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 September 30, 2012March 31, 2013
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto.
Commission File Number001-12917
REIS, INC.
REIS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland | 13-3926898 | |||
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
530 Fifth Avenue, New York, NY | 10036 | |||
(Address of Principal Executive Offices) | (Zip Code) |
(212) 921-1122
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes xþ No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes xþ No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨ | ||||||
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xþ
The number of the Registrant’s shares of common stock outstanding was 10,704,40910,891,820 as of OctoberApril 29, 2012.2013.
Page Number | ||||||
PART I. FINANCIAL INFORMATION: | ||||||
Item 1. | ||||||
3 | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3. | ||||||
Item 4T. | ||||||
PART II. OTHER INFORMATION: | ||||||
Item 1. | ||||||
Item 1A. | ||||||
Item 2. | ||||||
Item 3. | ||||||
Item 4. | ||||||
Item 5. | ||||||
Item 6. | ||||||
CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||||||||||
2012 | 2011 | March 31, 2013 | December 31, 2012 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 14,958,998 | $ | 22,152,802 | $ | 6,658,903 | $ | 4,960,850 | ||||||||
Restricted cash and investments | 215,963 | 215,405 | 216,285 | 216,125 | ||||||||||||
Accounts receivable, net | 5,755,288 | 8,597,464 | 5,937,109 | 10,694,201 | ||||||||||||
Prepaid and other assets | 580,243 | 625,451 | 1,107,877 | 1,438,829 | ||||||||||||
Assets attributable to discontinued operations | — | 3,000,000 | ||||||||||||||
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Total current assets | 21,510,492 | 34,591,122 | 13,920,174 | 17,310,005 | ||||||||||||
Furniture, fixtures and equipment, net of accumulated depreciation of $1,784,543 and $1,556,022, respectively | 768,693 | 863,309 | ||||||||||||||
Intangible assets, net of accumulated amortization of $22,971,153 and $19,437,856, respectively | 16,523,634 | 17,155,195 | ||||||||||||||
Furniture, fixtures and equipment, net of accumulated depreciation of $1,889,123 and $1,828,199, respectively | 782,078 | 738,490 | ||||||||||||||
Intangible assets, net of accumulated amortization of $25,202,014 and $24,067,250, respectively | 16,284,307 | 16,332,596 | ||||||||||||||
Deferred tax asset, net | 3,928,420 | 3,685,420 | 8,798,420 | 8,557,420 | ||||||||||||
Goodwill | 54,824,648 | 54,824,648 | 54,824,648 | 54,824,648 | ||||||||||||
Other assets | 80,180 | 98,412 | 248,730 | 271,257 | ||||||||||||
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Total assets | $ | 97,636,067 | $ | 111,218,106 | $ | 94,858,357 | $ | 98,034,416 | ||||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of debt | $ | — | $ | 5,690,940 | $ | — | $ | — | ||||||||
Accrued expenses and other liabilities | 2,800,447 | 3,352,445 | 2,382,630 | 3,902,206 | ||||||||||||
Liability for option cancellations | 363,874 | 240,515 | 385,497 | 296,523 | ||||||||||||
Deferred revenue | 14,434,852 | 15,706,851 | 16,879,672 | 18,230,332 | ||||||||||||
Liabilities attributable to discontinued operations | 12,447,222 | 8,048,568 | 458,346 | 460,251 | ||||||||||||
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Total current liabilities | 30,046,395 | 33,039,319 | 20,106,145 | 22,889,312 | ||||||||||||
Other long-term liabilities | 613,856 | 668,456 | 563,112 | 588,484 | ||||||||||||
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Total liabilities | 30,660,251 | 33,707,775 | 20,669,257 | 23,477,796 | ||||||||||||
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Commitments and contingencies | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, $0.02 par value per share, 101,000,000 shares authorized, 10,704,409 and 10,570,891 shares issued and outstanding, respectively | 214,088 | 211,417 | ||||||||||||||
Common stock, $0.02 par value per share, 101,000,000 shares authorized, 10,891,820 and 10,782,643 shares issued and outstanding, respectively | 217,836 | 215,652 | ||||||||||||||
Additional paid in capital | 101,490,267 | 100,677,336 | 101,382,834 | 102,002,972 | ||||||||||||
Retained earnings (deficit) | (34,728,539 | ) | (23,378,422 | ) | (27,411,570) | (27,662,004) | ||||||||||
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Total stockholders’ equity | 66,975,816 | 77,510,331 | 74,189,100 | 74,556,620 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 97,636,067 | $ | 111,218,106 | $ | 94,858,357 | $ | 98,034,416 | ||||||||
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See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended March 31, | ||||||||||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | 2013 | 2012 | |||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||||||||
Subscription revenue | $ | 7,826,701 | $ | 6,747,585 | $ | 22,647,158 | $ | 20,201,463 | $ | 8,234,328 | $ | 7,298,372 | ||||||||||||
Cost of sales of subscription revenue | 1,475,495 | 1,550,435 | 5,006,705 | 4,623,673 | 1,681,404 | 1,845,714 | ||||||||||||||||||
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Gross profit | 6,351,206 | 5,197,150 | 17,640,453 | 15,577,790 | 6,552,924 | 5,452,658 | ||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||
Sales and marketing | 1,908,668 | 1,656,187 | 5,459,591 | 4,988,681 | 1,968,966 | 1,729,319 | ||||||||||||||||||
Product development | 660,620 | 574,066 | 1,740,619 | 1,562,224 | 721,566 | 513,594 | ||||||||||||||||||
General and administrative expenses | 2,937,199 | 2,632,106 | 8,865,783 | 8,384,599 | 3,169,311 | 2,952,268 | ||||||||||||||||||
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Total operating expenses | 5,506,487 | 4,862,359 | 16,065,993 | 14,935,504 | 5,859,843 | 5,195,181 | ||||||||||||||||||
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Other income (expenses): | ||||||||||||||||||||||||
Interest and other income | 15,649 | 19,321 | 47,921 | 61,646 | 2,198 | 16,065 | ||||||||||||||||||
Interest expense | (531 | ) | (65,145 | ) | (128,133 | ) | (214,807 | ) | (28,213) | (53,163) | ||||||||||||||
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Total other income (expenses) | 15,118 | (45,824 | ) | (80,212 | ) | (153,161 | ) | (26,015) | (37,098) | |||||||||||||||
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Income before income taxes and discontinued operations | 859,837 | 288,967 | 1,494,248 | 489,125 | 667,066 | 220,379 | ||||||||||||||||||
Income tax expense (benefit) | — | — | — | — | ||||||||||||||||||||
Income tax expense | 265,000 | 84,000 | ||||||||||||||||||||||
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Income from continuing operations | 859,837 | 288,967 | 1,494,248 | 489,125 | 402,066 | 136,379 | ||||||||||||||||||
(Loss) income from discontinued operations, net of income tax expense of $—, $—, $—, and $—, respectively | (194,313 | ) | 1,231 | (12,844,365 | ) | 1,253,481 | ||||||||||||||||||
(Loss) from discontinued operations, net of income tax (benefit) of $(99,000) and $(79,000), respectively | (151,632) | (14,345,255) | ||||||||||||||||||||||
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Net income (loss) | $ | 665,524 | $ | 290,198 | $ | (11,350,117 | ) | $ | 1,742,606 | $ | 250,434 | $ | (14,208,876) | |||||||||||
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Per share amounts – basic: | ||||||||||||||||||||||||
Income from continuing operations | $ | 0.08 | $ | 0.03 | $ | 0.14 | $ | 0.05 | $ | 0.04 | $ | 0.01 | ||||||||||||
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Net income (loss) | $ | 0.06 | $ | 0.03 | $ | (1.06 | ) | $ | 0.16 | $ | 0.02 | $ | (1.34) | |||||||||||
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Per share amounts – diluted: | ||||||||||||||||||||||||
Income from continuing operations | $ | 0.08 | $ | 0.02 | $ | 0.14 | $ | 0.05 | $ | 0.04 | $ | 0.01 | ||||||||||||
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Net income (loss) | $ | 0.06 | $ | 0.02 | $ | (1.03 | ) | $ | 0.16 | $ | 0.02 | $ | (1.29) | |||||||||||
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Weighted average number of common shares outstanding: | ||||||||||||||||||||||||
Basic | 10,702,509 | 10,599,031 | 10,670,966 | 10,572,288 | 10,828,396 | 10,623,575 | ||||||||||||||||||
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Diluted | 11,093,888 | 10,997,157 | 10,993,436 | 10,835,602 | 11,347,751 | 11,011,394 | ||||||||||||||||||
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See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2012MARCH 31, 2013
(Unaudited)
Retained | Total | |||||||||||||||||||
Common Shares | Paid in | Earnings | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||
Balance, January 1, 2012 | 10,570,891 | $ | 211,417 | $ | 100,677,336 | $ | (23,378,422 | ) | $ | 77,510,331 | ||||||||||
Shares issued for vested employees restricted stock units | 133,518 | 2,671 | (2,671 | ) | — | — | ||||||||||||||
Stock based compensation, net | — | — | 815,602 | — | 815,602 | |||||||||||||||
Net (loss) | — | — | — | (11,350,117 | ) | (11,350,117 | ) | |||||||||||||
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Balance, September 30, 2012 | 10,704,409 | $ | 214,088 | $ | 101,490,267 | $ | (34,728,539 | ) | $ | 66,975,816 | ||||||||||
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Retained | Total | |||||||||||||||||||
Common Shares | Paid in | Earnings | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||
Balance, January 1, 2013 | 10,782,643 | $ | 215,652 | $ | 102,002,972 | $ | (27,662,004) | $ | 74,556,620 | |||||||||||
Shares issued for vested employees restricted stock units | 109,177 | 2,184 | (2,184) | — | — | |||||||||||||||
Stock based compensation, net | — | — | (617,954) | — | (617,954) | |||||||||||||||
Net income | — | — | — | 250,434 | 250,434 | |||||||||||||||
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Balance, March 31, 2013 | 10,891,820 | $ | 217,836 | $ | 101,382,834 | $ | (27,411,570) | $ | 74,189,100 | |||||||||||
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See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, | ||||||||||||||||
For the Nine Months Ended September 30, | 2013 | 2012 | ||||||||||||||
2012 | 2011 | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net (loss) income | $ | (11,350,117 | ) | $ | 1,742,606 | |||||||||||
Net income (loss) | $ | 250,434 | $ | (14,208,876) | ||||||||||||
Adjustments to reconcile to net cash provided by operating activities: | ||||||||||||||||
Deferred tax provision | — | — | 166,000 | 5,000 | ||||||||||||
Depreciation | 266,173 | 254,624 | 78,496 | 84,731 | ||||||||||||
Amortization of intangible assets | 3,533,297 | 3,549,062 | 1,134,764 | 1,272,521 | ||||||||||||
Stock based compensation charges | 1,666,866 | 1,537,074 | 491,521 | 557,557 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Restricted cash and investments | (558 | ) | 790,293 | (160) | (214) | |||||||||||
Accounts receivable, net | 2,842,176 | 4,471,731 | 4,757,092 | 3,348,239 | ||||||||||||
Prepaid and other assets | 2,820,440 | 332,647 | (53,521) | 3,001,680 | ||||||||||||
Real estate assets | — | 1,297,245 | ||||||||||||||
Accrued expenses and other liabilities | 3,792,056 | (1,172,521 | ) | (1,546,853) | 9,688,673 | |||||||||||
Liability for option cancellations | 123,359 | 129,739 | 88,974 | (11,166) | ||||||||||||
Deferred revenue | (1,271,999 | ) | (3,078,116 | ) | (1,350,660) | (949,079) | ||||||||||
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Net cash provided by operating activities | 2,421,693 | 9,854,384 | 4,016,087 | 2,789,066 | ||||||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Web site and database development costs | (2,901,736 | ) | (2,598,097 | ) | (1,086,475) | (938,521) | ||||||||||
Furniture, fixtures and equipment additions | (171,557 | ) | (242,057 | ) | (122,084) | (36,122) | ||||||||||
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Net cash (used in) investing activities | (3,073,293 | ) | (2,840,154 | ) | (1,208,559) | (974,643) | ||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Repayment of Bank Loan | (5,690,940 | ) | (4,148,287 | ) | ||||||||||||
Repayments on capitalized equipment leases | — | (21,796 | ) | |||||||||||||
Repayment of debt | — | (1,896,979) | ||||||||||||||
Payments for restricted stock units | (851,264 | ) | (351,620 | ) | (1,109,475) | (751,377) | ||||||||||
Stock repurchases | — | (388,389 | ) | |||||||||||||
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Net cash (used in) financing activities | (6,542,204 | ) | (4,910,092 | ) | (1,109,475) | (2,648,356) | ||||||||||
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Net (decrease) increase in cash and cash equivalents | (7,193,804 | ) | 2,104,138 | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 1,698,053 | (833,933) | ||||||||||||||
Cash and cash equivalents, beginning of period | 22,152,802 | 20,163,787 | 4,960,850 | 22,152,802 | ||||||||||||
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Cash and cash equivalents, end of period | $ | 14,958,998 | $ | 22,267,925 | $ | 6,658,903 | $ | 21,318,869 | ||||||||
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SUPPLEMENTAL INFORMATION: | ||||||||||||||||
Cash paid during the period for interest | $ | 42,008 | $ | 134,517 | $ | — | $ | 26,527 | ||||||||
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Cash paid during the period for income taxes, net of refunds | $ | 68,560 | $ | 39,434 | $ | 15,183 | $ | 9,639 | ||||||||
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||||
Shares issued for vested employee restricted stock units | $ | 2,671 | $ | 2,676 | $ | 2,184 | $ | 2,308 | ||||||||
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Disposal of fully amortized intangible assets | $ | 241,724 | ||||||||||||||
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Disposal of fully depreciated furniture, fixtures and equipment | $ | 37,652 | $ | 45,988 | $ | 17,572 | $ | 19,638 | ||||||||
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Release of accrued remediation liability obligation upon sale of real estate | $ | 1,000,000 | ||||||||||||||
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See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | Organization and Business |
Reis, Inc. is a Maryland corporation. The primary business of Reis, Inc. and its consolidated subsidiaries (“Reis” or the “Company”) is providing commercial real estate market information and analytical tools for its subscribers, through its Reis Services subsidiary. For disclosure and financial reporting purposes, this business is referred to as the Reis Services segment.
Reis Services
Reis Services, including its predecessors, was founded in 1980. Reis maintains a proprietary database containing detailed information on commercial properties in metropolitan markets and neighborhoods throughout the U.S. The database contains information on apartment, office, retail, warehouse/distribution, flex/research & development and self storage properties, and is used by real estate investors, lenders and other professionals to make informed buying, selling and financing decisions. In addition, Reis data is used by debt and equity investors to assess, quantify and manage the risks of default and loss associated with individual mortgages, properties, portfolios and real estate backed securities. Reis currently provides its information services to many of the nation’s leading lending institutions, equity investors, brokers and appraisers.
Reis, through its flagship institutional product,Reis SE, and through its small business product,ReisReports,provides online access to a proprietary database of commercial real estate information and analytical tools designed to facilitate debt and equity transactions as well as ongoing asset and portfolio evaluations. Depending on the product, users have access to trendmarket trends and forecast analysisforecasts at metropolitan and neighborhood levels throughout the U.S. and/or detailed building-specific information such as rents, vacancy rates, lease terms, property sales, new construction listings and property valuation estimates. Reis’s products are designed to meet the demand for timely and accurate information to support the decision-making of property owners, developers, builders, banks and non-bank lenders, equity investors and equity investors.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.
Reis’s revenue model is based primarily on annual subscriptions that are paid in accordance with contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for example, one-twelfth of the value of a one-year contract is recognized monthly.
