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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 March 31, 2016

or

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                      .

Commission File Number 001-12917

 

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

(Registrant’s 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 ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, 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 ¨

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 ¨		Accelerated filer þ		Non-accelerated filer ¨		Smaller reporting company ¨
				(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 ¨    No þ

The number of the Registrant’s shares of common stock outstanding was 11,316,326 as of April 26, 2016.

 

 

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TABLE OF CONTENTS

 

				Page Number
PART I. FINANCIAL INFORMATION:
Item 1.		Financial Statements
		Consolidated Balance Sheets at March 31, 2016 (unaudited) and December 31, 2015		3
		Consolidated Statements of Operations (unaudited) For the Three Months Ended March 31, 2016 and 2015		4
		Consolidated Statement of Changes in Stockholders’ Equity (unaudited) For the Three Months Ended March 31, 2016		5
		Consolidated Statements of Cash Flows (unaudited) For the Three Months Ended March 31, 2016 and 2015		6
		Notes to Consolidated Financial Statements (unaudited)		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		30
Item 4.		Controls and Procedures		30
PART II. OTHER INFORMATION:
Item 1.		Legal Proceedings		30
Item 1A.		Risk Factors		30
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 3.		Defaults Upon Senior Securities		31
Item 4.		Mine Safety Disclosures		31
Item 5.		Other Information		31
Item 6.		Exhibits		31
Signatures				32

 

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Part I. Financial Information

Item 1.  Financial Statements.

REIS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2016				December 31, 2015
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	28,910,705			$	28,657,956
Restricted cash and investments			212,268				212,268
Accounts receivable, net			7,107,240				13,741,169
Prepaid and other assets			1,114,240				670,339
Total current assets			37,344,453				43,281,732
Furniture, fixtures and equipment, net of accumulated depreciation of $2,533,158 and $2,449,985, respectively			1,529,107				804,427
Intangible assets, net of accumulated amortization of $40,116,778 and $38,738,292, respectively			16,297,789				15,686,954
Deferred tax asset, net			17,689,737				18,429,737
Goodwill			54,824,648				54,824,648
Other assets			342,550				171,728
Total assets		$	128,028,284			$	133,199,226
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of debt		$	—			$	—
Accrued expenses and other liabilities			4,197,652				5,898,226
Deferred revenue			22,268,396				25,291,499
Liabilities attributable to discontinued operations			—				145,737
Total current liabilities			26,466,048				31,335,462
Other long-term liabilities			279,799				284,316
Total liabilities			26,745,847				31,619,778
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.02 par value per share, 101,000,000 shares authorized, 11,316,326 and 11,256,405 shares issued and outstanding, respectively			226,326				225,128
Additional paid in capital			107,136,520				107,102,433
Retained earnings (deficit)			(6,080,409)				(5,748,113)
Total stockholders’ equity			101,282,437				101,579,448
Total liabilities and stockholders’ equity		$	128,028,284			$	133,199,226

 

See Notes to Consolidated Financial Statements

 

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REIS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended March 31,
		2016				2015
Subscription revenue		$	12,823,752			$	11,130,778
Cost of sales of subscription revenue			2,461,571				2,185,440
Gross profit			10,362,181				8,945,338
Operating expenses:
Sales and marketing			2,667,992				2,653,014
Product development			1,005,284				862,754
General and administrative expenses			4,084,711				3,321,076
Total operating expenses			7,757,987				6,836,844
Other income (expenses):
Interest and other income			8,256				7,089
Interest expense			(21,325)				(28,213)
Total other income (expenses)			(13,069)				(21,124)
Income before income taxes and discontinued operations			2,591,125				2,087,370
Income tax expense			987,000				794,000
Income from continuing operations			1,604,125				1,293,370
Loss from discontinued operations, net of income tax expense (benefit) of $— and $(47,000), respectively			—				(71,354)
Net income		$	1,604,125			$	1,222,016
Per share amounts – basic:
Income from continuing operations		$	0.14			$	0.12
Net income		$	0.14			$	0.11
Per share amounts – diluted:
Income from continuing operations		$	0.14			$	0.11
Net income		$	0.14			$	0.10
Weighted average number of common shares outstanding:
Basic			11,283,752				11,190,683
Diluted			11,725,806				11,692,564
Dividends declared per common share		$	0.17			$	0.14

See Notes to Consolidated Financial Statements

 

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REIS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2016

(Unaudited)

 

 

		Common Shares								Paid in				Retained Earnings				Total Stockholders’
		Shares				Amount				Capital				(Deficit)				Equity
Balance, January 1, 2016			11,256,405			$	225,128			$	107,102,433			$	(5,748,113)			$	101,579,448
Shares issued for vested employee restricted stock units			52,421				1,048				(1,048)				—				—
Shares issued for option exercises			7,500				150				77,850				—				78,000
Stock based compensation, net			—				—				(42,715)				—				(42,715)
Dividends			—				—				—				(1,936,421)				(1,936,421)
Net income			—				—				—				1,604,125				1,604,125
Balance, March 31, 2016			11,316,326			$	226,326			$	107,136,520			$	(6,080,409)			$	101,282,437

 

 

See Notes to Consolidated Financial Statements

 

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REIS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Three Months Ended March 31,
		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	1,604,125			$	1,222,016
Adjustments to reconcile to net cash provided by operating activities:
Deferred tax provision			864,000				709,000
Depreciation			112,870				105,958
Amortization of intangible assets			1,378,486				1,221,190
Stock based compensation charges			534,444				446,244
Changes in assets and liabilities:
Restricted cash and investments			—				(131)
Accounts receivable, net			6,633,929				6,855,043
Prepaid and other assets			(354,080)				(117,523)
Accrued expenses and other liabilities			(1,675,828)				(1,593,205)
Deferred revenue			(3,023,103)				(1,568,506)
Net cash provided by operating activities			6,074,843				7,280,086
CASH FLOWS FROM INVESTING ACTIVITIES:
Website and database development costs			(2,164,321)				(1,082,189)
Furniture, fixtures and equipment additions			(839,641)				(58,452)
Cash (used in) investing activities			(3,003,962)				(1,140,641)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends			(1,936,421)				(1,581,639)
Proceeds from option exercises			—				56,250
Payments for option cancellations and restricted stock units			(701,159)				(992,971)
Payment of financing costs			(180,552)				—
Net cash (used in) financing activities			(2,818,132)				(2,518,360)
Net increase in cash and cash equivalents			252,749				3,621,085
Cash and cash equivalents, beginning of period			28,657,956				17,745,077
Cash and cash equivalents, end of period		$	28,910,705			$	21,366,162
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest		$	6,389			$	6,389
Cash paid during the period for income taxes		$	288,011			$	164,700
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrual for website and database development costs		$	175,000
Disposal of fully depreciated furniture, fixtures and equipment		$	29,697			$	45,286
Shares issued for vested employee restricted stock units		$	1,048			$	1,297
Shares issued for option exercises		$	150
Proceeds receivable from option exercises		$	78,000
Proceeds receivable from furniture, fixtures and equipment disposal		$	2,091

See Notes to Consolidated Financial Statements

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.	Organization and Business

Reis, Inc. is a Maryland corporation. When we refer to “Reis” or the “Company,” we are referring to Reis, Inc. and its consolidated subsidiaries. The Company provides commercial real estate market information and analytical tools to real estate professionals, 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, warehouse/distribution, flex/research & development, self storage, seniors housing and student housing 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 nation’s leading lending institutions, equity investors, brokers and appraisers.

The Company’s product portfolio features: Reis SE, its flagship delivery platform aimed at larger and mid-sized enterprises; ReisReports, aimed at prosumers and smaller enterprises; and Mobiuss Portfolio CRE, or Mobiuss, aimed primarily at risk managers and credit administrators at banks and non-bank lending institutions. It is through these products that Reis 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 asset and portfolio evaluations. Depending on the product or level of entitlement, users have access to market trends and forecasts 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. Reis’s 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, equity investors and service providers. 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.

