Attached files
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EX-32.1 - EX-32.1 - Reis, Inc. | d394183dex321.htm |
EX-31.2 - EX-31.2 - Reis, Inc. | d394183dex312.htm |
EX-31.1 - EX-31.1 - Reis, Inc. | d394183dex311.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017
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.) | |
1185 Avenue of the Americas, New York, NY |
10036 | |
(Address of Principal Executive Offices) | (Zip Code) |
(212) 921-1122 |
||||
(Registrants Telephone Number, Including Area Code) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ 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 ☑ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ |
Accelerated filer ☑ |
Non-accelerated filer ☐ | Smaller reporting company ☐ | |||
(Do not check if a smaller reporting company) |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The number of the Registrants shares of common stock outstanding was 11,512,485 as of July 21, 2017.
Table of Contents
Page Number |
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PART I. FINANCIAL INFORMATION: | ||||||
Item 1. |
Financial Statements | |||||
Consolidated Balance Sheets at June 30, 2017 (unaudited) and December 31, 2016 |
3 | |||||
4 | ||||||
5 | ||||||
Consolidated Statements of Cash Flows (unaudited) For the Six Months Ended June 30, 2017 and 2016 |
6 | |||||
7 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
18 | ||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 32 | ||||
Item 4. |
Controls and Procedures | 33 | ||||
PART II. OTHER INFORMATION: | ||||||
Item 1. |
Legal Proceedings | 33 | ||||
Item 1A. |
Risk Factors | 33 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 33 | ||||
Item 3. |
Defaults Upon Senior Securities | 34 | ||||
Item 4. |
Mine Safety Disclosures | 34 | ||||
Item 5. |
Other Information | 34 | ||||
Item 6. |
Exhibits | 34 | ||||
35 |
2
Table of Contents
REIS, INC. AND SUBSIDIARIES
June 30, 2017 |
December 31, 2016 | |||||||
(Unaudited) | ||||||||
ASSETS |
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Current assets: |
||||||||
Cash and cash equivalents |
$ | 18,882,602 | $ | 21,490,586 | ||||
Accounts receivable, net |
9,308,624 | 10,743,505 | ||||||
Prepaid and other assets |
741,247 | 792,991 | ||||||
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Total current assets |
28,932,473 | 33,027,082 | ||||||
Furniture, fixtures and equipment, net of accumulated depreciation of $1,568,556 and $1,082,793, respectively |
5,374,820 | 5,260,443 | ||||||
Intangible assets, net of accumulated amortization of $45,229,777 and $41,861,561, respectively |
19,081,875 | 17,922,282 | ||||||
Deferred tax asset, net |
17,964,768 | 16,814,737 | ||||||
Goodwill |
54,824,648 | 54,824,648 | ||||||
Other assets |
256,628 | 295,349 | ||||||
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Total assets |
$ | 126,435,212 | $ | 128,144,541 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Current portion of debt |
$ | | $ | | ||||
Accrued expenses and other liabilities |
3,313,580 | 4,031,444 | ||||||
Deferred revenue |
24,183,184 | 25,031,100 | ||||||
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Total current liabilities |
27,496,764 | 29,062,544 | ||||||
Other long-term liabilities |
2,614,065 | 1,902,081 | ||||||
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Total liabilities |
30,110,829 | 30,964,625 | ||||||
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Commitments and contingencies |
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Stockholders equity: |
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Common stock, $0.02 par value per share, 101,000,000 shares authorized, 11,512,485 and 11,272,150 shares issued and outstanding, respectively |
230,250 | 225,443 | ||||||
Additional paid in capital |
109,144,487 | 107,668,599 | ||||||
Retained earnings (deficit) |
(13,050,354 | ) | (10,714,126 | ) | ||||
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Total stockholders equity |
96,324,383 | 97,179,916 | ||||||
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Total liabilities and stockholders equity |
$ | 126,435,212 | $ | 128,144,541 | ||||
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See Notes to Consolidated Financial Statements
3
Table of Contents
REIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, |
For the Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue: |
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Subscription revenue |
$ | 11,429,089 | $ | 11,369,420 | $ | 23,008,451 | $ | 22,797,399 | ||||||||
Other revenue |
280,131 | 245,250 | 826,723 | 1,641,023 | ||||||||||||
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Total revenue |
11,709,220 | 11,614,670 | 23,835,174 | 24,438,422 | ||||||||||||
Cost of sales |
3,216,079 | 2,494,753 | 6,582,430 | 4,956,324 | ||||||||||||
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Gross profit |
8,493,141 | 9,119,917 | 17,252,744 | 19,482,098 | ||||||||||||
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Operating expenses: |
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Sales and marketing |
3,105,068 | 3,024,664 | 6,433,116 | 5,692,656 | ||||||||||||
Product development |
1,105,627 | 1,015,370 | 2,272,298 | 2,020,654 | ||||||||||||
General and administrative expenses |
3,712,557 | 3,536,741 | 7,833,041 | 7,621,452 | ||||||||||||
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Total operating expenses |
7,923,252 | 7,576,775 | 16,538,455 | 15,334,762 | ||||||||||||
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Other income (expenses): |
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Interest and other income |
1,126 | 5,910 | 1,702 | 14,166 | ||||||||||||
Interest expense |
(32,372 | ) | (28,216 | ) | (64,606 | ) | (49,541 | ) | ||||||||
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Total other income (expenses) |
(31,246 | ) | (22,306 | ) | (62,904 | ) | (35,375 | ) | ||||||||
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Income before income taxes |
538,643 | 1,520,836 | 651,385 | 4,111,961 | ||||||||||||
Income tax expense (benefit) |
141,000 | 580,000 | (281,000 | ) | 1,567,000 | |||||||||||
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Net income |
$ | 397,643 | $ | 940,836 | $ | 932,385 | $ | 2,544,961 | ||||||||
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Net income per common share: |
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Basic |
$ | 0.03 | $ | 0.08 | $ | 0.08 | $ | 0.23 | ||||||||
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Diluted |
$ | 0.03 | $ | 0.08 | $ | 0.08 | $ | 0.22 | ||||||||
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Weighted average number of common shares outstanding: |
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Basic |
11,514,123 | 11,321,711 | 11,480,900 | 11,302,731 | ||||||||||||
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Diluted |
11,777,017 | 11,780,871 | 11,762,805 | 11,762,210 | ||||||||||||
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Dividends declared per common share |
$ | 0.17 | $ | 0.17 | $ | 0.34 | $ | 0.34 | ||||||||
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See Notes to Consolidated Financial Statements
4
Table of Contents
REIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2017
(Unaudited)
Retained | Total | |||||||||||||||||||
Common Shares | Paid in | Earnings | Stockholders | |||||||||||||||||
Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||
Balance, December 31, 2016 |
11,272,150 | $ | 225,443 | $ | 107,668,599 | $ | (10,714,126 | ) | $ | 97,179,916 | ||||||||||
Cumulative effect change in accounting principle (as described in Note 2) |
| | (27,830 | ) | 673,861 | 646,031 | ||||||||||||||
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Balance, January 1, 2017 |
11,272,150 | 225,443 | 107,640,769 | (10,040,265 | ) | 97,825,947 | ||||||||||||||
Shares issued for vested employee restricted stock units |
88,543 | 1,771 | (1,771 | ) | | | ||||||||||||||
Shares issued for option exercises |
285,000 | 5,700 | 2,929,300 | | 2,935,000 | |||||||||||||||
Stock based compensation, net |
| | 1,110,480 | | 1,110,480 | |||||||||||||||
Dividends |
| | | (3,942,474 | ) | (3,942,474 | ) | |||||||||||||
Stock repurchases |
(133,208 | ) | (2,664 | ) | (2,534,291 | ) | | (2,536,955 | ) | |||||||||||
Net income |
| | | 932,385 | 932,385 | |||||||||||||||
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Balance, June 30, 2017 |
11,512,485 | $ | 230,250 | $ | 109,144,487 | $ | (13,050,354 | ) | $ | 96,324,383 | ||||||||||
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See Notes to Consolidated Financial Statements
5
Table of Contents
REIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 932,385 | $ | 2,544,961 | ||||
Adjustments to reconcile to net cash provided by operating activities: |
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Deferred tax (benefit) provision |
(504,000 | ) | 1,266,000 | |||||
Depreciation |
485,763 | 264,993 | ||||||
Amortization of intangible assets |
3,368,216 | 2,811,949 | ||||||
Stock based compensation charges |
1,110,480 | 1,056,261 | ||||||
Changes in assets and liabilities: |
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Accounts receivable, net |
1,434,881 | 7,058,758 | ||||||
Prepaid and other assets |
90,465 | (122,298 | ) | |||||
Accrued expenses and other liabilities |
90,888 | (2,212,570 | ) | |||||
Deferred revenue |
(847,916 | ) | (4,446,190 | ) | ||||
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Net cash provided by operating activities |
6,161,162 | 8,221,864 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Website and database development costs |
(4,527,809 | ) | (4,461,366 | ) | ||||
Furniture, fixtures and equipment additions |
(696,908 | ) | (1,261,688 | ) | ||||
Proceeds from sale of furniture, fixtures and equipment |
| 2,091 | ||||||
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Net cash (used in) investing activities |
(5,224,717 | ) | (5,720,963 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Dividends |
(3,942,474 | ) | (3,876,066 | ) | ||||
Proceeds from option exercises |
2,935,000 | 153,000 | ||||||
Payments for option cancellations and restricted stock units |
| (701,159 | ) | |||||
Payment of financing costs |
| (180,552 | ) | |||||
Stock repurchases |
(2,536,955 | ) | | |||||
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Net cash (used in) financing activities |
(3,544,429 | ) | (4,604,777 | ) | ||||
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Net decrease in cash and cash equivalents |
(2,607,984 | ) | (2,103,876 | ) | ||||
Cash and cash equivalents, beginning of period |
21,490,586 | 28,657,956 | ||||||
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Cash and cash equivalents, end of period |
$ | 18,882,602 | $ | 26,554,080 | ||||
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SUPPLEMENTAL INFORMATION: |
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Cash paid during the period for interest |
$ | 25,278 | $ | 17,083 | ||||
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Cash paid during the period for income taxes |
$ | 189,148 | $ | 519,431 | ||||
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Accrual for furniture, fixtures and equipment additions |
$ | (96,768 | ) | $ | 688,337 | |||
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Disposal of fully depreciated furniture, fixtures and equipment |
$ | 64,039 | ||||||
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Shares issued for vested employee restricted stock units |
$ | 1,771 | $ | 1,048 | ||||
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Shares issued for option exercises |
$ | 5,700 | $ | | ||||
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See Notes to Consolidated Financial Statements
6
Table of Contents
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 Reis Services.