Discontinued Operations – Residential Development Activities
Reis was originally formed on January 8, 1997 as Wellsford Real Properties, Inc. (“Wellsford”). Wellsford acquired the Reis Services business by merger in May 2007 (the “Merger”). Wellsford’s primary operating activities immediately prior to the Merger, and conducted through its subsidiaries, were the development, construction and sale of its three residential projects and its approximate 23% ownership interest in the Reis Services business. The Company completed the sale of the remaining units at its Colorado project in September 2009, sold its Claverack, New York project in bulk in February 2010, and sold its remaining project in East Lyme, Connecticut in bulk in April 2011.2011, and settled construction defect litigation at the aforementioned Colorado project in 2012.
See Note 3 for additional information regarding the Company’s segments.
2. | Summary of Significant Accounting Policies |
Basis of Presentation
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries. Investments in entities where the Company does not have a controlling interest are accounted for under the equity method of accounting. These investments were initially recorded at cost and were subsequently adjusted for the Company’s proportionate share of the investment’s income (loss) and additional contributions or distributions. All inter-company accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation.
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Summary of Significant Accounting Policies (continued)
Discontinued Operations
The Company has determined, as a result of the April 2011 sale of property in East Lyme, Connecticut, that the Residential Development Activities segment, including certain general and administrative costs that supported that segment’s operations, should be presented as a discontinued operation. As a result of this determination and the fact that the historic operations and cash flows can be clearly distinguished, the operating results of the Residential Development Activities segment and related general and administrative costs are aggregated for separate presentation apart from continuing operating results of the Company in the consolidated financial statements for all periods presented.
Quarterly Reporting
The accompanying consolidated financial statements and notes of the Company have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared under Generally Accepted Accounting Principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s balance sheets, statements of operations, statement of changes in stockholders’ equity and statements of cash flows have been included and are of a normal and recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011,2012, as filed with the SEC on March 8, 2012.13, 2013. The consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 and consolidated statements of changes in cash flows for the ninethree months ended September 30,March 31, 2013 and 2012 and 2011 are not necessarily indicative of full year results.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
From time to time, the Company has been, is or may in the future be a defendant in various legal actions arising in the normal course of business. The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. The outcome of any litigation is uncertain; it is possible that a judgment in any legal actions to which the Company is a party, or which are proposed or threatened, will have a material adverse effect on the consolidated financial statements. See Note 11.
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
3. | Segment Information |
The Company is organized into two separately managed segments: the Reis Services segment and the discontinued Residential Development Activities segment. The following tables present condensed balance sheet and operating data for these segments:
(amounts in thousands) | ||||||||||||||||||||||||||||||||
Condensed Balance Sheet Data September 30, 2012 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||||||||||||||||||
Condensed Balance Sheet Data March 31, 2013 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 14,829 | $ | — | $ | 130 | $ | 14,959 | $ | 6,597 | $ | — | $ | 62 | $ | 6,659 | ||||||||||||||||
Restricted cash and investments | 216 | — | — | 216 | 216 | — | — | 216 | ||||||||||||||||||||||||
Accounts receivable, net | 5,755 | — | — | 5,755 | 5,937 | — | — | 5,937 | ||||||||||||||||||||||||
Prepaid and other assets | 273 | — | 307 | 580 | 315 | — | 793 | 1,108 | ||||||||||||||||||||||||
Assets attributable to discontinued operations | — | — | — | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total current assets | 21,073 | — | 437 | 21,510 | 13,065 | — | 855 | 13,920 | ||||||||||||||||||||||||
Furniture, fixtures and equipment, net | 733 | — | 36 | 769 | 751 | — | 31 | 782 | ||||||||||||||||||||||||
Intangible assets, net | 16,524 | — | — | 16,524 | 16,284 | — | — | 16,284 | ||||||||||||||||||||||||
Deferred tax asset, net | — | — | 3,928 | 3,928 | — | — | 8,798 | 8,798 | ||||||||||||||||||||||||
Goodwill | 57,203 | — | (2,378 | ) | 54,825 | 57,203 | — | (2,378) | 54,825 | |||||||||||||||||||||||
Other assets | 80 | — | — | 80 | 249 | — | — | 249 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total assets | $ | 95,613 | $ | — | $ | 2,023 | $ | 97,636 | $ | 87,552 | $ | — | $ | 7,306 | $ | 94,858 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||
Current portion of debt | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Accrued expenses and other liabilities | 1,948 | — | 852 | 2,800 | 1,329 | — | 1,054 | 2,383 | ||||||||||||||||||||||||
Liability for option cancellations | — | — | 364 | 364 | — | — | 385 | 385 | ||||||||||||||||||||||||
Deferred revenue | 14,435 | — | — | 14,435 | 16,880 | — | — | 16,880 | ||||||||||||||||||||||||
Liabilities attributable to discontinued operations | — | 12,276 | 171 | 12,447 | — | 271 | 187 | 458 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total current liabilities | 16,383 | 12,276 | 1,387 | 30,046 | 18,209 | 271 | 1,626 | 20,106 | ||||||||||||||||||||||||
Other long-term liabilities | 614 | — | — | 614 | 563 | — | — | 563 | ||||||||||||||||||||||||
Deferred tax liability, net | 15,174 | — | (15,174 | ) | — | 16,591 | — | (16,591) | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total liabilities | 32,171 | 12,276 | (13,787 | ) | 30,660 | 35,363 | 271 | (14,965) | 20,669 | |||||||||||||||||||||||
Total stockholders’ equity | 63,442 | (12,276 | ) | 15,810 | 66,976 | 52,189 | (271) | 22,271 | 74,189 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 95,613 | $ | — | $ | 2,023 | $ | 97,636 | $ | 87,552 | $ | — | $ | 7,306 | $ | 94,858 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
(A) Includes the assets and liabilities of the Company’s discontinued Residential Development Activities segment, to the extent that such assets and liabilities existed at the date presented. (B) Includes cash, other assets and liabilities not specifically attributable to or allocable to a specific operating segment. | (A) Includes the assets and liabilities of the Company’s discontinued Residential Development Activities segment, to the extent that such assets and liabilities existed at the date presented. (B) Includes cash, other assets and liabilities not specifically attributable to or allocable to a specific operating segment. |
|
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
(amounts in thousands) | ||||||||||||||||
Condensed Balance Sheet Data December 31, 2012 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 4,212 | $ | — | $ | 749 | $ | 4,961 | ||||||||
Restricted cash and investments | 216 | — | — | 216 | ||||||||||||
Accounts receivable, net | 10,694 | — | — | 10,694 | ||||||||||||
Prepaid and other assets | 219 | — | 1,220 | 1,439 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total current assets | 15,341 | — | 1,969 | 17,310 | ||||||||||||
Furniture, fixtures and equipment, net | 705 | — | 33 | 738 | ||||||||||||
Intangible assets, net | 16,333 | — | — | 16,333 | ||||||||||||
Deferred tax asset, net | — | — | 8,557 | 8,557 | ||||||||||||
Goodwill | 57,203 | — | (2,378) | 54,825 | ||||||||||||
Other assets | 271 | — | — | 271 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 89,853 | $ | — | $ | 8,181 | $ | 98,034 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of debt | $ | — | $ | — | $ | — | $ | — | ||||||||
Accrued expenses and other liabilities | 2,556 | — | 1,346 | 3,902 | ||||||||||||
Liability for option cancellations | — | — | 297 | 297 | ||||||||||||
Deferred revenue | 18,230 | — | — | 18,230 | ||||||||||||
Liabilities attributable to discontinued operations | — | 271 | 189 | 460 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total current liabilities | 20,786 | 271 | 1,832 | 22,889 | ||||||||||||
Other long-term liabilities | 588 | — | — | 588 | ||||||||||||
Deferred tax liability, net | 15,786 | — | (15,786) | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 37,160 | 271 | (13,954) | 23,477 | ||||||||||||
Total stockholders’ equity | 52,693 | (271) | 22,135 | 74,557 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities and stockholders’ equity | $ | 89,853 | $ | — | $ | 8,181 | $ | 98,034 | ||||||||
|
|
|
|
|
|
|
| |||||||||
|
(A) | Includes the assets and liabilities of the Company’s discontinued Residential Development Activities segment, to the extent that such assets and liabilities existed at the date presented. |
(B) | Includes cash, other assets and liabilities not specifically attributable to or allocable to a specific operating segment. |
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
(amounts in thousands) | ||||||||||||||||
Condensed Balance Sheet Data December 31, 2011 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 18,505 | $ | — | $ | 3,648 | $ | 22,153 | ||||||||
Restricted cash and investments | 215 | — | — | 215 | ||||||||||||
Accounts Receivable, net | 8,597 | — | — | 8,597 | ||||||||||||
Prepaid and other assets | 198 | — | 428 | 626 | ||||||||||||
Assets attributable to discontinued operations | — | 3,000 | — | 3,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total current assets | 27,515 | 3,000 | 4,076 | 34,591 | ||||||||||||
Furniture, fixtures and equipment, net | 821 | — | 42 | 863 | ||||||||||||
Intangible assets, net | 17,155 | — | — | 17,155 | ||||||||||||
Deferred tax asset, net | — | — | 3,685 | 3,685 | ||||||||||||
Goodwill | 57,203 | — | (2,378 | ) | 54,825 | |||||||||||
Other assets | 99 | — | — | 99 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 102,793 | $ | 3,000 | $ | 5,425 | $ | 111,218 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of debt | $ | 5,691 | $ | — | $ | — | $ | 5,691 | ||||||||
Accrued expenses and other liabilities | 2,257 | — | 1,095 | 3,352 | ||||||||||||
Liability for option cancellations | — | — | 241 | 241 | ||||||||||||
Deferred revenue | 15,707 | — | — | 15,707 | ||||||||||||
Liabilities attributable to discontinued operations | — | 8,032 | 17 | 8,049 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total current liabilities | 23,655 | 8,032 | 1,353 | 33,040 | ||||||||||||
Other long-term liabilities | 668 | — | — | 668 | ||||||||||||
Deferred tax liability, net | 13,151 | — | (13,151 | ) | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 37,474 | 8,032 | (11,798 | ) | 33,708 | |||||||||||
Total stockholders’ equity | 65,319 | (5,032 | ) | 17,223 | 77,510 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities and stockholders’ equity | $ | 102,793 | $ | 3,000 | $ | 5,425 | $ | 111,218 | ||||||||
|
|
|
|
|
|
|
|
(amounts in thousands) | ||||||||||||||||
Condensed Operating Data for the Three Months Ended March 31, 2013 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 8,234 | $ | — | $ | — | $ | 8,234 | ||||||||
Cost of sales of subscription revenue | 1,681 | — | — | 1,681 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 6,553 | — | — | 6,553 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,969 | — | — | 1,969 | ||||||||||||
Product development | 722 | — | — | 722 | ||||||||||||
General and administrative expenses | 1,796 | — | 1,373 | 3,169 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating expenses | 4,487 | — | 1,373 | 5,860 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 2 | — | — | 2 | ||||||||||||
Interest expense | (28) | — | — | (28) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income (expenses) | (26) | — | — | (26) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes and discontinued operations | $ | 2,040 | $ | — | $ | (1,373) | $ | 667 | ||||||||
|
|
|
|
|
|
|
| |||||||||
(Loss) from discontinued operations, before income taxes | $ | — | $ | — | $ | (251) | $ | (251) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Condensed Operating Data for the Three Months Ended March 31, 2012 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 7,298 | $ | — | $ | — | $ | 7,298 | ||||||||
Cost of sales of subscription revenue | 1,846 | — | — | 1,846 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 5,452 | — | — | 5,452 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,729 | — | — | 1,729 | ||||||||||||
Product development | 514 | — | — | 514 | ||||||||||||
General and administrative expenses | 1,643 | — | 1,309 | 2,952 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating expenses | 3,886 | — | 1,309 | 5,195 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 15 | — | 1 | 16 | ||||||||||||
Interest expense | (53) | — | — | (53) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income (expenses) | (38) | — | 1 | (37) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes and discontinued operations | $ | 1,528 | $ | — | $ | (1,308) | $ | 220 | ||||||||
|
|
|
|
|
|
|
| |||||||||
(Loss) from discontinued operations, before income taxes | $ | — | $ | (14,424) | $ | — | $ | (14,424) | ||||||||
|
|
|
|
|
|
|
| |||||||||
|
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 September 30, 2012 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 7,827 | $ | — | $ | — | $ | 7,827 | ||||||||
Cost of sales of subscription revenue | 1,476 | — | — | 1,476 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 6,351 | — | — | 6,351 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,908 | — | — | 1,908 | ||||||||||||
Product development | 661 | — | — | 661 | ||||||||||||
General and administrative expenses | 1,691 | — | 1,246 | 2,937 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating expenses | 4,260 | — | 1,246 | 5,506 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 16 | — | — | 16 | ||||||||||||
Interest expense | (1 | ) | — | — | (1 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income (expenses) | 15 | — | — | 15 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes and discontinued operations | $ | 2,106 | $ | — | $ | (1,246 | ) | $ | 860 | |||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) from discontinued operations, before income taxes | $ | — | $ | 2 | $ | (196 | ) | $ | (194 | ) | ||||||
|
|
|
|
|
|
|
|
Condensed Operating Data for the Three Months Ended September 30, 2011 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 6,747 | $ | — | $ | — | $ | 6,747 | ||||||||
Cost of sales of subscription revenue | 1,550 | — | — | 1,550 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 5,197 | — | — | 5,197 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,656 | — | — | 1,656 | ||||||||||||
Product development | 574 | — | — | 574 | ||||||||||||
General and administrative expenses | 1,563 | — | 1,070 | 2,633 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating expenses | 3,793 | — | 1,070 | 4,863 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 18 | — | 2 | 20 | ||||||||||||
Interest expense | (65 | ) | — | — | (65 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income (expenses) | (47 | ) | — | 2 | (45 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes and discontinued operations | $ | 1,357 | $ | — | $ | (1,068 | ) | $ | 289 | |||||||
|
|
|
|
|
|
|
| |||||||||
Income from discontinued operations, before income taxes | $ | — | $ | 1 | $ | — | $ | 1 | ||||||||
|
|
|
|
|
|
|
|
(A) | Includes the results of the Company’s discontinued Residential Development Activities segment, to the extent that such operations existed during the period presented. |
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
(amounts in thousands) | ||||||||||||||||
Condensed Operating Data for the Nine Months Ended September 30, 2012 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 22,647 | $ | — | $ | — | $ | 22,647 | ||||||||
Cost of sales of subscription revenue | 5,007 | — | — | 5,007 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 17,640 | — | — | 17,640 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 5,459 | — | — | 5,459 | ||||||||||||
Product development | 1,741 | — | — | 1,741 | ||||||||||||
General and administrative expenses | 5,013 | — | 3,853 | 8,866 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating expenses | 12,213 | — | 3,853 | 16,066 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 47 | — | 1 | 48 | ||||||||||||
Interest expense | (128 | ) | — | — | (128 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income (expenses) | (81 | ) | — | 1 | (80 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes and discontinued operations | $ | 5,346 | $ | — | $ | (3,852 | ) | $ | 1,494 | |||||||
|
|
|
|
|
|
|
| |||||||||
(Loss) from discontinued operations, before income taxes | $ | — | $ | (12,648 | ) | $ | (196 | ) | $ | (12,844 | ) | |||||
|
|
|
|
|
|
|
|
Condensed Operating Data for the Nine Months Ended September 30, 2011 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 20,201 | $ | — | $ | — | $ | 20,201 | ||||||||
Cost of sales of subscription revenue | 4,623 | — | — | 4,623 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 15,578 | — | — | 15,578 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 4,989 | — | — | 4,989 | ||||||||||||
Product development | 1,562 | — | — | 1,562 | ||||||||||||
General and administrative expenses | 4,739 | — | 3,646 | 8,385 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating expenses | 11,290 | — | 3,646 | 14,936 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 57 | — | 5 | 62 | ||||||||||||
Interest expense | (215 | ) | — | — | (215 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income (expenses) | (158 | ) | — | 5 | (153 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes and discontinued operations | $ | 4,130 | $ | — | $ | (3,641 | ) | $ | 489 | |||||||
|
|
|
|
|
|
|
| |||||||||
Income from discontinued operations, before income taxes | $ | — | $ | 1,253 | $ | — | $ | 1,253 | ||||||||
|
|
|
|
|
|
|
|
(B) | Includes interest and other income, depreciation expense and general and administrative expenses that have not been allocated to the operating segments. |
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
Reis Services
See Note 1 for a description of Reis Services’s business and products at September 30, 2012.March 31, 2013.