Discontinued Operations – Residential Development Activities

Prior to May 2007, the name of the Company was Wellsford Real Properties, Inc. (“Wellsford”). Wellsford, which was originally formed on January 8, 1997, acquired the Reis Services business by merger in May 2007 (the “Merger”). Wellsford’s primary operating activities immediately prior to the Merger, and conducted through its subsidiaries, were the development, construction and sale of three residential projects and its approximate 23% ownership interest in the Reis Services business. The Company completed the sale of the remaining residential units and homes at its projects or divested of the remaining residential projects in bulk sales by April 2011. In 2012, the Company settled construction defect litigation at its Colorado project and in 2015, finalized its efforts to recover funds from other responsible parties involved in the design, development, construction and supervision of the Colorado project as more fully described in Note 3.

 

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 Company’s proportionate share of the investment’s income (loss) and additional contributions or distributions. All inter-company accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation.

 

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REIS, INC. AND SUBSIDIARIES

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 Company’s 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 Company’s annual report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 3, 2016. The consolidated statements of operations and cash flows for the three months ended March 31, 2016 and 2015 are not necessarily indicative of full year results.

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. The outcome of any litigation is uncertain; it is possible that a judgment in 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. See Note 10.

New Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of ASU 2014-09 will have on its consolidated financial statements and disclosures.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. The Company expects that the adoption of ASU 2014-15 will not have a material impact on its consolidated financial statements and disclosures.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810), Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 eliminates the deferral of FAS 167 and makes changes to both the variable interest model and the voting model. For public business entities, the guidance is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted ASU 2015-02 as of January 1, 2016. The adoption of ASU 2015-02 did not have a material impact on the Company’s financial condition, results of operations, or disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

 

Summary of Significant Accounting Policies (continued)

 

within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact the pending adoption of ASU 2016-02 will have on its consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (“ASU 2016-09”). Under ASU 2016-09, entities will be required to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is also changing. For public business entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company is currently evaluating the impact the adoption of ASU 2016-09 will have on its consolidated financial statements and disclosures.

Reclassification

Amounts in certain accounts as presented in the condensed balance sheet data and condensed operating data in Note 3 have been reclassified to conform to the current period presentation.

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

 

3.	Segment Information

The Company is organized into separately managed segments as follows: the Reis Services segment and other. The following tables present condensed balance sheet and operating data for these segments:

 

(amounts in thousands)
Condensed Balance Sheet Data March 31, 2016		Reis Services				Other (A)				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	28,714			$	197			$	28,911
Restricted cash and investments			212				—				212
Accounts receivable, net			7,107				—				7,107
Prepaid and other assets			917				197				1,114
Total current assets			36,950				394				37,344
Furniture, fixtures and equipment, net			1,525				4				1,529
Intangible assets, net			16,298				—				16,298
Deferred tax asset, net			285				17,405				17,690
Goodwill			57,203				(2,378)				54,825
Other assets			342				—				342
Total assets		$	112,603			$	15,425			$	128,028
Liabilities and stockholders’ equity
Current liabilities:
Current portion of debt		$	—			$	—			$	—
Accrued expenses and other liabilities			3,190				1,008				4,198
Deferred revenue			22,268				—				22,268
Total current liabilities			25,458				1,008				26,466
Other long-term liabilities			280				—				280
Deferred tax liability, net			30,973				(30,973)				—
Total liabilities			56,711				(29,965)				26,746
Total stockholders’ equity			55,892				45,390				101,282
Total liabilities and stockholders’ equity		$	112,603			$	15,425			$	128,028
Condensed Balance Sheet Data December 31, 2015		Reis Services				Other (A)				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	28,465			$	193			$	28,658
Restricted cash and investments			212				—				212
Accounts receivable, net			13,741				—				13,741
Prepaid and other assets			417				253				670
Total current assets			42,835				446				43,281
Furniture, fixtures and equipment, net			798				6				804
Intangible assets, net			15,687				—				15,687
Deferred tax asset, net			285				18,145				18,430
Goodwill			57,203				(2,378)				54,825
Other assets			172				—				172
Total assets		$	116,980			$	16,219			$	133,199
Liabilities and stockholders’ equity
Current liabilities:
Current portion of debt		$	—			$	—			$	—
Accrued expenses and other liabilities			4,502				1,397				5,899
Deferred revenue			25,291				—				25,291
Liabilities attributable to discontinued operations			—				146				146
Total current liabilities			29,793				1,543				31,336
Other long-term liabilities			284				—				284
Deferred tax liability, net			29,498				(29,498)				—
Total liabilities			59,575				(27,955)				31,620
Total stockholders’ equity			57,405				44,174				101,579
Total liabilities and stockholders’ equity		$	116,980			$	16,219			$	133,199

 

(A)

Includes the assets and liabilities of the Company’s discontinued operations, to the extent that such assets and liabilities existed at the date presented, and includes cash, other assets and liabilities not specifically attributable to or allocable to the Reis Services segment.

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

 

Segment Information (continued)

 

(amounts in thousands)

 

Condensed Operating Data for the Three Months Ended March 31, 2016		Reis Services				Other (A)				Consolidated
Subscription revenue		$	12,824			$	—			$	12,824
Cost of sales of subscription revenue			2,462				—				2,462
Gross profit			10,362				—				10,362
Operating expenses:
Sales and marketing			2,668				—				2,668
Product development			1,005				—				1,005
General and administrative expenses			2,796				1,289				4,085
Total operating expenses			6,469				1,289				7,758
Other income (expenses):
Interest and other income			8				—				8
Interest expense			(21)				—				(21)
Total other income (expenses)			(13)				—				(13)
Income (loss) before income taxes and discontinued operations		$	3,880			$	(1,289)			$	2,591
Income (loss) from discontinued operations, before income taxes		$	—			$	—			$	—

 

Condensed Operating Data for the Three Months Ended March 31, 2015		Reis Services				Other (A)				Consolidated
Subscription revenue		$	11,131			$	—			$	11,131
Cost of sales of subscription revenue			2,186				—				2,186
Gross profit			8,945				—				8,945
Operating expenses:
Sales and marketing			2,653				—				2,653
Product development			863				—				863
General and administrative expenses			2,160				1,161				3,321
Total operating expenses			5,676				1,161				6,837
Other income (expenses):
Interest and other income			7				—				7
Interest expense			(28)				—				(28)
Total other income (expenses)			(21)				—				(21)
Income (loss) before income taxes and discontinued operations		$	3,248			$	(1,161)			$	2,087
(Loss) from discontinued operations, before income taxes		$	—			$	(118)			$	(118)

(A)		Includes the results of the Company’s discontinued operations, to the extent that such operations existed during the periods presented, and includes interest and other income, depreciation expense and general and administrative expenses that have not been allocated to the Reis Services segment.

In the first quarter of 2016, the Company changed the segment presentation to combine the discontinued operations segment with other. The reason for this change in presentation is the result of the completion of the discontinued operating activities in 2015 and to simplify the presentation on a comparable basis.

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

 

Segment Information (continued)

 

Reis Services

See Note 1 for a description of Reis Services’s business and products at March 31, 2016.

The Company’s largest individual subscriber accounted for 11.4% and 2.7% of Reis Services’s revenue for the three months ended March 31, 2016 and 2015, respectively.

The following table presents the accounts receivable balances of Reis Services at March 31, 2016 and December 31, 2015:

 

		March 31, 2016				December 31, 2015
Accounts receivable		$	7,216,000			$	13,828,000
Allowance for doubtful accounts			(109,000)				(87,000)
Accounts receivable, net		$	7,107,000			$	13,741,000

Fifteen subscribers accounted for an aggregate of approximately 49.2% of Reis Services’s accounts receivable at March 31, 2016, with the largest representing 11.4%. Through April 27, 2016, the Company received payments of approximately $3,726,000, or 51.6%, against the March 31, 2016 accounts receivable balance.

At March 31, 2016, the largest individual subscriber accounted for 3.5% of deferred revenue.

