31, 2020

Balance, June 30, 2021

Balance, September 30, 2021

Balance, December 31, 2021

Balance, June 30, 2022

Balance, September 30, 2022

Recently Adopted Accounting Principles and Change in Accounting Principle

11 unchanged sentences

The Company has reviewed the amendments of ASU 2021-08 and will apply the guidance upon its effective date should the Company have future business combinations.

On July 1, 2022, the Company acquired Zoocasa Realty Inc.

(“Zoocasa”) in a stock purchase transaction.

The total consideration paid was $ 17,458 including net cash of $ 9,668 (net of cash acquired of $ 2,772 ), stock issued from treasury of $ 4,800 and the anticipated working capital adjustment.

The Zoocasa acquisition has been accounted for using the acquisition method of accounting.

Under the acquisition method of accounting, the Company allocated the total purchase price to the tangible and identifiable intangible assets acquired, and assumed liabilities based on their estimated fair values as of the acquisition date, as determined by management.

The purchase price included goodwill of $ 14,459 and identified intangible assets of $ 1,281 .

The excess of the purchase price over the aggregate fair values of the identifiable assets was recorded as goodwill, which is not deductible for tax purposes.

Goodwill generated from the acquisition includes an assembled workforce.

Zoocasa is a consumer real estate research portal that offers proprietary home search tools, market insights and a connection to local real estate experts.

The Company is in the process of completing the purchase price allocation and the final analysis of working capital adjustments which will be completed within one year from the date of acquisition.

EXPECTED CREDIT LOSSES

6 unchanged sentences

The Company analyzed uncollectible accounts for the three categories of receivables.

Receivables from real estate property settlements totaled $ 147,824 and $ 128,499 of which the Company recognized expected credit losses of $ 904 and nil , respectively as of June 30, 2022 and December 31, 2021.

As of June 30, 2022 and December 31, 2021 agent non-commission based fees receivable and short-term advances totaled $ 9,979 and $ 7,188 , of which the Company recognized expected credit losses of $ 1,902 and $ 2,198 , respectively.

Receivables from real estate property settlements totaled $ 110,239 and $ 128,499 of which the Company recognized expected credit losses of $ 823 and nil , respectively as of September 30, 2022 and December 31, 2021.

As of September 30, 2022 and December 31, 2021 agent non-commission based fees receivable and short-term advances totaled $ 12,369 and $ 7,188 , of which the Company recognized expected credit losses of $ 1,963 and $ 2,198 , respectively.

The Company increases the allowance for expected credits losses when the Company determines all or a portion of a receivable is uncollectable.

The Company recognizes recoveries as a decrease to the allowance for expected credit losses.

Changes in the allowance were not material for the six months ended June 30, 2022 and the year ended December 31, 2021.

Changes in the allowance were not material for the nine months ended September 30, 2022 and the year ended December 31, 2021.

PLANT, PROPERTY AND EQUIPMENT, NET

Plant, property and equipment, net consisted of the following:

June 30, 2022

September 30, 2022

December 31, 2021

6 unchanged sentences

Property, plant, and equipment, net

For the three months ended June 30, 2022 and 2021, depreciation expense was $ 1,954 and $ 1,189 , respectively.

For the six months ended June 30, 2022 and 2021, depreciation expense was $ 3,570 and $ 2,196 , respectively.

For the three months ended September 30, 2022 and 2021, depreciation expense was $ 2,129 and $ 1,376 , respectively.

For the nine months ended September 30, 2022 and 2021, depreciation expense was $ 5,699 and $ 3,572 , respectively.

GOODWILL AND INTANGIBLE ASSETS

Goodwill was $ 12,945 as of June 30, 2022 and December 31, 2021.

Goodwill was $ 26,514 as of September 30, 2022 and $ 12,945 as of December 31, 2021.

In the third quarter of 2022, the Company recorded cumulative translation adjustment of ($ 890 ) related to the Canadian goodwill in the Zoocasa transaction.

The Company has a risk of future impairment to the extent that individual reporting unit performance does not meet projections.

Additionally, if current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of the Company’s control change unfavorably, the estimated fair value of goodwill could be adversely affected, leading to a potential impairment in the future.

For the three and six months ended June 30, 2022, no events occurred that indicated it was more likely than not that goodwill was impaired.

For the three and nine months ended September 30, 2022, no events occurred that indicated it was more likely than not that goodwill was impaired.