No individual customer accounted for more than 4.4%3.6% and 4.9%4.5% of Reis Services’s revenues for the ninethree months ended September 30,March 31, 2013 and 2012, and 2011, respectively.
The balance of outstanding accounts receivablereceivables of Reis Services at September 30, 2012March 31, 2013 and December 31, 20112012 follows:
(amounts in thousands) | September 30, 2012 | December 31, 2011 | ||||||
Accounts receivable | $ | 5,817 | $ | 8,629 | ||||
Allowance for doubtful accounts | (62 | ) | (32 | ) | ||||
|
|
|
| |||||
Accounts receivable, net | $ | 5,755 | $ | 8,597 | ||||
|
|
|
|
March 31, 2013 | December 31, 2012 | |||||||
Accounts receivables | $ | 5,998,000 | $ | 10,763,000 | ||||
Allowance for doubtful accounts | (61,000) | (69,000) | ||||||
|
|
|
| |||||
Accounts receivables, net | $ | 5,937,000 | $ | 10,694,000 | ||||
|
|
|
|
TenFive subscribers accounted for an aggregate of approximately 41.9%33.3% of Reis Services’s accounts receivable at September 30, 2012,March 31, 2013, including twothree subscribers at or in excess of 5.0%4.0% with the largest representing 10.3%19.9%. Through October 25, 2012,April 26, 2013, the Company received payments of approximately $2,079,000$3,170,000 or 35.7%52.9% against the September 30, 2012March 31, 2013 accounts receivable balance.
At September 30, 2012,March 31, 2013, no subscribers accounted for more than 3.5%5.3% of deferred revenue.
Discontinued Operations – Residential Development Activities
Income (loss)(Loss) from discontinued operations is comprised of the following:
(amounts in thousands) | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenue from sales of real estate | $ | — | $ | — | $ | — | $ | 1,800 | ||||||||
Cost of sales of real estate | — | — | — | (558 | ) | |||||||||||
Litigation charge | — | — | (12,260 | ) | — | |||||||||||
Other income (expense), net | (194 | ) | 1 | (584 | ) | 11 | ||||||||||
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(Loss) income from discontinued operations before income tax | (194 | ) | 1 | (12,844 | ) | 1,253 | ||||||||||
Income tax expense on discontinued operations | — | — | — | — | ||||||||||||
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(Loss) income from discontinued operations, net of income tax expense | $ | (194 | ) | $ | 1 | $ | (12,844 | ) | $ | 1,253 | ||||||
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Gold Peak
(amounts in thousands)
| For the Three Months Ended March 31, | |||||||
2013 | 2012 | |||||||
Litigation charge, net of recoveries (see Note 11) | $ | — | $ | (14,216) | ||||
Other income (expense), net | (251) | (208) | ||||||
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(Loss) from discontinued operations before income tax | (251) | (14,424) | ||||||
Income tax expense (benefit) on discontinued operations | (99) | (79) | ||||||
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(Loss) income from discontinued operations, net of income tax expense (benefit) | $ | (152) | $ | (14,345) | ||||
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In September 2009, the Company sold the final unit at Gold Peak, the final phase of Palomino Park, a five phase multifamily residential development in Highlands Ranch, Colorado. Gold Peak was a 259 unit condominium project on the remaining 29 acre land parcel at Palomino Park. On March 13, 2012, in connection with litigation regarding construction defects at the Gold Peak project, a jury rendered its verdict, whereby Reis, one of its subsidiaries (Gold Peak at Palomino Park LLC, the developer of the project (“GP LLC”)), two former senior officers of Reis (Jeffrey H. Lynford, who was also previously a director of the Company, and David M. Strong) and the construction manager/general contractor for the project (Tri-Star Construction West, LLC (“Tri-Star”)) were found jointly and severally liable for an aggregate of $18,200,000, plus other costs of approximately $756,000. The Company recorded a charge of $14,216,000 during the first quarter of 2012. On June 20, 2012, following denial of all of the defendants’ post-trial motions, Reis reached a settlement with the plaintiff, the Gold Peak homeowners association, providing for a total payment by Reis of $17,000,000. Of this amount, $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012, in accordance with the
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
settlement terms. As a result of the settlement, in the second quarter of 2012 the Company reversed $1,956,000 of the previously recorded charge. In December 2012, the Company recovered $712,500, which offset a portion of the previously recorded charge, resulting in the net litigation charge for the nineyear ended December 31, 2012 of approximately $11,547,000. No recoveries occurred during the three months ended September 30, 2012 of $12,260,000.March 31, 2013. For additional information pertaining to the Gold Peak litigation, see Note 11.
Completed Real Estate ProjectsREIS, INC. AND SUBSIDIARIES
In April 2011, the Company sold The Orchards, a single family home development in East Lyme, Connecticut (“East Lyme”), in a bulk transaction for a gross sales price of $1,800,000 for the 119 lots in inventory, plus the release of approximately $792,000 of project-related deposits and escrows held as restricted cash. Net cash received at closing, after selling expenses and closing adjustments, and including the cash received upon release of the deposits and escrows, aggregated approximately $2,600,000.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain of the lots at East Lyme required remediation of pesticides which were used on the property when it was an apple orchard. Remediation was required prior to the development of those lots. The remediation plan, the cost of which was estimated by management to be approximately $1,000,000, had been approved by the health inspector for the municipality and the town planner. As a result of the sale, the Company was indemnified from any financial obligation related to the environmental remediation.(Unaudited) (continued)
In February 2011, the Company received cash of approximately $455,000 in satisfaction of a mortgage note and accrued interest thereon from the sale of property in Claverack, New York in February 2010.
4. | Restricted Cash and Investments |
Restricted cash and investments represents a security deposit for the 530 Fifth Avenue corporate office space. The Company provided the lessor a bank-issued letter of credit, which is fully collateralized by a certificate of deposit issued by that bank. The restricted cash balance was approximately $216,000 and $215,000 at September 30, 2012March 31, 2013 and December 31, 2011, respectively.2012.
5. | Intangible Assets |
The amount of identified intangible assets, including the respective amounts of accumulated amortization, are as follows:
(amounts in thousands) | September 30, 2012 | December 31, 2011 | ||||||||||||||
March 31, 2013 | December 31, 2012 | |||||||||||||||
Database | $ | 14,682 | $ | 13,223 | $ | 15,703,000 | $ | 15,175,000 | ||||||||
Accumulated amortization | (11,339 | ) | (9,784 | ) | (12,057,000) | (11,691,000) | ||||||||||
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Database, net | 3,343 | 3,439 | 3,646,000 | 3,484,000 | ||||||||||||
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Customer relationships | 14,100 | 14,100 | 14,100,000 | 14,100,000 | ||||||||||||
Accumulated amortization | (5,200 | ) | (4,462 | ) | (5,688,000) | (5,444,000) | ||||||||||
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Customer relationships, net | 8,900 | 9,638 | 8,412,000 | 8,656,000 | ||||||||||||
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Web site | 7,913 | 6,470 | 8,883,000 | 8,325,000 | ||||||||||||
Accumulated amortization | (4,797 | ) | (3,784 | ) | (5,669,000) | (5,220,000) | ||||||||||
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Web site, net | 3,116 | 2,686 | 3,214,000 | 3,105,000 | ||||||||||||
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Acquired below market lease | 2,800 | 2,800 | 2,800,000 | 2,800,000 | ||||||||||||
Accumulated amortization | (1,635 | ) | (1,408 | ) | (1,788,000) | (1,712,000) | ||||||||||
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Acquired below market lease, net | 1,165 | 1,392 | 1,012,000 | 1,088,000 | ||||||||||||
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Intangibles, net | $ | 16,524 | $ | 17,155 | $ | 16,284,000 | $ | 16,333,000 | ||||||||
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The Company capitalized approximately $520,000$528,000 and $512,000$448,000 to the database intangible asset and $558,000 and $490,000 to the web site intangible asset during the three months ended September 30,March 31, 2013 and 2012, and 2011, respectively, and $1,459,000 and $1,427,000 during the nine months ended September 30, 2012 and 2011, respectively, to the database intangible asset. The Company capitalized approximately $474,000 and $421,000 during the three months ended September 30, 2012 and 2011, respectively, and $1,443,000 and $1,171,000 during the nine months ended September 30, 2012 and 2011, respectively, to the web site intangible asset.respectively.
Amortization expense for intangible assets aggregated approximately $1,046,000 and $3,533,000$1,135,000 for the three and nine months ended September 30, 2012,March 31, 2013, of which approximately $330,000 and $1,555,000$366,000 related to the database, which is charged to cost of
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Intangible Assets (continued)
sales, approximately $246,000 and $738,000$244,000 related to customer relationships, which is charged to sales and marketing expense, approximately $396,000 and $1,013,000$449,000, related to web site development, which is charged to product development expense, and approximately $75,000 and $227,000$76,000 related to the value ascribed to the below market terms of the office lease, which is charged to general and administrative expense, all in the Reis Services segment. Amortization expense for intangible assets aggregated approximately $1,232,000 and $3,549,000$1,273,000 for the three and nine months ended September 30, 2011,March 31, 2012, of which approximately $601,000 and $1,778,000$655,000 related to the database, approximately $247,000 and $744,000$246,000 related to customer relationships, approximately $308,000 and $800,000$295,000 related to web site development, and approximately $76,000 and $227,000$77,000 related to the value ascribed to the below market terms of the office lease.
6. | Debt |
At September 30,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, for a $10,000,000 revolving credit facility (the “Revolver”). The Revolver has a three year term expiring on October 16, 2015, and any borrowings bear interest at a rate of LIBOR + 2.00% per annum (for LIBOR loans) or the greater of 1.00% or the bank’s prime rate minus 0.50% per annum (for base rate loans) and is subject to an unused facility fee of 0.25% per annum. The Company paid a commitment fee of $50,000 in connection with the closing. The Revolver is secured by a security interest in substantially all of the tangible and intangible assets of Reis Services 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 agreement.
No debt was outstanding at March 31, 2013 and December 31, 2011, the Company’s debt consisted of the following:
(amounts in thousands) | Stated Interest Rate | September 30, 2012 | December 31, 2011 | |||||||
Reis Services Bank Loan | LIBOR + 1.50% | $ | — | $ | 5,691 | |||||
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In connection with the Merger agreement, Private Reis entered into a credit agreement, dated October 11, 2006, with the Bank of Montreal, Chicago Branch, as administrative agent, and BMO Capital Markets, as lead arranger, which provided for a term loan of up to an aggregate of $20,000,000 and revolving loans up to an aggregate of $7,000,000. Loan proceeds were used to finance $25,000,000 of the cash portion of the Merger consideration. The final scheduled maturity date of all amounts borrowed pursuant to the credit agreement was September 30, 2012. During the second quarter of 2012, the Company repaid the remaining outstanding balance and this obligation was cancelled. The Company had no outstanding debt at September 30, 2012.
See Note 13 for subsequent events.
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
7. | Income Taxes |
The components of the income tax expense (benefit) are as follows:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Deferred Federal tax (benefit) | $ | — | $ | — | $ | — | $ | — | ||||||||
Deferred state and local tax expense (benefit) | — | — | — | — | ||||||||||||
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Consolidated income tax expense (benefit), including taxes attributable to discontinued operations (A) | — | — | — | — | ||||||||||||
Less income tax expense attributable to discontinued operations | — | — | — | — | ||||||||||||
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Income tax (benefit) (B) | $ | — | $ | — | $ | — | $ | — | ||||||||
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For the Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Current Federal alternative minimum tax (“AMT”) expense | $ | — | $ | — | ||||
Deferred Federal tax expense | 138,000 | 4,000 | ||||||
Deferred state and local tax expense | 28,000 | 1,000 | ||||||
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Consolidated income tax expense, including taxes attributable to discontinued operations (A) | 166,000 | 5,000 | ||||||
Less deferred income tax (benefit) attributable to discontinued operations | (99,000) | (79,000) | ||||||
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Income tax expense (B) | $ | 265,000 | $ | 84,000 | ||||
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(A) Includes income taxes attributable to income from discontinued operations. (B) Reflects the tax expense from continuing operations as reported on the consolidated statements of income for the periods presented. |
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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 $4,008,000$9,456,000 and $9,622,000 at September 30, 2012March 31, 2013 and December 31, 20112012, respectively, of which $80,000$658,000 and $323,000$1,065,000 is reflected as a net current asset respectively, and $3,928,000$8,798,000 and $3,685,000$8,557,000 is reflected as a net non-current asset in the accompanying consolidated balance sheets, respectively. The significant portion of the deferred tax items primarily relates to: (1) NOL carryforwards; (2) Federal AMT credit carryforwards; (3) stock based compensation; and (4) liability reserves, all as they relate to deferred tax assets; and (5) the deferred tax liability resulting from the intangible assets recorded at the time of the Merger.
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Income Taxes (continued)
The Company has aggregate Federal, state and local NOL carryforwardscarryfowards aggregating approximately $55,957,000$67,994,000 at December 31, 2011.2012. These NOLs include NOLs generated subsequent to the Merger, losses from Private Reis prior to the Merger, losses obtained from the Company’s 1998 merger with Value Property Trust (“VLP”) and the Company’s operating losses prior to the Merger. Approximately $27,259,000 of these Federal NOLs are subject to an annual limitation, whereas the remaining balance of approximately $28,698,000$40,735,000 is not subject to such a limitation. There is an annual limitation on the use of NOLs after an ownership change, pursuant to Section 382 of the Internal Revenue Code. As a result of the Merger, the Company experienced such an ownership change which resulted in a new annual limitation of $2,779,000. However, because of the accumulation of annual limitations, it is expected that the use of NOLs will not be limited by expiration. In addition to the NOLs existing at December 31, 2011, aA substantial NOL will bewas realized during the year ended December 31, 2012 as a result of the Gold Peak litigation settlement, discussed in Note 11.
A valuation allowance is required to reduce deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, management has determined that a valuation allowance of approximately $21,378,000 and $17,092,000$15,217,000 at September 30, 2012March 31, 2013 and December 31, 2011, respectively,2012, was necessary. The allowance relates primarily to NOL carryforwards and AMT credits and liability reserves. The increase in the valuation allowance in 2012 is attributable to providing a full allowance for a substantial portion of the Gold Peak litigation charge recorded during 2012.credits. The Company will continue to evaluate the amount of valuation allowance on deferred tax assets during 20122013 and in subsequent years based on such factors as historic profitability levels and forecasts of future taxable income.
8. | Stockholders’ Equity |
Between December 2008 and June 2010,August 2011, the Company’s board of directors (the “Board”) authorized the repurchase of up to an aggregate amount of $4,000,000$5,000,000 of the Company’s common stock, which authorizations were fully utilized by December 2010. In August 2011, the Board authorized an additional $1,000,000 to make stock repurchases (ofof which approximately $551,000 remained available for repurchases as of September 30, 2012 and DecemberMarch 31, 2011).2013. The stock repurchases are permitted from time to time in the open market or through privately negotiated transactions. Depending on market conditions, financial developments and other factors, additional amounts may be authorized by the Board whereby future purchases could be commenced or suspended at any time, or from time to time, without prior notice. The Company may make purchases pursuant to a trading plan under Securities Exchange Act Rule 10b5-1, permitting open market purchases of common stock during blackout periods consistent with the Company’s “Policies for Transactions in Reis Stock and Insider Trading and Tipping.”
During the threefirst quarter of 2013 and nine months ended September 30, 2012, the Company did not repurchase any shares of common stock. During the three and nine months ended September 30, 2011, the Company repurchased 43,249 shares of common stock at an average price of $8.98 per share.