Discontinued Operations – Residential Development Activities

Income (loss) from discontinued operations was comprised of the following in the 2015 period (there were no discontinued operations activities in the 2016 period):

 

		For the Three Months Ended March 31, 2015
Litigation recoveries		$	—
Other (expense), net			(118,000)
(Loss) from discontinued operations before income tax			(118,000)
Income tax (benefit) from discontinued operations			(47,000)
(Loss) from discontinued operations, net of income tax (benefit)		$	(71,000)

In September 2009, the Company sold the final unit at Gold Peak, the final phase of Palomino Park, a five phase multifamily residential development in Highlands Ranch, Colorado. Gold Peak was a 259-unit condominium project on the remaining 29 acre land parcel at Palomino Park. On March 13, 2012, in connection with litigation regarding construction defects at the Gold Peak project, a jury rendered its verdict whereby Reis, one of its subsidiaries (Gold Peak at Palomino Park LLC, the developer of the project (“GP LLC”)), and the construction manager/general contractor for the project (Tri-Star Construction West, LLC (“Tri-Star”)) were found jointly and severally liable for an aggregate of $18,200,000, plus other costs of approximately $756,000. On June 20, 2012, following denial of all of the defendants’ post-trial motions, Reis and its subsidiaries reached a settlement with the plaintiff, the Gold Peak Homeowners Association, (“GP HOA”) providing for a total payment of $17,000,000. Of this amount, $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012, in accordance with the settlement terms. Subsequent to that date, the Company began recovery efforts against other responsible parties involved in the design, development, construction and supervision of the Gold Peak project.

As of December 31, 2015, the Company entered into the final settlement agreement related to its Gold Peak recovery efforts, bringing closure to this process. In summary, recovery efforts from the fourth quarter of 2012 through December 31, 2015 have resulted in cash collections aggregating approximately $5,658,000 from multiple insurance carriers, trial attorneys, an insurance broker and other responsible parties involved in the design, development, construction and supervision of the Gold Peak project. No recoveries occurred in the three months ended March 31, 2015. Other expenses in that period primarily reflect legal and other professional costs incurred related to the Gold Peak litigation recovery efforts.

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

 

4.	Intangible Assets

The amount of identified intangible assets, including the respective amounts of accumulated amortization, are as follows:

 

		March 31, 2016				December 31, 2015
Database		$	24,121,000			$	22,790,000
Accumulated amortization			(17,733,000)				(17,121,000)
Database, net			6,388,000				5,669,000
Customer relationships			14,100,000				14,100,000
Accumulated amortization			(8,563,000)				(8,328,000)
Customer relationships, net			5,537,000				5,772,000
Website			15,393,000				14,735,000
Accumulated amortization			(11,125,000)				(10,669,000)
Website, net			4,268,000				4,066,000
Acquired below market lease			2,800,000				2,800,000
Accumulated amortization			(2,695,000)				(2,620,000)
Acquired below market lease, net			105,000				180,000
Intangibles, net		$	16,298,000			$	15,687,000

The Company capitalized approximately $1,331,000 and $596,000 to the database intangible asset and $658,000 and $486,000 to the website intangible asset during the three months ended March 31, 2016 and 2015, respectively.

Amortization expense for intangible assets aggregated approximately $1,378,000 for the three months ended March 31, 2016, of which approximately $612,000 related to the database, which is charged to cost of sales, approximately $235,000 related to customer relationships, which is charged to sales and marketing expense, approximately $456,000 related to website development, which is charged to product development expense, and approximately $75,000 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 $1,221,000 for the three months ended March 31, 2015, of which approximately $482,000 related to the database, approximately $238,000 related to customer relationships, approximately $425,000 related to website development and approximately $76,000 related to the value ascribed to the below market terms of the office lease.

 

5.

Debt

The Company had no debt outstanding at March 31, 2016 and December 31, 2015.

In October 2012, Reis Services, as borrower, and the Company, as guarantor, entered into a loan and security agreement with Capital One, National Association, as lender (“Capital One”), for a $10,000,000 revolving credit facility (the “2012 Revolver”). The 2012 Revolver had a three year term scheduled to expire on October 16, 2015; however, the expiration date was extended to January 31, 2016. On January 28, 2016, Reis Services and Capital One executed an amended and restated loan and security agreement for a $20,000,000 revolving credit facility with terms substantially similar to the 2012 Revolver (the “2016 Revolver,” and collectively with the 2012 Revolver, the “Revolver”). The 2016 Revolver expires on January 28, 2019. Any borrowings on the Revolver bear interest at a rate of LIBOR + 2.00% per annum (for LIBOR loans) or the greater of 1.00% or the bank’s prime rate minus 0.50% per annum (for base rate loans). Capital One charges an unused facility fee of 0.25% per annum. The Revolver is secured by a security interest in substantially all of the tangible and intangible assets of Reis Services, all copyrights of the Company and a pledge by the Company of its membership interests in Reis Services. The Revolver also contains customary affirmative and negative covenants, including minimum financial covenants, as defined in the amended and restated revolving loan credit agreement; all of the covenants were met at March 31, 2016 and December 31, 2015. No borrowings were made on the Revolver during the three months ended March 31, 2016 and during the year ended December 31, 2015.

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

 

6.	Income Taxes

The components of income tax expense (benefit) are as follows:

 

		For the Three Months Ended March 31,
		2016				2015
Current Federal alternative minimum tax (“AMT”) expense		$	62,000			$	38,000
Current state and local tax expense			61,000				—
Deferred Federal tax expense (A)			811,000				622,000
Deferred state and local tax expense			53,000				87,000
Consolidated income tax expense, including taxes attributable to discontinued operations (B)			987,000				747,000
Less income tax expense (benefit) attributable to discontinued operations			—				(47,000)
Income tax expense (C)		$	987,000			$	794,000

 

(A)		Includes an AMT (benefit) of $(62,000) in 2016 and $(38,000) in 2015.
(B)		Includes income tax (benefit) attributable to (loss) from discontinued operations.
(C)		Reflects the tax expense from continuing operations as reported on the consolidated statements of operations for the periods presented.

During March 2014, New York State enacted a law to (1) reduce corporate tax rates, effective in future years and (2) change the method of determining the availability and use of NOLs existing at December 31, 2014. In April 2015, New York City enacted a law which substantially conforms with the New York State changes. As a consequence, the Company evaluated all elements affecting the balance of its net deferred tax assets in the respective periods, including the availability of New York State and New York City NOL carryforwards.

Due to the amount of its NOL and credit carryforwards, the Company does not anticipate paying Federal income taxes for a number of years. The Company expects, in the future, that it will be subject to cash payments for Federal AMT and for a portion of its state and local income taxes as the changed New York State and New York City laws limit the amount of existing NOLs which could be used each year.

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 asset was approximately $17,690,000 and $18,430,000 at March 31, 2016 and December 31, 2015, respectively, all of which was classified as non-current in accordance with ASU 2015-17. The significant portion of the deferred tax items relates to deferred tax assets including NOL carryforwards, Federal AMT credit carryforwards and stock based compensation, with the remainder of the deferred tax items relating to liabilities resulting from the intangible assets recorded at the time of the Merger.

The Company had Federal NOL carryforwards aggregating approximately $46,018,000 at December 31, 2015, as well as significant state and local NOL carryforwards. These NOLs included amounts generated subsequent to the Merger (including a substantial NOL realized during the year ended December 31, 2012 as a result of the Gold Peak litigation settlement, discussed in Note 3), losses from the Reis Services business prior to the Merger and the Company’s operating losses prior to the Merger. Approximately $13,300,000 of these Federal NOLs are subject to an annual Internal Revenue Code Section 382 limitation of $2,779,000, whereas the remaining balance of approximately $32,718,000 is not subject to the limitation. The enactment of the 2014 New York State law and the 2015 New York City law discussed above limit the amount of existing NOLs which could be used each year in those jurisdictions; however, all such NOLs are expected to be fully utilized in the future.

 

7.	Stockholders’ Equity

The Company declared and paid a quarterly dividend of $0.14 per common share for all four quarters of 2015 and increased the dividend declared and paid in the first quarter of 2016 to $0.17 per common share. Dividends paid by the Company aggregated $1,936,000 and $1,582,000 for the three months ended March 31, 2016 and 2015, respectively.