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, student housing and affordable 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 nations leading lending institutions, equity investors, brokers and appraisers.
The Companys product portfolio features: Reis SE, its flagship delivery platform aimed at larger and mid-sized enterprises; ReisReports, aimed at prosumers and smaller enterprises; and Reis Portfolio CRE and other portfolio support products and services, 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. Reiss products are designed to meet the demand for timely and accurate information to support the decision making of property owners, developers, builders, banks and non-bank lenders, 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.
2. | Summary of Significant Accounting Policies |
Basis of Presentation
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries. Investments in entities where the Company does not have a controlling interest are accounted for under the equity method of accounting. These investments were initially recorded at cost and were subsequently adjusted for the Companys proportionate share of the investments income (loss) and additional contributions or distributions. All inter-company accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation.
Quarterly Reporting
The accompanying consolidated financial statements and notes of the Company have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared under Generally Accepted Accounting Principles in the United States (GAAP) have been condensed or omitted pursuant to such rules. In the opinion of management, all adjustments considered necessary for a fair presentation of the Companys balance sheets, statements of operations, statement of changes in stockholders equity and statements of cash flows have been included and are of a normal and recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys annual report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 9, 2017. The consolidated statements of operations for the three and six months ended June 30, 2017 and 2016 and the consolidated statements of cash flows for the six months ended June 30, 2017 and 2016 are not necessarily indicative of full year results.
7
Table of Contents
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Summary of Significant Accounting Policies (continued)
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. Such evaluation includes the identification of each of the Companys revenue streams and the impact, if any, that the new standard may have on accounting for them. Additionally, the Companys evaluation considers the impact of the new standard on accounting for certain costs associated with contracting with customers, such as commissions. As of the date of this report, the Company has not determined the method of adoption and has not determined if there will be a change in how revenue or expenses will be recorded under the new standard. The Company does not expect to early adopt ASU 2014-09.
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 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 (1) an employees use of shares to satisfy the employers statutory income tax withholding obligation and (2) 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. The Company adopted ASU 2016-09 as of January 1, 2017, which included (1) recording an additional deferred tax asset on the consolidated balance sheet of approximately $657,000 and (2) the recording of a cumulative effect change in stockholders equity related to the prior treatment of estimated forfeitures of $28,000 as the Company has elected to record forfeitures in the period in which they occur. The cumulative effect change in accounting principle is reflected on the consolidated statement of changes in stockholders equity to reconcile from the previously reported December 31, 2016 balances to the recast amounts after giving effect to ASU 2016-09. Other than the items identified, the adoption of ASU 2016-09 did not have a material impact on the Companys consolidated financial statements and disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows-Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 clarifies how cash receipts and cash payments in certain transactions are presented in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning
8
Table of Contents
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Summary of Significant Accounting Policies (continued)
after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-15 will have on its consolidated financial statements and disclosures.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, a consensus of the FASB Emerging Issues Task Force (ASU 2016-18). ASU 2016-18 intends to address the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted. The Company does not expect the adoption of ASU 2016-18 to have a material impact on its consolidated financial statements and disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business (ASU 2017-01). ASU 2017-01 provides criteria to determine when an integrated set of assets and activities (a set) is not a business and narrows the definition of the term output so that it is consistent with the description of outputs in Topic 606. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and early adoption is only permitted for transactions that have not been reported in financial statements that have been issued or made available for issuance. The Company does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements and disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 removes Step 2 from the goodwill impairment test. Under ASU 2017-04, if a reporting units carrying amount exceeds its fair value, an impairment charge will be recorded based on the difference, with the impairment charge limited to the amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted on or after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements and disclosures.
Reclassification
Amounts in certain accounts, as presented in the consolidated statements of operations and condensed operating data in Note 3 have been reclassified to conform to the current period presentation. In particular, the Company has changed its presentation of revenue to include two categories: subscription revenue and other revenue.
9
Table of Contents
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 the Other segment. The following tables present condensed balance sheet and operating data for these segments:
(amounts in thousands) |
||||||||||||
Condensed Balance Sheet Data June 30, 2017 |
Reis Services |
Other (A) | Consolidated | |||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 17,336 | $ | 1,547 | $ | 18,883 | ||||||
Accounts receivable, net |
9,309 | | 9,309 | |||||||||
Prepaid and other assets |
719 | 21 | 740 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total current assets |
27,364 | 1,568 | 28,932 | |||||||||
Furniture, fixtures and equipment, net |
5,375 | | 5,375 | |||||||||
Intangible assets, net |
19,082 | | 19,082 | |||||||||
Deferred tax asset, net |
285 | 17,680 | 17,965 | |||||||||
Goodwill |
57,203 | (2,378 | ) | 54,825 | ||||||||
Other assets |
256 | | 256 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total assets |
$ | 109,565 | $ | 16,870 | $ | 126,435 | ||||||
|
|
|
|
|
|
|
|
| ||||
Liabilities and stockholders equity |
||||||||||||
Current liabilities: |
||||||||||||
Current portion of debt |
$ | | $ | | $ | | ||||||
Accrued expenses and other liabilities |
3,069 | 245 | 3,314 | |||||||||
Deferred revenue |
24,183 | | 24,183 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total current liabilities |
27,252 | 245 | 27,497 | |||||||||
Other long-term liabilities |
2,614 | | 2,614 | |||||||||
Deferred tax liability, net |
34,118 | (34,118 | ) | | ||||||||
|
|
|
|
|
|
|
|
| ||||
Total liabilities |
63,984 | (33,873 | ) | 30,111 | ||||||||
Total stockholders equity |
45,581 | 50,743 | 96,324 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total liabilities and stockholders equity |
$ | 109,565 | $ | 16,870 | $ | 126,435 | ||||||
|
|
|
|
|
|
|
|
| ||||
Condensed Balance Sheet Data December 31, 2016 |
Reis Services |
Other (A) | Consolidated | |||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 19,903 | $ | 1,588 | $ | 21,491 | ||||||
Accounts receivable, net |
10,744 | | 10,744 | |||||||||
Prepaid and other assets |
622 | 170 | 792 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total current assets |
31,269 | 1,758 | 33,027 | |||||||||
Furniture, fixtures and equipment, net |
5,260 | | 5,260 | |||||||||
Intangible assets, net |
17,922 | | 17,922 | |||||||||
Deferred tax asset, net |
285 | 16,530 | 16,815 | |||||||||
Goodwill |
57,203 | (2,378 | ) | 54,825 | ||||||||
Other assets |
295 | | 295 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total assets |
$ | 112,234 | $ | 15,910 | $ | 128,144 | ||||||
|
|
|
|
|
|
|
|
| ||||
Liabilities and stockholders equity |
||||||||||||
Current liabilities: |
||||||||||||
Current portion of debt |
$ | | $ | | $ | | ||||||
Accrued expenses and other liabilities |
3,724 | 307 | 4,031 | |||||||||
Deferred revenue |
25,031 | | 25,031 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total current liabilities |
28,755 | 307 | 29,062 | |||||||||
Other long-term liabilities |
1,902 | | 1,902 | |||||||||
Deferred tax liability, net |
32,909 | (32,909 | ) | | ||||||||
|
|
|
|
|
|
|
|
| ||||
