Segment Information

6 Months Ended

Jun. 30, 2015

Segment Reporting

Segment Information

15. Segment Information

The Company has two reportable segments: Real Estate Franchise Services and Brokerages. Management evaluates the operating results of its reportable segments based upon revenue and adjusted earnings before interest, the provision for income taxes, depreciation and amortization and other non-cash and non-recurring cash charges or other items (“Adjusted EBITDA”). The Company’s presentation of Adjusted EBITDA may not be comparable to similar measures used by other companies. The accounting policies of the reportable segments are the same as those described in Note 2, Summary of Significant Accounting Policies.  

As a result of changes in management’s process to assess performance and allocate resources, the Company implemented a new segment structure beginning in the second quarter of 2014.  The changes in the Company’s segment structure relate to certain corporate-wide professional services expenses, which were previously reflected in the Brokerage and Other reportable segment and, beginning in the second quarter of 2014, are being reflected in the Real Estate Franchise Services reportable segment. Adjusted EBITDA for the reportable segments excludes depreciation, amortization, interest expense, net and the provision for income taxes and is then adjusted for other non-cash and non-recurring cash charges or other items. Adjusted EBITDA for the reportable segments is also a key factor that is used by the Company’s internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of management for purposes of annual and other incentive compensation plans. The additional items that are adjusted to determine Adjusted EBITDA for the reportable segments include loss or gain on the sale or disposition of assets and sublease, loss on early extinguishment of debt, non-cash straight-line rent expense, non-recurring severance and other related expenses and acquisition integration and professional fees expense. The Company’s Real Estate Franchise Services reportable segment comprises the operations of the Company’s owned and independent global franchising operations under the RE/MAX brand name, intersegment revenue from the Company’s owned brokerages and the Company’s corporate-wide professional services expenses. All of the Company’s brokerage offices in its Real Estate Franchise Services reportable segment are franchised. The Company’s Brokerages reportable segment includes the Company’s brokerage services business and reflects the elimination of intersegment revenue and other consolidation entries.

The following tables present the revenue and Adjusted EBITDA results of the Company’s reportable segments for the three and six months ended June 30, 2015 and 2014:

	Revenue (a)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
	(in thousands)
Real Estate Franchise Services	$	41,236	$	38,699	$	81,976	$	77,798
Brokerages		3,041		3,600		6,508		6,381
Consolidated revenue	$	44,277	$	42,299	$	88,484	$	84,179

(a) Transactions between the Real Estate Franchise Services and the Brokerages reportable segments are eliminated in consolidation. Revenues for the Real Estate Franchise Services reportable segment include intersegment amounts paid from the Company’s brokerage services business of $361,000 and $463,000 for the three months ended June 30, 2015 and 2014, respectively, and $793,000 and $885,000 for the six months ended June 30, 2015 and 2014, respectively. Such amounts are eliminated in the Brokerages reportable segment.

	Adjusted EBITDA
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
	(in thousands)
Real Estate Franchise Services:
Net income	$	14,922	$	14,188	$	23,894	$	22,558
Depreciation and amortization		3,733		3,742		7,465		7,610
Interest expense		2,292		2,283		5,085		4,745
Interest income		(33)		(66)		(100)		(147)
Provision for income taxes		3,251		3,073		5,371		5,056
EBITDA		24,165		23,220		41,715		39,822
Gain on sale or disposition of assets and sublease		(88)		(86)		(171)		(282)
Loss on early extinguishment of debt		—		178		94		178
Non-cash straight-line rent expense		238		290		512		502
Non-recurring severance and other related expenses		588		—		1,039		—
Acquisition integration and professional fees expense		(106)		45		77		63
Adjusted EBITDA	$	24,797	$	23,647	$	43,266	$	40,283
Brokerages:
Net income (loss)	$	1,136	$	321	$	1,294	$	(251)
Depreciation and amortization		75		70		154		140
Interest expense		9		3		25		7
Interest income		—		—		—		—
Provision (benefit) for income taxes		206		56		234		(42)
EBITDA		1,426		450		1,707		(146)
(Gain) loss on sale or disposition of assets and sublease		(576)		39		(536)		57
Non-cash straight-line rent expense		11		(20)		(32)		(85)
Adjusted EBITDA	$	861	$	469	$	1,139	$	(174)
Consolidated:
Net income	$	16,058	$	14,509	$	25,188	$	22,307
Depreciation and amortization		3,808		3,812		7,619		7,750
Interest expense		2,301		2,286		5,110		4,752
Interest income		(33)		(66)		(100)		(147)
Provision for income taxes		3,457		3,129		5,605		5,014
EBITDA		25,591		23,670		43,422		39,676
Gain on sale or disposition of assets and sublease		(664)		(47)		(707)		(225)
Loss on early extinguishment of debt		—		178		94		178
Non-cash straight-line rent expense		249		270		480		417
Non-recurring severance and other related expenses		588		—		1,039		—
Acquisition integration and professional fees expense		(106)		45		77		63
Adjusted EBITDA	$	25,658	$	24,116	$	44,405	$	40,109

As described in Note 5, Dispositions, the Company sold certain operating assets and liabilities related to six owned brokerage offices on April 10, 2015 attributable to the Brokerages reportable segment and therefore, the related assets sold are not reflected in total assets as of June 30, 2015 in the accompanying Condensed Consolidated Balance Sheets. Total segment assets are as follows:

	June 30,		December 31,
	2015		2014
	(in thousands)
Total assets:
Real Estate Franchise Services	$	316,365	$	349,481
Brokerages		8,713		8,846
	$	325,078	$	358,327