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
9. | Stock Plans and Other Incentives |
The Company has adopted certain incentive plans for the purpose of attracting and retaining the Company’s directors, officers and employees by having the ability to issue options, restricted stock units (“RSUs”), or stock awards. Awards granted under the Company’s incentive plans expire ten years from the date of grant and vest over periods ranging generally from three to five years for employees.
Option Awards
The following table presents option activity and other plan data for the ninethree months ended September 30, 2012March 31, 2013 and 2011:
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Stock Plans and Other Incentives (continued)
For the Nine Months Ended September 30, | For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2012 | 2011 | 2013 | 2012 | |||||||||||||||||||||||||||||
�� | Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | ||||||||||||||||||||||||||||
Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | |||||||||||||||||||||||||||||
Outstanding at beginning of period | 663,172 | $ | 8.82 | 680,896 | $ | 8.73 | 645,448 | $ | 8.94 | 663,172 | $ | 8.82 | ||||||||||||||||||||
Granted | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
Exercised | — | $ | — | — �� | $ | — | ||||||||||||||||||||||||||
Cancelled through cash settlement | — | $ | — | — | $ | — | — | $ | — | — | $ | — | ||||||||||||||||||||
Forfeited/cancelled/expired | — | $ | — | — | $ | — | — | $ | — | — | $ | — | ||||||||||||||||||||
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Outstanding at end of period | 663,172 | $ | 8.82 | 680,896 | $ | 8.73 | 645,448 | $ | 8.94 | 663,172 | $ | 8.82 | ||||||||||||||||||||
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Options exercisable at end of period | 438,172 | $ | 9.23 | 378,896 | $ | 8.92 | 420,488 | $ | 9.43 | 361,172 | $ | 9.10 | ||||||||||||||||||||
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Options exercisable which can be settled in cash | 53,172 | $ | 4.60 | 70,896 | $ | 4.81 | 35,448 | $ | 4.67 | 53,172 | $ | 4.60 | ||||||||||||||||||||
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Certain outstanding options allow the option holder to receive from the Company, in cancellation of the holder’s option, a cash payment with respect to each cancelled option equal to the amount, if any, by which the fair market value of the share of stock underlying the option exceeds the exercise price of such option. The Company accounts for these options as liability awards. This liability is adjusted at the end of each reporting period to reflectreflect: (1) the net cash payments to option holders made during each period,period; (2) the impact of the exercise and expiration of optionsoptions; and (3) changes in the market price of the Company’s common stock. Changes in the settlement value of option awards treated under the liability method are reflected as income or expense in the statements of income.operations.
At September 30, 2012,March 31, 2013, the liability for option cancellations was approximately $364,000$385,000 based upon the difference in the closing stock price of the CompanyCompany’s common stock at September 30, 2012March 31, 2013 of $11.44$15.54 per share and the individual exercise prices of the outstanding 53,17235,448 “in-the-money” options that were accounted for as a liability award at that date. At December 31, 2011,2012, the liability for option cancellations was approximately $241,000$297,000 based upon the difference in the closing stock price of the Company at December 31, 20112012 of $9.12$13.03 per share and the individual exercise prices of the outstanding 53,17235,448 “in-the-money” options that were accounted for as a liability award at that date. The Company recorded compensation expense (benefit) of approximately $97,000$89,000 and $123,000 for the three and nine months ended September 30, 2012, recorded a reduction to compensation expense of approximately $76,000$(11,000) for the three months ended September 30, 2011March 31, 2013 and compensation expense of $130,000 for the nine months ended September 30, 20112012, respectively, in general and administrative expenses in the consolidated statements of operations related to the respective changes in the amount of the liability for option cancellations.
RSU Awards
The following table presents the changes in RSUs outstanding for the nine months ended September 30, 2012 and 2011:
For the Nine Months Ended September 30, | ||||||||
2012 | 2011 | |||||||
Outstanding at beginning of period | 590,662 | 523,479 | ||||||
Granted | 165,461 | 243,499 | ||||||
Common stock delivered (A)(B) | (217,885 | ) | (177,828 | ) | ||||
Forfeited | — | — | ||||||
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Outstanding at end of period | 538,238 | 589,150 | ||||||
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Intrinsic value at September 30, 2012 and 2011, respectively (C) | $ | 6,157,000 | $ | 5,220,000 | ||||
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REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Stock Plans and Other Incentives (continued)
RSU Awards
The following table presents the changes in RSUs outstanding for the three months ended March 31, 2013 and 2012:
For the Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Outstanding at beginning of period | 469,848 | 590,662 | ||||||
Granted | 94,884 | 151,343 | ||||||
Common stock delivered (A)(B) | (180,074) | (189,551) | ||||||
Forfeited | (1,800) | — | ||||||
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Outstanding at end of period | 382,858 | 552,454 | ||||||
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Intrinsic value (C) | $ | 5,950,000 | $ | 4,922,000 | ||||
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(A) Includes 70,897 shares which were used to settle minimum employee withholding tax obligations for 16 employees of approximately $1,109,000 in the first quarter of 2013. A net of 109,177 shares of common stock were delivered in the first quarter of 2013. (B) Includes 74,149 shares which were used to settle minimum employee withholding tax obligations for 16 employees of approximately $751,000 in 2012. A net of 115,402 shares of common stock were delivered in the first quarter of 2012. (C) For purposes of this calculation, the Company’s closing stock prices were $15.54 and $8.91 per share on March 31, 2013 and 2012, respectively. |
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In February 2013, an aggregate of 91,356 RSUs were granted to employees, which RSUs vest one-third a year over three years and had a grant date fair value of $16.20 per RSU (which was determined based on the closing stock price of the Company’s common stock on the applicable date of grant). In February 2012, an aggregate of 143,783 RSUs were granted to employees, which RSUs vest one-third a year over three years and had a weighted average grant date fair value of $10.05 per RSU (which was determined based on the closing stock price of the Company’s common stock on the applicable date of grant). In March 2011, an aggregate of 214,135 RSUs were granted to employees, which RSUs vest one-third a year over three years and had a weighted average grant date fair value of $7.41 per RSU (which was determined based on the closing stock price of the Company’s common stock on the applicable date of grant). The awards granted to employees in the first quarter of 20122013 and 20112012 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.
DuringIn January 2013, an aggregate of 3,528 RSUs were granted to non-employee directors (with a grant date fair value of $13.03 per RSU) related to the nine months ended September 30,equity component of their compensation. In January 2012, an aggregate of 21,6787,560 RSUs were granted to non-employee directors (with an average grant date fair value of $9.19 per RSU) related to the equity component of their compensation. During the nine months ended September 30, 2011, an aggregate of 29,364 RSUs were granted to non-employee directors (with a grant date fair value of $8.09$9.12 per RSU) 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 the underlying shares of common stock are not deliverable to non-employee directors until six months after termination of their service as a director.
Option and RSU Expense Information
The Company recorded non-cash compensation expense of approximately $501,000$492,000 and $522,000,$557,000, including approximately $46,000 and $69,000 related to non-employee director equity compensation, for the three months ended September 30,March 31, 2013 and 2012, and 2011, 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 nine months ended September 30, 2012 and 2011, the Company recorded non-cash compensation expense of approximately $1,667,000 and $1,537,000, respectively, including approximately $176,000 and $226,000, respectively, related to non-employee director equity compensation, related to all stock options and RSUs accounted for as equity awards.
10. | 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:
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Earnings Per Common Share (continued)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Numerator for basic per share calculation: | ||||||||||||||||
Income from continuing operations for basic calculation | $ | 859,837 | $ | 288,967 | $ | 1,494,248 | $ | 489,125 | ||||||||
(Loss) income from discontinued operations, net of income tax expense | (194,313 | ) | 1,231 | (12,844,365 | ) | 1,253,481 | ||||||||||
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Net income (loss) for basic calculation | $ | 665,524 | $ | 290,198 | $ | (11,350,117 | ) | $ | 1,742,606 | |||||||
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Numerator for diluted per share calculation | ||||||||||||||||
Income from continuing operations | $ | 859,837 | $ | 288,967 | $ | 1,494,248 | $ | 489,125 | ||||||||
Adjustments to income from continuing operations for the income statement impact of dilutive securities | — | (75,859 | ) | — | — | |||||||||||
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Income from continuing operations for dilution calculation | 859,837 | 213,108 | 1,494,248 | 489,125 | ||||||||||||
(Loss) income from discontinued operations, net of income tax expense | (194,313 | ) | 1,231 | (12,844,365 | ) | 1,253,481 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) for dilution calculation | $ | 665,524 | $ | 214,339 | $ | (11,350,117 | ) | $ | 1,742,606 | |||||||
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|
|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||||
Weighted average common shares – basic | 10,702,509 | 10,599,031 | 10,670,966 | 10,572,288 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
RSUs | 326,586 | 351,274 | 296,545 | 259,561 | ||||||||||||
Stock options | 64,793 | 46,852 | 25,925 | 3,753 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares – diluted | 11,093,888 | 10,997,157 | 10,993,436 | 10,835,602 | ||||||||||||
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|
|
|
|
| |||||||||
Per common share amounts – basic: | ||||||||||||||||
Income from continuing operations | $ | 0.08 | $ | 0.03 | $ | 0.14 | $ | 0.05 | ||||||||
(Loss) income from discontinued operations | (0.02 | ) | — | (1.20 | ) | 0.11 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 0.06 | $ | 0.03 | $ | (1.06 | ) | $ | 0.16 | |||||||
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|
|
|
|
|
|
| |||||||||
Per common share amounts – diluted: | ||||||||||||||||
Income from continuing operations | $ | 0.08 | $ | 0.02 | $ | 0.14 | $ | 0.05 | ||||||||
(Loss) income from discontinued operations | (0.02 | ) | — | (1.17 | ) | 0.11 | ||||||||||
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|
|
|
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| |||||||||
Net income (loss) | $ | 0.06 | $ | 0.02 | $ | (1.03 | ) | $ | 0.16 | |||||||
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Numerator for basic per share calculation: | ||||||||
Income from continuing operations for basic calculation | $ | 402,066 | $ | 136,379 | ||||
(Loss) from discontinued operations, net of income tax expense | (151,632) | (14,345,255) | ||||||
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|
|
| |||||
Net income (loss) for basic calculation | $ | 250,434 | $ | (14,208,876) | ||||
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|
|
| |||||
Numerator for diluted per share calculation: | ||||||||
Income from continuing operations | $ | 402,066 | $ | 136,379 | ||||
Adjustments to income from continuing operations for the income statement impact of dilutive securities | — | (11,166) | ||||||
|
|
|
| |||||
Income from continuing operations for dilution calculation | 402,066 | 125,213 | ||||||
(Loss) from discontinued operations, net of income tax expense | (151,632) | (14,345,255) | ||||||
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|
|
| |||||
Net income (loss) for dilution calculation | $ | 250,434 | $ | (14,220,042) | ||||
|
|
|
| |||||
Denominator: | ||||||||
Weighted average common shares – basic | 10,828,396 | 10,623,575 | ||||||
Effect of dilutive securities: | ||||||||
RSUs | 292,981 | 341,011 | ||||||
Stock options | 226,374 | 46,808 | ||||||
|
|
|
| |||||
Weighted average common shares – diluted | 11,347,751 | 11,011,394 | ||||||
|
|
|
| |||||
Per common share amounts – basic: | ||||||||
Income from continuing operations | $ | 0.04 | $ | 0.01 | ||||
(Loss) from discontinued operations | (0.02) | (1.35) | ||||||
|
|
|
| |||||
Net income (loss) | $ | 0.02 | $ | (1.34) | ||||
|
|
|
| |||||
Per common share amounts – diluted: | ||||||||
Income from continuing operations | $ | 0.04 | $ | 0.01 | ||||
(Loss) from discontinued operations | (0.02) | (1.30) | ||||||
|
|
|
| |||||
Net income (loss) | $ | 0.02 | $ | (1.29) | ||||
|
|
|
|
Potentially dilutive securities include all stock based awards. For the ninethree months ended September 30, 2012 and 2011,March 31, 2013, certain equity awards in addition to theand option awards accounted for under the liability method, were antidilutive. For the three months ended September 30,March 31, 2012, only option awards accounted for under the liability method were antidilutive. For the three months ended September 30, 2011, only certain equity awards were antidilutive.
11. | Commitments and Contingencies |
Litigation
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.
Reis has purchased insurance with respect to construction defect and completed operations at its past real estate projects. Reis has, from time to time, been exposed to various claims associated with the development, construction and sale of condominium units, single family homes or lots. Claims related to dissatisfaction by homeowners and homeowners associations with the construction of condominiums, homes and amenities by us and/or our developer partners in any condominium or subdivision development, or other matters, may result in litigation costs, remediation costs, warranty expenses or settlement costs which could be material to the Company’s reportable discontinued operating income (loss), or its consolidated financial position or cash flows. It would not have any effect on the Company’s income from continuing operations.
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Commitments and Contingencies (continued)
Reis, Inc. and two of its subsidiaries (GP LLC and Wellsford Park Highlands Corp. (“WPHC”)) were the subject of a suit brought by the homeowners association at the Company’s former 259-unit Gold Peak condominium project outside of Denver, Colorado. This suit was filed in District Court in Douglas County, Colorado on October 19, 2010, seeking monetary damages (not quantified
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Commitments and Contingencies (continued)
at the time) relating to design and construction defects at the Gold Peak project. Tri-Star, the construction manager/general contractor for the project (not affiliated with Reis) and two former senior officers of Reis, Inc. (Jeffrey H. Lynford, who was also previously a director of the Company, and David M. Strong) were also named as defendants in the suit. In October 2011, experts for the plaintiff delivered a report alleging a cost to repair of approximately $19,000,000. Trial commenced on February 21, 2012 and a jury rendered its verdict on March 13, 2012. The jury found2012 finding Reis, GP LLC the former officers and Tri-Star jointly and severally liable for an aggregate of $18,200,000, plus other costs of approximately $756,000.
In connection with the development of Gold Peak, the Company purchased a commercial general liability “WRAP” insurance policy from a predecessor of ACE Westchester (“ACE”) that coverscovering the Company (including its subsidiaries) and its former officers, Tri-Star and Tri-Star’s subcontractors. The Company, upon advice of counsel and based on a reading of the policy, has taken the position that a total of $9,000,000 (and possibly $12,000,000) of coverage is available for this claim. ACE has taken the position that only $3,000,000 of coverage (including defense costs) was provided. The Company has filed suit against ACE, alleging failure to cover this claim, bad faith and other related causes of action. In particular, the Gold Peak litigation could have been settled for $12,000,000 or less prior to the trial. The Company takes the position that ACE is liable for all additional damages stemming from this failure to engage and settle. Additionally, the Company has added claims against multiple additional insurance companies under policies maintained by the Company, including Reis’s directors’ and officers’ insurance policy, and against Reis’s former insurance broker and others.broker. The Company has also brought separate claims against Tri-Star, the subcontractors, the architect at Gold Peak and a third party inspector engaged at Gold Peak, relating to those parties’ actions on the project, and is considering other recovery actions.
As of December 31, 2011, based on the best available information at that time, the Company recorded a charge of approximately $4,460,000 in discontinued operations, representing the low end of the Company’s expected range of net exposure. This amount reflected an aggregate minimum liability of approximately $7,740,000, less the then minimum expected insurance recovery of $3,000,000 and other previously reserved amounts. At March 31, 2012, as a result of the verdict, the Company recorded an additional charge of $14,216,000 in discontinued operations in the first quarter of 2012, to bring the Company’s liability up to the $18,200,000
$18,200,000 judgment, plus other costs of approximately $756,000. As of March 31, 2012, the Company, in accordance with the applicable accounting literature, could no longer conclude that $3,000,000 of insurance was probable of being recovered. These charges were reflected in discontinued operations and negatively impacted consolidated net income (loss), but did not impact income from continuing operations.
During AprilOn June 20, 2012, the Company, other defendants and the plaintiff homeowners association filed various post-trial motions which could have resulted in increases or decreases in the final judgment, a new trial or no change from the jury verdict. Following the court’s ruling on these post-trial motions, the Company could have filed an appealfollowing denial of the judgment. In order to appeal the judgment, the Company would have been required to post cash or a bond with the court and would have needed to obtain additional financing. If appealed, a final resolution would likely have been deferred into 2013. In June 2012, the court denied all of the defendants’ post-trial motions.
On June 20, 2012,motions, Reis reached a settlement with the plaintiff, providing for a total payment by Reis of $17,000,000. Of this amount, $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012, in accordance with the settlement terms. In reaching the decision to settle, Reis’s management and board of directorsBoard considered, among other factors: (1) the amount of the settlement versus the potential for an ultimately greater judgment after appeal, including additional costs and post-judgment interest; (2) the benefits of the clarity of settling the case at this time versus continuing uncertainty; and (3) the strong cash flow generation of Reis Service’sServices’s core business. As a result of the settlement, in the second quarter of 2012 the Company reversed $1,956,000 of the previously recorded charge. In December 2012, the Company recovered $712,500, which offset a portion of the previously recorded charge, resulting in the net litigation charge for the nineyear ended December 31, 2012 of approximately $11,547,000. No recoveries occurred during the three months ended September 30, 2012 of $12,260,000.March 31, 2013.
Reis continues to consider its options with respect to contribution or other actions against potentially responsible third parties and/or co-defendants in the lawsuit, and will pursue all reasonable efforts to mitigate the effects of this settlement. There is no assurance that the Company will be successful in these additional recovery efforts.
The Company is not a party to any other litigation that could reasonably be foreseen to be material to the Company.
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
12. | Fair Value of Financial Instruments |
At September 30, 2012March 31, 2013 and December 31, 2011,2012, the Company’s financial instruments included receivables, payables, accrued expenses, other liabilities and at December 31, 2011, debt. The fair values of these financial instruments, excluding the Bank Loan,debt, were not materially different from their recorded values at September 30, 2012March 31, 2013 and December 31, 2011. All of2012. There was no balance outstanding under the Company’s debtRevolver at March 31, 2013 and December 31, 2011 was floating rate based. Regarding the Bank Loan, the fair value of this debt was estimated to be approximately $5,628,000 at December 31, 2011, which was lower than the recorded amount of $5,691,000 at that date. The estimated fair value reflected the effect of higher interest rate spreads on debt being issued under current market conditions, as compared to the conditions that existed when the Bank Loan was obtained. The Bank Loan was repaid in full by June 30, 2012. See Note 6 for morethe additional information about the Company’s debt.
On October 16, 2012, Reis Services, as borrower, and the Company, as guarantor, entered into a loan and security agreement with Capital One, National Association, as lender, for a $10,000,000 revolving credit facility (the “Revolver”). The Revolver has a three year term expiring on October 16, 2015, and any borrowings bear interest at a rate of LIBOR + 2.00% per annum (for LIBOR loans) or the greater of 1.00% or the bank’s prime rate minus 0.50% per annum (for base rate loans) with an unused facility fee of 0.25% per annum. The Company paid a commitment fee of $50,000 in connection with the closing. The Revolver is secured by a security interest in substantially all of the tangible and intangible assets of Reis Services 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 agreement. No borrowings were made on the Revolver at the time of the closing.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
Organization and Business
Reis, Inc. is a Maryland corporation. The primary business of Reis, Inc. and its consolidated subsidiaries, which we refer to as Reis or the Company, is providing commercial real estate market information and analytical tools for its subscribers, through its Reis Services subsidiary. For disclosure and financial reporting purposes, this business is referred to as the Reis Services segment.
Reis Services
Reis Services, including its predecessors, was founded in 1980. Reis maintains a proprietary database containing detailed information on commercial properties in metropolitan markets and neighborhoods throughout the U.S. The database contains information on apartment, office, retail, warehouse/distribution, flex/research & development and self storage properties, and is used by real estate investors, lenders and other professionals to make informed buying, selling and financing decisions. In addition, Reis data is used by debt and equity investors to assess, quantify and manage the risks of default and loss associated with individual mortgages, properties, portfolios and real estate backed securities. Reis currently provides its information services to many of the nation’s leading lending institutions, equity investors, brokers and appraisers.
Reis, through its flagship institutional product,Reis SE, and through its small business product,ReisReports,provides online access to a proprietary database of commercial real estate information and analytical tools designed to facilitate debt and equity transactions as well as ongoing asset and portfolio evaluations. Depending on the product, users have access to trendmarket trends and forecast analysisforecasts at metropolitan and neighborhood levels throughout the U.S. and/or detailed building-specific information such as rents, vacancy rates, lease terms, property sales, new construction listings and property valuation estimates. Reis’s products are designed to meet the demand for timely and accurate information to support the decision-making of property owners, developers, builders, banks and non-bank lenders, equity investors and equity investors.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.
Reis’s revenue model is based primarily on annual subscriptions that are paid in accordance with contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for example, one-twelfth of the value of a one-year contract is recognized monthly.
Operations
As commercial real estate markets have growncontinue to grow in size and complexity, Reis, over the last 3233 years, has invested in the areasdatabases, technologies and personnel critical to supporting the information needs of commercial real estate professionals in both the asset market and the space leasing market. In particular,professionals. Specifically, Reis has:
developed expertise in data collection across multiple markets and property types;
invested in the analytical expertise to develop decision support systems aroundthat generate market trends and forecasts, property valuation,valuations, credit analytics, transaction support and risk management;
created product development expertise to collect market feedback and translate it into new products and reports; and
invested in a robust technology infrastructure to disseminate these tools to the wide variety of market participants.
These investments have established Reis as a leading provider of commercial real estate information and analytical tools to the investment community. Reis continues to develop and introduce new products, expand and add new markets and data, and find new ways to deliver existing information to meet and anticipate client demand, as more fully described below under “— Products and Services.” The depth and breadth of Reis’s data and expertise are critical in allowing Reis to grow its business.
Proprietary Databases
Reis’s commercial real estate databases contain information on competitive, income-producing properties in the U.S. apartment, retail, office, warehouse/distribution, flex/research & development and self storage 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 web sites. Reis screens and assembles large volumes of data into integrated supply and demand trends on a monthly basis at the neighborhood (submarket) and metropolitan market levels. All collected data are subjected to a rigorous quality assurance and validation process developed over many years. At the property level, surveyors compare the data collected in the current period with data previously collected on that property and similar properties. If any unusual changes in rents and vacancies are identified, follow-up procedures are performed for verification or clarification of the results. All aggregate market data at the submarket and market levels are also subjected to comprehensive quality controls. The following table lists the number of metropolitan markets for each of the six types of commercial real estate covered by Reis at September 30, 2012:March 31, 2013:
Number of metropolitan markets: | ||||
Apartment | 200 | |||
Retail | 190 | |||
Office | 190 | |||
Warehouse/distribution | 47 | |||
Flex/research & development | 47 | |||
Self storage |
Reis monitors over 6,700 market areas and segments at March 31, 2013. Reis programmatically expands its property level and market coverage by geography and property type, most recently fortype. During 2012, Reis initiated coverage on the office, self storage retail shopping centers, warehouse/distributionsector and flex/research & development sectors. Reis now monitors over 6,600 market areas and segments at September 30, 2012.
Reis entered intoin February 2013, expanded its geographic coverage for this sector by adding an exclusive market data agreement with the Self Storage Associationadditional 20 markets, bringing its coverage to 50 markets in June 2011 and introduced coverage of the U.S. self storage market in September 2012. This is the sixth major property type for whichIn addition, as of May 1, 2013, Reis provides market data and analytics.added 75 apartment markets, bringing its coverage to 275 apartment markets.
In addition to theits core property database, Reis develops and maintains a new construction database that identifies and monitors projects that are being added to ourits 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 criteriainformation such as project size, property type and location for projects that are planned, proposed or under construction.
Reis also maintains a sales comparables database containing transactions in 203202 metropolitan markets. The database captures key information on each transaction, such as buyer, seller, purchase price, capitalization rate and financing details, where available, for transactions valued at greater than $250,000 in the covered markets of oureach market Reis covers, for its six property types, as well as for hotel transactions.properties.
Products and Services
Reis SE, and the next generation of our flagship product,Reis SE 2.0, available through thewww.reis.com web site, serves as athe primary delivery platform for the thousands of reports containing Reis’s primary research data and forecasts, as well as a number of analytical tools. Access toReis SE is by secure password only and can be customized to accommodate the needs of subscribers. For example, the product can be tailored to provide access to all or only selected markets, property types and report combinations. TheReis SEinterface has been refined over the past several years, with a major redesign in 2012, to accommodate real estate professionals who need to perform market-based trend analysis, property specific research, comparable property analysis, and valuation and credit analysis estimates at the single property.property and portfolio levels.
On a monthly and quarterly basis, Reis updates thousands of neighborhood and city level reports that cover historical trends and current conditions. In all of theour primary markets, five year forecasts are updated quarterly on all key real estate market indicators. Monthly and quarterly updates are supported by property, neighborhood and city data collected during the relevant reporting periods.
Reports are retrievable by street address, property type (apartment, office, retail, warehouse/distribution, and flex/research & development)development and self storage) or market/submarket and are available as full color, presentation quality documents or in spreadsheet formats. These reports are used by Reis’s subscribers to assist in due diligence and to support commercial real estate transactions, including loan
originations, underwriting, acquisitions, risk assessment (such as loan loss reserves and impairment analyses), portfolio monitoring and management, asset management, appraisal and market analysis.
Reis also has a product tailored to the needs of smaller enterprises and individuals, professional investors, brokers and appraisers, which we refer to asReisReports, available atwww.ReisReports.com.ReisReportsutilizes the same proprietary database of information that supports ourReis SEsubscribers. Depending on the package chosen by theReisReportssubscriber, a set number of market reportscontent is available on a monthly or annual subscription basis at an affordable price point.points.
Reis continues to develop new products and applications. In the second quarterAs of 2012, we launched the next generation of our flagship product,May 1, 2013, Reis SE 2.0. This major upgrade provides users with more tools and features to better service their transactional and management needs. In September 2012, we initiated coverage on the self storage sector and on 58added an additional metropolitan office markets (bringing our total coverage to 190 office markets). For 2013, we intend to add additional75 markets to ourits apartment coverage and are considering the feasibility of introducingcoverage; it also expects to introduce coverage on an additional property type.type late in 2013 or early in 2014. In the past, Reis has performed portfolio credit risk and valuation reviews for debt and equity investors. We are developing enhancements to our portfolio analytics services as heightened regulatory scrutiny increases the demand among lenders to assess the risk profile of their mortgage assets. In February 2013, we introduced Mobiuss Portfolio CRE. Mobiuss Portfolio CRE has been developed in conjunction with, and is being co-marketed with, Opera Solutions, LLC (Opera Solutions is a leader in “Big Data” science, predictive analytics and technological innovations). The product combines Reis’s unparalleled commercial real estate market information and forecasts with Opera Solutions’s cutting edge risk analytics and web-based technologies. Mobiuss Portfolio CRE will provide property and loan valuation, credit risk analytics, stress testing and benchmarking, and will be available to new and existing customers as an add on toReis SE.
We are also actively seeking to expandexpanding our revenue streams through licensing portions of our data to major business information vendors. To date, we have entered into data redistribution relationships with SNL Financial, FactSet, Capital IQ, Thomson Reuters and Bloomberg, and we continue to engage these partners to potentially expand the existing relationships, while seeking to add additional partners.
In the past, Reis has performed ad-hoc portfolio reviews for debt and equity investors. We are developing enhancements to our portfolio analytics products as heightened regulatory scrutiny increases the demand for lenders to monitor the risk profile of their mortgage assets. These enhancements and products are planned for introduction in 2013 and may be developed in conjunction with a strategic partner.
Cost of Service
Reis’s data is made available in five primary ways: (1) annual and multi-year subscriptions toReis SE; (2) cappedReis SEsubscriptions allowing subscribersways, with price points that are reflective of the level of content being made available:
• | annual and multi-year subscriptions toReis SEranging in price from $1,000 to over $1,000,000, depending upon the subscriber’s line of business and the combination of markets, property types and reports subscribed to, for which the subscriber is typically allowed to download an unlimited number of reports over the subscription period; renewals forReis SEare negotiated in advance of the expiration of an existing contract based on factors such as a subscriber’s historical and projected report consumption; |
• | cappedReis SEsubscriptions generally 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; |
individual reports, which can be purchased with a limited retail value of reports; (3) online single report credit card, purchases; (4) custom data requests; and (5) subscriptions toReisReports, charged to a credit card. Annual subscription fees forReis SErange from $1,000 to over $1,000,000 depending upon the subscriber’s line of business, and the combination of markets, property types and reports subscribed to, for which the subscriber is typically allowed to download an unlimited number of reports over a twelve month period. Capped subscriptions generally range from $1,000 to $25,000 and allow clients to download a fixedhaving retail value of reports over a twelve month period. Retail prices of individual reports range up to $999 per report, and are available to anyone who visits Reis’s retail web site or contacts Reis via telephone, fax or email. However,email; however, certain reports are only available by awith an annual subscription or capped subscription account. Customaccount;
custom data deliverables rangeranging in price from $1,000 for a specific data element to hundreds of thousands of dollars for custom portfolio valuation and credit analysis. Renewals are negotiated in advance of the expiration of an existing contract. Important factors in determining contract renewal rates include a subscriber’s historicalanalysis; and projected report consumption. The monthly retail price forReisReports is currently $75 or $125
• | subscriptions toReisReports, which are charged to a credit card on a monthly basis, having a retail price ranging up to $150 per month depending on the package chosen by the subscriber; or if desired, annual pricing options are also available. |
Other Reis Services Information
For additional information on the Reis Services business, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2011,2012, which was filed with the Securities and Exchange Commission on March 8, 2012.13, 2013.
Discontinued Operations – Residential Development Activities
Reis was originally formed on January 8, 1997 as Wellsford Real Properties, Inc., which we refer to as Wellsford. Wellsford acquired the Reis Services business by merger in May 2007, which we refer to as the Merger. Wellsford’s primary operating activities immediately prior to the Merger, and conducted through its subsidiaries, were the development, construction and sale of its three residential projects and its approximate 23% ownership interest in the Reis Services business. The Company completed the sale of the remaining units at its Colorado project in September 2009, sold its Claverack, New York project in bulk in February 2010, and sold its remaining project in East Lyme, Connecticut in bulk in April 2011.2011, and settled construction defect litigation at the aforementioned Colorado project in 2012.
The Company has determined, as a result of the April 2011 sale of property in East Lyme, Connecticut, that the Residential Development Activities segment, including certain general and administrative costs that supported that segment’s operations, should
be presented as a discontinued operation. As a result of this determination and the fact that the historic operations and cash flows can be clearly distinguished, the operating results of the Residential Development Activities segment and related general and administrative costs are aggregated for separate presentation apart from continuing operating results of the Company in the consolidated financial statements for all periods presented.
On March 13, 2012, in connection with litigation regarding construction defects at the Gold Peak project in Colorado, a jury rendered its verdict, whereby Reis, one of its subsidiaries (Gold Peak at Palomino Park LLC, the developer of the project, which we refer to as GP LLC), two former senior officers of Reis (Jeffrey H. Lynford, who was also previously a director of the Company, and David M. Strong) and the construction manager/general contractor for the project (Tri-Star Construction West, LLC (“Tri-Star”)) were found jointly and severally liable for an aggregate of $18,200,000, plus other costs of approximately $756,000. The Company recorded a charge of $14,216,000 during the first quarter of 2012. On June 20, 2012, Reis reached a settlement with the plaintiff, the Gold Peak homeowners association, providing for a total payment by Reis of $17,000,000. Of this amount, $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012, in accordance with the settlement terms. As a result of the settlement, in the second quarter of 2012 the Company reversed $1,956,000 of the previously recorded charge, resulting in the net litigation charge for the nine months ended September 30, 2012 of $12,260,000. For additional information pertaining to the Gold Peak litigation, see Note 11 included in the unaudited financial statements in Item 1 of this quarterly report on Form 10-Q.