During the third quarter of 2022 the Company received Goodwill in an acquisition.

For information regarding the Company’s recent acquisitions, see Note 3 – Acquisitions .

Definite-lived intangible assets were as follows:

June 30, 2022

September 30, 2022

December 31, 2021

6 unchanged sentences

Definite-lived intangible assets are amortized using the straight-line method over an asset’s estimated useful life.

Amortization expense for definite-lived intangible assets for the three months ended June 30, 2022 and 2021 was $ 475 and $ 318 , respectively.

Amortization expense for definite-lived intangible assets for the six months ended June 30, 2022 and 2021 was $ 817 and $ 621 , respectively.

Amortization expense for definite-lived intangible assets for the three months ended September 30, 2022 and 2021 was $ 638 and $ 318 , respectively.

Amortization expense for definite-lived intangible assets for the nine months ended September 30, 2022 and 2021 was $ 1,455 and $ 939 , respectively.

The Company has no indefinite-lived assets.

The Company’s lease portfolio consists of office leases with lease terms ranging from less than one year to seven years , with the weighted average lease term being three years .

Certain leases provide for increases in future lease payments once the term of the lease has expired, as defined in the lease agreements.

These leases generally also include real estate taxes.

Short term leases, having a lease term at commencement of 12 months or less, are not capitalized and the expenses are recognized in the period incurred.

Included below is other information regarding leases for the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

Other information

Operating lease expense

Short-term lease expense

Cash paid for operating leases

Weighted-average remaining lease term (years) – operating leases (1)

Weighted-average discount rate – operating leases

(1) The Company’s lease terms include options to extend the lease when it is reasonably certain the Company will exercise its option.

Additionally, the Company considered any historical and economic factors in determining if a lease renewal or termination option would be exercised.

As of June 30, 2022, expirations of lease obligations by fiscal year were as follows:

Period Ending December 31,

Remaining 2022

2027 and thereafter

Total lease payments

Total operating lease liabilities

STOCKHOLDERS’ EQUITY

The following table represents a share reconciliation of the Company’s common stock issued for the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Shares of Common Stock)

12 unchanged sentences

The Company recognizes a 10 % discount on these issuances as an additional cost of sales charge during the periods presented.

During the three months ended June 30, 2022 and 2021, the Company issued 3,942,452 and 1,075,182 shares of common stock, respectively, to agents and brokers with a value of $ 48,335 and $ 38,451 , respectively, inclusive of discount.

During the six months ended June 30, 2022 and 2021, the Company issued 5,492,907 and 1,499,266 shares of common stock, respectively, to agents and brokers with a value of $ 86,835 and $ 59,853 , respectively, inclusive of discount.

During the three months ended September 30, 2022 and 2021, the Company issued 3,410,310 and 1,075,500 shares of common stock, respectively, to agents and brokers with a value of $ 44,395 and $ 41,838 , respectively, inclusive of discount.

During the nine months ended September 30, 2022 and 2021, the Company issued 8,903,217 and 2,574,766 shares of common stock, respectively, to agents and brokers with a value of $ 131,230 and $ 101,691 , respectively, inclusive of discount.

Agent Growth Incentive Program

The Company administers an equity incentive program whereby agents and brokers become eligible to receive awards of the Company’s common stock through agent attraction and performance benchmarks (the “Agent Growth Incentive Program” or “AGIP”).

The incentive

program encourages greater performance and awards agents with common stock based on achievement of performance milestones.

The incentive program encourages greater performance and awards agents with common stock based on achievement of performance milestones.

Awards typically vest after performance benchmarks are reached and three years of subsequent service is provided to the Company.

1 unchanged sentence

As such, the awards are classified as liabilities until the number of share awards becomes fixed once the performance metric is achieved.

For the six months ended June 30, 2022, the Company’s stock compensation expense attributable to the Agent Growth Incentive Program was $ 17,028 of which the total amount of stock compensation expense attributable to liability classified awards was $ 4,451 .

For the three months ended September 30, 2022, the Company’s stock compensation expense attributable to the Agent Growth Incentive Program was $ 5,800 , of which the total amount of stock compensation expense attributable to liability classified awards was ($ 985 ).

For the nine months ended September 30, 2022, the Company’s stock compensation expense attributable to the Agent Growth Incentive

Program was $ 22,828 of which the total amount of stock compensation expense attributable to liability classified awards was $ 3,466 .

