Attached files
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EX-31.2 - EX-31.2 - Reis, Inc. | y91994exv31w2.htm |
EX-10.2 - EX-10.2 - Reis, Inc. | y91994exv10w2.htm |
EX-31.1 - EX-31.1 - Reis, Inc. | y91994exv31w1.htm |
EX-32.1 - EX-32.1 - Reis, Inc. | y91994exv32w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - Reis, Inc. | Financial_Report.xls |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
or
o | 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 001-12917
REIS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland | 13-3926898 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
530 Fifth Avenue, New York, NY | 10036 | |
(Address of Principal Executive Offices) | (Zip Code) |
(212) 921-1122
(Registrants
Telephone Number, Including Area Code)
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 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 þ No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the Registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o
|
Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No þ
The number of the Registrants shares of common stock outstanding was 10,603,693 as of August
1, 2011.
TABLE OF CONTENTS
2
Table of Contents
Part I. Financial Information
Item 1. Financial Statements.
REIS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 23,284,738 | $ | 20,163,787 | ||||
Restricted cash and investments |
214,940 | 214,298 | ||||||
Accounts receivable, net |
3,933,950 | 8,961,623 | ||||||
Prepaid and other assets |
207,617 | 384,384 | ||||||
Assets attributable to discontinued operations |
| 2,438,240 | ||||||
Total current assets |
27,641,245 | 32,162,332 | ||||||
Furniture, fixtures and equipment, net |
978,198 | 958,505 | ||||||
Intangible assets, net of accumulated amortization of
$17,022,192 and $14,891,406, respectively |
17,924,654 | 18,576,606 | ||||||
Goodwill |
54,824,648 | 54,824,648 | ||||||
Other assets |
144,448 | 165,868 | ||||||
Total assets |
$ | 101,513,193 | $ | 106,687,959 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of Bank Loan |
$ | 6,559,484 | $ | 5,531,050 | ||||
Current portion of other debt |
11,981 | 27,851 | ||||||
Accrued expenses and other liabilities |
2,279,952 | 2,818,496 | ||||||
Liability for option cancellations |
363,342 | 157,744 | ||||||
Deferred revenue |
12,278,433 | 15,446,248 | ||||||
Liabilities attributable to discontinued operations |
849,654 | 1,963,530 | ||||||
Total current liabilities |
22,342,846 | 25,944,919 | ||||||
Non-current portion of Bank Loan |
1,896,981 | 5,690,940 | ||||||
Other long-term liabilities |
697,826 | 693,092 | ||||||
Deferred tax liability, net |
66,580 | 66,580 | ||||||
Total liabilities |
25,004,233 | 32,395,531 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.02 par value per share, 101,000,000
shares authorized, 10,603,693 and 10,472,010 shares
issued and outstanding, respectively |
212,074 | 209,440 | ||||||
Additional paid in capital |
100,109,327 | 99,347,837 | ||||||
Retained earnings (deficit) |
(23,812,441 | ) | (25,264,849 | ) | ||||
Total stockholders equity |
76,508,960 | 74,292,428 | ||||||
Total liabilities and stockholders equity |
$ | 101,513,193 | $ | 106,687,959 | ||||
See Notes to Consolidated Financial Statements
3
Table of Contents
REIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Subscription revenue |
$ | 6,836,510 | $ | 6,004,373 | $ | 13,453,878 | $ | 12,018,542 | ||||||||
Cost of sales of subscription revenue |
1,522,854 | 1,536,637 | 3,073,238 | 2,999,749 | ||||||||||||
Gross profit |
5,313,656 | 4,467,736 | 10,380,640 | 9,018,793 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
1,680,080 | 1,440,903 | 3,332,494 | 2,990,951 | ||||||||||||
Product development |
507,061 | 464,751 | 988,158 | 934,031 | ||||||||||||
General and administrative expenses |
2,976,688 | 2,649,825 | 5,752,493 | 5,301,500 | ||||||||||||
Total operating expenses |
5,163,829 | 4,555,479 | 10,073,145 | 9,226,482 | ||||||||||||
Other income (expenses): |
||||||||||||||||
Interest and other income |
22,101 | 35,532 | 42,325 | 73,268 | ||||||||||||
Interest expense |
(71,299 | ) | (101,486 | ) | (149,662 | ) | (221,808 | ) | ||||||||
Total other income (expenses) |
(49,198 | ) | (65,954 | ) | (107,337 | ) | (148,540 | ) | ||||||||
Income (loss) before income taxes and discontinued operations |
100,629 | (153,697 | ) | 200,158 | (356,229 | ) | ||||||||||
Income tax (benefit) |
| (96,000 | ) | | (142,000 | ) | ||||||||||
Income (loss) from continuing operations |
100,629 | (57,697 | ) | 200,158 | (214,229 | ) | ||||||||||
Income from discontinued operations, net of income tax
expense of $, $111,000, $, and $97,000,
respectively |
1,341,980 | 164,094 | 1,252,250 | 143,556 | ||||||||||||
Net income (loss) |
$ | 1,442,609 | $ | 106,397 | $ | 1,452,408 | $ | (70,673 | ) | |||||||
Per share
amounts basic: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | (0.02 | ) | ||||||
Net income (loss) |
$ | 0.14 | $ | 0.01 | $ | 0.14 | $ | (0.01 | ) | |||||||
Per share
amounts diluted: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | (0.02 | ) | ||||||
Net income (loss) |
$ | 0.13 | $ | 0.01 | $ | 0.13 | $ | (0.01 | ) | |||||||
Weighted average number of common shares outstanding: |
||||||||||||||||
Basic |
10,587,923 | 10,495,194 | 10,558,694 | 10,458,178 | ||||||||||||
Diluted |
10,914,276 | 10,495,194 | 10,826,251 | 10,458,178 | ||||||||||||
See Notes to Consolidated Financial Statements
4
Table of Contents
REIS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2011
(Unaudited)
Retained | Total | |||||||||||||||||||
Common Shares | Paid in | Earnings | Stockholders | |||||||||||||||||
Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||
Balance, January 1, 2011 |
10,472,010 | $ | 209,440 | $ | 99,347,837 | $ | (25,264,849 | ) | $ | 74,292,428 | ||||||||||
Shares issued for vested
employees restricted stock
units |
131,683 | 2,634 | (2,634 | ) | | | ||||||||||||||
Stock based compensation, net |
| | 764,124 | | 764,124 | |||||||||||||||
Net income |
| | | 1,452,408 | 1,452,408 | |||||||||||||||
Balance, June 30, 2011 |
10,603,693 | $ | 212,074 | $ | 100,109,327 | $ | (23,812,441 | ) | $ | 76,508,960 | ||||||||||
See Notes to Consolidated Financial Statements
5
Table of Contents
For the Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 1,452,408 | $ | (70,673 | ) | |||
Adjustments to reconcile to net cash provided by operating activities: |
||||||||
Deferred tax (benefit) provision |
| (45,000 | ) | |||||
Depreciation |
167,932 | 194,989 | ||||||
Amortization of intangible assets |
2,316,682 | 2,266,388 | ||||||
Stock based compensation charges |
1,015,063 | 771,121 | ||||||
Changes in assets and liabilities: |
||||||||
Restricted cash and investments |
790,543 | 1,070 | ||||||
Accounts receivable, net |
5,027,673 | 3,027,293 | ||||||
Prepaid and other assets |
547,997 | 222,516 | ||||||
Real estate assets |
1,297,245 | 2,207,784 | ||||||
Accrued expenses and other liabilities |
(1,647,686 | ) | (1,386,739 | ) | ||||
Liability for option cancellations |
205,598 | 14,179 | ||||||
Deferred revenue |
(3,167,815 | ) | (1,997,060 | ) | ||||
Net cash provided by operating activities |
8,005,640 | 5,205,868 | ||||||
cash flows from investing activities: |
||||||||
Web site and database development costs |
(1,664,730 | ) | (1,150,464 | ) | ||||
Furniture, fixtures and equipment additions |
(187,625 | ) | (30,541 | ) | ||||
Furniture, fixtures and equipment disposition |
| 9,906 | ||||||
Net cash (used in) investing activities |
(1,852,355 | ) | (1,171,099 | ) | ||||
cash flows from financing activities: |
||||||||
Repayment of Bank Loan |
(2,765,525 | ) | (5,273,585 | ) | ||||
Repayments on capitalized equipment leases |
(15,870 | ) | (129,778 | ) | ||||
Payments for restricted stock units |
(250,939 | ) | (209,789 | ) | ||||
Stock repurchases |
| (175,940 | ) | |||||
Net cash (used in) financing activities |
(3,032,334 | ) | (5,789,092 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
3,120,951 | (1,754,323 | ) | |||||
Cash and cash equivalents, beginning of period |
20,163,787 | 22,735,240 | ||||||
Cash and cash equivalents, end of period |
$ | 23,284,738 | $ | 20,980,917 | ||||
supplemental information: |
||||||||
Cash paid during the period for interest |
$ | 96,935 | $ | 167,141 | ||||
Cash paid during the period for income taxes, net of refunds |
$ | 22,283 | $ | 33,554 | ||||
supplemental schedule of non-cash investing and financing
activities: |
||||||||
Shares issued for vested employees restricted stock units |
$ | 2,634 | $ | 4,759 | ||||
Disposal of fully amortized intangible assets |
$ | 185,896 | ||||||
Disposal of fully depreciated furniture, fixtures and equipment |
$ | 45,988 | ||||||
Release of accrued remediation liability obligation upon sale
of real estate |
$ | 1,000,000 | ||||||
Mortgage receivable on sale of real estate |
$ | 450,000 | ||||||
See Notes to Consolidated Financial Statements
6
Table of Contents
REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | Organization and Business |
Reis, Inc. (the Company or Reis) is a Maryland corporation. The Companys primary business
is providing commercial real estate market information and analytical tools for its subscribers,
through its Reis Services subsidiary. For disclosure and financial reporting purposes, this
business is referred to as the Reis Services segment.
Reis Services
Reis Services, including its predecessors, was founded in 1980. Reis maintains a proprietary
database containing detailed information on commercial properties in metropolitan markets and
neighborhoods throughout the U.S. The database contains information on apartment, office, retail
and industrial properties and is used by real estate investors, lenders and other professionals
to make informed buying, selling and financing decisions. In addition, Reis data is used by debt
and equity investors to assess, quantify and manage the risks of default and loss associated
with individual mortgages, properties, portfolios and real estate backed securities. Reis
currently provides its information services to many of the nations leading lending
institutions, equity investors, brokers and appraisers.
Reis, through its flagship institutional product, Reis SE, and through its new small business
product, ReisReports, provides online access to a proprietary database of commercial real estate
information and analytical tools designed to facilitate debt and equity transactions as well as
ongoing evaluations. Depending on the product, users have access to trend and forecast analysis
at metropolitan and neighborhood levels throughout the U.S. and/or detailed building-specific
information such as rents, vacancy rates, lease terms, property sales, new construction listings
and property valuation estimates. Reiss products are designed to meet the demand for timely and
accurate information to support the decision-making of property owners, developers, builders,
banks and non-bank lenders, and equity investors. These real estate professionals require
access to timely information on both the performance and pricing of assets, including detailed
data on market transactions, supply, absorption, rents and sale prices. This information is
critical to all aspects of valuing assets and financing their acquisition, development and
construction.
Reiss revenue model is based primarily on annual subscriptions that are paid in accordance with
contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for
example, one-twelfth of the value of a one-year contract is recognized monthly.
Discontinued
Operations Residential Development Activities
The Company was originally formed on January 8, 1997. Reis acquired the Reis Services business
by merger in May 2007 (the Merger). Prior to May 2007, Reis operated as Wellsford Real
Properties, Inc. (Wellsford). Wellsfords primary operating activities immediately prior to
the Merger were the development, construction and sale of its three residential projects and its
approximate 23% ownership interest in the Reis Services business. The Company completed the sale
of the remaining units at its Colorado project in September 2009, sold its Claverack, New York
project in bulk in February 2010 and sold its remaining project in East Lyme, Connecticut in
bulk in April 2011.
See Note 3 for additional information regarding the Companys segments.
2. | Summary of Significant Accounting Policies |
Basis of Presentation
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
majority-owned and controlled subsidiaries. Investments in entities where the Company does not
have a controlling interest are accounted for under the equity method of accounting. These
investments were initially recorded at cost and were subsequently adjusted for the Companys
proportionate share of the investments income (loss) and additional contributions or
distributions. All significant inter-company accounts and transactions among the Company and its
subsidiaries have been eliminated in consolidation.