Additional Segment Financial Information
See Note 3 of the consolidated financial statements included in this filing for additional information regarding all of the Company’s segments.
Selected Significant Accounting Policies
For a description of our selected significant accounting policies and estimates, see our Annual Report on Form 10-K for the year ended December 31, 2011.2012.
Critical Business Metrics of the Reis Services Business
Management considers certain metrics in evaluating the performance of the Reis Services business. These metrics are revenue, EBITDA (which is defined as earnings before interest, taxes, depreciation and amortization) and EBITDA margin. Following is a presentation of these historical metrics for the Reis Services business (for(see below for a reconciliation of income (loss) from continuing operations to EBITDA and Adjusted EBITDA for both the Reis Services segment and on a consolidated basis for each of the periods presented here see below)here).
(amounts in thousands, excluding percentages) | (amounts in thousands, excluding percentages) | |||||||||||||||||||||||||||||||
For the Three Months Ended | Increase | Percentage Increase | ||||||||||||||||||||||||||||||
For the Three Months Ended September 30, | Increase | Percentage Increase | 2013 | 2012 | ||||||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||||||||||
Revenue | $ | 7,827 | $ | 6,747 | $ | 1,080 | 16.0 | % | $ | 8,234 | $ | 7,298 | $ | 936 | 12.8% | |||||||||||||||||
EBITDA | $ | 3,228 | $ | 2,722 | $ | 506 | 18.6 | % | $ | 3,277 | $ | 2,921 | $ | 356 | 12.2% | |||||||||||||||||
EBITDA margin | 41.2 | % | 40.3 | % | 39.8% | 40.0% | ||||||||||||||||||||||||||
For the Three Months Ended | ||||||||||||||||||||||||||||||||
For the Nine Months Ended September 30, | Increase | Percentage Increase | March 31, 2013 | December 31, 2012 | (Decrease) | Percentage (Decrease) | ||||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||||||||||
Revenue | $ | 22,647 | $ | 20,201 | $ | 2,446 | 12.1 | % | $ | 8,234 | $ | 8,581 | $ | (347) | (4.0)% | |||||||||||||||||
EBITDA | $ | 9,219 | $ | 8,089 | $ | 1,130 | 14.0 | % | $ | 3,277 | $ | 3,543 | $ | (266) | (7.5)% | |||||||||||||||||
EBITDA margin | 40.7 | % | 40.0 | % | 39.8% | 41.3% | ||||||||||||||||||||||||||
For the Three Months Ended | ||||||||||||||||||||||||||||||||
For the Three Months Ended | March 31, 2013 | December 31, 2012 Pro Forma Basis | Increase | Percentage Increase | ||||||||||||||||||||||||||||
September 30, 2012 | June 30, 2012 | Increase | Percentage Increase | |||||||||||||||||||||||||||||
Revenue | $ | 7,827 | $ | 7,522 | $ | 305 | 4.0 | % | $ | 8,234 | $ | 8,154 | $ | 80 | 1.0% | |||||||||||||||||
EBITDA | $ | 3,228 | $ | 3,070 | $ | 158 | 5.1 | % | $ | 3,277 | $ | 3,116 | $ | 161 | 5.2% | |||||||||||||||||
EBITDA margin | 41.2 | % | 40.8 | % | ||||||||||||||||||||||||||||
EBITDA Margin | 39.8% | 38.2% |
Reis Services’s revenue increased byfor the three months ended March 31, 2013 was $8,234,000, an increase of approximately $1,080,000,$936,000, or 16.0%12.8%, from the third quarter of 2011 to the thirdfirst quarter of 2012 and $2,446,000, or 12.1%, into the nine months ended September 30, 2012 over the comparable 2011 nine month period. Thefirst quarter of 2013. This revenue increase over the corresponding prior quarterly period is the tenth consecutivelytwelfth consecutive quarterly increase in revenue over the prior year’s quarter. In addition,general, the revenue increased by approximately $305,000 or 4.0%, from the second quarter of 2012 to the third quarter of 2012. These revenue increases reflect:increase reflects: (1) incrementaladditional new business as the nine months of 2012 produced the highest level of new contract signings in the Company’s history (reflected in the growth in the number ofReis SE subscribersbusiness; (2) revenue growth from 726 at December 31, 2011 to 828 subscribers at September 30, 2012)ReisReports; (2)and (3) revenue growth from our data redistribution initiatives; (3)initiatives. These results reflect not just a single strong revenue quarter, but also the momentum created by sustained contract growth fromReisReports;during 2012 and (4) the cumulative impact of the increased volume of contract signings in 2011 and through 2012.into 2013. The Company’s overall renewal rate for the trailing twelve months ending September 30, 2012ended March 31, 2013 was 92%,91% as compared to 93%92% for the corresponding period in 2011trailing twelve months ended March 31, 2012 (for institutional subscribers, the renewal rates were 92% and 94% for the trailing twelve months ended March 31, 2013 and 95% at September 30, 2012, and 2011, respectively).
On a consecutive quarter basis, revenue decreased by $347,000, or 4.0%, in the first quarter of 2013 from the fourth quarter of 2012. This decrease is the result of incremental revenue of $427,000 from one specific custom project recognized in the fourth quarter of 2012; there was no comparable custom project in the first quarter of 2013. As reported in our December 31, 2012 Form 10-K, management expected that there would be no comparable custom project of this magnitude in the first quarter of 2013 and, as a result, both revenue and EBITDA would decrease from the fourth quarter 2012 to the first quarter of 2013. The exclusion of the $427,000 of revenue from the fourth quarter 2012 associated with this custom project, would result in a revenue increase, on a pro forma basis, of $80,000, representing a 1.0% increase on a consecutive quarter basis.
Reis’s revenue model is based primarily on annual subscriptions that are paid in accordance with contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for example, one-twelfth of the value of a one-year contract is recognized monthly. Therefore, increases in the dollar value of new contracts are spread evenly over the life of a contract, thereby moderating an immediate impact on revenue. Historically, the largest percentage of our contracts are executed in the fourth quarter of each year. As a result, in times of favorable pricing, larger consecutive quarter revenue growth occurs in the fourth and first quarters.
Our contract pricing model is based on actual and projected report consumption; we believe it is generally not as susceptible to economic downturns and personnel reductions at our subscribers as a model based upon individual user licenses. We typically impose contractual restrictions limiting our immediate exposure (during existing contract terms) to revenue reductions due to mergers and consolidations. However, we have been, and we may in the future be impacted by consolidation among our subscribers and potential subscribers, or in the event that subscribers enter bankruptcy or otherwise go out of business.
Two additional metrics management utilizes in understanding the business and future performance are deferred revenue and Aggregate Revenue Under Contract. Analyzing these amounts can provide additional insight into Reis Services’s financial performance. Deferred revenue, which is a GAAP basis accounting concept and is reported by the Company on the consolidated balance sheet, represents revenue from annual or longer term contracts for which we have billed and/or received payments from our subscribers related to services we will be providing over the remaining contract period. It does not include future revenue under non-cancellable contracts for which we do not yet have the contractual right to bill; this aggregate number we refer to as Aggregate Revenue Under Contract. Deferred revenue will be recognized as revenue ratably over the remaining life of a contract. The following table reconciles deferred revenue to Aggregate Revenue Under Contract at September 30,March 31, 2013 and 2012, and 2011, respectively. A comparison of these balances at September 30March 31 of each year is more meaningful than a comparison to the December 31, 20112012 balances, as a greater percentage of renewals occur in the fourth quarter of each year and would distort the comparison.analysis.
March 31, | ||||||||||||||||||||||||
September 30, | Increase | Percentage Increase | 2013 | 2012 | ||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Deferred revenue (GAAP basis) | $ | 14,435,000 | $ | 12,368,000 | $ | 2,067,000 | 16.7 | % | $ | 16,880,000 | $ | 14,758,000 | ||||||||||||
Amounts under non-cancellable contracts for which the Company does not yet have the contractual right to bill at the period end (A) | 13,974,000 | 12,263,000 | 1,711,000 | 14.0 | % | 17,575,000 | 11,212,000 | |||||||||||||||||
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Aggregate Revenue Under Contract | $ | 28,409,000 | $ | 24,631,000 | $ | 3,778,000 | 15.3 | % | $ | 34,455,000 | $ | 25,970,000 | ||||||||||||
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(A) | Amounts are billable subsequent to |
Included in Aggregate Revenue Under Contract at September 30, 2012March 31, 2013 was approximately $20,711,000$23,315,000 related to amounts under contract for the forward twelve month period through September 30, 2013.March 31, 2014. The remainder reflects amounts under contract beyond September 30, 2013.March 31, 2014. The forward twelve month Aggregate Revenue Under Contract amount at September 30, 2012 wasis approximately 69.9%72.5% of revenue on a trailing twelve month basis at September 30, 2012March 31, 2013 of approximately $29,626,000.$32,165,000. For comparison purposes, at September 30, 2011,March 31, 2012, the forward twelve month Aggregate Revenue Under Contract amount of $18,508,000$19,756,000 was approximately 70.2%70.9% of revenue on a trailing twelve month basis at September 30, 2011. Management believes that this is a strong indicator of revenue visibility and the power of our business model.March 31, 2012.
Both deferred revenue and Aggregate Revenue Under Contract are influenced by: (1) the timing and dollar value of contracts signed and billed;signed; (2) the quantity and timing of contracts that are multiyear;multi-year; and (3) the impact of recording revenue ratably over the life of a contract, which moderates the effect of price increases after the first year. Coupled with record new business and contract signings in 2012 and more multi-year contracts (in both number of contracts and gross dollar value) in 2012 than in any previous annual period, both deferred revenue and Aggregate Revenue Under Contract had substantial year over year increases.
EBITDA for the three months ended September 30, 2012March 31, 2013 was $3,228,000,$3,277,000, an increase of $506,000,$356,000, or 18.6%12.2%, over the thirdfirst quarter 2011 amount and increased $1,130,000, or 14.0%,2012 amount. This increase was primarily derived from the corresponding increases in revenue, as described above, while maintaining the nine months ended September 30, 2012 over the comparable 2011 nine month period. Reis Services EBITDA margin at approximately 40%.
On a consecutive quarter basis, EBITDA increased $158,000decreased by $266,000, or 5.1%7.5%, in the thirdfirst quarter of 2013 from the fourth quarter of 2012. EBITDA in the fourth quarter 2012 over the second quarter 2012. These EBITDA increases were drivenwas similarly impacted by the incremental revenue growth as described above, offsetgenerated by increasing employment related coststhe aforementioned custom project. The exclusion of the $427,000 of revenue associated with this custom project would result in an EBITDA increase, on a pro forma basis, of $161,000, representing a 5.2% increase on a consecutive quarter basis (fourth quarter 2012 over 2011, the net effect of which improved our EBITDA margins over the prior year periods to 41.2% and 40.7% for the three and nine months ended September 30, 2012, respectively.first quarter 2013).
Reconciliations of Income from Continuing Operations to EBITDA and Adjusted EBITDA
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock based compensation. Although EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance with GAAP, senior management uses EBITDA and Adjusted EBITDA to measure operational and management performance. Management believes that EBITDA and Adjusted EBITDA are appropriate metrics that may be used by investors as supplemental financial measures to be considered in addition to the reported GAAP basis financial information to assist investors in evaluating and understanding (1) the performance of the Reis Services segment, the primary business of the Company and (2) the Company’s continuing consolidated results, from year to year or period to period, as applicable. Further, these measures provide the reader with the ability to understand our operational performance while isolating non-cash charges, such as depreciation and amortization expenses, as well as other non-operating items, such as interest income, interest expense and income taxes and, in the case of Adjusted EBITDA, isolates non-cash charges for stock based compensation. Management also believes that disclosing EBITDA and Adjusted EBITDA will provide better comparability to other companies in the information services sector. EBITDA and Adjusted EBITDA are presented both for the Reis Services business 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 to make 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 business. EBITDA and Adjusted EBITDA, on a consolidated basis, allow the reader to make assessments about the current trading value of the Company’s common stock, including expenses related to operating as a public company. However, investors should not consider these measures in isolation or as substitutes for net income (loss), income from continuing operations, operating income, or any other measure for determining operating performance that is calculated in accordance with GAAP. In addition, because EBITDA and Adjusted EBITDA are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies. Reconciliations of EBITDA and Adjusted EBITDA to the most comparable GAAP financial measure, income from continuing operations, follow for each identified period on a segment basis (including the Reis Services segment), as well as on a consolidated basis:
(amounts in thousands) | ||||||||||||
Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Three Months Ended September 30, 2012 | By Segment | |||||||||||
Reis Services | Other (A) | Consolidated | ||||||||||
Income from continuing operations | $ | 860 | ||||||||||
Income tax (benefit) | — | |||||||||||
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Income (loss) before income taxes and discontinued operations | $ | 2,106 | $ | (1,246 | ) | 860 | ||||||
Add back: | ||||||||||||
Depreciation and amortization expense | 1,137 | 3 | 1,140 | |||||||||
Interest expense (income), net | (15 | ) | — | (15 | ) | |||||||
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EBITDA | 3,228 | (1,243 | ) | 1,985 | ||||||||
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Stock based compensation expense, net | — | 598 | 598 | |||||||||
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Adjusted EBITDA | $ | 3,228 | $ | (645 | ) | $ | 2,583 | |||||
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Adjusted EBITDA margin – Reis Services and consolidated (B) | 41.2 | % | 33.0 | % | ||||||||
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See footnotes on next page.
Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Nine Months Ended September 30, 2012 Income from continuing operations Income tax expense Income (loss) before income taxes and discontinued operations Add back: Depreciation and amortization expense Interest expense (income), net EBITDA Add back: Stock based compensation expense, net Adjusted EBITDA Adjusted EBITDA margin – Reis Services and consolidated (B) Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Three Months Ended September 30, 2011 Income from continuing operations Income tax expense Income (loss) before income taxes and discontinued operations Add back: Depreciation and amortization expense Interest expense (income), net EBITDA Add back: Stock based compensation expense, net Adjusted EBITDA Adjusted EBITDA Margin – Reis Services and consolidated (B) Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Nine Months Ended September 30, 2011 Income from continuing operations Income tax expense Income (loss) before income taxes and discontinued operations Add back: Depreciation and amortization expense Interest expense (income), net EBITDA Add back: Stock based compensation expense, net Adjusted EBITDA Adjusted EBITDA margin – Reis Services and consolidated (B) (amounts in thousands) By Segment Reis Services Other (A) Consolidated $ 1,494 — $ 5,346 $ (3,852 ) 1,494 3,792 7 3,799 81 (1 ) 80 9,219 (3,846 ) 5,373 — 1,790 1,790 $ 9,219 $ (2,056 ) $ 7,163 40.7 % 31.6 % By Segment Reis Services Other (A) Consolidated $ 289 — $ 1,357 $ (1,068 ) 289 1,318 1 1,319 47 (2 ) 45 2,722 (1,069 ) 1,653 — 446 446 $ 2,722 $ (623 ) $ 2,099 40.3 % 31.1 % By Segment Consolidated Reis Services Other (A) $ 489 — $ 4,130 $ (3,641 ) 489 3,801 2 3,803 158 (5 ) 153 8,089 (3,644 ) 4,445 — 1,667 1,667 $ 8,089 $ (1,977 ) $ 6,112 40.0 % 30.3 %
See footnotes on next page.
Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Three Months Ended June 30, 2012 Income from continuing operations Income tax expense Income (loss) before income taxes and discontinued operations Add back: Depreciation and amortization expense Interest expense (income), net EBITDA Add back: Stock based compensation expense, net Adjusted EBITDA Adjusted EBITDA margin – Reis Services and consolidated (B) (amounts in thousands) By Segment Reis Services Other (A) Consolidated $ 498 (84 ) $ 1,712 $ (1,298 ) 414 1,300 3 1,303 58 — 58 3,070 (1,295 ) 1,775 — 646 646 $ 3,070 $ (649 ) $ 2,421 40.8 % 32.2 %
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Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Three Months Ended March 31, 2013 |
By Segment | |||||||||||
Reis Services | Other (A) | Consolidated | ||||||||||
Income from continuing operations | $ | 402 | ||||||||||
Income tax expense | 265 | |||||||||||
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Income (loss) before income taxes and discontinued operations | $ | 2,040 �� | $ | (1,373) | 667 | |||||||
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Depreciation and amortization expense | 1,211 | 2 | 1,213 | |||||||||
Interest expense (income), net | 26 | — | 26 | |||||||||
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EBITDA | 3,277 | (1,371) | 1,906 | |||||||||
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Stock based compensation expense, net | — | 581 | 581 | |||||||||
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Adjusted EBITDA | $ | 3,277 | $ | (790) | $ | 2,487 | ||||||
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Adjusted EBITDA margin – Reis Services and consolidated (B) | 39.8% | 30.2% | ||||||||||
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Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Three Months Ended March 31, 2012 | By Segment | |||||||||||
Reis Services | Other (A) | Consolidated | ||||||||||
Income from continuing operations | $ | 136 | ||||||||||
Income tax expense | 84 | |||||||||||
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Income (loss) before income taxes and discontinued operations | $ | 1,528 | $ | (1,308) | 220 | |||||||
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Depreciation and amortization expense | 1,355 | 1 | 1,356 | |||||||||
Interest expense (income), net | 38 | (1) | 37 | |||||||||
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EBITDA | 2,921 | (1,308) | 1,613 | |||||||||
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Stock based compensation expense, net | �� | 546 | 546 | |||||||||
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Adjusted EBITDA | $ | 2,921 | $ | (762) | $ | 2,159 | ||||||
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Adjusted EBITDA margin – Reis Services and consolidated (B) | 40.0% | 29.6% | ||||||||||
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Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Three Months Ended December 31, 2012 | By Segment | |||||||||||
Reis Services | Other (A) | Consolidated | ||||||||||
Income from continuing operations | $ | 6,519 | ||||||||||
Income tax (benefit) | (5,427) | |||||||||||
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Income (loss) before income taxes and discontinued operations | $ | 2,337 | $ | (1,245) | 1,092 | |||||||
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Depreciation and amortization expense | 1,182 | 2 | 1,184 | |||||||||
Interest expense (income), net | 24 | — | 24 | |||||||||
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EBITDA | 3,543 | (1,243) | 2,300 | |||||||||
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Stock based compensation expense, net | — | 505 | 505 | |||||||||
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Adjusted EBITDA | $ | 3,543 | $ | (738) | $ | 2,805 | ||||||
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Adjusted EBITDA margin – Reis Services and consolidated (B) | 41.3% | 32.7% | ||||||||||
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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. Since the reconciliations start with income from continuing operations, the effects of the discontinued operations (Residential Development Activities) are excluded from these reconciliations for all periods presented. |
(B) | Reflects an adjusted EBITDA margin on the Reis Services segment and on a consolidated basis, both of which |
Results of Operations
Comparison of the Results of Operations for the Three Months Ended September 30,March 31, 2013 and 2012 and 2011
Subscription revenues and related cost of sales were approximately $7,827,000$8,234,000 and $1,476,000,$1,681,000, respectively, for the three months ended September 30, 2012,March 31, 2013, resulting in a gross profit for the Reis Services segment of approximately $6,351,000.$6,553,000. Amortization expense included in cost of sales (for the database intangible asset) was approximately $330,000$366,000 during this period. Subscription revenues and related cost of sales were approximately $6,747,000$7,298,000 and $1,550,000,$1,846,000, respectively, for the three months ended September 30, 2011,March 31, 2012, resulting in a gross profit for the Reis Services segment of approximately $5,197,000.$5,452,000. Amortization expense included in cost of sales was approximately $601,000$655,000 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 decrease in cost of sales of $74,000$165,000 is primarily a result of a net decreasereduction in amortization expense of $271,000$289,000 from the Merger related purchase price allocations for the database intangible asset becoming fully amortized in the 2012 second quarter, offset by increasedan increase from employment related costs, specifically from hiring during the later part of 20112012 and throughout 2012,2013, coupled with wagecompensation increases and higher benefit increasescosts over the 2011 period aggregating $197,000.2012 period.
Sales and marketing expenses were approximately $1,908,000$1,969,000 and $1,656,000$1,729,000 for the three months ended September 30,March 31, 2013 and 2012, and 2011, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in sales and marketing expenses (for the customer relationships intangible asset) was approximately $246,000$244,000 and $247,000$246,000 during the three months ended September 30,March 31, 2013 and 2012, and 2011, respectively. The increase in sales and marketing expenses between the two periods of approximately $252,000$240,000 generally reflects increased commissions and employment related costs from hiring during the later part of 20112012 and throughout 2012,2013, coupled with wagecompensation increases and higher benefit increasescosts over the 20112012 period.
Product development expenses were approximately $661,000$722,000 and $574,000$514,000 for the three months ended September 30,March 31, 2013 and 2012, and 2011, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in product development expenses (for the web site intangible asset) was approximately $396,000$449,000 and $308,000$295,000 during the three months ended September 30,March 31, 2013 and 2012, and 2011, respectively. Product development costs increased $87,000,$208,000, primarily due to a net $154,000 increase in amortization expense for web site costs capitalized and amortization expense commencing in the period for significant product introductions and improvements in 20112012, coupled with increased employment related costs from hiring during 2012 and 2012.compensation increases and higher benefit costs over the 2012 period.
General and administrative expenses of approximately $2,937,000$3,169,000 for the three months ended September 30, 2012March 31, 2013 include current period expenses of approximately $2,170,000,$2,434,000, depreciation and amortization expense of approximately $169,000$154,000 for lease value and furniture, fixtures and equipment, and approximately $598,000 of net non-cash compensation expense. The net non-cash
compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $501,000 and by an approximate $97,000 increase in the liability for option cancellations due to an increase in the market price of the Company’s common stock from $9.61 per share at June 30, 2012 to $11.44 per share at September 30, 2012. General and administrative expenses of approximately $2,633,000 for the three months ended September 30, 2011 include current period expenses of approximately $2,024,000, depreciation and amortization expense of approximately $163,000 for lease value and furniture, fixtures and equipment, and approximately $446,000$581,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $522,000, offset$492,000 and by an approximate $76,000 decrease$89,000 increase in the liability for option cancellations due to a decreasean increase in the market price of the Company’s common stock from $9.93$13.03 per share at June 30, 2011December 31, 2012 to $8.86$15.54 per share at September 30, 2011. Excluding the non-cash expenses, the increase in general and administrative expenses of $146,000 is primarily a result of increased professional fees, compensation increases and higher benefit costs over the 2011 period.
Interest expense of $65,000 for the three months ended September 30, 2011, is comprised of interest and cost amortization on the Reis Services debt, which we refer to as the Bank Loan. In the second quarter of 2012, the Bank Loan was repaid and this obligation was cancelled.
No provision for income taxes was recorded by the Company in the 2012 and 2011 periods as a result of the corresponding reduction in the Company’s allowance for deferred tax assets.
The loss from discontinued operations of $(194,000) for the three months ended September 30, 2012 primarily is comprised of the other professional fees and expenses, with no corresponding costs in the 2011 period.
Comparison of the Results of Operations for the Nine Months Ended September 30, 2012 and 2011
Subscription revenues and related cost of sales were approximately $22,647,000 and $5,007,000, respectively, for the nine months ended September 30, 2012, resulting in a gross profit for the Reis Services segment of approximately $17,640,000. Amortization expense included in cost of sales (for the database intangible asset) was approximately $1,555,000 during this period. Subscription revenues and related cost of sales were approximately $20,201,000 and $4,623,000, respectively, for the nine months ended September 30, 2011, resulting in a gross profit for the Reis Services segment of approximately $15,578,000. Amortization expense included in cost of sales was approximately $1,778,000 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 $384,000 is primarily a result of employment related costs from hiring during 2011 and throughout 2012, coupled with wage and benefit increases over the 2011 period aggregating $607,000, offset by a net decrease in amortization expense of $223,000 from the Merger related purchase price allocations for the database intangible asset becoming fully amortized in the 2012 second quarter.
Sales and marketing expenses were approximately $5,459,000 and $4,989,000 for the nine months ended September 30, 2012 and 2011, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in sales and marketing expenses (for the customer relationships intangible asset) was approximately $738,000 and $744,000 during the nine months ended September 30, 2012 and 2011, respectively. The increase in sales and marketing expenses between the two periods of approximately $470,000 reflects increased commissions and employment related costs from hiring during 2011 and throughout 2012, coupled with wage and benefit increases over the 2011 period.
Product development expenses were approximately $1,741,000 and $1,562,000 for the nine months ended September 30, 2012 and 2011, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in product development expenses (for the web site intangible asset) was approximately $1,013,000 and $800,000 during the nine months ended September 30, 2012 and 2011, respectively. Product development costs increased $179,000, primarily due to an increase in amortization expense for web site costs capitalized and amortization expense commencing in the period for significant product introductions and improvements in 2011 and 2012.
March 31, 2013. General and administrative expenses of approximately $8,866,000$2,952,000 for the ninethree months ended September 30,March 31, 2012 include current period expenses of approximately $6,583,000,$2,246,000, depreciation and amortization expense of approximately $493,000$160,000 for lease value and furniture, fixtures and equipment, and approximately $1,790,000$546,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $1,667,000 and$557,000, offset by an approximate $123,000 increase$11,000 decrease in the liability for option cancellations due to an increasea decrease in the market price of the Company’s common stock from $9.12 per share at December 31, 2011 to $11.44$8.91 per share at September 30,March 31, 2012. General and administrative expenses of approximately $8,385,000 for the nine months ended September 30, 2011 include current
period expenses of approximately $6,236,000, depreciation and amortization expense of approximately $482,000 for lease value and furniture, fixtures and equipment, and approximately $1,667,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $1,537,000 and by an approximate $130,000 increase in the liability for option cancellations due to an increase in the market price of the Company’s common stock from $7.03 per share at December 31, 2010 to $8.86 per share at September 30, 2011. Excluding the non-cash expenses, the increase in general and administrative expenses of $347,000$188,000 is primarily a result of increased rent related costs for additional office space, increased professional fees, compensation increases and higher benefit costs over the 20112012 period.
Interest expense of $128,000$28,000 for the ninethree months ended September 30, 2012March 31, 2013 is comprised of interestunused facility fees and deferred financing cost amortization on the Bank Loan.Company’s revolving credit facility, which we refer to as the Revolver. There was no outstanding balance on the Revolver during the three months ended March 31, 2013. Interest expense of $215,000$53,000 for the ninethree months ended September 30, 2011March 31, 2012 includes interest and deferred financing cost amortization on the Bank Loanoutstanding debt balance during that period.
The aggregate income tax expense of $213,000$265,000 during the three months ended March 31, 2013 reflects deferred Federal tax expense of $220,000 and interest from other debtdeferred state and local tax expense of $2,000. In$45,000. The aggregate income tax expense of $84,000 during the second quarterthree months ended March 31, 2012 reflects deferred Federal tax expense of 2012, the Bank Loan was repaid$74,000 and this obligation was cancelled.deferred state and local tax expense of $10,000.
No provision for income taxes was recorded by the Company in the 2012 or 2011 periods as a result of the corresponding reduction in the Company’s allowance for deferred tax assets.
The loss from discontinued operations of $(12,844,000)was $152,000 and $14,345,000 for the ninethree months ended September 30,March 31, 2013 and 2012, respectively. The loss in the 2013 period primarily reflects legal and professional fees in connection with our recovery efforts related to the Gold Peak settlement of $251,000, offset by an income tax benefit of $99,000. The loss in the 2012 period primarily is comprised of a net charge of $12,260,000$14,216,000 related to the JuneMarch 13, 2012 settlement ofjury verdict rendered in the Gold Peak litigation, for $17,000,000, plus other professional feescosts, and expensesis after an income tax benefit of $584,000. Income from discontinued operations of $1,253,000 for the nine months ended September 30, 2011 primarily includes the sale of the East Lyme project in a bulk transaction in April 2011 for a gain of $1,242,000 and net other income of $11,000.$79,000.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset was approximately $4,008,000$9,456,000 and $9,622,000 at September 30, 2012March 31, 2013 and December 31, 20112012, respectively, of which $80,000$658,000 and $323,000$1,065,000 is reflected as a net current asset respectively, and $3,928,000$8,798,000 and $3,685,000$8,557,000 is reflected as a net non-current asset in the accompanying consolidated balance sheets, respectively. The significant portion of the deferred tax items primarily relates to: (1) NOL carryforwards; (2) Federal AMT credit carryforwards; (3) stock based compensation; and (4) liability reserves, all as they relate to deferred tax assets; and (5) the deferred tax liability resulting from the intangible assets recorded at the time of the Merger.
The Company has aggregate Federal, state and local NOL carryforwardscarryfowards aggregating approximately $55,957,000$67,994,000 at December 31, 2011.2012. These NOLs include NOLs generated subsequent to the Merger, losses from Private Reis prior to the Merger, losses obtained from the Company’s 1998 merger with Value Property Trust (“VLP”) and the Company’s operating losses prior to the Merger. Approximately $27,259,000 of these Federal NOLs are subject to an annual limitation, whereas the remaining balance of approximately $28,698,000$40,735,000 is not subject to such a limitation. There is an annual limitation on the use of NOLs after an ownership change, pursuant to Section 382 of the Internal Revenue Code. As a result of the Merger, the Company experienced such an ownership change which resulted in a new annual limitation of $2,779,000. However, because of the accumulation of annual limitations, it is expected that the use of NOLs will not be limited by expiration. In addition to the NOLs existing at December 31, 2011, aA substantial NOL will bewas realized during the year ended December 31, 2012 as a result of the Gold Peak litigation settlement.settlement, discussed in Note 11.
A valuation allowance is required to reduce deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, management has determined that a valuation allowance of approximately $21,378,000 and $17,092,000$15,217,000 at September 30, 2012March 31, 2013 and December 31, 2011, respectively,2012, was necessary. The allowance relates primarily to NOL carryforwards and AMT credits and liability reserves. The increase in the valuation allowance in 2012 is attributable to providing a full allowance for a substantial portion of the Gold Peak litigation charge recorded during 2012.credits. The Company will continue to evaluate the amount of valuation allowance on deferred tax assets during 20122013 and subsequent years based on such factors as historic profitability levels and forecasts of future taxable income.
Revolving Credit Facility
On October 16, 2012, Reis Services, as borrower, and the Company, as guarantor, entered into a loan and security agreement with Capital One, National Association, as lender, for a $10,000,000 revolving credit facility (the “Revolver”). The Revolver has a three year term expiring on October 16, 2015, and any borrowings bear interest at a rate of LIBOR + 2.00% per annum (for LIBOR loans)
or the greater of 1.00% or the bank’s prime rate minus 0.50% per annum (for base rate loans) with an unused facility fee of 0.25% per annum. The Company paid a commitment fee of $50,000 in connection with the closing. The Revolver is secured by a security interest in substantially all of the tangible and intangible assets of Reis Services 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 agreement. No borrowings were made on the Revolver at the time of the closing.
Liquidity and Capital Resources
Cash and cash equivalents aggregated approximately $14,959,000 at September 30, 2012. During the second quarter of 2012, the Company repaid the remaining outstanding balance on the Bank Loan and this obligation was cancelled. The Company had no outstanding debt at September 30, 2012.
The Company’s significant short-term liquidity requirement was the payment of the $17,000,000 settlement of the Gold Peak litigation, of which $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012. In anticipation of these payments, the Company has been evaluating its cash needs. The core Reis Services business has traditionally generated significant cash annually; and we expect it to continue to do so. Cash and cash equivalents aggregated approximately $6,659,000 at March 31, 2013, an increase of $1,698,000 over the December 31, 2012 balance of approximately $4,961,000.