Stock compensation expense related to the Agent Growth Incentive Program is included in general and administrative expense in the condensed consolidated statements of comprehensive income.

The following table illustrates changes in the Company’s stock compensation liability for the periods presented:

Stock grant liability increase at December 31, 2021

Stock grant liability balance at December 31, 2021

Stock grant liability increase year to date

Stock grants reclassified from liability to equity year to date

Balance, June 30, 2022

Balance, September 30, 2022

Stock Option Awards

During the three months ended June 30, 2022, and 2021, the Company granted 288,007 and 66,739 stock options, respectively, to employees with an estimated grant date fair value of $ 11.64 and $ 26.77 per share, respectively.

During the six months ended June 30, 2022 and 2021, the Company granted 772,385 and 194,004 stock options, respectively, to employees with an estimated grant date fair value of $ 13.24 and $ 24.80 per share, respectively.

During the three months ended September 30, 2022, and 2021, the Company granted 394,657 and 176,263 stock options, respectively, to employees with an estimated grant date fair value of $ 8.50 and $ 23.26 per share, respectively.

During the nine months ended September 30, 2022 and 2021, the Company granted 1,167,042 and 370,594 stock options, respectively, to employees with an estimated grant date fair value of $ 11.21 and $ 24.05 per share, respectively.

The fair value was calculated using a Black Scholes-Merton option pricing model.

7 unchanged sentences

Repurchase Plan Amendment

On May 3, 2022, the Board authorized an increase to the Company’s stock repurchase program from $ 400 million of its common stock up to $ 500 million and approved a form of amendment to its Issuer Repurchase Plan, dated January 10, 2022, by and between the Company and Stephens Inc., to increase monthly repurchases from $ 10 million of its common stock per month up to $ 20 million which amendment was signed May 6, 2022.

On May 3, 2022, the Board authorized an increase to the Company’s stock repurchase program from $ 400 million of its common stock up to $ 500 million and approved a form of amendment to its Issuer Repurchase Plan, dated January 10, 2022, by and between the Company and Stephens Inc., (the “Issuer Repurchase Plan”) to increase monthly repurchases from $ 10 million of its common stock per month up to $ 20 million which amendment was signed May 6, 2022.

On September 27, 2022, the Board approved, and the Company entered into, a form of second amendment to the Issuer Repurchase Plan, to decrease the monthly repurchases from $ 20 million of its common stock per month to $ 13.3 million, in anticipation of volume decreases in connection with the contraction in the real estate market .

For accounting purposes, common stock repurchased under the stock repurchase programs is recorded based upon the transaction date of the applicable trade.

1 unchanged sentence

These shares are not retired and are considered issued but not outstanding.

During the third quarter of 2022 the Company issued treasury shares in an acquisition.

For information regarding the Company’s recent acquisitions, see Note 3 – Acquisitions .

The following table shows the changes in treasury stock for the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Shares of Treasury Stock)

2 unchanged sentences

Repurchases of common stock

Issuance of treasury stock for acquisition

Balance, end of quarter

4 unchanged sentences

The following table sets forth the calculation of basic and diluted earnings per share attributable to common stock during the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net income attributable to common stock

5 unchanged sentences

Earnings per share attributable to common stock- diluted

For the three months ended June 30, 2022 and 2021 total outstanding shares of common stock excluded 1,485,139 and 152,950 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.

For six months ended June 30, 2022 and 2021 total outstanding shares of common stock excluded 692,237 and 62,889 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.

For the three months ended September 30, 2022 and 2021 total outstanding shares of common stock excluded 1,315,861 and 132,704 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.

For nine months ended September 30, 2022 and 2021 total outstanding shares of common stock excluded 845,162 and 75,680 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.

Our quarterly tax provision is computed by applying the estimated annual effective tax rate to the year-to-date pre-tax income or loss plus discrete tax items arising in the period.

Our provision for (benefit from) income taxes amounted to ( $ 3.49 ) million and ( $ 20.4 ) million for the six months ended June 30, 2022 and 2021, respectively, which represent an effective tax rates of negative 23.81 % and 95.1 % , respectively.

The decrease in income tax benefit was primarily attributable to the release of valuation allowance in 2021 and lower deductible stock based compensation in 2022.

Our provision for benefit from income taxes amounted to ($ 8.12 ) million and ($ 33.26 ) million for the nine months ended September 30, 2022 and 2021, respectively, which represent an effective tax rates of negative 56.2 % and 102.5 %, respectively.