7
Table of Contents
REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Summary of Significant Accounting Policies (continued)
Quarterly Reporting
The accompanying consolidated financial statements and notes of the Company have been prepared
in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by
the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared under Generally Accepted
Accounting Principles in the United States (GAAP) have been condensed or omitted pursuant to
such rules. In the opinion of management, all adjustments considered necessary for a fair
presentation of the Companys balance sheets, statements of operations, statement of changes in
stockholders equity and statements of cash flows have been included and are of a normal and
recurring nature. These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Companys annual report on
Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 11, 2011. The
consolidated statements of operations for the three and six months ended June 30, 2011 and 2010
and consolidated statements of changes in cash flows for the six months ended June 30, 2011 and
2010 are not necessarily indicative of full year results.
Discontinued Operations
The Company has determined, as a result of the April 2011 sale of property in East Lyme,
Connecticut, that the Residential Development Activities segment, including certain general and
administrative costs that supported that segments operations, should be presented as a
discontinued operation. As a result of this determination and the fact that the historic
operations and cash flows can be clearly distinguished, the operating results of the Residential
Development Activities segment and related general and administrative costs are aggregated for
separate presentation apart from continuing operating results of the Company in the consolidated
financial statements.
Estimates
The preparation of financial statements in conformity with 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. Actual results could
differ from those estimates.
From time to time, the Company has been, is or may in the future be a defendant in various legal
actions arising in the normal course of business. The Company records a provision for a
liability when it is both probable that a liability has been incurred and the amount of loss can
be reasonably estimated. Although the outcome of any litigation is uncertain, management does
not believe that any legal actions to which the Company is a party, or which are proposed or
threatened, will have a material adverse effect on the consolidated financial statements.
Reclassification
Amounts in certain accounts, as presented in the consolidated financial statements and
footnotes, have been reclassified to reflect discontinued operations. These reclassifications do
not result in a change to the previously reported net income (loss) for any of the periods
presented to conform to the current period presentation; however, net income (loss) per common
share on a fully diluted basis for the three months ended June 30, 2010 is different than
previously presented. This difference, in conformity with existing accounting literature for
the computation of earnings per share, is based upon the utilization of a different number of
diluted shares as dictated by the loss from continuing operations.
8
Table of Contents
REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
3. | Segment Information |
The Company is organized into two separately managed segments: the Reis Services segment and the
discontinued Residential Development Activities segment. The following tables present condensed
balance sheet and operating data for these segments:
(amounts in thousands)
Condensed Balance Sheet Data | Reis | Discontinued | ||||||||||||||
June 30, 2011 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 18,144 | $ | | $ | 5,141 | $ | 23,285 | ||||||||
Restricted cash and investments |
215 | | | 215 | ||||||||||||
Receivables, prepaid and other assets |
4,113 | | 28 | 4,141 | ||||||||||||
Assets attributable to discontinued operations |
| | | | ||||||||||||
Total current assets |
22,472 | | 5,169 | 27,641 | ||||||||||||
Furniture, fixtures and equipment, net |
978 | | | 978 | ||||||||||||
Intangible assets, net |
17,925 | | | 17,925 | ||||||||||||
Goodwill |
57,203 | | (2,378 | ) | 54,825 | |||||||||||
Other assets |
144 | | | 144 | ||||||||||||
Total assets |
$ | 98,722 | $ | | $ | 2,791 | $ | 101,513 | ||||||||
Liabilities and stockholders equity |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Current portion of Bank Loan and other debt |
$ | 6,571 | $ | | $ | | $ | 6,571 | ||||||||
Accrued expenses and other liabilities |
1,533 | | 1,110 | 2,643 | ||||||||||||
Deferred revenue |
12,278 | | | 12,278 | ||||||||||||
Liabilities attributable to discontinued operations |
| 850 | | 850 | ||||||||||||
Total current liabilities |
20,382 | 850 | 1,110 | 22,342 | ||||||||||||
Non-current portion of Bank Loan |
1,897 | | | 1,897 | ||||||||||||
Other long-term liabilities |
698 | | | 698 | ||||||||||||
Deferred tax liability, net |
12,903 | | (12,837 | ) | 66 | |||||||||||
Total liabilities |
35,880 | 850 | (11,727 | ) | 25,003 | |||||||||||
Total stockholders equity |
62,842 | (850 | ) | 14,518 | 76,510 | |||||||||||
Total liabilities and stockholders equity |
$ | 98,722 | $ | | $ | 2,791 | $ | 101,513 | ||||||||
Condensed Balance Sheet Data | Reis | Discontinued | ||||||||||||||
December 31, 2010 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 15,912 | $ | 21 | $ | 4,231 | $ | 20,164 | ||||||||
Restricted cash and investments |
214 | | | 214 | ||||||||||||
Receivables, prepaid and other assets |
9,230 | | 116 | 9,346 | ||||||||||||
Assets attributable to discontinued operations |
| 2,438 | | 2,438 | ||||||||||||
Total current assets |
25,356 | 2,459 | 4,347 | 32,162 | ||||||||||||
Furniture, fixtures and equipment, net |
957 | | 1 | 958 | ||||||||||||
Intangible assets, net |
18,577 | | | 18,577 | ||||||||||||
Goodwill |
57,203 | | (2,378 | ) | 54,825 | |||||||||||
Other assets |
166 | | | 166 | ||||||||||||
Total assets |
$ | 102,259 | $ | 2,459 | $ | 1,970 | $ | 106,688 | ||||||||
Liabilities and stockholders equity |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Current portion of Bank Loan and other debt |
$ | 5,559 | $ | | $ | | $ | 5,559 | ||||||||
Accrued expenses and other liabilities |
1,900 | | 1,077 | 2,977 | ||||||||||||
Deferred revenue |
15,446 | | | 15,446 | ||||||||||||
Liabilities attributable to discontinued operations |
| 1,964 | | 1,964 | ||||||||||||
Total current liabilities |
22,905 | 1,964 | 1,077 | 25,946 | ||||||||||||
Non-current portion of Bank Loan |
5,691 | | | 5,691 | ||||||||||||
Other long-term liabilities |
693 | | | 693 | ||||||||||||
Deferred tax liability, net |
11,785 | | (11,719 | ) | 66 | |||||||||||
Total liabilities |
41,074 | 1,964 | (10,642 | ) | 32,396 | |||||||||||
Total stockholders equity |
61,185 | 495 | 12,612 | 74,292 | ||||||||||||
Total liabilities and stockholders equity |
$ | 102,259 | $ | 2,459 | $ | 1,970 | $ | 106,688 | ||||||||
(A) | Includes the assets and liabilities of the Companys discontinued Residential Development Activities segment, to the extent that such assets and
liabilities existed at the date presented. |
|
(B) | Includes cash, other assets and liabilities not specifically attributable to or allocable to a specific operating segment. |
9
Table of Contents
REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
(amounts in thousands)
Condensed Operating Data for the | Reis | Discontinued | ||||||||||||||
Three Months Ended June 30, 2011 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue |
$ | 6,837 | $ | | $ | | $ | 6,837 | ||||||||
Cost of sales of subscription revenue |
1,523 | | | 1,523 | ||||||||||||
Gross profit |
5,314 | | | 5,314 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
1,681 | | | 1,681 | ||||||||||||
Product development |
507 | | | 507 | ||||||||||||
General and administrative expenses |
1,627 | | 1,350 | 2,977 | ||||||||||||
Total operating expenses |
3,815 | | 1,350 | 5,165 | ||||||||||||
Other income (expenses): |
||||||||||||||||
Interest and other income |
21 | | 2 | 23 | ||||||||||||
Interest expense |
(72 | ) | | | (72 | ) | ||||||||||
Total other income (expenses) |
(51 | ) | | 2 | (49 | ) | ||||||||||
Income (loss) before income taxes and discontinued operations |
$ | 1,448 | $ | | $ | (1,348 | ) | $ | 100 | |||||||
Income from discontinued operations, before income taxes |
$ | | $ | 1,342 | $ | | $ | 1,342 | ||||||||
Condensed Operating Data for the | Reis | Discontinued | ||||||||||||||
Three Months Ended June 30, 2010 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue |
$ | 6,004 | $ | | $ | | $ | 6,004 | ||||||||
Cost of sales of subscription revenue |
1,536 | | | 1,536 | ||||||||||||
Gross profit |
4,468 | | | 4,468 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
1,441 | | | 1,441 | ||||||||||||
Product development |
465 | | | 465 | ||||||||||||
General and administrative expenses |
1,439 | | 1,212 | 2,651 | ||||||||||||
Total operating expenses |
3,345 | | 1,212 | 4,557 | ||||||||||||
Other income (expenses): |
||||||||||||||||
Interest and other income |
30 | | 6 | 36 | ||||||||||||
Interest expense |
(102 | ) | | | (102 | ) | ||||||||||
Total other income (expenses) |
(72 | ) | | 6 | (66 | ) | ||||||||||
Income (loss) before income taxes and discontinued operations |
$ | 1,051 | $ | | $ | (1,206 | ) | $ | (155 | ) | ||||||
Income (loss) from discontinued operations, before income taxes |
$ | | $ | 388 | $ | (112 | ) | $ | 276 | |||||||
(A) | Includes the results of the Companys discontinued Residential Development Activities segment, to the extent that such operations existed during
the period presented. |
|
(B) | Includes interest and other income, depreciation and amortization expense and general and administrative expenses that have not been allocated to
the operating segments. |
10
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REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
(amounts in thousands)
Condensed Operating Data for the | Reis | Discontinued | ||||||||||||||
Six Months Ended June 30, 2011 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue |
$ | 13,454 | $ | | $ | | $ | 13,454 | ||||||||
Cost of sales of subscription revenue |
3,073 | | | 3,073 | ||||||||||||
Gross profit |
10,381 | | | 10,381 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
3,333 | | | 3,333 | ||||||||||||
Product development |
988 | | | 988 | ||||||||||||
General and administrative expenses |
3,176 | | 2,576 | 5,752 | ||||||||||||
Total operating expenses |
7,497 | | 2,576 | 10,073 | ||||||||||||
Other income (expenses): |
||||||||||||||||
Interest and other income |
39 | | 3 | 42 | ||||||||||||
Interest expense |
(150 | ) | | | (150 | ) | ||||||||||
Total other income (expenses) |
(111 | ) | | 3 | (108 | ) | ||||||||||
Income (loss) before income taxes and discontinued operations |
$ | 2,773 | $ | | $ | (2,573 | ) | $ | 200 | |||||||
Income from discontinued operations, before income taxes |
$ | | $ | 1,252 | $ | | $ | 1,252 | ||||||||
Condensed Operating Data for the | Reis | Discontinued | ||||||||||||||
Six Months Ended June 30, 2010 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue |
$ | 12,018 | $ | | $ | | $ | 12,018 | ||||||||
Cost of sales of subscription revenue |
2,999 | | | 2,999 | ||||||||||||
Gross profit |
9,019 | | | 9,019 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
2,991 | | | 2,991 | ||||||||||||
Product development |
934 | | | 934 | ||||||||||||
General and administrative expenses |
2,873 | | 2,429 | 5,302 | ||||||||||||
Total operating expenses |
6,798 | | 2,429 | 9,227 | ||||||||||||
Other income (expenses): |
||||||||||||||||
Interest and other income |
63 | | 10 | 73 | ||||||||||||
Interest expense |
(222 | ) | | | (222 | ) | ||||||||||
Total other income (expenses) |
(159 | ) | | 10 | (149 | ) | ||||||||||
Income (loss) before income taxes and discontinued operations |
$ | 2,062 | $ | | $ | (2,419 | ) | $ | (357 | ) | ||||||
Income (loss) from discontinued operations, before income taxes |
$ | | $ | 511 | $ | (270 | ) | $ | 241 | |||||||
(A) | Includes the results of the Companys discontinued Residential Development Activities segment, to the extent that such operations existed during
the period presented. |
|
(B) | Includes interest and other income, depreciation and amortization expense and general and administrative expenses that have not been allocated to
the operating segments. |
Reis Services
See Note 1 for a description of Reis Servicess business and products at June 30, 2011.
No individual customer accounted for more than 4.8% and 2.5% of Reis Servicess revenues for the
six months ended June 30, 2011 and 2010, respectively.
11
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REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
The balance of outstanding accounts receivable of Reis Services at June 30, 2011 and December
31, 2010, follows:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Accounts receivable |
$ | 3,974,000 | $ | 9,065,000 | ||||
Allowance for doubtful accounts |
(40,000 | ) | (103,000 | ) | ||||
Accounts receivable, net |
$ | 3,934,000 | $ | 8,962,000 | ||||
Three subscribers accounted for an aggregate of approximately 33.0% of Reis Servicess
accounts receivable at June 30, 2011, with the largest
representing 18.4%. As of August 1, 2011,
the Company had received payments of approximately $2,382,000, or 60.0% against the June 30, 2011
accounts receivable balance.
At June 30, 2011, no subscriber accounted for more than 5.9% of deferred revenue.
Discontinued
Operations Residential Development Activities
Income from discontinued operations is comprised of the following:
(amounts in thousands)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue from sales of real estate |
$ | 1,800 | $ | 468 | $ | 1,800 | $ | 3,218 | ||||||||
Cost of sales of real estate |
(558 | ) | (468 | ) | (558 | ) | (2,955 | ) | ||||||||
Other income (expense), net |
100 | 276 | 10 | (22 | ) | |||||||||||
Income from discontinued operations before income tax |
1,342 | 276 | 1,252 | 241 | ||||||||||||
Income tax expense on discontinued operations |
| 111 | | 97 | ||||||||||||
Income from discontinued operations, net of income
tax expense |
$ | 1,342 | $ | 165 | $ | 1,252 | $ | 144 | ||||||||
East Lyme
Prior to its sale in April 2011, the Companys last remaining residential development was The
Orchards, a single family home development in East Lyme, Connecticut, zoned for 161 single
family homes on 224 acres (East Lyme).
The East Lyme project was sold in a bulk transaction for a gross sales price of $1,800,000 for
the remaining 119 lots in inventory, plus the release of approximately $792,000 of
project-related deposits and escrows held as restricted cash. Net cash received at closing,
after selling expenses and closing adjustments, and including the cash received upon release of
the deposits and escrows, aggregated approximately $2,600,000. As a result of this transaction,
the Company recorded a gain in the three and six months ended June 30, 2011 of approximately
$1,242,000, which is included in income from discontinued operations. One home was sold during
the three and six months ended June 30, 2010.
Certain of the lots at East Lyme required remediation of pesticides which were used on the
property when it was an apple orchard. Remediation would have been required prior to the
development of those lots. The remediation plan, the cost of which was estimated by management
to be approximately $1,000,000, had been approved by the health inspector for the municipality
and the town planner. The estimated remediation cost was recognized in prior years and was
reflected in liabilities attributable to discontinued operations in the December 31, 2010 consolidated balance sheet. As a result of
the sale, the Company was indemnified from any financial obligation related to the environmental
remediation and reversed this liability, which amount is included in the gain reported in the
three and six months ended June 30, 2011, as referred to above.
12
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REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
Claverack
Prior to its sale in February 2010, the Company owned approximately 235 acres in Claverack, New
York, which was subdivided into 48 developable single family home lots. In February 2010, the
Company sold the Claverack project in a bulk transaction for a gross sales price of $2,750,000,
which included two model homes, amenities, 46 additional lots and $450,000 of cash
collateralizing certain road completion obligations. Net cash received at closing, after
expenses, aggregated approximately $2,187,000. The remaining $450,000 of the purchase price was
payable by the purchaser in February 2011 and had been secured by the outstanding road bond and
a mortgage on the property. As a result of this transaction, the Company recorded a gain of
approximately $263,000 in the first quarter of 2010, which is included in income from
discontinued operations. In February 2011, the Company received cash of approximately $455,000
in full satisfaction of the mortgage note and accrued interest thereon.
Real Estate Contingencies
Reis has purchased insurance with respect to construction defect and completed operations at its
past real estate projects, including those projects described above. Reis is, from time to time,
exposed to various claims associated with the development, construction and sale of condominium
units, single family homes or lots. The impact of these claims to the Company has not been
material to date. However, claims related to dissatisfaction by homeowners and homeowners
associations with the construction of condominiums, homes and amenities by us and/or our
developer partners in any condominium or subdivision development, or other matters, may result
in litigation costs, remediation costs, warranty expenses or settlement costs which could be
material to Reiss results of operations and financial condition.
4. | Restricted Cash and Investments |
Restricted cash and investments represents a security deposit for the 530 Fifth Avenue corporate
office space. The Company provided the lessor a bank-issued letter of credit, which is fully
collateralized by a certificate of deposit issued by that bank. The balance of the restricted
cash was approximately $215,000 and $214,000 at June 30, 2011 and December 31, 2010,
respectively.
In addition, the Company had approximately $791,000 of deposits and escrows related to
residential development activities at December 31, 2010, which amount was included in assets
attributable to discontinued operations in the consolidated balance sheet at that date. As a
result of the April 2011 sale of the East Lyme project, the balance of deposits and escrows
related to residential development activities was released and converted to cash, and
accordingly, there was no balance at June 30, 2011.
5. | Intangible Assets |
The amount of identified intangible assets, including the respective amounts of accumulated
amortization, are as follows:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Database |
$ | 12,310,000 | $ | 11,395,000 | ||||
Accumulated amortization |
(8,551,000 | ) | (7,374,000 | ) | ||||
Database, net |
3,759,000 | 4,021,000 | ||||||
Customer relationships |
14,100,000 | 14,100,000 | ||||||
Accumulated amortization |
(3,967,000 | ) | (3,470,000 | ) | ||||
Customer relationships, net |
10,133,000 | 10,630,000 | ||||||
Web site |
5,737,000 | 5,173,000 | ||||||
Accumulated amortization |
(3,247,000 | ) | (2,941,000 | ) | ||||
Web site, net |
2,490,000 | 2,232,000 | ||||||
Acquired below market lease |
2,800,000 | 2,800,000 | ||||||
Accumulated amortization |
(1,257,000 | ) | (1,106,000 | ) | ||||
Acquired below market lease, net |
1,543,000 | 1,694,000 | ||||||
Intangible assets, net |
$ | 17,925,000 | $ | 18,577,000 | ||||
13
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REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Intangible Assets (continued)
The Company capitalized approximately $464,000 and $337,000 during the three months ended June
30, 2011 and 2010, respectively, and $915,000 and $566,000 during the six months ended June 30,
2011 and 2010, respectively, to the database intangible asset. The Company capitalized
approximately $406,000 and $337,000 during the three months ended June 30, 2011 and 2010,
respectively, and $750,000 and $585,000 during the six months ended June 30, 2011 and 2010,
respectively, to the web site intangible asset.
Amortization expense for intangible assets aggregated approximately $1,165,000 and $2,317,000
for the three and six months ended June 30, 2011, of which approximately $592,000 and $1,177,000
related to the database, which is charged to cost of sales, approximately $248,000 and $497,000
related to customer relationships, which is charged to sales and marketing expense,
approximately $249,000 and $491,000 related to web site development, which is charged to product
development expense, and approximately $75,000 and $151,000 related to the value ascribed to the
below market terms of the office lease, which is charged to general and administrative expense,
all in the Reis Services segment. Amortization expense for intangible assets aggregated
approximately $1,124,000 and $2,267,000 for the three and six months ended June 30, 2010, of
which approximately $573,000 and $1,155,000 related to the database, approximately $250,000 and
$501,000 related to customer relationships, approximately $225,000 and $460,000 related to web
site development, and approximately $76,000 and $151,000 related to the value ascribed to the
below market terms of the office lease.
6. | Debt |
At June 30, 2011 and December 31, 2010, the Companys debt consisted of the following:
Stated Interest Rate at | June 30, | December 31, | ||||||||||
Maturity Date | June 30, 2011 | 2011 | 2010 | |||||||||
Reis Services Bank Loan |
September 2012 | LIBOR + 1.50% | $ | 8,456,000 | $ | 11,222,000 | ||||||
Other Reis Services debt |
Various | Fixed/Various | 12,000 | 28,000 | ||||||||
Total debt |
$ | 8,468,000 | $ | 11,250,000 | ||||||||
Total assets of Reis
Services as a security
interest for the Bank
Loan |
$ | 98,722,000 | $ | 102,259,000 | ||||||||
Reis Services Bank Loan
In connection with the Merger agreement, Private Reis entered into a credit agreement, dated
October 11, 2006, with the Bank of Montreal, Chicago Branch, as administrative agent, and BMO
Capital Markets, as lead arranger, which provided for a term loan of up to an aggregate of
$20,000,000 and revolving loans up to an aggregate of $7,000,000. Loan proceeds were used to
finance $25,000,000 of the cash portion of the Merger consideration. The interest rate was
LIBOR + 1.50% at June 30, 2011 and December 31, 2010 (LIBOR was 0.19% and 0.26% at June 30, 2011
and December 31, 2010, respectively).
Reis Services is required to (1) make principal payments on the term loan on a quarterly basis
commencing on June 30, 2007 in increasing amounts pursuant to the payment schedule provided in
the credit agreement and (2) permanently reduce the revolving loan commitments on a quarterly
basis, which commenced on March 31, 2010. Additional principal payments are payable if Reis
Servicess annual cash flow exceeds certain amounts, or if certain defined operating ratios are
not met, all of which are defined in the credit agreement. The final maturity date of all
amounts borrowed pursuant to the credit agreement is September 30, 2012. At June 30, 2011 and
December 31, 2010, the Company did not have the ability to borrow any additional amounts under
the Bank Loan.
In accordance with the terms of the credit agreement, beginning January 1, 2010 and through the
maturity of the Bank Loan, the required leverage ratio was reduced to a maximum of 2.00 to 1.00
from a maximum of 2.50 to 1.00. In order to be in compliance with the leverage ratio test,
management made a payment of $3,000,000 at March 31, 2010 in addition to the contractual minimum
repayment of $1,000,000 due at that time. Although not required to do so, the Company made
additional prepayments of $500,000 at the end of the second, third and fourth quarters of 2010
(aggregating $1,500,000), each of which was in excess of the minimum repayments due at such
dates. All of the 2010 prepayments ratably reduced Reis Servicess future quarterly contractual
minimum payments through maturity. No additional prepayments, in excess of minimum repayments,
were made during the six months ended June 30, 2011.
14
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REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
7. Income Taxes
The components of the income tax expense (benefit) are as follows:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Current state and local tax expense |
$ | | $ | | $ | | $ | | ||||||||
Deferred Federal tax expense (benefit) |
| 12,000 | | (36,000 | ) | |||||||||||
Deferred state and local tax expense (benefit) |
| 3,000 | | (9,000 | ) | |||||||||||
Income tax expense (benefit), including taxes
attributable to discontinued operations |
| 15,000 | | (45,000 | ) | |||||||||||
Less income tax expense attributable to discontinued operations (A) |
| (111,000 | ) | | (97,000 | ) | ||||||||||
Income tax (benefit) (B) |
$ | | $ | (96,000 | ) | $ | | $ | (142,000 | ) | ||||||
(A) | Represents the impact of income taxes attributable to income from discontinued operations. |
|
(B) | This amount reflects the tax (benefit) from continuing operations as reported on the consolidated statement of operations for the periods presented. |
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. The net deferred tax liability was approximately $67,000 at June 30,
2011 and December 31, 2010, respectively, and is reflected as a non-current liability in the
accompanying consolidated balance sheets. The significant portion of the deferred tax items
relates to (1) the tax benefit of impairment charges before allowances at December 31, 2010, (2)
net operating loss (NOL) carryforwards as they relate to deferred tax assets, (3) Federal
alternative minimum tax (AMT) credit carryforwards as they relate to deferred tax assets, (4)
stock based compensation and (5) the deferred tax liability resulting from the intangible assets
recorded at the time of the Merger as they related to deferred tax liabilities.
A valuation allowance is required to reduce the deferred tax assets if, based on the weight of
the evidence, it is more-likely-than-not that some portion or all of the deferred tax assets
will not be realized. Accordingly, management has determined that a valuation allowance of
approximately $7,668,000 and $8,254,000 at June 30, 2011 and December 31, 2010, respectively,
was necessary. The allowance at June 30, 2011 and December 31, 2010 relates primarily to AMT
credits and existing and expected NOL carryforwards, and in 2010, the excess of a portion of
the tax basis of certain real estate development assets over their respective financial
statement basis. The reduction in the allowance during the six months ended June 30, 2011
results from the realization of excess tax basis upon the sale of the East Lyme project, which
was used to offset the Companys pre-tax income.
8. Stockholders Equity
Between December 2008 and June 2010, the Board authorized the repurchase of up to an aggregate
amount of $4,000,000 of the Companys common stock, which authorizations were fully utilized by
December 2010. The stock repurchases were permitted from time to time in the open market or
through privately negotiated transactions. Depending on market conditions, financial
developments and other factors, additional amounts may be authorized by the Board whereby future
purchases could be commenced or suspended at any time, or from time to time, without prior
notice. The Company may make purchases pursuant to a trading plan under Securities Exchange Act
Rule 10b5-1, permitting open market purchases of common stock during blackout periods consistent
with the Companys Policies for Transactions in Reis Stock and Insider Trading and Tipping.
During the six months ended June 30, 2011, the Company did not repurchase any shares of common
stock; however, during the three and six months ended June 30, 2010, the Company purchased an
aggregate of 3,440 and 28,941 shares of common stock, respectively, at an average price of $5.78
and $6.08 per share, respectively. From the inception of the share repurchase programs in
December 2008 through December 2010, the Company purchased an aggregate of 838,076 shares of
common stock at an average price of $4.77 per share, for an aggregate of $4,000,000.
Cumulatively, the Company repurchased approximately 7.6% of the common shares outstanding at the
time of the Boards initial authorization in December 2008.
15
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REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
9. | Stock Plans and Other Incentives |
The Company has adopted certain incentive plans for the purpose of attracting and retaining the
Companys directors, officers and employees by having the ability to issue options, restricted
stock units (RSUs) or stock awards. Awards granted under the Companys incentive plans expire
ten years from the date of grant and vest over periods ranging generally from three to five
years for employees.
Option Awards
The following table presents option activity and other plan data for the six months ended June
30, 2011 and 2010:
For the Six Months Ended June 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
Options | Price | Options | Price | |||||||||||||
Outstanding at beginning of period |
680,896 | $ | 8.73 | 473,620 | $ | 8.91 | ||||||||||
Cancelled through cash settlement |
| $ | | | $ | | ||||||||||
Forfeited/cancelled/expired |
| $ | | | $ | | ||||||||||
Outstanding at end of period |
680,896 | $ | 8.73 | 473,620 | $ | 8.91 | ||||||||||
Options exercisable at end of period |
364,896 | $ | 8.98 | 305,620 | $ | 8.49 | ||||||||||
Options exercisable which can be settled in cash |
70,896 | $ | 4.81 | 88,620 | $ | 4.73 | ||||||||||
Certain outstanding options allow the option holder to receive from the Company, in
cancellation of the holders option, a cash payment with respect to each cancelled option equal
to the amount, if any, by which the fair market value of the share of stock underlying the
option exceeds the exercise price of such option. The Company accounts for these options as
liability awards. This liability is adjusted at the end of each reporting period to reflect (1)
the net cash payments to option holders made during each period, (2) the impact of the exercise
and expiration of options and (3) changes in the market price of the Companys common stock.
Changes in the settlement value of option awards treated under the liability method are
reflected as income or expense in the statements of operations.
At June 30, 2011, the liability for option cancellations was approximately $363,000 based upon
the difference in the closing stock price of the Company at June 30, 2011 of $9.93 per share
and the individual exercise prices of the outstanding 70,896 in-the-money options that were
accounted for as liability awards at that date. At December 31, 2010, the liability for option
cancellations was approximately $158,000 based upon the difference in the closing stock price
of the Company at December 31, 2010 of $7.03 per share and the individual exercise prices of
the outstanding 70,896 in-the-money options that were accounted for as liability awards at
that date. The Company recorded compensation expense of approximately $145,000 and $49,000 for
the three months ended June 30, 2011 and 2010, respectively, and $206,000 and $14,000 for the
six months ended June 30, 2011 and 2010, respectively, in general and administrative expenses
in the statements of operations related to the respective changes in the amount of the
liability for option cancellations.
16
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REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Stock Plans and Other Incentives (continued)
RSU Awards
The following table presents the changes in RSUs outstanding for the six months ended June 30,
2011 and 2010:
For the Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Outstanding at beginning of period |
523,479 | 507,668 | ||||||
Granted |
235,779 | 200,460 | ||||||
Common stock delivered (A)(B) |
(174,495 | ) | (272,226 | ) | ||||
Forfeited |
| (1,800 | ) | |||||
Outstanding at end of period |
584,763 | 434,102 | ||||||
Intrinsic value at June 30, 2011 and
2010, respectively (C) |
$ | 5,807,000 | $ | 2,739,000 | ||||
(A) | Includes 33,758 shares which were used to settle minimum employee
withholding tax obligations for 14 employees of approximately $251,000
in the first quarter of 2011 and 9,054 shares which were used to settle
minimum employee withholding tax obligations for two employees of
approximately $90,000 in the second quarter of 2011. A net of 15,945
and 131,683 shares of common stock were delivered in the three and six
months ended June 30, 2011, respectively. |
|
(B) | Includes 17,431 shares which were used to settle minimum employee
withholding tax obligations for 12 employees of approximately $105,000
in the first quarter of 2010 and 16,870 shares which were used to
settle minimum employee withholding tax obligations for 63 employees of
approximately $105,000 in the second quarter of 2010. A net of
167,530 and 237,925 shares of common stock were delivered in the three
and six months ended June 30, 2010, respectively. |
|
(C) | For purposes of this calculation, the Companys closing stock prices
were $9.93 and $6.31 per share on June 30, 2011 and 2010, respectively. |
In March 2011, an aggregate of 214,135 RSUs were granted to employees, which RSUs vest
one-third a year over three years and had a weighted average grant date fair value of $7.41 per
RSU (which was determined based on the closing stock price of the Companys common stock on the
applicable date of grant). In February 2010, an aggregate of 185,500 RSUs were granted to
employees which vest one-third a year over three years and have a grant date fair value of $5.97
per RSU (which was determined based on the closing price of the Companys common stock on the
applicable date of grant). The awards granted in 2011 and 2010 are treated as equity awards and
the grant date fair value is charged to compensation expense at the corporate level on a
straight-line basis over the vesting periods.
During the six months ended June 30, 2011, an aggregate of 21,644 RSUs were granted to
non-employee directors (with an average grant date fair value of $7.44 per RSU) related to the
equity component of their compensation for the three months ended December 31, 2010 and March
31, 2011. During the six months ended June 30, 2010, an aggregate of 15,460 RSUs were granted
to non-employee directors (with an average grant date fair value of $5.95 per RSU) related to
the equity component of their compensation for the three months ended December 31, 2009 and
March 31, 2010. In each case, the grant date fair value was determined as of the last trading
day of the quarter for which the RSUs were being received as compensation. The RSUs are
immediately vested, but are not deliverable to non-employee directors until six months after
termination of their service as a director.
Option and RSU Expense Information
The Company recorded non-cash compensation expense of approximately $530,000 and $369,000,
including approximately $77,000 and $50,000 related to non-employee director equity
compensation, for the three months ended June 30, 2011 and 2010, respectively, related to all
stock options and RSUs accounted for as equity awards, as a component of general and
administrative expenses in the statement of operations. For the six months ended June 30, 2011
and 2010, the Company recorded non-cash compensation expense of approximately $1,015,000 and
$771,000, respectively, including approximately $157,000 and $96,000, respectively, related to
non-employee director equity compensation.
17
Table of Contents
REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
10. | Earnings Per Common Share |
Basic earnings per common share are computed based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per common share are based upon the
increased number of common shares that would be outstanding assuming the exercise of dilutive
common share options and the consideration of restricted stock awards. The following table
details the computation of earnings per common share, basic and diluted:
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator for basic per share calculation: |
||||||||||||||||
Income (loss) from continuing operations
for basic calculation |
$ | 100,629 | $ | (57,697 | ) | $ | 200,158 | $ | (214,229 | ) | ||||||
Income from discontinued operations, net
of income tax expense |
1,341,980 | 164,094 | 1,252,250 | 143,556 | ||||||||||||
Net income (loss) for basic calculation |
$ | 1,442,609 | $ | 106,397 | $ | 1,452,408 | $ | (70,673 | ) | |||||||
Numerator for diluted per share calculation |
||||||||||||||||
Income (loss) from continuing operations |
$ | 100,629 | $ | (57,697 | ) | $ | 200,158 | $ | (214,229 | ) | ||||||
Adjustments to income (loss) from
continuing operations for the income
statement impact of dilutive securities |
| | | | ||||||||||||
Income (loss) from continuing operations
for dilution calculation |
100,629 | (57,697 | ) | 200,158 | (214,229 | ) | ||||||||||
Income from discontinued operations, net
of income tax expense |
1,341,980 | 164,094 | 1,252,250 | 143,556 | ||||||||||||
Net income (loss) for dilution calculation |
$ | 1,442,609 | $ | 106,397 | $ | 1,452,408 | $ | (70,673 | ) | |||||||
Denominator: |
||||||||||||||||
Weighted
average common shares basic |
10,587,923 | 10,495,194 | 10,558,694 | 10,458,178 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
RSUs |
319,522 | | 267,557 | | ||||||||||||
Stock options |
6,831 | | | | ||||||||||||
Weighted
average common shares diluted |
10,914,276 | 10,495,194 | 10,826,251 | 10,458,178 | ||||||||||||
Per common
share amounts basic: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | (0.02 | ) | ||||||
Income from discontinued operations |
0.13 | 0.02 | 0.12 | 0.01 | ||||||||||||
Net income (loss) |
$ | 0.14 | $ | 0.01 | $ | 0.14 | $ | (0.01 | ) | |||||||
Per common
share amounts diluted: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | (0.02 | ) | ||||||
Income from discontinued operations |
0.12 | 0.02 | 0.11 | 0.01 | ||||||||||||
Net income (loss) |
$ | 0.13 | $ | 0.01 | $ | 0.13 | $ | (0.01 | ) | |||||||
Potentially dilutive securities include all stock based awards. For the three and six
months ended June 30, 2011 and 2010, certain equity awards, in addition to the option awards
accounted for under the liability method, were antidilutive.
11. | Fair Value of Financial Instruments |
At June 30, 2011 and December 31, 2010, the Companys financial instruments included
receivables, payables, accrued expenses, other liabilities and debt. The fair values of these
financial instruments, excluding the Bank Loan, were not materially different from their
recorded values at June 30, 2011 and December 31, 2010. Other than capital leases, all of the
Companys debt at June 30, 2011 and December 31, 2010 was floating rate based. Regarding the
Bank Loan, the fair value of this debt is estimated to be approximately $8,279,000 and
$10,905,000 at June 30, 2011 and December 31, 2010, respectively, which is lower than the
recorded amounts of $8,456,000 and $11,222,000 at June 30, 2011 and December 31, 2010,
respectively. The estimated fair value reflects the effect of higher interest rate spreads on
debt being issued under current market conditions, as compared to the conditions that existed
when the Bank Loan was obtained. See Note 6 for more information about the Companys debt.
18
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the consolidated financial statements
and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
Organization and Business
Reis, Inc., which we refer to as either the Company or Reis, is a Maryland corporation. The
Companys primary business is providing commercial real estate market information and analytical
tools for its subscribers, through its Reis Services subsidiary. For disclosure and financial
reporting purposes, this business is referred to as the Reis Services segment.
Reis Services
Reis Services, including its predecessors, was founded in 1980. Reis maintains a proprietary
database containing detailed information on commercial properties in metropolitan markets and
neighborhoods throughout the U.S. The database contains information on apartment, office, retail
and industrial properties and is used by real estate investors, lenders and other professionals to
make informed buying, selling and financing decisions. In addition, Reis data is used by debt and
equity investors to assess, quantify and manage the risks of default and loss associated with
individual mortgages, properties, portfolios and real estate backed securities. Reis currently
provides its information services to many of the nations leading lending institutions, equity
investors, brokers and appraisers.
Reis, through its flagship institutional product, Reis SE, and through its new small business
product, ReisReports, provides online access to a proprietary database of commercial real estate
information and analytical tools designed to facilitate debt and equity transactions as well as
ongoing evaluations. Depending on the product, users have access to trend and forecast analysis at
metropolitan and neighborhood levels throughout the U.S. and/or detailed building-specific
information such as rents, vacancy rates, lease terms, property sales, new construction listings
and property valuation estimates. Reiss products are designed to meet the demand for timely and
accurate information to support the decision-making of property owners, developers, builders, banks
and non-bank lenders, and equity investors. These real estate professionals require access to
timely information on both the performance and pricing of assets, including detailed data on market
transactions, supply, absorption, rents and sale prices. This information is critical to all
aspects of valuing assets and financing their acquisition, development and construction.
Reiss revenue model is based primarily on annual subscriptions that are paid in accordance with
contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for
example, one-twelfth of the value of a one-year contract is recognized monthly.
Operations
As commercial real estate markets have grown in size and complexity, Reis, over the last 30 years,
has invested in the areas critical to supporting the information needs of real estate professionals
in both the asset market and the space leasing market. In particular, Reis has:
| developed expertise in data collection across multiple markets and property types; |
||
| invested in the analytical expertise to develop decision support systems around property
valuation, credit analytics, transaction support and risk management; |
||
| created product development expertise to collect market feedback and translate it into
new products and reports; and |
||
| invested in a robust technology infrastructure to disseminate these tools to the wide
variety of market participants. |
These investments have established Reis as a leading provider of commercial real estate information
and analytical tools to the investment community. Reis continues to develop and introduce new
products, expand and add new markets and data, and find new ways to deliver existing information to
meet and anticipate client demand, as more fully described below under Products and Services.
The depth and breadth of Reiss data and expertise are critical in allowing Reis to grow its
business.