Total liabilities |
63,566 | (32,602 | ) | 30,964 | ||||||||
Total stockholders equity |
48,668 | 48,512 | 97,180 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total liabilities and stockholders equity |
$ | 112,234 | $ | 15,910 | $ | 128,144 | ||||||
|
|
|
|
|
|
|
|
|
(A) | Includes cash, other assets and liabilities not specifically attributable to or allocable to the Reis Services segment. |
10
Table of Contents
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 June 30, 2017 |
Reis Services |
Other (A) | Consolidated | |||||||||
Revenue: |
||||||||||||
Subscription revenue |
$ | 11,429 | $ | | $ | 11,429 | ||||||
Other revenue |
280 | | 280 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total revenue |
11,709 | | 11,709 | |||||||||
Cost of sales |
3,216 | | 3,216 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Gross profit |
8,493 | | 8,493 | |||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
3,105 | | 3,105 | |||||||||
Product development |
1,106 | | 1,106 | |||||||||
General and administrative expenses |
2,728 | 985 | 3,713 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total operating expenses |
6,939 | 985 | 7,924 | |||||||||
Other income (expenses): |
||||||||||||
Interest and other income |
| 1 | 1 | |||||||||
Interest expense |
(32 | ) | | (32 | ) | |||||||
|
|
|
|
|
|
|
|
| ||||
Total other income (expenses) |
(32 | ) | 1 | (31 | ) | |||||||
|
|
|
|
|
|
|
|
| ||||
Income (loss) before income taxes |
$ | 1,522 | $ | (984) | $ | 538 | ||||||
|
|
|
|
|
|
|
|
| ||||
Condensed Operating Data for the Three Months Ended June 30, 2016 |
Reis Services |
Other (A) | Consolidated | |||||||||
Revenue: |
||||||||||||
Subscription revenue |
$ | 11,369 | $ | | $ | 11,369 | ||||||
Other revenue |
245 | | 245 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total revenue |
11,614 | | 11,614 | |||||||||
Cost of sales |
2,494 | | 2,494 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Gross profit |
9,120 | | 9,120 | |||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
3,025 | | 3,025 | |||||||||
Product development |
1,016 | | 1,016 | |||||||||
General and administrative expenses |
2,535 | 1,001 | 3,536 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total operating expenses |
6,576 | 1,001 | 7,577 | |||||||||
Other income (expenses): |
||||||||||||
Interest and other income |
6 | | 6 | |||||||||
Interest expense |
(28 | ) | | (28 | ) | |||||||
|
|
|
|
|
|
|
|
| ||||
Total other income (expenses) |
(22 | ) | | (22 | ) | |||||||
|
|
|
|
|
|
|
|
| ||||
Income (loss) before income taxes |
$ | 2,522 | $ | (1,001 | ) | $ | 1,521 | |||||
|
|
|
|
|
|
|
|
|
(A) | Includes interest and other income, depreciation expense and general and administrative expenses that have not been allocated to the Reis Services segment. |
11
Table of Contents
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
(amounts in thousands) |
Condensed Operating Data for the Six Months Ended June 30, 2017 |
Reis Services |
Other (A) | Consolidated | |||||||||
Revenue: |
||||||||||||
Subscription revenue |
$ | 23,008 | $ | | $ | 23,008 | ||||||
Other revenue |
827 | | 827 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total revenue |
23,835 | | 23,835 | |||||||||
Cost of sales |
6,582 | | 6,582 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Gross profit |
17,253 | | 17,253 | |||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
6,433 | | 6,433 | |||||||||
Product development |
2,273 | | 2,273 | |||||||||
General and administrative expenses |
5,612 | 2,221 | 7,833 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total operating expenses |
14,318 | 2,221 | 16,539 | |||||||||
Other income (expenses): |
||||||||||||
Interest and other income |
1 | 1 | 2 | |||||||||
Interest expense |
(65 | ) | | (65 | ) | |||||||
|
|
|
|
|
|
|
|
| ||||
Total other income (expenses) |
(64 | ) | 1 | (63 | ) | |||||||
|
|
|
|
|
|
|
|
| ||||
Income (loss) before income taxes |
$ | 2,871 | $ | (2,220) | $ | 651 | ||||||
|
|
|
|
|
|
|
|
| ||||
Condensed Operating Data for the Six Months Ended June 30, 2016 |
Reis Services |
Other (A) | Consolidated | |||||||||
Revenue: |
||||||||||||
Subscription revenue |
$ | 22,797 | $ | | $ | 22,797 | ||||||
Other revenue |
1,641 | | 1,641 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total revenue |
24,438 | | 24,438 | |||||||||
Cost of sales |
4,956 | | 4,956 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Gross profit |
19,482 | | 19,482 | |||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
5,693 | | 5,693 | |||||||||
Product development |
2,021 | | 2,021 | |||||||||
General and administrative expenses |
5,331 | 2,290 | 7,621 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Total operating expenses |
13,045 | 2,290 | 15,335 | |||||||||
Other income (expenses): |
||||||||||||
Interest and other income |
14 | | 14 | |||||||||
Interest expense |
(49 | ) | | (49 | ) | |||||||
|
|
|
|
|
|
|
|
| ||||
Total other income (expenses) |
(35 | ) | | (35 | ) | |||||||
|
|
|
|
|
|
|
|
| ||||
Income (loss) before income taxes |
$ | 6,402 | $ | (2,290 | ) | $ | 4,112 | |||||
|
|
|
|
|
|
|
|
|
(A) | Includes interest and other income, depreciation expense and general and administrative expenses that have not been allocated to the Reis Services segment. |
Reis Services
See Note 1 for a description of Reis Servicess business and products at June 30, 2017.
The Companys largest individual customer accounted for 3.3% and 8.1% of total revenue for the six months ended June 30, 2017 and 2016, respectively.
12
Table of Contents
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
The following table presents the accounts receivable balances at June 30, 2017 and December 31, 2016:
June 30, 2017 |
December 31, 2016 |
|||||||
Accounts receivable |
$ | 9,568,000 | $ | 10,862,000 | ||||
Allowance for doubtful accounts |
(259,000) | (118,000) | ||||||
|
|
|
|
|||||
Accounts receivable, net |
$ | 9,309,000 | $ | 10,744,000 | ||||
|
|
|
|
Seventeen subscribers accounted for an aggregate of approximately 55.7% of accounts receivable at June 30, 2017, with the largest representing 12.1%. Through July 31, 2017, the Company received payments of approximately $4,711,000 or 49.2%, against the June 30, 2017 accounts receivable balance.
At June 30, 2017, the largest individual subscriber accounted for 4.7% of deferred revenue.
4. | Intangible Assets |
The amount of identified intangible assets, including the respective amounts of accumulated amortization, are as follows:
June 30, 2017 |
December 31, 2016 |
|||||||
Database |
$ | 30,923,000 | $ | 28,146,000 | ||||
Accumulated amortization |
(21,763,000) | (19,974,000) | ||||||
|
|
|
|
|||||
Database, net |
9,160,000 | 8,172,000 | ||||||
|
|
|
|
|||||
Customer relationships |
14,100,000 | 14,100,000 | ||||||
Accumulated amortization |
(9,725,000) | (9,263,000) | ||||||
|
|
|
|
|||||
Customer relationships, net |
4,375,000 | 4,837,000 | ||||||
|
|
|
|
|||||
Website |
19,289,000 | 17,538,000 | ||||||
Accumulated amortization |
(13,742,000) | (12,624,000) | ||||||
|
|
|
|
|||||
Website, net |
5,547,000 | 4,914,000 | ||||||
|
|
|
|
|||||
Intangibles, net |
$ | 19,082,000 | $ | 17,923,000 | ||||
|
|
|
|
The Company capitalized approximately $1,529,000 and $1,390,000 during the three months ended June 30, 2017 and 2016, respectively, and approximately $2,777,000 and $2,721,000 during the six months ended June 30, 2017 and 2016, respectively, to the database intangible asset. The Company capitalized approximately $871,000 and $732,000 during the three months ended June 30, 2017 and 2016, respectively, and $1,751,000 and $1,390,000 during the six months ended June 30, 2017 and 2016, respectively, to the website intangible asset.
Amortization expense for intangible assets aggregated approximately $1,696,000 and $3,369,000 for the three and six months ended June 30, 2017, of which approximately $917,000 and $1,789,000 related to the database, which is charged to cost of sales, approximately $231,000 and $462,000 related to customer relationships, which is charged to sales and marketing expense and approximately $548,000 and $1,118,000 related to website development, which is charged to product development expense, all in the Reis Services segment. Amortization expense for intangible assets aggregated approximately $1,434,000 and $2,812,000 for the three and six months ended June 30, 2016, of which approximately $658,000 and $1,270,000 related to the database, approximately $234,000 and $469,000 related to customer relationships, approximately $466,000 and $922,000 related to website development, and approximately $76,000 and $151,000 related to the value ascribed to the below market terms of a then existing office lease.
5. | Debt |
The Company had no debt outstanding at June 30, 2017 and December 31, 2016.
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. In January 2016, Reis Services and Capital One executed an amended and restated loan and security agreement
13
Table of Contents
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Debt (continued)
for a $20,000,000 revolving credit facility with terms substantially similar to the 2012 Revolver (as amended, 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 banks 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 June 30, 2017 and December 31, 2016. No borrowings were made on the Revolver during the three and six months ended June 30, 2017 and during the year ended December 31, 2016.
6. | Income Taxes |
The components of income tax expense (benefit) are as follows:
For the Three Months Ended June 30, |
For the Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Current Federal alternative minimum tax (AMT) expense |
$ | 16,000 | $ | 79,000 | $ | 35,000 | $ | 141,000 | ||||||||
Current state and local tax expense |
16,000 | 99,000 | 188,000 | 160,000 | ||||||||||||
Deferred Federal tax expense (benefit) (A) |
103,000 | 434,000 | (370,000 | ) | 1,245,000 | |||||||||||
Deferred state and local tax expense (benefit) |
6,000 | (32,000 | ) | (134,000 | ) | 21,000 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income tax expense (benefit) (B) |
$ | 141,000 | $ | 580,000 | $ | (281,000 | ) | $ | 1,567,000 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
(A) Includes an AMT (benefit) of $(16,000) and $(79,000) in the three months ended June 30, 2017 and 2016, respectively, and $(35,000) and $(141,000) in the six months ended June 30, 2017 and 2016, respectively. |
(B) The income tax benefit in the six months ended June 30, 2017 and the lower income tax expense in the three months ended June 30, 2017 resulted from the recognition of a windfall tax benefit on stock options exercised in the six months ended June 30, 2017. |
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 New York State and New York City laws enacted in March 2014 and April 2015, respectively, 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 $17,965,000 and $16,815,000 at June 30, 2017 and December 31, 2016, respectively. 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 May 2007 merger.
The Company had Federal NOL carryforwards aggregating approximately $38,679,000 at December 31, 2016, as well as significant state and local NOL carryforwards. Approximately $5,961,000 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 a 2014 New York State law and a 2015 New York City law 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 |
On August 30, 2016, the Companys Board of Directors (the Board) authorized a repurchase program of shares of the Companys common stock up to an aggregate of $5,000,000. Purchases under the program may be made from time to time in the open market or through privately negotiated transactions. Depending on market conditions, financial developments and other
14
Table of Contents
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Stockholders Equity (continued)
factors, these purchases may be commenced or suspended at any time, or from time to time, without prior notice and may be expanded without prior notice. The Company may make purchases pursuant to a trading plan under Securities Exchange Act Rule 10b5-1, permitting open market purchases of common stock during blackout periods.
During the three and six months ended June 30, 2017, the Company purchased an aggregate of 54,768 and 133,208 shares of common stock, respectively, for approximately $1,030,000 and $2,537,000, or an average price of $18.80 and $19.05 per share, respectively. From the inception of the share repurchase program in August 2016 through June 30, 2017, the Company purchased an aggregate of 187,384 shares of common stock for approximately $3,681,000 or an average price of $19.64 per share. During the three and six months ended June 30, 2016, the Company did not repurchase any shares of common stock.
The Company declared and paid a quarterly cash dividend of $0.17 per common share for the first and second quarters of 2017 and 2016. Dividend payments aggregated approximately $1,971,000 and $3,942,000 for the three and six months ended June 30, 2017, respectively, and $1,940,000 and $3,876,000 in the three and six months ended June 30, 2016, respectively.
8. | Stock Plans and Other Incentives |
The Company has adopted certain incentive plans for the purpose of attracting and retaining the Companys directors, officers and employees by having the ability to issue options, restricted stock units (RSUs), or stock awards. Awards granted under the Companys incentive plans expire ten years from the date of grant and vest over periods ranging generally from three to five years for employees.
Option Awards
The following table presents option activity and other plan data for the six months ended June 30, 2017 and 2016:
For the Six Months Ended June 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Options | Weighted- Average Exercise Price |
Options | Weighted- Average Exercise Price |
|||||||||||||
Outstanding at beginning of period |
530,000 | $ | 9.64 | 547,500 | $ | 9.61 | ||||||||||
Granted |
| $ | | | $ | | ||||||||||
Exercised |
(285,000) | $ | (10.30) | (17,500) | $ | (8.74) | ||||||||||
Forfeited/cancelled/expired |
| $ | | | $ | | ||||||||||
|
|
|
|
|||||||||||||
Outstanding at end of period |
245,000 | $ | 8.88 | 530,000 | $ | 9.64 | ||||||||||
|
|
|
|
|||||||||||||
Options exercisable at end of period |
237,000 | $ | 8.56 | 518,000 | $ | 9.44 | ||||||||||
|
|
|
|
RSU Awards
The following table presents the changes in RSUs outstanding for the six months ended June 30, 2017 and 2016:
For the Six Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
Outstanding at beginning of period |
281,320 | 254,041 | ||||||
Granted |
135,104 | 121,640 | ||||||
Common stock delivered (A) (B) |
(88,543) | (85,181) | ||||||
Forfeited |
(2,810) | (1,120) | ||||||
|
|
|
|
|||||
Outstanding at end of period |
325,071 | 289,380 | ||||||
|
|
|
|
|||||
Intrinsic value (C) |
$ | 6,908,000 | $ | 7,206,000 | ||||
|
|
|
|
(A) In the 2017 period, all of the vested RSUs were issued as shares. |
(B) 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. |
(C) For purposes of this calculation, the Companys closing stock prices were $21.25 and $24.90 per share on June 30, 2017 and 2016, respectively. |
15
Table of Contents
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Stock Plans and Other Incentives (continued)
In the six months ended June 30, 2017, an aggregate of 131,630 RSUs were granted to employees, which RSUs vest one-third a year over three years and had a grant date fair value of $18.67 per RSU. In the six months ended June 30, 2016, an aggregate of 118,724 RSUs were granted to employees, which RSUs vest one-third a year over three years and had an average grant date fair value of $20.22 per RSU. In each case, the grant date fair value was determined based on the closing stock price of the Companys common stock on the applicable date of grant and considers the impact of dividend payments. The awards granted to employees in 2017 and 2016 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 six months ended June 30, 2017 and 2016, an aggregate of 3,474 RSUs and 2,916 RSUs, respectively, were granted to non-employee directors (with an average grant date fair value of $19.84 and $23.64 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 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 $575,000 and $522,000, respectively, including $34,500 in each period related to non-employee director equity compensation, for the three months ended June 30, 2017 and 2016, 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. For the six months ended June 30, 2017 and 2016, the Company recorded non-cash compensation expense of approximately $1,110,000 and $1,056,000, respectively, including $69,000 in each period related to non-employee director equity compensation.
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 June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerator: |
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Net income for basic calculation |
$ | 397,643 | $ | 940,836 | $ | 932,385 | $ | 2,544,961 | ||||||||
Adjustments to net income for the impact of dilutive securities |
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Net income for dilution calculation |
$ | 397,643 | $ | 940,836 | $ | 932,385 | $ | 2,544,961 | ||||||||
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Denominator: |
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Weighted average common shares basic |
11,514,123 | 11,321,711 | 11,480,900 | 11,302,731 | ||||||||||||
Effect of dilutive securities: |
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RSUs |
122,705 | 142,094 | 115,458 | 146,490 | ||||||||||||
Stock options |
140,189 | 317,066 | 166,447 | 312,989 | ||||||||||||
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Weighted average common shares diluted |
11,777,017 | 11,780,871 | 11,762,805 | 11,762,210 | ||||||||||||
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Net income per common share: |
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Basic |
$ | 0.03 | $ | 0.08 | $ | 0.08 | $ | 0.23 | ||||||||
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Diluted |
$ | 0.03 | $ | 0.08 | $ | 0.08 | $ | 0.22 | ||||||||
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Potentially dilutive securities include all stock based awards. For the three and six months ended June 30, 2017 and 2016, 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 June 30, 2017 and December 31, 2016, the Companys 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 June 30, 2017 and December 31, 2016. The Company had no debt outstanding at June 30, 2017 and December 31, 2016. See Note 5 for additional information about the Companys debt.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
Organization and Business
Reis, Inc. 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, student housing and affordable 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 nations leading lending institutions, equity investors, brokers and appraisers.
Product Overview
The Companys product portfolio features: Reis SE, its flagship delivery platform aimed at larger and mid-sized enterprises; ReisReports, aimed at prosumers and smaller enterprises; and Reis Portfolio CRE and other portfolio support products and services, 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. Reiss products are designed to meet the demand for timely and accurate information to support the decision making of property owners, developers, builders, banks and non-bank lenders, 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 (1) property performance, (2) new construction and (3) sales transactions. The significant characteristics of the Reis databases include:
| Breadth - coverage of nine property types, including apartment, office, retail, warehouse/distribution, flex/research & development, self storage, seniors housing, student housing and affordable housing properties; |
| Geography - national coverage of up to 275 of the largest U.S. metropolitan CRE markets, approximately 7,700 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 37 years of data through multiple cycles of economic/market peaks and troughs; and |
| Frequency - market and submarket reports available quarterly, monthly, or for certain apartment reports, daily, 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 nine types of commercial real estate covered by Reis in the property performance database:
June 30, | December 31, | |||
2017 | 2016 | |||
Apartment |
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 | ||
Affordable housing |
110 | 45 |
Reiss long-standing relationships with thousands of data sources, including building owners, property managers and agents, represent a unique and highly valuable asset that benefits from 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 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.