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

 

8.	Stock Plans and Other Incentives

The Company has adopted certain incentive plans for the purpose of attracting and retaining the Company’s directors, officers and employees by having the ability to issue options, restricted stock units (“RSUs”), or stock awards. Awards granted under the Company’s 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 three months ended March 31, 2016 and 2015:

 

		For the Three Months Ended March 31,
		2016								2015
		Options				Weighted- Average Exercise Price				Options				Weighted-         Average          Exercise         Price
Outstanding at beginning of period			547,500			$	9.61				582,500			$	9.52
Granted			—			$	—				—			$	—
Exercised			(7,500)			$	(10.40)				(7,500)			$	(7.50)
Forfeited/cancelled/expired			—			$	—				—			$	—
Outstanding at end of period			540,000			$	9.60				575,000			$	9.55
Options exercisable at end of period			524,000			$	9.33				555,000			$	9.23

RSU Awards

The following table presents the changes in RSUs outstanding for the three months ended March 31, 2016 and 2015:

 

		For the Three Months Ended March 31,
		2016				2015
Outstanding at beginning of period			254,041				277,973
Granted			117,788				78,722
Common stock delivered (A) (B)			(85,181)				(105,970)
Forfeited			—				(706)
Outstanding at end of period			286,648				250,019
Intrinsic value (C)		$	6,751,000			$	6,410,000

 

(A)		The 2016 period includes 32,760 shares which were used to settle minimum employee withholding tax obligations for 29 employees of approximately $701,000 in 2016. A net of 52,421 shares of common stock were delivered in 2016.
(B)		The 2015 period includes 41,136 shares which were used to settle minimum employee withholding tax obligations for 28 employees of approximately $993,000 in 2015. A net of 64,834 shares of common stock were delivered in 2015.
(C)		For purposes of this calculation, the Company’s closing stock prices were $23.55 and $25.64 per share on March 31, 2016 and 2015, respectively.

In the first quarter of 2016, an aggregate of 116,336 RSUs were granted to employees, which RSUs vest one-third a year over three years and had an average grant date fair value of $20.15 per RSU. In the first quarter of 2015, an aggregate of 77,405 RSUs were granted to employees, which RSUs vest one-third a year over three years and had a grant date fair value of $22.41 per RSU.

In each case, the grant date fair value was determined based on the closing stock price of the Company’s common stock on the applicable date of grant and considers the impact of dividend payments. The awards granted to employees in 2016 and 2015 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. Dividends are not paid or accrued on unvested employee RSUs.

During the three months ended March 31, 2016 and 2015, an aggregate of 1,452 RSUs and 1,317 RSUs, respectively, were granted to non-employee directors (with an average grant date fair value of $23.73 and $26.17 per RSU, respectively) related to the equity component of their compensation. In each case, the grant date fair value was determined as of the last trading day of

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

 

Stock Plans and Other Incentives (continued)

 

the quarter for which the RSUs were being received as compensation. The RSUs are immediately vested, but are not deliverable to the non-employee directors until six months after termination of their service as a director. Dividends are paid on RSUs granted to non-employee directors.

Option and RSU Expense Information

The Company recorded non-cash compensation expense of approximately $534,000 and $446,000, respectively, including $34,500 in each period related to non-employee director equity compensation, for the three months ended March 31, 2016 and 2015, respectively, related to all stock options and RSUs accounted for as equity awards, as a component of general and administrative expenses in the statements of operations.

 

9.	Earnings Per Common Share

Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is 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 March 31,
		2016				2015
Numerator for basic per share calculation:
Income from continuing operations for basic calculation		$	1,604,125			$	1,293,370
Income (loss) from discontinued operations, net of income tax (benefit)			—				(71,354)
Net income for basic calculation		$	1,604,125			$	1,222,016
Numerator for diluted per share calculation:
Income from continuing operations		$	1,604,125			$	1,293,370
Adjustments to income from continuing operations for the impact of dilutive securities			—				—
Income from continuing operations for dilution calculation			1,604,125				1,293,370
Income (loss) from discontinued operations, net of income tax (benefit)			—				(71,354)
Net income for dilution calculation		$	1,604,125			$	1,222,016
Denominator:
Weighted average common shares – basic			11,283,752				11,190,683
Effect of dilutive securities:
RSUs			133,498				155,677
Stock options			308,556				346,204
Weighted average common shares – diluted			11,725,806				11,692,564
Per common share amounts – basic:
Income from continuing operations		$	0.14			$	0.12
Income (loss) from discontinued operations			—				(0.01)
Net income		$	0.14			$	0.11
Per common share amounts – diluted:
Income from continuing operations		$	0.14			$	0.11
Income (loss) from discontinued operations			—				(0.01)
Net income		$	0.14			$	0.10

Potentially dilutive securities include all stock based awards. For the three months ended March 31, 2016 and 2015, only certain equity awards were antidilutive.

 

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REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

 

10.	Commitments and Contingencies

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.

The Company is not a party to any litigation that could reasonably be foreseen to be material to the Company.

 

11.	Fair Value of Financial Instruments

At March 31, 2016 and December 31, 2015, the Company’s financial instruments included receivables, payables, accrued expenses, other liabilities and debt. The fair values of these financial instruments, were not materially different from their recorded values at March 31, 2016 and December 31, 2015. The Company had no debt outstanding at March 31, 2016 and December 31, 2015. See Note 5 for additional information about the Company’s debt.

 

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Item 2. Management’s 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. is a Maryland corporation. When we refer to “Reis” or the “Company,” we are referring to Reis, Inc. and its consolidated subsidiaries. The Company provides commercial real estate market information and analytical tools to real estate professionals, 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, warehouse/distribution, flex/research & development, self storage, seniors housing and student housing 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 nation’s leading lending institutions, equity investors, brokers and appraisers.

Product Overview

The Company’s product portfolio features: Reis SE, its flagship delivery platform aimed at larger and mid-sized enterprises; ReisReports, aimed at prosumers and smaller enterprises; and Mobiuss Portfolio CRE, or Mobiuss, aimed primarily at risk managers and credit administrators at banks and non-bank lending institutions. It is through these products that Reis 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 asset and portfolio evaluations. Depending on the product or level of entitlement, users have access to market trends and forecasts 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. Reis’s 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, equity investors and service providers. 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.

Proprietary Databases

Reis develops and maintains three highly curated, proprietary databases which include information on property performance, new construction and sales transactions. The significant characteristics of the Reis databases include:

 

•

Breadth - coverage of eight property types, including apartment, office, retail, warehouse/distribution, flex/research & development, self storage, seniors housing and student housing properties;

 

•

Geography - national coverage of up to 275 of the largest U.S. metropolitan CRE markets, over 7,200 discrete market areas and segments with submarket boundaries proprietary to Reis;

 

•

Depth - captures critical information such as occupancies, rents, rent discounts, tenant improvement allowances, lease terms, expenses, buyer, seller, purchase price, capitalization rate, financing details and other key factors;

 

•

History - up to 36 years of data through multiple cycles of economic/market peaks and troughs; and

 

•

Frequency - market and submarket reports available monthly or quarterly and sales comparables and new construction information updated on daily and weekly schedules.

 

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The following table lists the number of metropolitan markets for each of the eight types of commercial real estate covered by Reis:

 

		March 31,					December 31,
		2016					2015
Apartment (A)				275					275
Office				190					190
Retail				190					190
Warehouse/distribution				47					47
Flex/research & development				47					47
Self storage				50					50
Seniors housing				110					110
Student housing				200					200

 

(A)		In March 2016, Reis enhanced its apartment coverage with market reports that include new structural details and comparative performance analytics.

Reis continues to expand its property level and market coverage by geography and property type. In 2016, the Company expects to introduce coverage on its ninth property type, affordable housing, with a tenth property type, medical office buildings, scheduled for coverage initiation in 2017. In addition, over the next few quarters, Reis expects to enhance its market reports in all sectors consistent with many of the enhancements made in March 2016 to its apartment market reports. These enhancements include photographs, sector-specific details, contact information, effective rent at the property level, sales transaction history, and numerous illustrative charts and graphs, all to fortify Reis’s position as the preferred source for comparables information among all real estate professionals involved in buying, selling, leasing, or managing real estate assets. Reis expects to add similar details to property level reports in other sectors, while also introducing high level analytical modules that take a broader perspective across markets and geographies. Further development plans include a module that will allow portfolio managers and C-level executives to look for market opportunities based on Reis’s forecasts at the market and submarket level.

Reis’s core property performance database contains information on competitive, income-producing properties in the U.S. apartment, office, retail, warehouse/distribution, flex/research & development, self storage, seniors housing and student housing sectors. On an ongoing basis, Reis surveys and receives data downloads from building owners, leasing agents and managers which include key building performance statistics including, among others: occupancy rates; rents; rent discounts and other concessions; tenant improvement allowances; lease terms; and operating expenses. In addition, Reis processes multiple data sources 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. Reis screens and assembles large volumes of data into integrated supply and demand trends on a monthly basis at the neighborhood (submarket) and metropolitan 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. 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.

In addition to its 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 information such as project size, property type, location, status, and estimated completion dates for projects that are planned, proposed or under construction.

Reis also maintains a sales transactions database in up to 277 metropolitan markets. The database captures key information on each transaction, such as buyer, seller, purchase price, capitalization rate and financing details, where available, for transactions valued at greater than $250,000 in each market we cover, for our eight current property types, as well as for hotel properties. The depth of Reis’s transactions data allows it to track capital flows into commercial real estate markets by geography and property type. Reis has identified the expansion and enhancement of its sales transactions database as one of its primary engines of financial growth over the foreseeable future. Key investments will be made in supplying additional geographic coverage, property types, smaller transactions, licensed photographs, and tabular, graphic and textual analysis.

Reis’s long-standing relationships with thousands of data sources, including building owners, property managers and agents, represent a unique and highly valuable asset that has required decades of investment. The Company is recognized by the industry and the business and trade press as the premier source of objective, timely and granular market information, a reputation attributable to two

 

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key factors: (1) Reis is viewed as independent as it does not compete as a broker in the listings space; and (2) Reis information is used by owners and managers in the underwriting, due diligence and marketing of properties, mortgages and real estate backed securities at both the single asset and portfolio levels.

Products and Services

Reis has invested in a robust technology infrastructure to disseminate a number of market information products to meet the demands of a wide variety of commercial real estate professionals, from large financial institutions seeking an integrated commercial real estate portfolio management platform, to a single access user seeking local market intelligence. Reis is committed to consistently upgrading and expanding its product offering to reach new markets and new types of consumers of commercial real estate information.

Reis SE

Reis SE (or sometimes referred to as “Reis Subscriber Edition”), available at www.reis.com, is the Company’s flagship product, designed to assist in market research, due diligence and support of commercial real estate transactions, including loan originations, underwriting, acquisitions, risk assessment (such as loan loss reserves and impairment analyses), portfolio monitoring, asset management and appraisal. Reports are retrievable by street address, property type (apartment, office, retail, warehouse/distribution, flex/research & development, self storage, seniors housing and student housing) or on the market/submarket level and are available as full color, presentation quality documents or in spreadsheet formats.

Key features of Reis SE include:

 

•

Market Reports - On a monthly basis, Reis provides updated trends and forecasts of rent, vacancy, and inventory for apartment, office, retail, warehouse/distribution, flex/research & development, self storage, seniors housing and student housing property types in up to 275 metropolitan areas and more than 7,200 discrete market areas and segments.

 

•

Rent Comparables - Based on a user specified area, Reis supplies property level performance data such as rents and vacancies, as well as comparable group summary statistics, including concessions, operating expenses and lease terms.

 

•

Sales Comparables - Reis maintains a sales comparables database containing transactions in up to 277 metropolitan areas. The database captures key information on each transaction, such as buyer, seller, purchase price, capitalization rate and financing details, where available, for transactions valued at greater than $250,000, for our eight current property types, as well as for hotel properties.

 

•

Construction Comparables - Reis monitors new projects from the planning stages to opening day to stabilization, capturing the anticipated effect of new competitive inventory on local supply and demand dynamics.

 

•

Single Property Valuation - Designed to help clients quantify the value and risk associated with their commercial real estate holdings, the valuation module utilizes three valuation methods – discounted cash flow, direct capitalization and sales price per square foot – supported by comparable transactions in the local market.

 

•

Executive Briefings - Comprehensive summaries that take the form of an analyst’s write-up for hundreds of metropolitan areas, thousands of submarkets, and tens of thousands of individual properties. What a real estate analyst could take days preparing, Reis can generate in seconds.

 

•

“First Glance” Reports - Quarterly narrative reports provide an early assessment of the apartment, office, retail and industrial sectors across the U.S. and commentary on new construction activity.

 

•

Quarterly Briefings - Two conference calls each quarter attended by hundreds of Reis subscribers, plus members of the media, during which Reis economists provide an overview of the latest high-level findings and forecasts for the commercial real estate space and capital markets.

 

•

Real Estate News and Commentary - The Reis “Observer” and news stories selected by Reis analysts from among hundreds of sources to provide news relevant to a particular market and property type.

 

•

Email Alerts - Customizable email alerts that let users receive proactive updates on markets of interest.

 

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Access to Reis SE is by secure password and can be customized to accommodate the geographic coverage, property type and analytical needs of subscribers. For example, the product can be tailored to provide access to all or only selected markets, property types and report combinations.

ReisReports

ReisReports is a product tailored to meet the needs of smaller enterprises and individuals, professional investors, brokers and appraisers, available at www.ReisReports.com. Although providing subscribers with less content and a more limited number of reports, ReisReports utilizes the same proprietary database that supports Reis SE. ReisReports is available on a monthly or annual subscription basis at affordable price points.

The addressable subscriber market for ReisReports includes hundreds of thousands of prosumers and small enterprises. To expand the total user base of ReisReports, the Company markets through various traditional and online media channels to CRE professionals active in individual metropolitan areas.

Mobiuss Portfolio CRE and Other Portfolio Support Products and Services

Mobiuss enables clients to quickly and thoroughly assess portfolio risks and opportunities by integrating client loan and property information with Reis property and submarket data which is processed through a credit model. The solution is delivered in a web-based, visually engaging interface. Mobiuss is targeted to both debt and equity capital providers active in U.S. commercial real estate and, specifically, to banks with significant CRE loan exposure.

As a loan-level analysis and surveillance platform, Mobiuss enables property valuation, credit analysis, stress testing, benchmarking and portfolio pricing. In addition to providing credit default metrics such as expected losses and probabilities of default at the loan and portfolio levels, outputs include forecasted collateral operating incomes and values under multiple economic scenarios. These features allow clients to integrate internal data to create customizable scenario forecasts to meet regulatory stress testing requirements, set loan loss reserves and monitor their collateral.

The Company has been able to assist financial institutions in the evaluation of their CRE loan portfolios through other means besides Mobiuss, including custom data deliverables and providing data clean-up, advisory and other consulting services. Reis stands ready to assist all client and non-client financial services firms and other real estate professionals however they need information or services.

Data Redistribution / Marketing Alliances

The Company has established data redistribution agreements with information service providers as part of a strategy designed to raise brand awareness and generate sales leads for Reis’s information and services. Over time, third party users may enter into agreements with Reis directly in order to gain access to the full suite of reports and analytical modules. The Company’s data redistribution agreements are typically multi-year contracts in length, do not afford access to Reis’s proprietary database and provide limited views of Reis’s market data. Reis has also established marketing alliances to promote ReisReports to its alliance partners’ members through discounts, email outreach, website advertising and newsletter ads.

Cost of Service

Reis’s data is made available in six ways, with price points that are reflective of the level of content being made available:

 

•

annual and multi-year subscriptions to Reis SE ranging in price from $1,000 to in excess of $1,000,000, depending upon the subscriber’s line of business and the combination of markets, property types and reports subscribed to; renewals for Reis SE are negotiated in advance of the expiration of an existing contract based on factors such as a subscriber’s historical and projected report consumption;

 

•

annual and multi-year subscriptions to Mobiuss typically ranging in price from the low tens of thousands of dollars into the hundreds of thousands of dollars;

 

•

capped Reis SE subscriptions typically ranging in price from $1,000 to $25,000, allowing clients to download a fixed retail value of reports over a period of up to twelve months;

 

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•

subscriptions to ReisReports, which are charged to a credit card, having a retail price in the low hundreds of dollars per month, depending on the level of service subscribed to (monthly or annual pricing options are available);

 

•

custom data deliverables ranging in price from $1,000 for a specific data element to hundreds of thousands or millions of dollars for custom data deliveries, portfolio valuation and credit analysis; and

 

•

individual reports, which can be purchased with a credit card, having retail prices up to $999 per report, are available to anyone who visits Reis’s retail website or contacts Reis via telephone, fax or email; however, certain reports are only available with an annual subscription or capped subscription account.

Reis’s 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. In the case of custom data deliverables, revenue is recognized upon completion and delivery to the customers, provided that no significant Company obligations remain.

Other Reis Services Information

For additional information on the Reis Services business, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2015, which was filed with the Securities and Exchange Commission on March 3, 2016.

Additional Segment Financial Information

See Note 3 to the Company’s consolidated financial statements, included in this filing, for additional information regarding the Company’s 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, 2015.

Critical Business Metrics

Management considers certain metrics in evaluating its consolidated results and the performance of the Reis Services segment. These metrics are revenue, revenue growth, EBITDA (which is earnings (defined as income (loss) from continuing operations) before interest, taxes, depreciation and amortization), EBITDA growth, EBITDA margin, Adjusted EBITDA (which is earnings before interest, taxes, depreciation, amortization and stock based compensation), Adjusted EBITDA growth and Adjusted EBITDA margin. Other important metrics that management considers include the cash flow generation as well as the visibility into future performance as supported by our deferred revenue and other related metrics discussed in this Item 2.

Following is a presentation of revenue, EBITDA and EBITDA margin for the Reis Services segment and revenue, EBITDA, Adjusted EBITDA and the related margins on a consolidated basis (excluding discontinued operations) (see below for a reconciliation of income 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).

 

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(amounts in thousands, excluding percentages)
		For the Three Months Ended
		March 31,												Percentage
		2016				2015				Increase				Increase
Reis Services segment:
Revenue		$	12,824			$	11,131			$	1,693				15.2%
EBITDA		$	5,382			$	4,594			$	788				17.2%
EBITDA margin			42.0%				41.3%
Consolidated, excluding discontinued operations:
Revenue		$	12,824			$	11,131			$	1,693				15.2%
EBITDA		$	4,095			$	3,435			$	660				19.2%
EBITDA margin			31.9%				30.9%
Adjusted EBITDA		$	4,629			$	3,881			$	748				19.3%
Adjusted EBITDA margin			36.1%				34.9%

2016 Revenue Performance

All of the Company’s revenue is generated by the Reis Services segment. Reis Services revenue increased by approximately $1,693,000, or 15.2%, from the first quarter of 2015 to the first quarter of 2016. In general, the revenue increase in 2016 primarily reflects $1,200,000 of revenue from custom data deliverables for one of our existing Reis SE subscribers, additional new Reis SE business to new customers, revenue from firms and individuals who had been previously gaining unauthorized access to our services and were identified as part of our compliance procedures, sales of new content to existing subscribers and price increases on renewals. Revenue was negatively affected in the quarter by a 200 basis point decline in our trailing twelve month renewal rate.

The Company’s overall trailing twelve month renewal rates as of March 31, 2016 and 2015 were 86% and 88%, respectively (for institutional subscribers, the trailing twelve month renewal rates as of March 31, 2016 and 2015 were 88% and 90%, respectively). On our renewals, we are experiencing mid-single digit increases in renewal pricing. Beginning in 2014, the Company has been more aggressive on renewal pricing, particularly in instances where customer usage levels were significantly greater than what was initially estimated as annual usage for that customer. The Company has continued this policy throughout 2015 and in the first quarter of 2016, believing that aligning client report consumption and value with appropriate annual fees, while remaining respectful of subscriber need for Reis information, is critical to the Company’s long-term growth and to the protection of the value of its intellectual property. Also, based upon past experience, management believes that many non-renewing customers ultimately renew with Reis as their information and analytic needs may not be fully addressed by competitive offerings.

The Company’s revenue model is based primarily on annual subscriptions that are paid in accordance with contractual billing terms. Reis recognizes revenue from its annual and multi-year subscription 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. Historically, the largest percentage of our contracts are executed in the fourth quarter of each year and 2015 was not an exception to that trend.

Over the past four years, in order to increase the predictability of fees from our subscribers and Reis’s own revenue and cash flow, we have made a concerted effort to encourage multi-year contracts when appropriate, with terms of two or three years, and in some cases, four years. The average life of multi-year contracts signed in each of the last three years was approximately 2.2 years. Based upon several factors, including historical and anticipated report consumption, our account managers determine whether Reis and a subscriber are best served by an annual or multi-year commitment. There are significant benefits, on a selective basis, of lengthening the duration of client contracts, including locking in recurring revenue for longer periods, thereby increasing the predictability of our renewal rates and future revenues. From an operational perspective, multi-year contracts free up account management resources to focus on subscribers requiring a higher level of attention and upselling opportunities across our account base. Finally, multi-year deals also insulate us from competitive pressures and increase the likeliness that Reis data and analytics will become embedded in the work flow of our clients.

In accordance with GAAP, our revenue recognition policy is to record revenue ratably over the life of a subscriber contract. Therefore any increases in the price of the subscription after the first year of a multi-year contract are considered in the total amount being

 

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straight-lined over the contract term. If a multi-year contract includes pricing steps on and after the first anniversary, there will be increasing cash flow from the contract, but no growth in revenue during the subsequent years under that contract. At December 31, 2015, approximately one-third of our customers were signed to multi-year contracts, including many of our largest subscribers. The March 31, 2016 reported levels of deferred revenue and Aggregate Revenue Under Contract of $22,268,000 and $45,262,000, respectively, suggest strong financial performance during 2016. However, the effect of having such a significant segment of our subscriber base under multi-year agreements may result in variability in our growth rates.

Deferred Revenue and Aggregate Revenue Under Contract

Two additional metrics management utilizes are deferred revenue and Aggregate Revenue Under Contract. Analyzing these amounts can provide additional insight into Reis Services’s future 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 remaining contract 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 remaining life of a contract for subscriptions, or in the case of future custom reports or projects, will be recognized as revenue upon completion and delivery to the customer, provided no significant Company obligations remain. The following table reconciles deferred revenue to Aggregate Revenue Under Contract at March 31, 2016 and 2015, respectively. A comparison of these balances at March 31 of each year is more meaningful than a comparison to the December 31, 2015 balances, as a greater percentage of renewals occur in the fourth quarter of each year and would distort the analysis.

 

		March 31,
		2016				2015
Deferred revenue (GAAP basis)		$	22,268,000			$	21,317,000
Amounts under non-cancellable contracts for which the Company does not yet have the contractual right to bill at the period end (A)			22,994,000				25,224,000
Aggregate Revenue Under Contract		$	45,262,000			$	46,541,000

 

(A)		Amounts are billable subsequent to March 31 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.

Included in Aggregate Revenue Under Contract at March 31, 2016 was approximately $31,486,000 related to amounts under contract for the forward twelve month period through March 31, 2017. The remainder reflects amounts under contract beyond March 31, 2017. The forward twelve month Aggregate Revenue Under Contract amount is approximately 59.9% of revenue on a trailing twelve month basis at March 31, 2016 of approximately $52,583,000 (or 65.6% when adjusted for the impact of $4,586,000 of revenue from certain custom data and portfolio advisory services which was included in the trailing twelve month revenue). For comparison purposes, at March 31, 2015, the forward twelve month Aggregate Revenue Under Contract was $30,906,000 and approximately 72.7% of revenue.

Both deferred revenue and Aggregate Revenue Under Contract are influenced by: (1) the timing and dollar value of contracts signed and billed; (2) the quantity and timing of contracts that are multi-year; and (3) the impact of recording revenue ratably over the life of a multi-year contract, which moderates the effect of price increases after the first year.