19
Table of Contents
Proprietary Databases
Reiss commercial real estate databases contain information on competitive, income-producing
properties in the U.S. apartment, retail, office and industrial sectors. On an ongoing basis, Reis
conducts telephone surveys with building owners, leasing agents and managers to obtain key building
performance statistics including, among others, occupancy rates, rents, rent discounts, free rent
allowances, tenant improvement allowances, lease terms and operating expenses. In addition to its
primary telephone surveys, Reis processes multiple other sources of data on commercial real estate
including: public filings databases, tax assessor records, deed transfers, planning boards, and
numerous local, regional and national publications and commercial real estate websites. Using
proprietary statistical techniques, Reis screens and assembles large volumes of data into
integrated supply and demand trends on a monthly basis at the neighborhood (submarket) and city
(market) levels. All collected data are subjected to a rigorous quality assurance and validation
process developed over many years. At the property level, surveyors compare the data collected in
the current period with data previously collected on that property and similar properties, and if
any unusual changes in rents and vacancies are identified, follow-up procedures are performed for
verification or clarification of the results. All aggregate market data at the submarket and market
levels are also subjected to comprehensive quality controls. The following table lists the number
of metropolitan markets covered by Reis for each of four types of commercial real estate at June
30, 2011:
Number of metropolitan markets: |
||||
Apartment |
200 | |||
Retail |
170 | |||
Office |
132 | |||
Industrial |
44 |
At June 30, 2011, these metropolitan markets are further sub-divided into over 1,800
competitive submarkets based on property type.
In addition to the core property database, Reis develops and maintains a new construction database
that identifies and monitors projects that are being added to our covered markets. Detailed
tracking of the supply side of the commercial real estate market is critical to projecting
performance changes at the market and submarket levels. This database is updated weekly and
reports relevant criteria such as project size, property type and location for projects that are
planned, proposed, under construction, or nearing completion.
Reis also maintains a sales comparables database containing transactions in 204 of our covered
markets. The database captures key information on each transaction such as buyer, seller, purchase
price, capitalization rate and financing details, where available. Prior to March 31, 2011, this
database included transactions valued at $2,000,000 or greater. Beginning in April 2011, we have
expanded the coverage to include transactions valued at greater than $250,000 in our covered
markets, with four years of history. Additionally, during March 2011, we added hotel transactions
to our sales comparables coverage. This is a new property type in our database.
Products and Services
Reis SE, available through the www.reis.com web site, serves as a delivery platform for the
thousands of reports containing Reiss primary research data and forecasts, as well as a number of
analytical tools. Access to Reis SE is by secure password only and can be customized to accommodate
the needs of subscribers. For example, the product can be tailored to provide access to all or only
selected markets, property types and report combinations. The Reis SE interface has been refined
over the past several years to accommodate real estate professionals who need to perform
market-based trend analysis, property specific research, comparable property analysis, and
valuation and credit analysis estimates at the single property and portfolio levels.
On a monthly and quarterly basis, Reis updates thousands of neighborhood and city level reports
that cover historical trends and current conditions. In all of the primary markets, five year
forecasts are updated quarterly on all key real estate market indicators. Monthly and quarterly
updates are supported by property, neighborhood and city data collected during the prior periods.
Reports are retrievable by street address, property type (apartment, office, retail and industrial)
or market/submarket and are available as full color, presentation quality documents or in
spreadsheet formats. These reports are used by Reiss subscribers to assist in due diligence and to
support commercial real estate transactions, including loan originations, underwriting,
acquisitions, risk assessment (such as loan loss reserves and impairment analyses), portfolio
monitoring and management, asset management, appraisal and market analysis.
20
Table of Contents
Other significant elements of Reis SE include:
| property comparables that allow users to identify buildings or new construction projects
with similar characteristics (such as square footage, rents or sales price); |
||
| quarterly First Glance reports that provide an early assessment of the apartment,
office and retail sectors across the U.S. and preliminary commentary on new construction
activity; |
||
| Quarterly Briefings two conference calls each quarter attended by hundreds of
subscribers, during which Reis provides an overview of its latest high-level findings and
forecasts for the commercial real estate space and capital markets; |
||
| real estate news stories chosen by Reis analysts to provide information relevant to a
particular market and property type; and |
||
| customizable email alerts that let users receive proactive updates on only those reports
and markets that they designate. |
During 2010, Reis completed the development of and launched a product tailored to the needs of
smaller enterprises and individuals, professional investors, brokers and appraisers, which we refer
to as ReisReports, available at www.ReisReports.com. ReisReports utilizes the same
proprietary database of information that supports our Reis SE subscribers. Depending on the
package chosen by the ReisReports subscriber, a set number of market reports is available on a
monthly basis at an affordable price point.
Reis continues to develop new products and applications. Current initiatives include the further
expansion of both our geographic market coverage and property types and broadening our data
redistribution relationships with other business information vendors. Recent achievements related
to data redistribution include agreements with FactSet, Capital IQ and Thomson Reuters in the first
quarter of 2011.
Cost of Service
Reiss data is made available in five primary ways: (1) annual and multi-year subscriptions to Reis
SE, (2) capped subscriptions allowing subscribers to download a limited retail value of reports,
(3) online single report credit card purchases, (4) custom data requests and (5) monthly
subscriptions to ReisReports, charged to a credit card. Annual subscription fees for Reis SE range
from $1,000 to over $1,000,000 depending upon the subscribers line of business, and the combination
of markets, property types and reports subscribed to, for which the subscriber is typically allowed
to download an unlimited number of reports over a twelve month period. Capped subscriptions generally
range from $1,000 to $25,000 and allow clients to download a fixed retail value of reports over a
twelve month period. Sales of individual reports typically range from $150 to $695 per report and are
available to anyone who visits Reiss retail web site or contacts Reis via telephone, fax or email.
However, certain reports are only available by a subscription or capped subscription account.
Custom data deliverables range in price from $1,000 for a specific data element to hundreds of
thousands of dollars for custom portfolio valuation and credit analysis. Renewals are negotiated
in advance of the expiration of an existing contract. Important factors in determining contract
renewal rates include a subscribers historical and projected report consumption. The monthly fee
for ReisReports is currently $75 or $125 depending on the package chosen by the subscriber.
Other Reis Services Information
For additional information on the Reis Services business, refer to the Companys annual report on
Form 10-K for the year ended December 31, 2010, which was filed with the Securities and Exchange
Commission on March 11, 2011.
Discontinued
Operations Residential Development Activities
The Company was originally formed on January 8, 1997. Reis acquired the Reis Services business by
merger in May 2007, which we refer to as the Merger. Prior to May 2007, Reis operated as Wellsford
Real Properties, Inc., which we refer to as Wellsford. Wellsfords primary operating activities
immediately prior to the Merger were the development, construction and sale of its three
residential projects and its approximate 23% ownership interest in the Reis Services business. The
Company completed the sale of the remaining units at its Colorado project in September 2009, sold
its Claverack, New York project in bulk in February 2010 and sold its remaining project in East
Lyme, Connecticut in bulk in April 2011.
21
Table of Contents
Additional Segment Financial Information
See Note 3 of the consolidated financial statements included in this filing for additional
information regarding the Companys segments.
Selected Significant Accounting Policies
For a description of our selected significant accounting policies and estimates, see our Annual
Report on Form 10-K for the year ended December 31, 2010 and Note 2 of the consolidated financial
statements included in this filing.
Discontinued Operations
The Company has determined, as a result of the April 2011 sale of property in East Lyme,
Connecticut, that the Residential Development Activities segment, including certain general and
administrative costs that supported that segments operations, should be presented as a
discontinued operation. As a result of this determination and the fact that the historic
operations and cash flows can be clearly distinguished, the operating results of the Residential
Development Activities segment and related general and administrative costs are aggregated for
separate presentation apart from continuing operating results of the Company in the consolidated
financial statements.
Critical Business Metrics of the Reis Services Business
Management considers certain metrics in evaluating the performance of the Reis Services business.
These metrics are revenue, EBITDA (which is defined as earnings before interest, taxes,
depreciation and amortization) and EBITDA margin. Following is a presentation of these historical
metrics for the Reis Services business (for a reconciliation of income (loss) from continuing
operations to EBITDA and Adjusted EBITDA for both the Reis Services segment and on a consolidated
basis for each of the periods presented here, see below).
(amounts in thousands, excluding percentages) | ||||||||||||||||
For the Three Months Ended | ||||||||||||||||
June 30, | Percentage | |||||||||||||||
2011 | 2010 | Increase | Increase | |||||||||||||
Revenue |
$ | 6,837 | $ | 6,004 | $ | 833 | 13.9 | % | ||||||||
EBITDA |
$ | 2,748 | $ | 2,330 | $ | 418 | 17.9 | % | ||||||||
EBITDA margin |
40.2 | % | 38.8 | % | ||||||||||||
For the Six Months Ended | ||||||||||||||||
June 30, | Percentage | |||||||||||||||
2011 | 2010 | Increase | Increase | |||||||||||||
Revenue |
$ | 13,454 | $ | 12,018 | $ | 1,436 | 11.9 | % | ||||||||
EBITDA |
$ | 5,367 | $ | 4,656 | $ | 711 | 15.3 | % | ||||||||
EBITDA margin |
39.9 | % | 38.7 | % | ||||||||||||
For the Three Months Ended | ||||||||||||||||
June 30, | March 31, | Percentage | ||||||||||||||
2011 | 2011 | Increase | Increase | |||||||||||||
Revenue |
$ | 6,837 | $ | 6,617 | $ | 220 | 3.3 | % | ||||||||
EBITDA |
$ | 2,748 | $ | 2,619 | $ | 129 | 4.9 | % | ||||||||
EBITDA margin |
40.2 | % | 39.6 | % |
Reis Servicess revenue for the three months ended June 30, 2011 of $6,837,000 is the highest
quarterly amount in the Companys history, achieved for the second consecutive quarter. An
improved sales environment has supported gains in renewal rates and strong new business. Reis
Servicess revenue increased by approximately $833,000, or 13.9%, from the second quarter of 2010
to the second quarter of 2011. This revenue increase over the corresponding prior quarterly period
is the fifth consecutive quarterly increase in revenue over the prior years quarter. In addition,
revenue increased by approximately $220,000, or 3.3%, from the first quarter of 2011 to the second
quarter of 2011. For the six months ended June 30, 2011, Reis Servicess revenue was approximately
$13,454,000, an increase of approximately $1,436,000, or 11.9%, from the six months ended June 30,
2010. These revenue increases reflect (1) positive improvements in overall renewal rates as the
trailing twelve month renewal rate improved to 92% at June 30, 2011
22
Table of Contents
as compared to 88% for the trailing twelve months ended June 30, 2010, (2) additional new business,
(3) sales from ReisReports and (4) the cumulative impact of the strength of contract signings
from the third and fourth quarters of 2010 and into 2011.
As noted above, our overall trailing twelve month renewal rates improved from 88% at June 30, 2010
to 92% at June 30, 2011 and, for institutional subscribers, the renewal rates improved from 90% at
June 30, 2010 to 95% at June 30, 2011. The fourth quarter and full year of 2010 were record
periods for the Company for total contracts signed (based upon the value of annual contracts
executed in those periods for both new and renewal business). The renewal rate improvements,
coupled with new business from both existing and new subscribers, allowed revenue to stabilize in
the first nine months of 2010 as older prior year contracts rolled out of the revenue base and a
higher percentage of expiring contracts were renewed. The level of contract signings in 2010, and
specifically in the fourth quarter of 2010, resulted in the revenue growth recorded during the
fourth quarter of 2010 and continuing into the first six months of 2011.
Reiss revenue model is based primarily on annual subscriptions that are paid in accordance with
contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for
example, one-twelfth of the value of a one-year contract is recognized monthly. Therefore,
increases in the dollar value of new contracts are spread evenly over the life of a contract,
thereby moderating an immediate impact on revenue. It took over four quarters to realize the full
impact of contract declines on revenue in late 2008 and into 2009. These older, lower value
contracts are rolling and being replaced by renewals with more favorable pricing over a similar
time period. This trend is evidenced by our 2010 quarterly revenue, as each of the first three
quarters reported stable revenue at slightly over $6,000,000, followed by growth in the fourth
quarter of 2010 to $6,167,000 and again to $6,617,000 and $6,837,000 in the first and second
quarters of 2011, respectively.
Our contract pricing model is based on actual and projected report consumption; we believe it is
generally not as susceptible to economic downturns and personnel reductions at our subscribers as a
model based upon individual user licenses. We generally impose contractual restrictions limiting
our immediate exposure (during existing contract terms) to revenue reductions due to mergers and
consolidations. However, we have been, and we may in the future be, impacted by consolidation
among our subscribers and potential subscribers, or in the event that subscribers enter bankruptcy
or otherwise go out of business. As budget constraints and economic pressures moderated, there has
been an overall positive impact on revenue stabilization and growth. These impacts can be seen in
the reported results for 2011 in excess of 2010 revenue and the growth on a consecutive quarter
basis from the third quarter to fourth quarter 2010, which continued into the first and second
quarters of 2011.