Our cash balance decreased significantly during the year ended December 31, 2012 from the $17,000,000 settlement of the Gold Peak litigation and the repayment of approximately $5,691,000 of outstanding debt. In addition onto the cash generation of the Reis Services business, in October 16, 2012, the Company obtained the three year $10,000,000 Revolver to provide working capital flexibility. Separately, the Company is seeking recovery under all available insurance policies, including the ACE policy, and is pursuing appropriate additional actions against other potentially responsible parties; however, thereparties related to Gold Peak. To date, these efforts have resulted in the recovery of $712,500 of cash by December 31, 2012 and no amounts in the first quarter of 2013. There can be no assurance that the Company will recover any additional amounts in the short or long term. For additional information on the Gold Peak litigation, see Note 11 included in the unaudited financial statements in Item 1 of this quarterly report on Form 10-Q.term from these efforts.
At September 30, 2012,March 31, 2013, the Company’s other short-term liquidity requirements include: current operating and capitalizable costs;costs, including accounts payable and other accrued expenses; near-term product development and enhancement of the web site and databases; operating leases; insurance deductibles and legal costs related to discontinued operations; other costs, including public company expenses not included in the Reis Services segment; the resolution of open tax years with state and local tax authorties; the potential settlement of certain outstanding stock options in cash (the liability for which was approximately $364,000$385,000 at September 30, 2012March 31, 2013 based upon the closing stock price of the Company at September 30, 2012March 31, 2013 of $11.44$15.54 per share); and the payment of employee taxes on vested options, for which the employee used shares to settle his/her minimum withholding tax obligations with the Company. The Company expects to meet these short-term liquidity requirements generally through the use of available cash and cash generated from subscription revenue of Reis Services and, possiblyif necessary, with borrowings under the Revolver. There could be additional cash inflows from insurance recoveries, or from other potentially responsible parties, both related to the Gold Peak litigation; however, there can be
no assurance that the Company will recover any additional amounts in the short or long term. The Company expects that in 2013, it will be able to utilize its NOLs for Federal income tax purposes and that taxes to be paid will be for state and local income taxes and Federal AMT.
The Company’s long-term liquidity requirements include: future operating and capitalizable costs, including accounts payable and other accrued expenses; long-term product development and enhancements of the web sites and databases; operating leases and other capital expenditures; other costs, including public company expenses not included in the Reis Services segment; the resolution of open tax years with state and local tax authorities; the potential settlement of certain outstanding stock options in cash; the payment of employee taxes on vested options, for which the employee used shares to settle his/her minimum withholding tax obligations with the Company; and repurchases of additional shares of Reis common stock. The Company expects to meet these long-term liquidity requirements generally through the use of available cash and cash generated from subscription revenue of Reis Services and, if necessary, with borrowings under the Revolver. There could be additional cash inflows from insurance recoveries, or from other potentially responsible parties, both related to the Gold Peak litigation; however, there can be no assurance that the Company will recover any amounts in the short or long term. The Company expects that in the short term, it will be able to utilize its NOLs and that taxes to be paid will be for alternative state and local taxes, and possibly AMT, but not for Federal income taxes.
The Company’s long-term liquidity requirements include: future operating and capitalizable costs; long-term product development and enhancements of the web sites and databases; operating leases and other capital expenditures; other costs, including public company expenses not included in the Reis Services segment; and repurchases of additional shares of Reis common stock. The Company expects to meet these long-term liquidity requirements generally through the use of available cash and cash generated from subscription revenue of Reis Services and possibly with borrowings under the Revolver. There could be additional cash inflows from insurance recoveries, or from other potentially responsible parties, both related to the Gold Peak litigation; however, there can be no assurance that the Company will recover any amounts in the short or long term. The Company has NOLs that it expects to be able to use beyond the next few years against future Federal, state and local taxable income, if any. Tax payments during the next few yearsin 2013 and 2014 are expected to be for alternative state and local taxes, state and local taxes on income and Federal AMT, but not for Federal income taxes. Subsequent to 2014, tax payments are expected to be for alternative state and local taxes and Federal AMT, but not for Federal, income taxes.state or local taxes on income.
Changes in Cash Flows
Comparison of Cash Flows for the Nine Months Ended September 30, 2012 and 2011
Cash flows for the ninethree months ended September 30,March 31, 2013 and 2012 and 2011 are summarized as follows:
For the Three Months Ended March 31, | ||||||||||||||||
For the Nine Months Ended September 30, | 2013 | 2012 | ||||||||||||||
2012 | 2011 | |||||||||||||||
Net cash provided by operating activities | $ | 2,421,693 | $ | 9,854,384 | $ | 4,016,087 | $ | 2,789,066 | ||||||||
Net cash (used in) investing activities | (3,073,293 | ) | (2,840,154 | ) | (1,208,559) | (974,643) | ||||||||||
Net cash (used in) financing activities | (6,542,204 | ) | (4,910,092 | ) | (1,109,475) | (2,648,356) | ||||||||||
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Net (decrease) increase in cash and cash equivalents | $ | (7,193,804 | ) | $ | 2,104,138 | |||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 1,698,053 | $ | (833,933) | ||||||||||||
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Cash flows provided by operating activities decreased $7,432,000increased $1,227,000 from $9,854,000 provided in the 2011 period to $2,422,000$2,789,000 provided in the 2012 period to $4,016,000 provided in the 2013 period. The operating cash flow decreaseThis increase was primarily the result of (1) the payment of $5,000,000 on August 3, 2012 as part of the $17,000,000 settlement of the Gold Peak litigation, (2) cash proceeds received in 2011 from the sale of the East Lyme property and the related escrow releases, (3) the February 2011 collection of approximately $455,000 in satisfaction of a mortgage note and accrued interest thereon from the prior sale of property in Claverack, New York, and (4) increased spending on professional fees in the 2012 period. These decreases were partially offset by an increase inoperating cash flow from the Reis Services segment of $1,008,000$1,277,000 from $9,280,000 provided in the 2011 period to $10,288,000$4,054,000 provided in the 2012 period fromto $5,331,000 provided in the 2013 period due to growth in revenue growthand EBITDA and the timing of accounts receivable collections. The property sale, the satisfaction of the mortgage note and the Gold Peak settlement payment all were cash flows related to the Company’s discontinued operations. Cash flows from discontinued operations in future periods will include the $12,000,000 Gold Peak settlement payment made on October 15, 2012, and any additional legal costs in connection with recovery effects against potentially responsible third parties and/or co-defendants in the lawsuit. There is no assurance that the Company will be successful in the recovery efforts.
Cash flows used in investing activities increased $233,000$234,000 from $2,840,000 used in the 2011 period to $3,073,000$975,000 used in the 2012 period to $1,209,000 used in the 2013 period. This change primarily resulted from (1) a $304,000an increase of cash used in the 20122013 period as compared to the 20112012 period for web site and database development costs for continuing product development and enhancement initiatives, including the additional property type, self storage, and the launch of the next generation of our flagship product,Reis SE 2.0, offset by (2) a $71,000 decrease in spending on furniture, fixtures and equipment, as during the 2011 period the Company added additional office space.initiatives.
Cash flows used in financing activities increased $1,632,000decreased $1,539,000 from $4,910,000$2,648,000 used in the 20112012 period to $6,542,000$1,109,000 used in the 20122013 period. During the 2012 period, $5,691,000$1,897,000 was repaid on the Bank Loan whereas $4,148,000 was repaid in the 2011 period. Other2013 period no debt repayments in the 2011 periodpayments were $22,000, with no such payments in the 2012 period.made. Payments for restricted stock unit settlements were approximately $851,000$1,109,000 and $352,000$751,000 in the 2013 and 2012 and 2011 periods, respectively. Inrespectively; the 2011 period,increase of $358,000 due to the Company repurchased 43,249 shareshigher average price of outstandingour common stock for approximately $388,000.in 2013 than in 2012.
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to the Company’s or management’s outlook or expectations for earnings, revenues, expenses, asset quality, or other future financial or business performance, strategies, prospects or expectations, or the impact of legal, regulatory or supervisory matters on our business, operations or performance. Specifically, forward-looking statements may include:
statements relating to future services and product development of the Reis Services segment;
statements relating to future business prospects, potential acquisitions, uses of cash, revenue, expenses, income (loss), cash flows, valuation of assets and liabilities and other business metrics of the Company and its businesses, including EBITDA, Adjusted EBITDA and Aggregate Revenue Under Contract; and
statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions relating to future periods.
Forward-looking statements reflect management’s judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, management has made certain assumptions. Future performance cannot be assured. Actual results may differ materially from those contemplated by the forward-looking statements. Some factors that could cause actual results to differ include:
revenues and other performance measures such as income from continuing operations, EBITDA and Adjusted EBITDA may be lower than expected;
inability to retain and increase the Company’s subscriber base;
inability to execute properly on new products and services, or failure of subscribers to accept these products and services;
competition;
inability to attract and retain sales and senior management personnel;
inability to access adequate capital to fund operations and investments in our business;
difficulties in protecting the security, confidentiality, integrity and reliability of the Company’s data;
changes in accounting policies or practices;
legal and regulatory issues;
the results of pending, threatening or future litigation; and
the risk factors listed under “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2011,2012, which was filed with the Securities and Exchange Commission on March 8, 2012.13, 2013.
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 Company’s primary market risk exposure has been to changes in interest rates. This risk may be generally managed by limiting the Company’s financing exposures, to the extent possible, by purchasing interest rate caps when deemed appropriate.
By June 30,At March 31, 2013 and December 31, 2012, the Company’s only potential exposure to interest rates was on variable rate based debt. This exposure has historically been minimized through the use of interest rate caps. During the three months ended March 31, 2013 and throughout 2012, the Company repaid the remaining $5,691,000 outstanding balance on the Bank Loan and had no exposure to interest rates. The Company will be exposed todid not have any interest rate risk in connection with any borrowings under the Revolver.caps. No debt was outstanding at March 31, 2013 and December 31, 2012.
Reis holds cash and cash equivalents at various regional and national banking institutions. Management monitors the institutions that hold our cash and cash equivalents. Management’s emphasis is primarily on safety of principal. Management, in its discretion, has diversified Reis’s cash and cash equivalents among banking institutions to potentially minimize exposure to any one of these entities. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.
Cash balances held at banking institutions with which we do business maygenerally exceed the Federal Deposit Insurance Corporation insurance limits. TheWhile 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 4T. Controls and Procedures.
As of September 30, 2012,March 31, 2013, 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 September 30, 2012March 31, 2013 were designed at a reasonable assurance level and were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and to ensure that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in the Company’s internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Reis, Inc. and two of its subsidiaries (GP LLC and Wellsford Park Highlands Corp. (“WPHC”)) were the subject of a suit brought by the homeowners association at the Company’s former 259-unit Gold Peak condominium project outside of Denver, Colorado. This suit was filed in District Court in Douglas County, Colorado on October 19, 2010, seeking monetary damages (not quantified at the time) relating to design and construction defects at the Gold Peak project. Tri-Star Construction West, LLC (“Tri-Star”), the construction manager/general contractor for the project (not affiliated with Reis) and two former senior officers of Reis, Inc. (Jeffrey H. Lynford, who was also previously a director of the Company, and David M. Strong) were also named as defendants in the suit. In October 2011, experts for the plaintiff delivered a report alleging a cost to repair of approximately $19,000,000. Trial commenced on February 21, 2012 and a jury rendered its verdict on March 13, 2012. The jury found2012 finding Reis, its subsidiary, Gold Peak at Palomino Park, LLC (“GP LLC, the former officersLLC”) and Tri-Star jointly and severally liable for an aggregate of $18,200,000, plus other costs of approximately $756,000.
In connection with the development of Gold Peak, the Company purchased a commercial general liability “WRAP” insurance policy from a predecessor of ACE Westchester (“ACE”) that coverscovering the Company (including its subsidiaries) and its former officers, Tri-Star and Tri-Star’s subcontractors. The Company, upon advice of counsel and based on a reading of the policy, has taken the position that a total of $9,000,000 (and possibly $12,000,000) of coverage is available for this claim. ACE has taken the position that only $3,000,000 of coverage (including defense costs) was provided. The Company has filed suit against ACE, alleging failure to cover this claim, bad faith and other related causes of action. In particular, the Gold Peak litigation could have been settled for $12,000,000 or less prior to the trial. The Company takes the position that ACE is liable for all additional damages stemming from this failure to engage and settle. Additionally, the Company has added claims against multiple additional insurance companies under policies maintained by the
Company, including Reis’s directors’ and officers’ insurance policy, and against Reis’s former insurance broker and others.broker. The Company has also brought separate claims against Tri-Star, the subcontractors, the architect at Gold Peak and a third party inspector engaged at Gold Peak, relating to those parties’ actions on the project, and is considering other recovery actions.
As of December 31, 2011, based on the best available information at that time, the Company recorded a charge of approximately $4,460,000 in discontinued operations, representing the low end of the Company’s expected range of net exposure. This amount reflected an aggregate minimum liability of approximately $7,740,000, less the then minimum expected insurance recovery of $3,000,000 and other previously reserved amounts. At March 31, 2012, as a result of the verdict, the Company recorded an additional charge of $14,216,000 in discontinued operations in the first quarter of 2012, to bring the Company’s liability up to the $18,200,000 judgment, plus other costs of approximately $756,000. As of March 31, 2012, the Company, in accordance with the applicable accounting literature, could no longer conclude that $3,000,000 of insurance was probable of being recovered. These charges were reflected in discontinued operations and negatively impacted consolidated net income (loss), but did not impact income from continuing operations.
During AprilOn June 20, 2012, the Company, other defendants and the plaintiff homeowners association filed various post-trial motions which could have resulted in increases or decreases in the final judgment, a new trial or no change from the jury verdict. Following the court’s ruling on these post-trial motions, the Company could have filed an appealfollowing denial of the judgment. In order to appeal the judgment, the Company would have been required to post cash or a bond with the court and would have needed to obtain additional financing. If appealed, a final resolution would likely have been deferred into 2013. In June 2012, the court denied all of the defendants’ post-trial motions.
On June 20, 2012,motions, Reis reached a settlement with the plaintiff, providing for a total payment by Reis of $17,000,000. Of this amount, $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012, in accordance with the settlement terms. In reaching the decision to settle, Reis’s management and board of directorsBoard considered, among other factors: (1) the amount of the settlement versus the potential for an ultimately greater judgment after appeal, including additional costs and post-judgment interest; (2) the benefits of the clarity of settling the case at this time versus continuing uncertainty; and (3) the strong cash flow generation of Reis Service’sServices’s core business. As a result of the settlement, in the second quarter of 2012 the Company reversed $1,956,000 of the previously recorded charge. In December 2012, the Company recovered $712,500, which offset a portion of the previously recorded charge, resulting in the net litigation charge for the nineyear ended December 31, 2012 of approximately $11,547,000. No recoveries occurred during the three months ended September 30, 2012 of $12,260,000.March 31, 2013.
Reis continues to consider its options with respect to contribution or other actions against potentially responsible third parties and/or co-defendants in the lawsuit, and will pursue all reasonable efforts to mitigate the effects of this settlement. There is no assurance that the Company will be successful in these additional recovery efforts.
The Company is not a party to any other litigation that could reasonably be foreseen to be material to the Company.
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, 2011,2012, which was filed with the SEC on March 8, 2012,13, 2013, to be the most significant. There may be other currently unknown or unpredictable economic, business, competitive, governmental or other factors that could have material adverse effects on our business or future results. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Statement Regarding Forward-Looking Statements” for additional information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the three and nine months ended September 30, 2012,first quarter of 2013, the Company did not repurchase any shares of common stock.
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).* |
* | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files included as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REIS, INC. | ||||
By: | /s/ Mark P. Cantaluppi | |||
Mark P. Cantaluppi | ||||
Vice President, Chief Financial Officer |
Dated: November 8, 2012May 2, 2013
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