2016 Reis Services EBITDA and Consolidated Adjusted EBITDA Performance

Reis Services EBITDA for the three months ended March 31, 2016 was $5,382,000, an increase of $788,000, or 17.2%, over the first quarter 2015 amount. The increase was primarily derived from the increase in revenue, as described above. Operating expenses grew by 13.8% in the first quarter of 2016 over the 2015 comparable period, an acceleration over the expense growth in the 2015 first quarter over the 2014 comparable quarter of 11.2%. The Reis Services EBITDA margin of 42.0% for the three months ended March 31, 2016 was slightly greater than the reported Reis Services EBITDA margin of 41.3% in the 2015 comparable period. See “— Results of Operations” for a discussion of the variances for specific expenses.

Consolidated Adjusted EBITDA for the three months ended March 31, 2016 was $4,629,000, an increase of $748,000 or 19.3%, over the first quarter 2015 amount. The increase in Adjusted EBITDA reflects the revenue and Reis Services EBITDA increases discussed above. The consolidated Adjusted EBITDA margin was 36.1% for the first quarter of 2016.

 

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Investment in our business remains a priority. Our employee headcount in the sales and operational groups is expected to increase in 2016 and we expect to accelerate our marketing initiatives that were set in place in the latter part of 2014 and which were being implemented during 2015. These are sound investments that will further differentiate Reis among U.S. commercial real estate market information providers. As stated in the “— Management Summary” section of Item 7. of our annual report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 3, 2016, continuing investments and occupancy related costs will negatively impact our annual Reis Services EBITDA and consolidated Adjusted EBITDA growth rates for 2016 and cause temporary declines in our Reis Services EBITDA and consolidated Adjusted EBITDA margins in 2016. Variability in growth rates and margins could occur quarter to quarter in 2016. We believe that any declines will be temporary as we expect that these investments will result in additional revenue opportunities for Reis in the future.

Reconciliations of Income from Continuing Operations to EBITDA and Adjusted EBITDA

We define EBITDA as earnings (income (loss) from continuing operations) before interest, taxes, depreciation and amortization. We define Adjusted EBITDA 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 supplemental financial measures to be considered in addition to the reported GAAP basis financial information which may assist investors in evaluating and understanding: (1) the performance of the Reis Services segment, the primary business of the Company and (2) the Company’s 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, 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. EBITDA and Adjusted EBITDA are presented both for the Reis Services segment and on a consolidated basis. We believe that these metrics, for Reis Services, provide the reader with valuable information for evaluating the financial performance of the core Reis Services business, excluding public company costs, and for making assessments about the intrinsic value of that stand-alone business to a potential acquirer. Management primarily monitors and measures its performance, and is compensated, based on the results of the Reis Services segment. EBITDA and Adjusted EBITDA, on a consolidated basis, allow the reader to make assessments about the current trading value of the Company’s common stock, including expenses related to operating as a public company. However, investors should not consider these measures in isolation or as substitutes for net income (loss), income from continuing operations, operating income, or any other measure for determining operating performance that is calculated in accordance with GAAP. Reconciliations of EBITDA and Adjusted EBITDA to the most comparable GAAP financial measure, income from continuing operations, follow for each identified period on a segment basis (including the Reis Services segment), as well as on a consolidated basis:

 

(amounts in thousands)
Reconciliation of Income from Continuing Operations to EBITDA and                         Adjusted EBITDA for the Three Months Ended March 31, 2016		By Segment
		Reis Services				Other (A)				Consolidated
Income from continuing operations										$	1,604
Income tax expense											987
Income (loss) before income taxes and discontinued operations		$	3,880			$	(1,289)				2,591
Add back:
Depreciation and amortization expense			1,489				2				1,491
Interest expense (income), net			13				—				13
EBITDA			5,382				(1,287)				4,095
Add back:
Stock based compensation expense, net			—				534				534
Adjusted EBITDA		$	5,382			$	(753)			$	4,629

 

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(amounts in thousands)
Reconciliation of Income from Continuing Operations to EBITDA and		By Segment
Adjusted EBITDA for the Three Months Ended March 31, 2015		Reis Services				Other (A)				Consolidated
Income from continuing operations										$	1,293
Income tax expense											794
Income (loss) before income taxes and discontinued operations		$	3,248			$	(1,161)				2,087
Add back:
Depreciation and amortization expense			1,325				2				1,327
Interest expense (income), net			21				—				21
EBITDA			4,594				(1,159)				3,435
Add back:
Stock based compensation expense			—				446				446
Adjusted EBITDA		$	4,594			$	(713)			$	3,881

 

 

 

(A)

Includes interest and other income, depreciation expense and general and administrative expenses (including public company related costs) that are not associated with the Reis Services segment. Since the reconciliations start with income from continuing operations, the effects of the discontinued operations are excluded from these reconciliations for all periods presented.

Results of Operations

Comparison of the Results of Operations for the Three Months Ended March 31, 2016 and 2015

Subscription revenues and related cost of sales were approximately $12,824,000 and $2,462,000, respectively, for the three months ended March 31, 2016, which resulted in a gross profit for the Reis Services segment of approximately $10,362,000. Amortization expense included in cost of sales (for the database intangible asset) was approximately $612,000 during this period. Subscription revenues and related cost of sales were approximately $11,131,000 and $2,186,000, respectively, for the three months ended March 31, 2015, which resulted in a gross profit for the Reis Services segment of approximately $8,945,000. Amortization expense included in cost of sales was approximately $482,000 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 $276,000 resulted from greater employment related costs, specifically from hiring during 2015 and 2016, coupled with compensation increases and higher benefit costs than in the 2015 period of $146,000 and a $130,000 increase in amortization expense for database costs.

Sales and marketing expenses were approximately $2,668,000 and $2,653,000 for the three months ended March 31, 2016 and 2015, respectively, and solely represented costs of the Reis Services segment. Amortization expense included in sales and marketing expenses (for the customer relationships intangible asset) was approximately $235,000 and $238,000 during the three months ended March 31, 2016 and 2015, respectively. The increase in sales and marketing expenses between the two periods of approximately $15,000 resulted from greater spending in 2016 on marketing initiatives.

Product development expenses were approximately $1,005,000 and $863,000 for the three months ended March 31, 2016 and 2015, respectively, and solely represented costs of the Reis Services segment. Amortization expense included in product development expenses (for the website intangible asset) was approximately $456,000 and $425,000 during the three months ended March 31, 2016 and 2015, respectively. Product development costs increased $142,000, primarily due to increased employment related costs from hiring during 2015 and 2016, coupled with compensation increases and higher benefit costs than in the 2015 period.

General and administrative expenses of approximately $4,085,000 for the three months ended March 31, 2016 included current period expenses of approximately $3,363,000, approximately $188,000 for the lease value intangible asset amortization and furniture, fixtures and equipment depreciation, and approximately $534,000 of net non-cash compensation expense. The net non-cash compensation expense was comprised of equity awards for employees and directors. General and administrative expenses of approximately $3,321,000 for the three months ended March 31, 2015 included current period expenses of approximately $2,693,000, depreciation and amortization expense of approximately $182,000 for the lease value intangible asset and furniture, fixtures and equipment, and approximately $446,000 of net non-cash compensation expense. The net non-cash compensation expense was comprised of equity awards for employees and directors. Excluding the non-cash expenses, the net increase in general and

 

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administrative expenses of $670,000 was primarily the result of increases for professional fees and increased occupancy related costs from office space expansion.

Interest expense of $21,000 and $28,000 during the three months ended March 31, 2016 and 2015, respectively, was comprised of unused facility fees and deferred financing cost amortization on the Company’s revolving credit facility, which we refer to as the Revolver. There was no outstanding balance on the Revolver during the three months ended March 31, 2016 or 2015.

Income tax expense of $987,000 for continuing operations during the three months ended March 31, 2016 reflected deferred Federal tax expense of $811,000, deferred state and local tax expense of $53,000, current Federal AMT expense of $62,000 and current state and local tax expense of $61,000. Income tax expense of $794,000 for continuing operations during the three months ended March 31, 2015 reflected deferred Federal tax expense of $662,000, deferred state and local tax expense of $92,000 and $40,000 of current Federal AMT.