Two additional metrics management believes are critical in understanding the business and future
performance are deferred revenue and Aggregate Revenue Under Contract. Analyzing these amounts can
provide additional insight into Reis Servicess financial performance. Deferred revenue, which is
a GAAP basis accounting concept and is reported by the Company on the consolidated balance sheet,
represents revenue from annual or longer term contracts for which we have billed and/or received
payments from our subscribers related to services we will be providing over the period. It does
not include future revenue under non-cancellable contracts for which we do not yet have the
contractual right to bill; this aggregate number we refer to as Aggregate Revenue Under Contract.
Deferred revenue will be recognized as revenue ratably over the life of a contract. The following
table reconciles deferred revenue to Aggregate Revenue Under Contract at June 30, 2011 and 2010,
respectively. A comparison of these balances at June 30 of each year is more meaningful than a
comparison to the December 31, 2010 balances, as a greater percentage of renewals occur in the
fourth quarter of each year.
June 30, | Percentage | |||||||||||||||
2011 | 2010 | Increase | Increase | |||||||||||||
Deferred revenue (GAAP basis) |
$ | 12,278,000 | $ | 10,196,000 | $ | 2,082,000 | 20.4 | % | ||||||||
Amounts under non-cancellable contracts
for which the Company does not yet have
the contractual right to bill at the
period end (A) |
12,398,000 | 9,079,000 | 3,319,000 | 36.6 | % | |||||||||||
Aggregate Revenue Under Contract (B) |
$ | 24,676,000 | $ | 19,275,000 | $ | 5,401,000 | 28.0 | % | ||||||||
(A) | Amounts are billable in the twelve month period subsequent to June 30 of each year and represent (i) non-cancellable
contracts for subscribers with multi-year subscriptions where the future years are not yet billable, or (ii) subscribers with
non-cancellable annual subscriptions with interim billing terms. |
|
(B) | Included in Aggregate Revenue Under Contract at June 30, 2011 was approximately $18,319,000 related to amounts under contract
for the forward twelve month period through June 30, 2012. The remainder reflects amounts under contract beyond June 30,
2012. Included in Aggregate Revenue Under Contract at June 30, 2010 was approximately $14,499,000 related to amounts under
contract at that date for the twelve month period July 1, 2010 to June 30, 2011. The twelve month figure as of June 30, 2011
represents a 26.3% increase over the twelve month figure as of June 30, 2010. |
23
Table of Contents
The increases in both deferred revenue and Aggregate Revenue Under Contract are the result of
an improved sales environment for renewals, increased new business, as described above in the
revenue discussion, and the signing of more multi-year contracts during the twelve months ended
June 30, 2011 as compared to the June 30, 2010 trailing twelve month period.
EBITDA for the three months ended June 30, 2011 was $2,748,000, an increase of $418,000, or 17.9%,
over the second quarter 2010 amount. On a consecutive quarter basis, EBITDA increased $129,000, or
4.9%, in the second quarter 2011 over the first quarter 2011. EBITDA for the six months ended June
30, 2011 was $5,367,000, an increase of $711,000, or 15.3%, over the corresponding 2010 period.
These increases are directly impacted by the increases in revenue as described above while
maintaining EBITDA margins in the 39% to 40% range.
Reconciliations of Income (Loss) from Continuing Operations to EBITDA and Adjusted EBITDA
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted
EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock based
compensation. Although EBITDA and Adjusted EBITDA are not measures of performance calculated in
accordance with GAAP, senior management uses EBITDA and Adjusted EBITDA to measure operational and
management performance. Management believes that EBITDA and Adjusted EBITDA are appropriate metrics
that may be used by investors as supplemental financial measures to be considered in addition to
the reported GAAP basis financial information to assist investors in evaluating and understanding
(1) the performance of the Reis Services segment, the primary business of the Company and (2) the
Companys continuing consolidated results, from year to year or period to period, as applicable.
Further, these measures provide the reader with the ability to understand our operational
performance while isolating non-cash charges, such as depreciation and amortization expenses, as
well as other non-operating items, such as interest income, interest expense and income taxes and,
in the case of Adjusted EBITDA, isolates non-cash charges for stock based compensation. Management
also believes that disclosing EBITDA and Adjusted EBITDA will provide better comparability to other
companies in the information services sector. However, investors should not consider these measures
in isolation or as substitutes for net income (loss), income (loss) from continuing operations,
operating income (loss), or any other measure for determining operating performance that is
calculated in accordance with GAAP. In addition, because EBITDA and Adjusted EBITDA are not
calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled
measures employed by other companies. Reconciliations of EBITDA and Adjusted EBITDA to the most
comparable GAAP financial measure, income (loss) from continuing operations, follow for each
identified period:
(amounts in thousands)
Reconciliation of Income from Continuing Operations to EBITDA and | ||||||||||||
Adjusted EBITDA for the Three Months Ended June 30, 2011 | Reis Services | Other | Consolidated | |||||||||
Income from continuing operations |
$ | 100 | ||||||||||
Income tax expense |
| |||||||||||
Income (loss) before income taxes |
$ | 1,448 | $ | (1,348 | ) | 100 | ||||||
Add back: |
||||||||||||
Depreciation and amortization expense |
1,249 | | 1,249 | |||||||||
Interest expense (income), net |
51 | (2 | ) | 49 | ||||||||
EBITDA |
2,748 | (1,350 | ) | 1,398 | ||||||||
Add back: |
||||||||||||
Stock based compensation expense, net |
| 675 | 675 | |||||||||
Adjusted EBITDA |
$ | 2,748 | $ | (675 | ) | $ | 2,073 | |||||
Reconciliation of Income from Continuing Operations to EBITDA and | ||||||||||||
Adjusted EBITDA for the Six Months Ended June 30, 2011 | Reis Services | Other | Consolidated | |||||||||
Income from continuing operations |
$ | 200 | ||||||||||
Income tax expense |
| |||||||||||
Income (loss) before income taxes and discontinued operations |
$ | 2,773 | $ | (2,573 | ) | 200 | ||||||
Add back: |
||||||||||||
Depreciation and amortization expense |
2,483 | 1 | 2,484 | |||||||||
Interest expense, net |
111 | (3 | ) | 108 | ||||||||
EBITDA |
5,367 | (2,575 | ) | 2,792 | ||||||||
Add back: |
||||||||||||
Stock based compensation expense, net |
| 1,221 | 1,221 | |||||||||
Adjusted EBITDA |
$ | 5,367 | $ | (1,354 | ) | $ | 4,013 | |||||
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(amounts in thousands)
Reconciliation of (Loss) from Continuing Operations to EBITDA and | ||||||||||||
Adjusted EBITDA for the Three Months Ended June 30, 2010 | Reis Services | Other | Consolidated | |||||||||
(Loss) from continuing operations |
$ | (59 | ) | |||||||||
Income tax (benefit) |
(96 | ) | ||||||||||
Income (loss) before income taxes |
$ | 1,051 | $ | (1,206 | ) | (155 | ) | |||||
Add back: |
||||||||||||
Depreciation and amortization expense |
1,207 | | 1,207 | |||||||||
Interest expense (income), net |
72 | (6 | ) | 66 | ||||||||
EBITDA |
2,330 | (1,212 | ) | 1,118 | ||||||||
Add back: |
||||||||||||
Stock based compensation expense, net |
| 418 | 418 | |||||||||
Adjusted EBITDA |
$ | 2,330 | $ | (794 | ) | $ | 1,536 | |||||
Reconciliation of (Loss) from Continuing Operations to EBITDA and | ||||||||||||
Adjusted EBITDA for the Six Months Ended June 30, 2010 | Reis Services | Other | Consolidated | |||||||||
(Loss) from continuing operations |
$ | (215 | ) | |||||||||
Income tax (benefit) |
(142 | ) | ||||||||||
Income (loss) before income taxes |
$ | 2,062 | $ | (2,419 | ) | (357 | ) | |||||
Add back: |
||||||||||||
Depreciation and amortization expense |
2,435 | 3 | 2,438 | |||||||||
Interest expense (income), net |
159 | (10 | ) | 149 | ||||||||
EBITDA |
4,656 | (2,426 | ) | 2,230 | ||||||||
Add back: |
||||||||||||
Stock based compensation expense, net |
| 785 | 785 | |||||||||
Adjusted EBITDA |
$ | 4,656 | $ | (1,641 | ) | $ | 3,015 | |||||
Reconciliation of Income from Continuing Operations to EBITDA and | ||||||||||||
Adjusted EBITDA for the Three Months Ended March 31, 2011 | Reis Services | Other | Consolidated | |||||||||
Income from continuing operations |
$ | 100 | ||||||||||
Income tax expense |
| |||||||||||
Income (loss) before income taxes |
$ | 1,325 | $ | (1,225 | ) | 100 | ||||||
Add back: |
||||||||||||
Depreciation and amortization expense |
1,234 | 1 | 1,235 | |||||||||
Interest expense (income), net |
60 | (1 | ) | 59 | ||||||||
EBITDA |
2,619 | (1,225 | ) | 1,394 | ||||||||
Add back: |
||||||||||||
Stock based compensation expense, net |
| 546 | 546 | |||||||||
Adjusted EBITDA |
$ | 2,619 | $ | (679 | ) | $ | 1,940 | |||||
Results of Operations
Comparison of the Results of Operations for the Three Months Ended June 30, 2011 and 2010
Subscription revenues and related cost of sales were approximately $6,837,000 and $1,523,000,
respectively, for the three months ended June 30, 2011, resulting in a gross profit for the Reis
Services segment of approximately $5,314,000. Amortization expense included in cost of sales (for
the database intangible asset) was approximately $592,000 during this period. Subscription revenues
and related cost of sales were approximately $6,004,000 and $1,536,000, respectively, for the three
months ended June 30, 2010, resulting in a gross profit for the Reis Services segment of
approximately $4,468,000. Amortization expense included in cost of sales was approximately $573,000
during this period. See Critical Business Metrics of the Reis Services Business for a
discussion of the variances and trends in revenue and EBITDA of the Reis Services segment.
Sales and marketing expenses were approximately $1,681,000 and $1,441,000 for the three months
ended June 30, 2011 and 2010, respectively, and solely represent costs of the Reis Services
segment. Amortization expense included in sales and marketing expenses
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(for the customer relationships intangible asset) was approximately $248,000 and $250,000 during
the three months ended June 30, 2011 and 2010, respectively. The expense increase for sales and
marketing expenses between the two periods of approximately $240,000 generally reflects increased
commissions, from higher sales in the 2011 period, and employment related costs from hiring during
2010 and 2011, coupled with related benefits and wage increases over the 2010 period.
Product development expenses were approximately $507,000 and $465,000 for the three months ended
June 30, 2011 and 2010, respectively, and solely represent costs of the Reis Services segment.
Amortization expense included in product development expenses (for the web site intangible asset)
was approximately $249,000 and $225,000 during the three months ended June 30, 2011 and 2010,
respectively. Product development costs increased $42,000, primarily due to a net increase in
amortization expense from web site costs capitalized and amortization expense commencing in the
period for the ReisReports website and other significant product introductions and improvements in
2010 and 2011, in excess of Merger related purchase price allocations becoming fully amortized in
2010, coupled with cost increases from other new product initiatives.
General and administrative expenses of $2,977,000 for the three months ended June 30, 2011 include
current period expenses of $2,142,000, depreciation and amortization expense of $160,000 for lease
value and furniture, fixtures and equipment, and approximately $675,000 of non-cash compensation
expense. The non-cash compensation expense is comprised of compensation expense resulting from
equity awards for employees and directors of approximately $530,000 and by an approximate $145,000
increase in the liability for option cancellations due to an increase in the market price of the
Companys common stock from $7.89 per share at March 31, 2011 to $9.93 per share at June 30, 2011.
General and administrative expenses of $2,651,000 for the three months ended June 30, 2010 includes
current period expenses of $2,054,000, depreciation and amortization expense of $179,000 for lease
value and furniture, fixtures and equipment, and approximately $418,000 of net non-cash
compensation expense. The net non-cash compensation expense is comprised of compensation expense
resulting from equity awards for employees and directors of approximately $369,000 and an
approximate $49,000 increase in the liability for option cancellations due to an increase in the
market price of the Companys common stock from $5.76 per share at March 31, 2010 to $6.31 per
share at June 30, 2010. Excluding the non-cash items, the increase in general and administrative
expenses of $88,000 is a result of higher benefit costs and compensation increases over the 2010
period.
Interest expense of $72,000 for the three months ended June 30, 2011 primarily includes interest
and cost amortization on the Reis Services debt, which we refer to as the Bank Loan. Interest
expense of $102,000 for the three months ended June 30, 2010 includes interest and cost
amortization on the Bank Loan of $100,000 and interest from other debt of $2,000. The lower
expense in 2011 is the result of lower outstanding balances in the 2011 period.