Property Performance Dababase
Reis is continually expanding its property level databases and market coverage by geography and property type. In August 2016, Reis introduced coverage on its ninth property type, affordable housing, with information on 176 counties in 45 metropolitan areas and in February 2017, expanded coverage of this property type to include information on 256 counties in 110 metropolitan areas. During 2017, Reis has been enhancing its property comparables reports in all sectors consistent with many of the enhancements made in March 2016 to its apartment property comparables reports and in June 2016 to its office property comparables reports. These enhancements include licensed photographs, sector-specific details, contact information, effective rent at the property level, sales transaction history, and numerous illustrative charts and graphs, all to fortify Reiss position as the preferred source for comparables information among all real estate professionals involved in buying, selling, leasing, or managing real estate assets. During April 2017, Reis enhanced its Market Analytics module, a tool that empowers portfolio managers and C-level executives to look for market opportunities based on Reiss forecasts at the market and submarket levels.
Reiss 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, student housing and affordable 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 market and submarket levels are also subjected to comprehensive quality controls.
New Construction Database
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.
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Sales Transactions Database
In September 2016, Reis expanded its commercial real estate sales transactions database to include virtually all U.S. markets and property types, regardless of geography or sector. The new offering appeals to mortgage and property originators and underwriters, brokers and appraisers, and more broadly to real estate professionals seeking the most comprehensive database of CRE transactions to source deals, search for related business, or conduct due diligence. Reiss sales transactions database includes key structural data points, including but not limited to address, land use code, parcel number, and lot size, in addition to key transactional data points, such as buyer and seller name, sale price, sale date, deed reference, and financing details when available, as well as other desirable datapoints and licensed photographs. In July 2017, the Company added land transactions to this database which includes history across virtually all U.S. counties for land transactions as well as other information such as parcel boundaries and taxes.
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 Companys 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, student housing and affordable 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 - Reis provides updated trends and forecasts of rent, vacancy, and inventory for apartment, office, retail, warehouse/distribution, flex/research & development, self storage, seniors housing, student housing and affordable housing property types in up to 275 metropolitan areas and approximately 7,700 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 transactions database including virtually all U.S. markets and property types. The database captures key information on each transaction, such as buyer, seller, purchase price, capitalization rate and financing details, where available. |
| 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 analysts 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. |
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| 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. |
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.
Reis Portfolio CRE and Other Portfolio Support Products and Services
Reis Portfolio CRE 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. Reis Portfolio CRE 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, Reis Portfolio CRE 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 Reis Portfolio CRE platform is intended for both large and small lending institutions, Commercial Mortgage Backed Security, or CMBS, investors and equity investors, among others. Reis Portfolio CRE has been designed in a modular fashion that allows banks of varying asset sizes to select the applications and price points most appropriate to the scale of their CRE portfolios.
The Company has been able to assist financial institutions in the evaluation of their CRE loan portfolios through other means besides Reis Portfolio CRE, 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 Reiss 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 Companys data redistribution agreements are typically multi-year contracts in length, do not afford access to Reiss proprietary database and provide limited views of Reiss 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.
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Table of Contents
Application Program Interface (API)
During the second quarter of 2017, Reis completed development of an Application Program Interface, commonly referred to as an API. The API is a system that allows firms to gain access to Reis data elements directly into internal systems without going through Reis SE. For Reis, the strategic importance of the API is threefold. First, the opportunity to deliver Reis data directly into an institutions internal systems appeals to the contract signers and executives responsible for maximizing the productivity of originators, underwriters, or analysts, replacing the need to manually re-key data onto internal forms. Second, the API integrates Reis data into clients processes to increase adoption and heighten the probability of longer-term contractual relationships. Finally, Reiss API is responsive to many of the challenges and opportunities stimulated by FinTech and related technologies, as well as heightened regulatory scrutiny.
Cost of Service
Reiss 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 subscribers 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 subscribers historical and projected report consumption; |
| annual and multi-year subscriptions to Reis Portfolio CRE 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; |
| 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 Reiss retail website or contacts Reis via telephone, fax or email; however, certain reports are only available with an annual subscription or capped subscription account. |
Reiss revenue model is based primarily on annual subscriptions that are paid in accordance with contractual billing terms. Reis recognizes revenue from its subscription 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 Companys annual report on Form 10-K for the year ended December 31, 2016, which was filed with the Securities and Exchange Commission on March 9, 2017.
Additional Segment Financial Information
See Note 3 to the Companys consolidated financial statements, included in this filing, for additional information regarding the Companys segments.
Selected Significant Accounting Policies
For a description of our selected significant accounting policies and estimates, see our annual report on Form 10-K for the year ended December 31, 2016.
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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 (see below for a reconciliation of net income to EBITDA and Adjusted EBITDA for both the Reis Services segment and on a consolidated basis for each of the periods presented here).
(amounts in thousands, excluding percentages) | ||||||||||||||||
For the Three Months Ended | Percentage | |||||||||||||||
June 30, | Increase/ | Increase/ | ||||||||||||||
2017 | 2016 | (Decrease) | (Decrease) | |||||||||||||
Reis Services segment: |
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Total revenue |
$ | 11,709 | $ | 11,614 | $ | 95 | 0.8% | |||||||||
EBITDA |
$ | 3,501 | $ | 4,127 | $ | (626) | (15.2)% | |||||||||
EBITDA margin |
29.9% | 35.5% | ||||||||||||||
Consolidated: |
||||||||||||||||
Total revenue |
$ | 11,709 | $ | 11,614 | $ | 95 | 0.8% | |||||||||
EBITDA |
$ | 2,516 | $ | 3,129 | $ | (613) | (19.6)% | |||||||||
EBITDA margin |
21.5% | 26.9% | ||||||||||||||
Adjusted EBITDA |
$ | 3,091 | $ | 3,651 | $ | (560) | (15.3)% | |||||||||
Adjusted EBITDA margin |
26.4% | 31.4% | ||||||||||||||
For the Six Months Ended | Percentage | |||||||||||||||
June 30, | Increase/ | Increase/ | ||||||||||||||
2017 | 2016 | (Decrease) | (Decrease) | |||||||||||||
Reis Services segment: |
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Total revenue |
$ | 23,835 | $ | 24,438 | $ | (603) | (2.5)% | |||||||||
EBITDA |
$ | 6,790 | $ | 9,509 | $ | (2,719) | (28.6)% | |||||||||
EBITDA margin |
28.5% | 38.9% | ||||||||||||||
Consolidated: |
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Total revenue |
$ | 23,835 | $ | 24,438 | $ | (603) | (2.5)% | |||||||||
EBITDA |
$ | 4,569 | $ | 7,224 | $ | (2,655) | (36.8)% | |||||||||
EBITDA margin |
19.2% | 29.6% | ||||||||||||||
Adjusted EBITDA |
$ | 5,679 | $ | 8,280 | $ | (2,601) | (31.4)% | |||||||||
Adjusted EBITDA margin |
23.8% | 33.9% |
2017 Revenue Performance
Total revenue increased by approximately $95,000, or 0.8%, from the second quarter of 2016 to the second quarter of 2017. Total revenue decreased by approximately $(603,000), or (2.5)%, in the six months ended June 30, 2017 from the comparable 2016 period. Reiss performance for the six months ended June 30, 2017 relative to the results for the six months ended June 30, 2016 was impacted by $1,200,000 of revenue from a significant custom data deliverable in the first quarter of 2016 which was not replicated in the 2017 period, offset by the effects of an improving renewal rate and revenue from continuing strong new business.
In order to provide insight into 2017 and 2016 relative performance, we have disaggregated total revenue into two components: Subscription and Other. Other revenue specifically includes revenue related to contracts for one-time custom data deliverables and one-time fees for settlements of previous unauthorized usage of Reis data. The following tables present subscription revenue, other revenue and total revenue for the three and six months ended June 30, 2017 and 2016.
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(amounts in thousands, excluding percentages) | ||||||||||||||||||||||||
For the Three Months Ended June 30, | ||||||||||||||||||||||||
2017 | 2016 | Variance | ||||||||||||||||||||||
$ | % of Total | $ | % of Total | $ | % | |||||||||||||||||||
Subscription revenue |
$ | 11,429 | 97.6% | $ | 11,369 | 97.9% | $ | 60 | 0.5% | |||||||||||||||
Other revenue (A) |
280 | 2.4% | 245 | 2.1% | 35 | 14.3% | ||||||||||||||||||
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Total revenue |
$ | 11,709 | 100.0% | $ | 11,614 | 100.0% | $ | 95 | 0.8% | |||||||||||||||
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For the Six Months Ended June 30, | ||||||||||||||||||||||||
2017 | 2016 | Variance | ||||||||||||||||||||||
$ | % of Total | $ | % of Total | $ | % | |||||||||||||||||||
Subscription revenue |
$ | 23,008 | 96.5% | $ | 22,797 | 93.3% | $ | 211 | 0.9% | |||||||||||||||
Other revenue (A) |
827 | 3.5% | 1,641 | 6.7% | (814) | (49.6)% | ||||||||||||||||||
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Total revenue |
$ | 23,835 | 100.0% | $ | 24,438 | 100.0% | $ | (603) | (2.5)% | |||||||||||||||
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(A) | Other revenue includes non-subscription revenue comprised of (1) non-subscription custom data deliverables and (2) one-time settlements. |
Subscription Revenue
Subscription revenue increased by approximately $60,000, or 0.5% in the three months ended June 30, 2017 and by $211,000, or 0.9% in the six months ended June 30, 2017 over the comparable 2016 periods. The two factors that have led to our modest subscription revenue growth in the first half of fiscal 2017 included: (1) improvement in our trailing twelve-month (TTM) renewal rates; and (2) new business.