The loss from discontinued operations was $71,000 for the three months ended March 31, 2015. The loss primarily reflected legal and professional fees of $118,000 in connection with our recovery efforts (related to the $17,000,000 settlement in 2012 of a construction defect lawsuit), offset by an income tax benefit of $47,000. There were no discontinued operations activities in the 2016 period.

Income Taxes

For more information regarding income taxes, see Note 6 to the Company’s consolidated financial statements included in this filing.

Liquidity and Capital Resources

The core Reis Services business has traditionally generated significant cash annually; and we expect it to continue to do so. Our consolidated cash and cash equivalents balance aggregated approximately $28,911,000 at March 31, 2016, a slight increase of $253,000 over the December 31, 2015 balance of approximately $28,658,000. This increase was achieved while meeting all of the Company’s operational costs and obligations, making investments in its websites, databases and furniture, fixtures and equipment of approximately $3,004,000, paying an aggregate dividend of approximately $1,936,000 in March 2016 and utilizing approximately $701,000 to settle minimum employee withholding tax obligations on vested RSUs in February 2016.

At March 31, 2016, the Company’s short-term and long-term liquidity requirements include: current operating and capitalizable costs, including accounts payable and other accrued expenses; near-term product development and enhancement of the website and databases either through building with Company resources or through acquisitions; operating leases; growth in operating expenses from a further increase in the number of Reis employees and additional resources being devoted to our sales and marketing efforts; other costs, including public company expenses not included in the Reis Services segment; the resolution of open tax years with state and local tax authorities; payment of employee taxes on vested equity awards, for which the employee uses shares to settle his/her minimum withholding tax obligations with the Company; and the use of cash for the payment of quarterly dividends. The Company expects to meet these short-term and long-term liquidity requirements generally through the use of available cash and cash generated from subscription revenue of Reis Services and, if necessary, with borrowings under the Revolver, and/or proceeds from the sale of Reis stock.

In January 2016, Reis Services and Capital One executed an amended and restated loan and security agreement for a $20,000,000 revolving credit facility, which expires on January 28, 2019. For additional information regarding the Revolver, see Note 5 to the Company’s consolidated financial statements included in this filing.

In June 2015, the Company’s shelf registration statement on Form S-3 was declared effective. The shelf registration statement permits the offering, issuance and sale of up to a maximum aggregate offering price of $75,000,000 of the Company’s stock from time to time for three years. Any determinations about the issuance of new common shares will be at the discretion of the Company’s Board and the use of proceeds, unless otherwise indicated, will be for general corporate purposes, which may include working capital, capital expenditures or acquisitions. Management will retain broad discretion in the allocation of the net proceeds. The Company has no immediate plans to issue shares under the shelf registration statement.

The Company has NOLs that it expects to utilize against future Federal, state and local taxable income. The use of certain NOLs for New York State and New York City purposes will be subject to an annual limitation and, therefore, any taxable income in excess of the limitation will be subject to tax. Tax payments related to 2016 are expected to be for state and local taxes based on income, in excess of limitation amounts, and Federal AMT.

 

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The Company may determine to use its cash to: (1) acquire or invest in other databases or information companies that have logical adjacencies or complementary products or services; (2) repurchase shares of Reis common stock; or (3) pay a special dividend, or increase its recurring quarterly dividend. There can be no assurance that the Company will use its cash for any of these purposes during 2016, or thereafter.

The Company declared and paid a quarterly dividend of $0.14 per common share for all four quarters of 2015 and increased the dividend declared and paid in the first quarter of 2016 to $0.17 per common share. Dividends paid by the Company aggregated $1,936,000 and $1,582,000 for the three months ended March 31, 2016 and 2015, respectively.

Changes in Cash Flows

Cash flows for the three months ended March 31, 2016 and 2015 are summarized as follows:

 

		For the Three Months Ended March 31,
		2016				2015
Net cash provided by operating activities		$	6,074,843			$	7,280,086
Cash (used in) investing activities			(3,003,962)				(1,140,641)
Cash (used in) financing activities			(2,818,132)				(2,518,360)
Net increase in cash and cash equivalents		$	252,749			$	3,621,085

Net cash provided by operating activities decreased $1,205,000 from $7,280,000 provided in the 2015 period to $6,075,000 provided in the 2016 period. This decrease was primarily due to a greater reduction in the deferred revenue account in the 2016 period than in the 2015 comparable period.

Cash used in investing activities increased $1,863,000 from $1,141,000 used in the 2015 period to $3,004,000 used in the 2016 period. This change resulted from a $781,000 increase in purchases of furniture, fixtures and equipment in the 2016 period, coupled with a $1,082,000 increase of cash used in the 2016 period as compared to the 2015 period for website and database development costs for continuing product development initiatives. The expectation for the remainder of 2016 is that cash used for website and database development will continue to exceed amounts capitalized in 2015.

Cash used in financing activities were approximately $2,818,000 and $2,518,000 in the 2016 and 2015 periods, respectively. The 2016 period includes approximately $1,936,000 for dividends declared and paid in the first quarter of 2016, $701,000 used to settle minimum employee withholding tax obligations on vested RSUs and $181,000 of deferred financing costs related to the expansion and extension of the Revolver. The 2015 period includes approximately $1,582,000 for dividends declared and paid in the first quarter of 2015 and $993,000 used to settle minimum employee withholding tax obligations on vested RSUs, offset by proceeds received from employees for option exercises of $56,000.

 

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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 Company’s or management’s outlook or expectations for earnings, revenues, expenses, margins, 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 business prospects, potential acquisitions, sources and uses of cash, revenue, expenses, margins, income (loss) from continuing or discontinued operations, cash flows, valuation of assets and liabilities and other business metrics of the Company and its businesses, including EBITDA (as defined herein), Adjusted EBITDA (as defined herein) 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 management’s 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:

 

•

lower than expected revenues and other performance measures such as income from continuing operations, EBITDA and Adjusted EBITDA;

 

•

inability to retain and increase the Company’s subscriber base;

 

•

inability to execute properly on new products and services, or failure of subscribers to accept these products and services;

 

•

competition;

 

•

inability to attract and retain sales and senior management personnel;

 

•

inability to access adequate capital to fund operations and investments in our business;

 

•

difficulties in protecting the security, confidentiality, integrity and reliability of the Company’s data;

 

•

changes in accounting policies or practices;

 

•

legal and regulatory issues;

 

•

the results of pending, threatening or future litigation; and

 

•

the risk factors listed under “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2015, which was filed with the Securities and Exchange Commission on March 3, 2016.

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 Company’s primary market risk exposure has been to changes in interest rates. This risk may be managed by limiting the Company’s financing exposures, to the extent possible, by purchasing interest rate caps when deemed appropriate.

At March 31, 2016 and December 31, 2015, the Company’s only potential exposure to interest rates was on variable rate based debt. This exposure has historically been minimized through the use of interest rate caps. During the three months ended March 31, 2016 and throughout 2015, the Company did not have any interest rate caps. No debt was outstanding at March 31, 2016 and December 31, 2015. For more information about the Company’s debt, see Note 5 to the Company’s consolidated financial statements included in this filing.

Reis holds cash and cash equivalents at various regional and national banking institutions. Management monitors the institutions that hold our cash and cash equivalents. Management’s emphasis is primarily on safety of principal. Management, in its discretion, has diversified Reis’s 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 generally 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 March 31, 2016, 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 March 31, 2016 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 Company’s 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 Company’s internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1.  Legal Proceedings.

As disclosed in Note 10 to the Company’s consolidated financial statements included in this filing, the Company is not a party to any litigation that could reasonably be forseen to be material to the Company, and the disclosure set forth in such Note 10 is incorporated herein by reference.

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, 2015, which was filed with the SEC on March 3, 2016, 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. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Statement Regarding Forward-Looking Statements” for additional information.

 

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

During the three months ended March 31, 2016, the Company did not repurchase any shares of common stock.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

None.

Item 5.  Other Information.

None.

Item 6.  Exhibits.

Exhibits filed with this Form 10-Q:

 

Exhibit     No.		Description
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).

 

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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

Date: May 3, 2016

 

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