The income tax benefit from continuing operations during the three months ended June 30, 2010 of
$96,000 reflects a deferred Federal benefit of $77,000 and a deferred state tax benefit of $19,000
as a result of a pre-tax loss from continuing operations in the period. No provision was recorded
by the Company in 2011 as a result of the corresponding reduction in the Companys allowance for
deferred tax assets.
Income from discontinued operations, net of income tax expense, was approximately $1,342,000 and
$165,000 during the three months ended June 30, 2011 and 2010, respectively. The 2011 amount
primarily includes the sale of the East Lyme project in a bulk transaction in April 2011 for a gain
of $1,242,000 and net other income of $100,000. The 2010 income from discontinued operations,
primarily reflects the sale of one home at East Lyme in May 2010 and the reversal of certain
employment related contractual obligations for amounts less than prior period accruals, partially
offset by operating expenses and related general and administrative expenses and a $111,000 tax
provision.
Comparison of the Results of Operations for the Six Months Ended June 30, 2011 and 2010
Subscription revenues and related cost of sales were approximately $13,454,000 and $3,073,000,
respectively, for the six months ended June 30, 2011, resulting in a gross profit for the Reis
Services segment of approximately $10,381,000. Amortization expense included in cost of sales (for
the database intangible asset) was approximately $1,177,000 during this period. Subscription
revenues and related cost of sales were approximately $12,018,000 and $2,999,000, respectively, for
the six months ended June 30, 2010, resulting in a gross profit for the Reis Services segment of
approximately $9,019,000. Amortization expense included in cost of sales was approximately
$1,155,000 during this period. See Critical Business Metrics of the Reis Services Business for
a discussion of the variances and trends in revenue and EBITDA of the Reis Services segment. The
increase in cost of sales of $74,000 is primarily a result of employment related costs from hiring
during 2010 and 2011, coupled with related benefits and wage increases over the 2010 period and an
increase in bad debt expense over the prior period.
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Sales and marketing expenses were approximately $3,333,000 and $2,991,000 for the six months ended
June 30, 2011 and 2010, respectively, and solely represent costs of the Reis Services segment.
Amortization expense included in sales and marketing expenses (for the customer relationships
intangible asset) was approximately $497,000 and $501,000 during the six months ended June 30, 2011
and 2010, respectively. The expense increase for sales and marketing expenses between the two
periods of approximately $342,000 generally reflects increased commissions, from higher sales in
the 2011 period, and employment related costs from hiring during 2010 and 2011, coupled with
related benefits and wage increases over the 2010 period.
Product development expenses were approximately $988,000 and $934,000 for the six months ended June
30, 2011 and 2010, respectively, and solely represent costs of the Reis Services segment.
Amortization expense included in product development expenses (for the web site intangible asset)
was approximately $491,000 and $460,000 during the six months ended June 30, 2011 and 2010,
respectively. Product development costs increased $54,000, primarily due to a net increase in
amortization expense from web site costs capitalized and amortization expense commencing in the
period for the ReisReports website and other significant product introductions and improvements in
2010 and 2011, in excess of Merger related purchase price allocations becoming fully amortized in
2010, coupled with cost increases from other new product initiatives.
General and administrative expenses of $5,752,000 for the six months ended June 30, 2011 include
current period expenses of $4,212,000, depreciation and amortization expense of $319,000 for lease
value and furniture, fixtures and equipment, and approximately $1,221,000 of non-cash compensation
expense. The non-cash compensation expense is comprised of compensation expense resulting from
equity awards for employees and directors of approximately $1,015,000 and by an approximate
$206,000 increase in the liability for option cancellations due to an increase in the market price
of the Companys common stock from $7.03 per share at December 31, 2010 to $9.93 per share at June
30, 2011. General and administrative expenses of $5,302,000 for the six months ended June 30, 2010
includes current period expenses of $4,171,000, depreciation and amortization expense of $346,000
for lease value and furniture, fixtures and equipment, and approximately $785,000 of net non-cash
compensation expense. The net non-cash compensation expense is comprised of compensation expense
resulting from equity awards for employees and directors of approximately $771,000 and by an
approximate $14,000 increase in the liability for option cancellations due to an increase in the
market price of the Companys common stock from $6.15 per share at December 31, 2009 to $6.31 per
share at June 30, 2010. Excluding the non-cash items, the increase in general and administrative
expenses of $41,000 is a result of higher benefit costs and compensation increases over the 2010
period.
Interest expense of $150,000 for the six months ended June 30, 2011 includes interest and cost
amortization on the Bank Loan, of $149,000 and interest from other debt of $1,000. Interest
expense of $222,000 for the six months ended June 30, 2010 includes interest and cost amortization
on the Bank Loan of $215,000 and interest from other debt of $7,000. The lower expense in 2011 is
the result of lower outstanding balances in the 2011 period.
The income tax benefit from continuing operations during the six months ended June 30, 2010 of
$142,000 reflects a deferred Federal benefit of $114,000 and a deferred state tax benefit of
$28,000 as a result of the pre-tax loss from continuing operations in the first six months of 2010.
No provision was recorded by the Company in 2011 as a result of the corresponding reduction in the
Companys allowance for deferred tax assets.
Income from discontinued operations, net of income tax expense, was approximately $1,252,000 and
$144,000 during the six months ended June 30, 2011 and 2010, respectively. The 2011 amount
includes the sale of the East Lyme project in a bulk transaction in April 2011 for a gain of
$1,242,000 and net other income of $10,000. The 2010 income from discontinued operations primarily
reflects the sale of the Claverack project in a bulk transaction in February 2010 for a gain of
$263,000, the sale of one home at East Lyme in May 2010 and the reversal of certain employment
related contractual obligations for amounts less than prior period accruals, offset by operating
expenses and related general and administrative expenses and a $97,000 tax provision.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. The net deferred tax liability was approximately $67,000 at June 30, 2011 and
December 31, 2010, respectively, and is reflected as a non-current liability in the accompanying
consolidated balance sheets. The significant portion of the deferred tax items relates to (1) the
tax benefit of impairment charges before allowances at December 31, 2010, (2) net operating loss,
or NOL, carryforwards as they relate to deferred tax assets, (3) Federal alternative minimum tax
(AMT) credit carryforwards as they relate to deferred tax assets, (4) stock based compensation
and (5) the deferred tax liability resulting from the intangible assets recorded at the time of the
Merger as they related to deferred tax liabilities.
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A valuation allowance is required to reduce the deferred tax assets if, based on the weight of the
evidence, it is more-likely-than-not that some portion or all of the deferred tax assets will not
be realized. Accordingly, management has determined that a valuation allowance of approximately
$7,668,000 and $8,254,000 at June 30, 2011 and December 31, 2010, respectively, was necessary. The
allowance at June 30, 2011 and December 31, 2010 relates primarily to AMT credits and existing and
expected NOL carryforwards, and in 2010, the excess of a portion of the tax basis of certain real
estate development assets over their respective financial statement basis. The reduction in the
allowance during the six months ended June 30, 2011 results from the realization of excess tax
basis upon the sale of the East Lyme project, which was used to offset the Companys pre-tax
income.
Liquidity and Capital Resources
Cash and cash equivalents aggregated approximately $23,285,000 at June 30, 2011, including
approximately $18,144,000 in the Reis Services segment. Management considers such amounts to be
adequate and expects its cash balances to continue to be adequate to meet operating, product
development and enhancement initiatives and debt service requirements in both the short and long
terms at both the Reis Services segment and on a consolidated basis. At June 30, 2011, the
Company, on a consolidated basis and at the Reis Services segment level, was net cash positive
(defined as cash and cash equivalents, minus total debt) by approximately $14,817,000 and
$9,676,000, respectively. At December 31, 2010, the Company, on a consolidated basis and at the
Reis Services segment level, was net cash positive by approximately $8,914,000 and $4,662,000,
respectively. Net cash at the Reis Services level grew by approximately $5,014,000 from December
31, 2010 to June 30, 2011 (of which $2,037,000 was generated in the second quarter of 2011), which
management believes is a strong indicator of the cash generation power of our business model.
At June 30, 2011, the Companys short-term liquidity requirements include: current operating and
capitalizable costs; near-term product development and enhancement of the web site and databases;
the current portion of long-term debt (comprised of scheduled principal payments of approximately
$6,559,000 on the Bank Loan, payable by June 30, 2012); operating and capital leases; remaining
warranty costs and insurance deductibles related to real estate construction from our discontinued
operations; other capital expenditures; and the potential settlement of certain outstanding stock
options in cash (the liability for which was approximately $363,000 at June 30, 2011 based upon the
closing stock price of the Company at June 30, 2011 of $9.93 per share). The Company expects to
meet these short-term liquidity requirements generally through the use of available cash and cash
generated from subscription revenue of Reis Services. The Company expects that in the short term,
it will be able to utilize its NOLs and that taxes to be paid will be for alternative state and
local taxes, and possibly AMT, but not for Federal income taxes.
The Companys long-term liquidity requirements include: future operating and capitalizable costs;
long-term product development and enhancements of the web site and databases; the non-current
portion of long-term debt; operating leases and other capital expenditures; remaining warranty
costs and insurance deductibles related to real estate construction from our discontinued
operations; and possibly, repurchases of additional shares of Reis common stock. The Company
expects to meet these long-term liquidity requirements generally through the use of available cash
and cash generated from subscription revenue of Reis Services. The Company has NOLs that it
expects to be able to use in the next few years against future taxable income for Federal, state
and local tax purposes (to the extent that taxable income is generated). Tax payments during the
next few years are expected to be for alternative state and local taxes and AMT, but not for
Federal income taxes.
Reis Services Bank Loan
In connection with the Merger agreement, Private Reis entered into a credit agreement, dated
October 11, 2006, with the Bank of Montreal, Chicago Branch, as administrative agent, and BMO
Capital Markets, as lead arranger, which provided for a term loan of up to an aggregate of
$20,000,000 and revolving loans up to an aggregate of $7,000,000. Loan proceeds were used to
finance $25,000,000 of the cash portion of the Merger consideration. The balance of the Bank Loan
was $8,456,000 and $11,222,000 at June 30, 2011 and December 31, 2010, respectively. The interest
rate was LIBOR + 1.50% at June 30, 2011 and December 31, 2010 (LIBOR was 0.19% and 0.26% at June
30, 2011 and December 31, 2010, respectively).
Reis Services is required to (1) make principal payments on the term loan on a quarterly basis
commencing on June 30, 2007 in increasing amounts pursuant to the payment schedule provided in the
credit agreement and (2) permanently reduce the revolving loan commitments on a quarterly basis,
which commenced on March 31, 2010. Additional principal payments are payable if Reis Servicess
annual cash flow exceeds certain amounts, or if certain defined operating ratios are not met, all
of which are defined in the credit agreement. The final maturity date of all amounts borrowed
pursuant to the credit agreement is September 30, 2012. At June 30, 2011 and December 31, 2010,
the Company did not have the ability to borrow any additional amounts under the Bank Loan.
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In accordance with the terms of the credit agreement, beginning January 1, 2010 and through the
maturity of the Bank Loan, the required leverage ratio was reduced to a maximum of 2.00 to 1.00
from a maximum of 2.50 to 1.00. In order to be in compliance with the leverage ratio test,
management made a payment of $3,000,000 at March 31, 2010 in addition to the contractual minimum
repayment of $1,000,000 due at that time. Although not required to do so, the Company made
additional prepayments of $500,000 at the end of the second, third and fourth quarters of 2010
(aggregating $1,500,000), each of which was in excess of the minimum repayments due at such dates.
All of the 2010 prepayments ratably reduced Reis Servicess future quarterly contractual minimum
payments through maturity. No additional prepayments, in excess of minimum repayments, were made
during the six months ended June 30, 2011.
Discontinued Operations Impact on Liquidity
Cash flows from discontinued operations during 2010 and in the six months ended June 30, 2011 were
primarily related to the sales of assets and the operating costs and related expenses through the
dates of sales. Cash flows from discontinued operations were included in the consolidated
statement of cash flows in the operating activities section in accordance with the applicable
accounting literature. Future cash flows will be limited to the settlement of liabilities and
real estate contingencies as described below.
East Lyme
Prior to its sale in April 2011, the Companys last remaining residential development was The
Orchards, a single family home development in East Lyme, Connecticut, zoned for 161 single family
homes on 224 acres, which we refer to as East Lyme.
The East Lyme project was sold in a bulk transaction for a gross sales price of $1,800,000 for the
remaining 119 lots in inventory, plus the release of approximately $792,000 of project-related
deposits and escrows held as restricted cash. Net cash received at closing, after selling expenses
and closing adjustments, and including the cash received upon release of the deposits and escrows,
aggregated approximately $2,600,000. As a result of this transaction, the Company recorded a gain
in the three and six months ended June 30, 2011 of approximately $1,242,000, which is included in
income from discontinued operations. One home was sold during the three and six months ended June
30, 2010.