Renewal Rates The Companys TTM base renewal rate (renewal rate, excluding price increases) was 85.9% and the renewal rate, including price increases, was 89.2% for the TTM ended June 30, 2017, an improvement over the prior TTM periods dating back to March 31, 2016. For comparison purposes, the TTM renewal rates (1) as of December 31, 2016, were a base renewal rate of 81.6% and a renewal rate, including price increases, of 85.7%, and (2) as of June 30, 2016 were a base renewal rate of 83.2% and a renewal rate, including price increases of 87.8%. During 2016, TTM renewal rates were negatively impacted by the cancellation of contracts, primarily in the second quarter of 2016, associated with Reiss intellectual property (IP) compliance initiatives, from subscribers that exited the CRE business, and in selected cases, in response to our aggressive repricing on contract expirations. As the Company has worked to improve customer retention, poorer performing quarterly renewal rates have been replaced with higher rates in the first half of 2017, resulting in the aforementioned TTM renewal rate improvements. Management expects further renewal rate improvement in the second half of 2017.
New Business The second quarter of 2017 continued to produce sales that were directly tied to recent product improvements including sales of affordable housing within our existing customer base, and wins associated with our expanded sales transaction database with investment sales brokers, property tax appeal firms and tax assessors. Although new business wins were not as robust as expected, Reis experienced growth in new business bookings over 2016.
Other Revenue
The Companys other revenue includes non-subscription revenue comprised of (1) non-subscription custom data deliverables and (2) one-time settlements.
Custom Data Deliverables The Company recognized significant revenue in the first quarter of 2016 from a custom data deliverable for one of our existing Reis SE subscribers. The revenue recorded reflected the portion of the custom data files that was delivered in February 2016, positively impacting results for the six months ended June 30, 2016. Revenue related to this deliverable aggregated $1,200,000 in 2016 (all in the first quarter of 2016).
In 2016 and through June 30, 2017, Reis has sold custom data files, but structured as a subscription agreement with periodic quarterly updates in order to record revenue ratably, consistent with how the Company recognizes revenue for Reis SE. As we move forward in the second half of 2017 management hopes to be able to identify additional opportunities to sell custom data files in this manner.
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Intellectual Property Settlements Reis continues to successfully resolve cases in which our intellectual property rights have been violated. The discovery of the instances of unauthorized usage creates opportunities for Reiss compliance team to engage in productive conversations with firms regarding ongoing access to Reis data in accordance with the terms and conditions of a subscription agreement. Reis has developed a programmatic approach to promptly resolving cases of unauthorized usage and is devoting significant client services and account management resources to increase the renewal rates of IP infringement related accounts to levels typical of all other Reis subscribers. As a result of these compliance procedures, the Company has been able to generate revenue through either one-time settlement payments or by signing up the non-complying firm or individual to an annual or multi-year Reis SE subscription.
Revenue from one-time settlement payments aggregated $280,000 and $245,000 in the three months ended June 30, 2017 and 2016, respectively, and $827,000 and $441,000 in the six months ended June 30, 2017 and 2016, respectively. Although identified instances of non-compliance remains steady, the frequency and dollar amount of one-time settlements can fluctuate each quarter. As our compliance team continues to identify instances of unauthorized access, the period of unauthorized usage is typically shorter and report consumption is not as significant as cases that were settled in 2014 and 2015. Management believes that compliance resolutions will yield a continuing and significant volume of subscription contracts and recurring revenue for the foreseeable future.
Other Items Affecting Revenue
In order to increase the predictability of fees from our subscribers and Reiss 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. At December 31, 2016, approximately 38% of our subscribers were in multi-year contracts. For multi-year contracts, the average life of multi-year contracts signed in each of the last three years was approximately 2.2 years. There are significant benefits, on a selective basis, of multi-year contracts, including locking in recurring subscription revenue for longer periods, thereby improving our renewal rates and increasing the predictability of future revenues. Operationally, 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 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 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. There has been, and in the future can be, resulting variability in our growth rates from having such a significant segment of our subscriber base under multi-year agreements.
Deferred Revenue and Aggregate Revenue Under Contract
Two balance-sheet based metrics management utilizes are deferred revenue and Aggregate Revenue Under Contract. Analyzing these amounts can provide additional insight into Reis Servicess 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. Aggregate Revenue Under Contract is the sum of deferred revenue and future revenue under non-cancellable contracts for which we do not yet have the contractual right to bill and excludes any future revenues expected to be derived from subscribers currently being billed on a monthly basis.
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. At any given date, both deferred revenue and Aggregate Revenue Under Contract can be either positively or negatively 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. The following table reconciles deferred revenue to Aggregate Revenue Under Contract at June 30, 2017 and 2016, respectively. A comparison of these balances at June 30 of each year is more meaningful than a comparison to the December 31, 2016 balances, as a greater percentage of renewals occur in the fourth quarter of each year and would distort the analysis.
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June 30, | ||||||||
2017 | 2016 | |||||||
Deferred revenue (GAAP basis) |
$ | 24,183,000 | $ | 20,845,000 | ||||
Amounts under non-cancellable contracts for which the Company does not yet have the contractual right to bill at the period end (A) |
24,163,000 | 21,171,000 | ||||||
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|
|
|
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Aggregate Revenue Under Contract |
$ | 48,346,000 | $ | 42,016,000 | ||||
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|
|
(A) | Amounts are billable subsequent to June 30 of each year and represent (i) non-cancellable contracts for subscribers with multi-year subscriptions where the future years are not yet billable, or (ii) subscribers with non-cancellable annual subscriptions with interim billing terms. |
Included in Aggregate Revenue Under Contract at June 30, 2017 was approximately $33,136,000 related to amounts under contract for the forward twelve-month period through June 30, 2018. The remainder reflects amounts under contract beyond June 30, 2018. The forward twelve-month Aggregate Revenue Under Contract amount is approximately 70.6% of total revenue on a trailing twelve-month basis at June 30, 2017 of approximately $46,927,000. For comparison purposes, at June 30, 2016, the forward twelve-month Aggregate Revenue Under Contract was $30,572,000 and approximately 60.2% of total revenue.
2017 Reis Services EBITDA, Consolidated Adjusted EBITDA and Net Income Performance
Reis Services EBITDA for the three and six months ended June 30, 2017 was $3,501,000 and $6,790,000, respectively, a decrease of $(626,000), or (15.2)%, from three months ended June 30, 2016 amount and a decrease of $(2,719,000), or (28.6)% from the six months ended June 30, 2016 amount. The decrease in Reis Services EBITDA was primarily derived from an increase in operating expenses for the Reis Services segment of $721,000 and $2,116,000, an increase of 9.6% and 14.2% in the three and six months ended June 30, 2017 over the 2016 comparable periods. The $(603,000) revenue decrease in the six months ended June 30, 2017 from the comparable 2016 period (as described above) also negatively impacted Reis Services EBITDA in the 2017 six month period. The Reis Services EBITDA margins of 29.9% and 28.5% for the three and six months ended June 30, 2017, respectively, were lower than the reported Reis Services EBITDA margins of 35.5% and 38.9% in the 2016 comparable periods. See Results of Operations for a discussion of the variances for specific expenses.
Consolidated Adjusted EBITDA for the three months ended June 30, 2017 was $3,091,000, a decrease of $(560,000), or (15.3)%, from the three months ended June 30, 2016 amount, and for the six months ended June 30, 2017 was $5,679,000, a decrease of $(2,601,000), or (31.4)%, from the six months ended June 30, 2016 amount. The decrease in Adjusted EBITDA reflects the revenue and Reis Services EBITDA decreases discussed above. The consolidated Adjusted EBITDA margins were 26.4% and 23.8% for the three and six months ended June 30, 2017, respectively.
Net income for the three months ended June 30, 2017 was $397,000, a decrease of $(544,000), or (57.8)%, from the second quarter 2016 reported net income of $941,000. This decrease reflects operating expense increases of $708,000, the effects of increased amortization expense in 2017 in connection with database and website investments of $263,000, increased depreciation expense from the build out and furnishing of our new corporate headquarters which was completed in October 2016 of $98,000 and increased other expenses of $9,000, offset by the decrease in the consolidated tax provision of $439,000 due to the recognition of a windfall tax benefit on stock options exercised in the 2017 period and the $95,000 increase in revenue.
Net income for the six months ended June 30, 2017 was $932,000, a decrease of $(1,613,000), or (63.4)%, from the second quarter 2016 reported net income of $2,545,000. This decrease reflects the revenue decrease of $(603,000), operating expense increases of $2,052,000, the effects of increased amortization expense in 2017 in connection with database and website investments of $557,000, increased depreciation expense from the build out and furnishing of our new corporate headquarters which was completed in October 2016 of $221,000 and increased other expenses of $28,000, offset by the decrease in the consolidated tax provision of $1,848,000 due to the recognition of a windfall tax benefit on stock options exercised in the six months ended June 30, 2017.
The Company continues to make significant investments in our business, including our core Reis SE platform and in our portfolio analytics offering. As a result of these initiatives, our employment related costs increased throughout 2016 across all departments including strategic hires in sales and operations. The pace of our database and website enhancements accelerated in 2016 and into 2017. Management believes that the investments it has made in 2016, and is continuing to make in 2017, will further the differentiation between Reis and other U.S. commercial real estate market information providers in terms of available content, analytics, narrative reports and the delivery of information.
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Reconciliations of Net Income to EBITDA and Adjusted EBITDA
We define EBITDA as earnings (net income) 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 Companys 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 Companys 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), 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, net income, 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 Net Income to EBITDA and Adjusted EBITDA for the Three Months Ended June 30, 2017 |
By Segment | |||||||||||
Reis Services | Other (A) | Consolidated | ||||||||||
Net income |
$ | 397 | ||||||||||
Income tax expense |
141 | |||||||||||
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Income (loss) before income taxes |
$ | 1,522 | $ | (984) | 538 | |||||||
Add back: |
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Depreciation and amortization expense |
1,947 | | 1,947 | |||||||||
Interest expense (income), net |
32 | (1) | 31 | |||||||||
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EBITDA |
3,501 | (985) | 2,516 | |||||||||
Add back: |
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Stock based compensation expense, net |
| 575 | 575 | |||||||||
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Adjusted EBITDA |
$ | 3,501 | $ | (410) | $ | 3,091 | ||||||
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Reconciliation of Net Income to EBITDA and Adjusted EBITDA for the Three Months Ended June 30, 2016 |
By Segment |
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Reis Services | Other (A) | Consolidated | ||||||||||
Net income |
$ | 941 | ||||||||||
Income tax expense |
580 | |||||||||||
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Income (loss) before income taxes |
$ | 2,522 | $ | (1,001) | 1,521 | |||||||
Add back: |
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Depreciation and amortization expense |
1,583 | 3 | 1,586 | |||||||||
Interest expense, net |
22 | | 22 | |||||||||
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EBITDA |
4,127 | (998) | 3,129 | |||||||||
Add back: |
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Stock based compensation expense, net |
| 522 | 522 | |||||||||
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Adjusted EBITDA |
$ | 4,127 | $ | (476) | $ | 3,651 | ||||||
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See footnotes on next page.
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(amounts in thousands) | ||||||||||||
Reconciliation of Net Income to EBITDA and Adjusted EBITDA for the Six Months Ended June 30, 2017 |
By Segment | |||||||||||
Reis Services | Other (A) | Consolidated | ||||||||||
Net income |
$ | 932 | ||||||||||
Income tax (benefit) |
(281) | |||||||||||
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Income (loss) before income taxes |
$ | 2,871 | $ | (2,220) | 651 | |||||||
Add back: |
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Depreciation and amortization expense |
3,855 | | 3,855 | |||||||||
Interest expense (income), net |
64 | (1) | 63 | |||||||||
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EBITDA |
6,790 | (2,221) | 4,569 | |||||||||
Add back: |
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Stock based compensation expense, net |
| 1,110 | 1,110 | |||||||||
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Adjusted EBITDA |
$ | 6,790 | $ | (1,111) | $ | 5,679 | ||||||
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Reconciliation of Net Income to EBITDA and Adjusted EBITDA for the Six Months Ended June 30, 2016 |
By Segment | |||||||||||
Reis Services | Other (A) | Consolidated | ||||||||||
Net income |
$ | 2,545 | ||||||||||
Income tax expense |
1,567 | |||||||||||
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Income (loss) before income taxes |
$ | 6,402 | $ | (2,290) | 4,112 | |||||||
Add back: |
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Depreciation and amortization expense |
3,072 | 5 | 3,077 | |||||||||
Interest expense, net |
35 | | 35 | |||||||||
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EBITDA |
9,509 | (2,285) | 7,224 | |||||||||
Add back: |
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Stock based compensation expense, net |
| 1,056 | 1,056 | |||||||||
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Adjusted EBITDA |
$ | 9,509 | $ | (1,229) | $ | 8,280 | ||||||
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(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. |
Results of Operations
Comparison of the Results of Operations for the Three Months Ended June 30, 2017 and 2016
Total revenue and related cost of sales were approximately $11,709,000 and $3,216,000, respectively, for the three months ended June 30, 2017, which resulted in a gross profit for the Reis Services segment of approximately $8,493,000. Amortization expense included in cost of sales (for the database intangible asset) was approximately $917,000 during this period. Total revenue and related cost of sales were approximately $11,614,000 and $2,494,000, respectively, for the three months ended June 30, 2016, which resulted in a gross profit for the Reis Services segment of approximately $9,120,000. Amortization expense included in cost of sales was approximately $658,000 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 $722,000 resulted from greater employment related costs, specifically from hiring during 2016 and the first six months of 2017, coupled with compensation increases and higher benefit costs in 2017 than in the 2016 period of $463,000 and a $259,000 increase in amortization expense for database costs.
Sales and marketing expenses were approximately $3,105,000 and $3,025,000 for the three months ended June 30, 2017 and 2016, 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 $231,000 and $234,000 during the three months ended June 30, 2017 and 2016, respectively. The increase in sales and marketing expenses between the two periods of approximately $80,000 resulted from increases in employment related costs due to additional headcount related to hiring in sales management, sales enablement and marketing in 2016 and in the first half of 2017, coupled with compensation increases and higher benefit costs than in the 2016 period.
Product development expenses were approximately $1,106,000 and $1,016,000 for the three months ended June 30, 2017 and 2016, respectively, and solely represented costs of the Reis Services segment. Amortization expense included in product development expenses (for the website intangible asset) was approximately $548,000 and $466,000 during the three months ended June 30, 2017
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and 2016, respectively. Product development costs increased $90,000, primarily due to increased amortization expense for the website intangible asset of $82,000.
General and administrative expenses of approximately $3,713,000 for the three months ended June 30, 2017 included current period expenses of approximately $2,887,000, depreciation expense of approximately $251,000 for furniture, fixtures and equipment, and approximately $575,000 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 $3,536,000 for the three months ended June 30, 2016 included current period expenses of approximately $2,786,000, approximately $76,000 for the lease value intangible asset amortization (which fully amortized in 2016), furniture, fixtures and equipment depreciation of $152,000, and approximately $522,000 of net non-cash compensation expense. Excluding the non-cash expenses, the net increase in general and administrative expenses of $101,000 was primarily the result of increases for professional fees and increased occupancy related costs from office space expansion. The increase in depreciation expense of $99,000 in the second quarter of 2017 over the corresponding 2016 period is a result of the build out and furnishing of our new corporate headquarters which was completed in October 2016.
Interest expense of $32,000 and $28,000 for the three months ended June 30, 2017 and 2016, respectively, was comprised of unused facility fees and deferred financing cost amortization on the Companys revolving credit facility, which we refer to as the Revolver. There was no outstanding balance on the Revolver during the three months ended June 30, 2017 or 2016.
Income tax expense of $141,000 during the three months ended June 30, 2017 reflected deferred Federal tax expense of $103,000, current state and local tax expense of $16,000, current Federal AMT expense of $16,000, and deferred state and local tax expense of $6,000. Income tax expense of $580,000 during the three months ended June 30, 2016 reflected current Federal AMT expense of $79,000, current state and local tax expense of $99,000 and deferred Federal tax expense of $434,000, offset by a deferred state and local tax benefit of $32,000.
Comparison of the Results of Operations for the Six Months Ended June 30, 2017 and 2016
Total revenue and related cost of sales were approximately $23,835,000 and $6,582,000, respectively, for the six months ended June 30, 2017, which resulted in a gross profit for the Reis Services segment of approximately $17,253,000. Amortization expense included in cost of sales was approximately $1,789,000 during this period. Total revenue and related cost of sales were approximately $24,438,000 and $4,956,000, respectively, for the six months ended June 30, 2016, which resulted in a gross profit for the Reis Services segment of approximately $19,482,000. Amortization expense included in cost of sales was approximately $1,270,000 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 $1,626,000 resulted from greater employment related costs, specifically from hiring during 2016 and the first six months of 2017, coupled with compensation increases and higher benefit costs than in the 2016 period of $1,107,000 and a $519,000 increase in amortization expense for database costs.
Sales and marketing expenses were approximately $6,433,000 and $5,693,000 for the six months ended June 30, 2017 and 2016, 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 $462,000 and $469,000 during the six months ended June 30, 2017 and 2016, respectively. The increase in sales and marketing expenses between the two periods of approximately $740,000 resulted from increases in employment related costs due to additional headcount related to hiring in sales management, sales enablement and marketing in 2016 and in the first half of 2017, coupled with compensation increases and higher benefit costs than in the 2016 period.
Product development expenses were approximately $2,273,000 and $2,021,000 for the six months ended June 30, 2017 and 2016, respectively, and solely represented costs of the Reis Services segment. Amortization expense included in product development expenses (for the website intangible asset) was approximately $1,118,000 and $922,000 during the six months ended June 30, 2017 and 2016, respectively. Product development costs increased $252,000, primarily due to increased amortization expense for the website intangible asset of $196,000 and increased employment related costs from hiring during 2016 and the first six months of 2017, coupled with compensation increases and higher benefit costs than in the 2016 period of $56,000.
