Segment Information

9 Months Ended

Sep. 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.  

Adjusted EBITDA for the reportable segments excludes depreciation, amortization, interest expense, interest income 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, intersegment expenses and reflects the elimination of all intersegment revenue and expenses and other consolidation entries.

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

	Revenue (a)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
	(in thousands)
Real Estate Franchise Services	$	42,221	$	40,456	$	124,197	$	118,254
Brokerages		2,889		3,784		9,397		10,165
Consolidated revenue	$	45,110	$	44,240	$	133,594	$	128,419

(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 $485,000 for the three months ended September 30, 2015 and 2014, respectively, and $1,154,000 and $1,369,000 for the nine months ended September 30, 2015 and 2014, respectively. Such amounts are eliminated in the Brokerages reportable segment.

	Adjusted EBITDA
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
	(in thousands)
Real Estate Franchise Services:
Net income	$	14,682	$	13,459	$	38,576	$	36,017
Depreciation and amortization		3,694		3,695		11,159		11,305
Interest expense		2,328		2,252		7,413		6,997
Interest income		(36)		(58)		(136)		(205)
Provision for income taxes		3,182		3,014		8,553		8,070
EBITDA		23,850		22,362		65,565		62,184
Gain on sale or disposition of assets and sublease		(88)		(87)		(259)		(369)
Loss on early extinguishment of debt		—		—		94		178
Non-cash straight-line rent expense		224		271		736		773
Non-recurring severance and other related expenses		443		—		1,482		—
Acquisition integration and professional fees expense		—		87		77		150
Adjusted EBITDA	$	24,429	$	22,633	$	67,695	$	62,916
Brokerages:
Net income	$	511	$	596	$	1,805	$	345
Depreciation and amortization		71		72		225		212
Interest expense		10		3		35		10
Interest income		—		—		—		—
Provision for income taxes		95		102		329		60
EBITDA		687		773		2,394		627
Loss (gain) on sale or disposition of assets and sublease		22		35		(514)		92
Non-cash straight-line rent expense		(23)		(74)		(55)		(159)
Adjusted EBITDA	$	686	$	734	$	1,825	$	560
Consolidated:
Net income	$	15,193	$	14,055	$	40,381	$	36,362
Depreciation and amortization		3,765		3,767		11,384		11,517
Interest expense		2,338		2,255		7,448		7,007
Interest income		(36)		(58)		(136)		(205)
Provision for income taxes		3,277		3,116		8,882		8,130
EBITDA		24,537		23,135		67,959		62,811
Gain on sale or disposition of assets and sublease		(66)		(52)		(773)		(277)
Loss on early extinguishment of debt		—		—		94		178
Non-cash straight-line rent expense		201		197		681		614
Non-recurring severance and other related expenses		443		—		1,482		—
Acquisition integration and professional fees expense		—		87		77		150
Adjusted EBITDA	$	25,115	$	23,367	$	69,520	$	63,476