Certain of the lots at East Lyme required remediation of pesticides which were used on the property
when it was an apple orchard. Remediation would have been required prior to the development of
those lots. The remediation plan, the cost of which was estimated by management to be
approximately $1,000,000, had been approved by the health inspector for the municipality and the
town planner. The estimated remediation cost was recognized in prior years and was reflected as a
liability in the December 31, 2010 consolidated balance sheet. As a result of the sale, the
Company was indemnified from any financial obligation related to the environmental remediation and
reversed this liability, which amount is included in the gain reported in the three and six months
ended June 30, 2011, as referred to above.
Claverack
Prior to its sale in February 2010, the Company owned approximately 235 acres in Claverack, New
York, which was subdivided into 48 developable single family home lots. In February 2010, the
Company sold the Claverack project in a bulk transaction for a gross sales price of $2,750,000,
which included two model homes, amenities, 46 additional lots and $450,000 of cash collateralizing
certain road completion obligations. Net cash received at closing, after expenses, aggregated
approximately $2,187,000. The remaining $450,000 of the purchase price was payable by the
purchaser in February 2011 and had been secured by the outstanding road bond and a mortgage on the
property. As a result of this transaction, the Company recorded a gain of approximately $263,000
in the first quarter of 2010, which is included in income from discontinued operations. In
February 2011, the Company received cash of approximately $455,000 in full satisfaction of the
mortgage note and accrued interest thereon.
Real Estate Contingencies
Reis has purchased insurance with respect to construction defect and completed operations at its
past real estate projects, including those projects described above. Reis is, from time to time,
exposed to various claims associated with the development, construction and sale of condominium
units, single family homes or lots. The impact of these claims to the Company has not been material
to date. However, claims related to dissatisfaction by homeowners and homeowners associations with
the construction of condominiums, homes and amenities by us and/or our developer partners in any
condominium or subdivision development, or other matters, may result in litigation costs,
remediation costs, warranty expenses or settlement costs which could be material to Reiss results
of operations and financial condition.
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The Effects of Inflation/Declining Prices and Trends
Reis Services
The Company monitors commercial real estate industry and market trends to determine their potential
impact on its products and product development initiatives. The volatility and uncertainty in the
U.S. and global economy in 2008 and 2009, including the credit markets and real estate markets,
negatively affected renewal rates, with the greatest impact on the Company between the beginning of
the fourth quarter of 2008 and continuing through June 30, 2009. Because of budget constraints at
certain subscribers and potential subscribers, the effective shutdown of the CMBS markets and the
flurry of mergers and bankruptcies of financial institutions in the fall of 2008 (some of which
were subscribers of the Company), the Company was negatively impacted as exhibited by our revenue
reductions throughout 2009. However, in 2010, we experienced a positive trend of revenue growth as
the second, third, and fourth quarters of 2010 had revenue growth as compared to the corresponding
quarters of 2009, and 2010 revenue exceeded 2009 revenue on an annual basis. This trend continued
into 2011 with revenue growing to $6,617,000 for the first quarter, and to $6,837,000 for the
second quarter. Our overall annual renewal rate is 92% for the trailing twelve months ended June
30, 2011, an improvement from 88% for the trailing twelve months ended June 30, 2010. This
positive trend in renewal rates will continue to be reflected in future quarterly revenues. The
fourth quarter and full year of 2010 were record periods for the Company for total contracts signed
(based upon the value of annual subscriptions executed in those periods for both new and renewal
business). The fourth quarter of 2010 also represented the best quarter for new business, based
upon the value of annual subscriptions executed in that period and the 2010 annual period was the
second best annual period for total contracts signed (trailing only the 2007 annual period). The
level of contract signings in 2010, and specifically in the fourth quarter of 2010, resulted in
revenue growth in the fourth quarter of 2010 and in the first and second quarters of 2011, over the
corresponding prior year quarter and on a consecutive quarter basis. There can be no assurance
that the increases in the trailing twelve month renewal rates experienced from the middle of 2009
through June 30, 2011 will further improve or continue and that new or renewal business will
continue to grow in the future.
The Company has historically mitigated market pressures by continuing to add new subscribers,
selling new products and identifying additional and/or alternative users within the organizations
and institutions that are current subscribers. Historically, during periods of economic and
commercial real estate market volatility, as was the case during 2008 and 2009, we generally
experienced stable or only moderately lower demand for our market information and an increase in
demand for our portfolio products, despite (or in many cases, because of) decreased transaction
volumes, as investors placed greater emphasis on assessing portfolio risk. Even though we continue
to broaden the appeal and utility of our database, tools and functionality, we cannot assure you
that the level of demand for Reis Servicess products will be sustained or increase during 2011 or
in the future.
Changes in Cash Flows
Comparison of Cash Flows for the Six Months Ended June 30, 2011 and 2010
Cash flows for the six months ended June 30, 2011 and 2010 are summarized as follows:
For the Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Net cash provided by operating activities |
$ | 8,005,640 | $ | 5,205,868 | ||||
Net cash (used in) investing activities |
(1,852,355 | ) | (1,171,099 | ) | ||||
Net cash (used in) financing activities |
(3,032,334 | ) | (5,789,092 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
$ | 3,120,951 | $ | (1,754,323 | ) | |||
Cash flows provided by operating activities increased $2,800,000 from $5,206,000 provided in
the 2010 period to $8,006,000 provided in the 2011 period. The increase resulted from (1) cash
flows from operating activities of the Reis Services segment of $1,411,000 from $5,454,000 provided
in the 2010 period to $6,865,000 provided in the 2011 period, primarily due to increased
collections in the 2011 period (on a higher accounts receivable balance at December 31, 2010 than
the December 31, 2009 amount) and (2) cash from the sale proceeds of the East Lyme property,
mortgage note receivable repayment and escrow releases in 2011 in excess of the 2010 real estate
sales activities.
Cash flows used in investing activities increased $681,000 from $1,171,000 used in the 2010 period
to $1,852,000 used in the 2011 period. This change primarily resulted from an increase of $514,000
for cash used in the 2011 period as compared to the 2010 period for web site and database
development costs from continuing product development and enhancement initiatives and $157,000 of
furniture, fixture and equipment additions in 2011 in excess of 2010 additions.
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Cash flows used in financing activities decreased $2,757,000 from $5,789,000 used in the 2010
period to $3,032,000 used in the 2011 period. During the 2010 period, $5,274,000 was repaid on the
Bank Loan whereas $2,766,000 was repaid in the 2011 period. In the 2010 period, the Company
repurchased 28,941 shares of its outstanding common stock for approximately $176,000; with no
repurchase in the 2011 period. Other debt repayments in the 2010 period exceeded the payments in
the 2011 period by $114,000. Payments for restricted stock unit settlements were approximately
$251,000 and $210,000 in the 2011 and 2010 periods, respectively.
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate
to the Companys or managements outlook or expectations for earnings, revenues, expenses, asset
quality, or other future financial or business performance, strategies, prospects or expectations,
or the impact of legal, regulatory or supervisory matters on our business, operations or
performance. Specifically, forward-looking statements may include:
| statements relating to future services and product development of the Reis Services
segment; |
||
| statements relating to future business prospects, potential acquisitions, revenue,
expenses, income (loss), cash flows, valuation of assets and liabilities and other business
metrics of the Company and its businesses, including EBITDA, Adjusted EBITDA and Aggregate
Revenue Under Contract; and |
||
| statements preceded by, followed by or that include the words estimate, plan,
project, intend, expect, anticipate, believe, seek, target or similar
expressions relating to future periods. |
Forward-looking statements reflect managements judgment based on currently available information
and involve a number of risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. With respect to these forward-looking
statements, management has made certain assumptions. Future performance cannot be assured. Actual
results may differ materially from those contemplated by the forward-looking statements. Some
factors that could cause actual results to differ include:
| revenues may be lower than expected; |
||
| inability to retain and increase the Companys subscriber base; |
||
| inability to execute properly on new product or service initiatives, or failure
of subscribers to accept these products and services; |
||
| competition; |
||
| inability to attract and retain sales and senior management personnel; |
||
| difficulties in protecting the security, confidentiality, integrity and reliability of
the Companys data; |
||
| changes in accounting policies or practices; |
||
| legal and regulatory issues; and |
||
| the risk factors listed under Item 1A. Risk Factors of our annual report on Form 10-K
for the year ended December 31, 2010, which was filed with the Securities and Exchange
Commission on March 11, 2011. |
You are cautioned not to place undue reliance on any forward-looking statements, which speak only
as of the date of this quarterly report on Form 10-Q. Except as required by law, the Company
undertakes no obligation to publicly update or release any revisions to these forward-looking
statements to reflect any events or circumstances after the date of this quarterly report on Form
10-Q or to reflect the occurrence of unanticipated events.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Companys primary market risk exposure has been to changes in interest rates. This risk is
generally managed by limiting the Companys financing exposures, to the extent possible, by
purchasing interest rate caps when and if deemed appropriate.
At June 30, 2011, the Companys only exposure to interest rates was variable rate based debt. This
exposure has historically been minimized through the use of interest rate caps. The interest rate
cap on the Bank Loan expired at June 30, 2010. The following table presents the effect of a 1%
increase in the applicable base rates of variable rate debt at June 30, 2011:
(amounts in thousands) | Balance at | LIBOR at | Additional | |||||||||
June 30, | June 30, | Interest | ||||||||||
2011 | 2011 | Incurred | ||||||||||
Variable rate debt: |
||||||||||||
Bank Loan |
$ | 8,456 | 0.19% | $ | 85 (A) | |||||||
(A) | Reflects additional interest which could be incurred annually on the
loan balance amount as a result of a 1% increase in LIBOR. It does
not take into consideration future periodic repayments. |
Although the interest rate cap expired at June 30, 2010, our interest rate exposure on the
Bank Loan will continue to diminish significantly as a result of continuing scheduled principal
repayments during 2011 and through maturity at September 30, 2012.
Reis holds cash and cash equivalents at various regional and national banking institutions.
Management monitors the institutions that hold our cash and cash equivalents. Managements emphasis
is primarily on safety of principal. Management, in its discretion, has diversified Reiss cash and
cash equivalents among banking institutions to potentially minimize exposure to any one of these
entities. To date, we have experienced no loss or lack of access to our invested cash or cash
equivalents; however, we can provide no assurances that access to invested cash and cash
equivalents will not be impacted by adverse conditions in the financial markets.
Cash balances held at banking institutions with which we do business may exceed the Federal Deposit
Insurance Corporation insurance limits. While management monitors the cash balances in these bank
accounts, such cash balances could be impacted if the underlying banks fail or could be subject to
other adverse conditions in the financial markets.
Item 4. Controls and Procedures.
As of June 30, 2011, the Company carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures as of June 30, 2011 were designed at a reasonable assurance level and were effective to
ensure that information required to be disclosed by the Company in the reports that the Company
files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported, within the time periods specified in the SEC rules and forms, and to
ensure that such information is accumulated and communicated to the Companys management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
There has been no change in the Companys internal control over financial reporting during the
quarter covered by this report that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings.
Neither the Company nor any of its properties are subject to any material litigation.
Item 1A. Risk Factors.
A wide range of risks may affect our business and financial results, now and in the future;
however, we consider the risks described under Item 1A. Risk Factors in our annual report on Form
10-K for the year ended December 31, 2010, which was filed with the
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SEC on March 11, 2011, to be the most significant. There may be other currently unknown or
unpredictable economic, business, competitive, governmental or other factors that could have
material adverse effects on our business or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the three and six months ended June 30, 2011, the Company did not repurchase any shares of
common stock.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Reserved.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibits filed with this Form 10-Q:
Exhibit | ||
No. | Description | |
10.1
|
Amended and Restated Reis, Inc. 2011 Omnibus Incentive Plan (incorporated by reference to Exhibit 99.1 to the Companys Amended Current Report on Form 8-K/A filed on June 9, 2011). | |
10.2
|
Form of Employee Restricted Stock Unit Agreement Under Amended and Restricted Reis, Inc. 2011 Omnibus Incentive Plan. | |
31.1
|
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Chief Executive Officer and Chief Financial Officer Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101
|
Interactive Data Files, formatted in extensible Business Reporting Language (XBRL).* |
*
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files
included as Exhibit 101 hereto are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12
of the Securities Act of 1933, as amended, are deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and otherwise are not subject to liability under those
sections.
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SIGNATURES
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.
REIS, INC. |
||||
By: | /s/ Mark P. Cantaluppi | |||
Mark P. Cantaluppi | ||||
Vice President, Chief Financial Officer | ||||
Dated: August 4, 2011
34