General and administrative expenses of approximately $7,833,000 for the six months ended June 30, 2017 included current period expenses of approximately $6,237,000, depreciation expense of approximately $486,000 for furniture, fixtures and equipment, and approximately $1,110,000 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 $7,621,000 for the six months ended June 30, 2016 included current period expenses of approximately $6,149,000, approximately $151,000 for the lease value intangible
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asset amortization (which fully amortized in 2016), furniture, fixtures and equipment depreciation of $265,000, and approximately $1,056,000 of net non-cash compensation expense. Excluding the non-cash expenses, the net increase in general and administrative expenses of $88,000 was primarily the result of increased occupancy related costs from office space expansion and increased employment related costs in the 2017 period. The increase in depreciation expense of $221,000 in the first half of 2017 over the corresponding 2016 period is a result of the build out and furnishing of our new corporate headquarters which was completed in October 2016.
Interest expense of $65,000 and $49,000 for the six months ended June 30, 2017 and 2016, respectively, was comprised of unused facility fees and deferred financing cost amortization on the Revolver. There was no outstanding balance on the Revolver during the six months ended June 30, 2017 or 2016.
Income tax benefit of $281,000 for continuing operations during the six months ended June 30, 2017 reflected deferred Federal tax benefit of $370,000 and deferred state and local tax benefit of $134,000, offset by current state and local tax expense of $188,000 and current Federal AMT expense of $35,000. Income tax expense of $1,567,000 for continuing operations during the six months ended June 30, 2016 reflected current Federal AMT expense of $141,000, current state and local tax expense of $160,000, deferred Federal tax expense of $1,245,000 and deferred state and local tax expense of $21,000. The income tax benefit resulted from the recognition of a windfall tax benefit on stock options exercised in the first and second quarters of 2017.
Income Taxes
For more information regarding income taxes, see Note 6 to the Companys 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 $18,883,000 at June 30, 2017. The Company had cash flows provided by its operating activities of $6,161,000, and the Company received $2,935,000 in proceeds associated with the exercise of 285,000 options in the six months ended June 30, 2017. The Companys cash uses in the six months ended June 30, 2017 included: (1) making investments in its websites and databases of $4,528,000, (2) spending on tenant improvements and furniture, fixtures and equipment associated with the new office spaces of approximately $697,000, (3) paying aggregate dividends of approximately $3,942,000 and (4) repurchasing 133,208 shares of the Companys common stock in an aggregate amount of approximately $2,537,000 in the six months ended June 30, 2017.
At June 30, 2017, the Companys 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, including a further increase in the number of Reis employees and additional resources devoted to our sales and marketing efforts; other costs, including public company expenses not included in the Reis Services segment; any open invoices for tenant improvements and related spending for new corporate headquarters space; 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; the use of cash for the payment of quarterly dividends; and repurchases of shares of Reis common stock (at June 30, 2017, approximately $1,319,000 remained available to be purchased under our current share purchase authorization). 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.
The Company has a $20,000,000 revolving credit facility, which expires in January 2019. For additional information regarding the Revolver, see Note 5 to the Companys consolidated financial statements included in this filing.
In June 2015, the Companys 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 Companys stock from time to time for three years. Any determinations about the issuance of new common shares will be at the discretion of the Companys 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.
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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 2017 are expected to be for state and local taxes based on income, in excess of limitation amounts, Federal AMT, and tax on capital.
In the future, 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 additional 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 2017, or thereafter.
Issuer Purchases and Equity Securities
On August 30, 2016, the Companys Board of Directors authorized a repurchase program of shares of the Companys common stock up to an aggregate of $5,000,000. Purchases under the program may be made from time to time in the open market or through privately negotiated transactions. Depending on market conditions, financial developments and other factors, these purchases may be commenced or suspended at any time, or from time to time, without prior notice and may be expanded without prior notice. The Company may make purchases pursuant to a trading plan under Securities Exchange Act Rule 10b5-1, permitting open market purchases of common stock during blackout periods consistent with the Companys Policies for Transactions in Reis Stock and Insider Trading and Tipping.
During the six months ended June 30, 2017, the Company purchased an aggregate of 133,208 shares of common stock, at an average price of $19.05 per share, leaving approximately $1,319,000 at June 30, 2017 that may be used to purchase additional shares under the program. Cumulatively, the Company repurchased an aggregate of 187,384 shares of common stock, or approximately 1.65% of the common shares outstanding at the time of the Boards initial authorization on August 30, 2016. No repurchases were made prior to August 30, 2016 during 2016.
Changes in Cash Flows
Cash flows for the six months ended June 30, 2017 and 2016 are summarized as follows:
For the Six Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
Net cash provided by operating activities |
$ | 6,161,162 | $ | 8,221,864 | ||||
Net cash (used in) investing activities |
(5,224,717) | (5,720,963) | ||||||
Net cash (used in) financing activities |
(3,544,429) | (4,604,777) | ||||||
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Net (decrease) in cash and cash equivalents |
$ | (2,607,984) | $ | (2,103,876) | ||||
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|
Net cash provided by operating activities decreased $(2,061,000) from $8,222,000 provided in the 2016 period to $6,161,000 provided in the 2017 period. This decrease was primarily due to reduced revenue and EBITDA performance in the 2017 period, as well as the timing of collections for outstanding receivables.
Net cash used in investing activities decreased by $(496,000) from $5,721,000 used in the 2016 period to $5,225,000 used in the 2017 period. This change resulted from a $(565,000) decrease in purchases of furniture, fixtures and equipment (as the 2016 period included spending associated with the build out of new corporate and operations office space), offset by a $67,000 increase of cash used in the 2017 period as compared to the 2016 period for website and database development costs for continuing product development initiatives. The expectation for the remainder of 2017 is that cash used for website and database development will exceed amounts capitalized in 2016.
Net cash used in financing activities were approximately $3,544,000 and $4,605,000 in the 2017 and 2016 periods, respectively. The 2017 period includes approximately $3,942,000 for dividends declared and paid in the six months ended June 30, 2017 and stock repurchases aggregating $2,537,000, offset by proceeds from the exercise of stock options by Reis employees aggregating $2,935,000. The 2016 period includes approximately $3,876,000 for dividends declared and paid in the six months ended June 30, 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, offset by proceeds received from employees for option exercises of $153,000.
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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 Companys or managements 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, net income (loss), cash flows, renewal rates, 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 (as defined herein); and |
| statements preceded by, followed by or that include the words estimate, plan, project, intend, expect, anticipate, believe, seek, target or similar expressions relating to future periods. |
Forward-looking statements reflect managements judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, management has made certain assumptions. Future performance cannot be assured. Actual results may differ materially from those contemplated by the forward-looking statements. Some factors that could cause actual results to differ include:
| lower than expected revenues and other performance measures such as income from continuing operations, EBITDA and Adjusted EBITDA; |
| inability to retain and increase the Companys 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 Companys 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, 2016, which was filed with the Securities and Exchange Commission on March 9, 2017. |
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Companys primary market risk exposure has been to changes in interest rates. This risk may be managed by limiting the Companys financing exposures, to the extent possible, by purchasing interest rate caps when deemed appropriate.
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At June 30, 2017 and December 31, 2016, the Companys 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 and six months ended June 30, 2017 and throughout 2016, the Company did not have any interest rate caps. No debt was outstanding at June 30, 2017 and December 31, 2016. For more information about the Companys debt, see Note 5 to the Companys 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. Managements emphasis is primarily on safety of principal. Management, in its discretion, has diversified Reiss cash and cash equivalents among banking institutions to potentially minimize exposure to any one of these entities. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.
Cash balances held at banking institutions with which we do business 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 June 30, 2017, the Company carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of June 30, 2017 were designed at a reasonable assurance level and were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and to ensure that such information is accumulated and communicated to the Companys management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in the Companys internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
As disclosed in Note 10 to the Companys consolidated financial statements included in this filing, the Company is not a party to any litigation that could reasonably be foreseen to be material to the Company, and the disclosure set forth in such Note 10 is incorporated herein by reference.
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, 2016, which was filed with the SEC on March 9, 2017, 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. Managements Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements for additional information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
On August 30, 2016, the Companys Board of Directors authorized a repurchase program of shares of the Companys common stock up to an aggregate of $5,000,000. Purchases under the program may be made from time to time in the open market or through privately negotiated transactions. Depending on market conditions, financial developments and other factors, these purchases may be commenced or suspended at any time, or from time to time, without prior notice and may be expanded without prior notice. The Company may make purchases pursuant to a trading plan under Securities Exchange Act Rule 10b5-1, permitting open market
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purchases of common stock during blackout periods consistent with the Companys Policies for Transactions in Reis Stock and Insider Trading and Tipping.
During the second quarter of 2017, the Company repurchased the following common shares:
Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs |
||||||||||||
April 1, 2017 to April 30, 2017 |
27,000 | $ | 18.37 | $ | 27,000 | $ | 1,853,000 | |||||||||
May 1, 2017 to May 31, 2017 |
21,318 | $ | 18.95 | $ | 21,318 | $ | 1,449,000 | |||||||||
June 1, 2017 to June 30, 2017 |
6,450 | $ | 20.14 | $ | 6,450 | $ | 1,319,000 |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
None.
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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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: August 1, 2017
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