The decrease in income tax benefit was primarily attributable to the release of valuation allowance in 2021, lower pretax income from operations and lower deductible stock-based compensation in 2022.

FAIR VALUE MEASUREMENT

10 unchanged sentences

The Company values its money market funds at fair value on a recurring basis.

As of June 30, 2022 and December 31, 2021, the fair value of the Company’s money market funds was $ 43,423 and $ 43,386 , respectively.

As of September 30, 2022 and December 31, 2021, the fair value of the Company’s money market funds was $ 43,679 and $ 43,386 , respectively.

There have been no transfers between Level 1, Level 2 and Level 3 in the period presented.

2 unchanged sentences

From time to time, the Company is subject to potential liability under laws and government regulations and various claims and legal actions that may be asserted against us that could have a material adverse effect on the business, reputation, results of operations or financial condition.

Such litigation may include, but is not limited to, actions or claims relating to sensitive data, including proprietary

business information and intellectual property and that of clients and personally identifiable information of employees and contractors, cyber-attacks, data breaches and non-compliance with contractual or other legal obligations.

Such litigation may include, but is not limited to, actions or claims relating to sensitive data, including proprietary business information and intellectual property and that of clients and personally identifiable information of employees and contractors, cyber-attacks, data breaches and non-compliance with contractual or other legal obligations.

On November 19, 2021, the Company agreed to settle a class action lawsuit filed against the Company in 2018 alleging violations under the Telephone Consumer Protection Act.

17 unchanged sentences

The Company primarily operates as a cloud-based real estate brokerage.

The real estate brokerage business represents 99.1 % and 99.5 % of the total revenue of the Company for the six months ended June 30, 2022 and 2021, respectively.

The real estate brokerage business represents 96.8 % and 99.0 % of the total assets of the Company as of June 30, 2022 and December 31, 2021, respectively.

The real estate brokerage business represents 99.1 % and 99.2 % of the total revenue of the Company for the nine months ended September 30, 2022 and 2021, respectively.

The real estate brokerage business represents 96.9 % and 99.0 % of the total assets of the Company as of September 30, 2022 and December 31, 2021, respectively.

The Company offers software subscriptions to customers to access its virtual reality software platform.

1 unchanged sentence

However, the operations and assets of the technology segment are not managed by the Company’s chief operating decision-maker as a separate reportable segment.

Services provided through First Cloud and Silverline are in the emerging stages of development as contributing segments and are not material to the Company’s total revenue, total net income or total assets as of June 30, 2022 and 2021, respectively.

The Company aggregates the identified operating segments for reporting purposes and has one reportable segment.

1 unchanged sentence

The Company primarily operates within the real estate brokerage markets in the United States and Canada.

During the previous three years, the Company expanded operations into the United Kingdom, Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, the Dominican Republic, Greece, and New Zealand.

The Company’s management analyzes geographical locations on a forward-looking basis to identify growth opportunities.

For both the six months ended June 30, 2022 and 2021, approximately 9 %, respectively, of the Company’s total revenue was generated outside of the U.S.

For the nine months ended September 30, 2022 and 2021, approximately 9 % and 8 % respectively, of the Company’s total revenue was generated outside of the U.S.

Assets held outside of the U.S.

were 8 % as of June 30, 2022 and December 31, 2021

were 5 % and 8 % as of September 30, 2022 and December 31, 2021

The Company’s technology services and affiliated services are currently provided primarily in the U.S.

1 unchanged sentence

Quarterly Cash Dividend

On July 29, 2022 , the Company’s Board of Directors declared a dividend of $ 0.045 per share which is expected to be payable on August 29, 2022 , to stockholders of record as of the close of business on August 12, 2022 .

The ex-dividend date is expected to be August 11, 2022.

On October 27, 2022 , the Company’s Board of Directors declared a dividend of $ 0.045 per share which is expected to be payable on November 28, 2022 , to stockholders of record as of the close of business on November 14, 2022 .

The ex-dividend date is expected to be November 11, 2022.

The dividend will be paid in cash.

Zoocasa Acquisition

On July 1, 2022, the Company acquired Zoocasa Realty Inc.

and its key property, Zoocasa.com (“Zoocasa”).

Zoocasa is a consumer real estate search portal that offers proprietary home search tools, market insights and a connection to local real estate experts.

The acquisition expanded the Company’s online lead generation, home search and listings portal capabilities for its agents and brokers as well as for home buying and selling consumers across North America.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements