Segment Information

3 Months Ended

Mar. 31, 2020

Segment Information

Segment Information

13. Segment Information

The Company operates under the following four operating segments: RE/MAX Franchising, Motto Franchising, Marketing Funds and booj. Due to quantitative insignificance, the booj operating segment does not meet the criteria of a reportable segment and is included in “Other”. Motto Franchising does not meet the quantitative significance test; however, management has chosen to report results for the segment as it believes it will be a key driver of future success for Holdings. Management evaluates the operating results of its 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. Except for the adjustments identified below in arriving at Adjusted EBITDA, the accounting policies of the reportable segments are the same as those described in the Company’s 2019 Annual Report on Form 10-K.

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The following table presents revenue from external customers by segment (in thousands):

	Three Months Ended March 31,
	2020		2019
Continuing franchise fees	$	22,877	$	24,117
Annual dues		8,921		8,854
Broker fees		9,444		8,588
Franchise sales and other revenue		8,663		8,265
Total RE/MAX Franchising		49,905		49,824
Continuing franchise fees		1,266		839
Franchise sales and other revenue		192		120
Total Motto Franchising		1,458		959
Marketing Funds fees		17,522		18,772
Other		1,387		1,623
Total revenue	$	70,272	$	71,178

The following table presents a reconciliation of Adjusted EBITDA by segment to income before provision for income taxes (in thousands):

	Three Months Ended March 31,
	2020		2019
Adjusted EBITDA: RE/MAX Franchising	$	20,731	$	24,144
Adjusted EBITDA: Motto Franchising		(578)		(741)
Adjusted EBITDA: Other		(614)		(413)
Adjusted EBITDA: Consolidated		19,539		22,990
Gain (loss) on sale or disposition of assets		11		(379)
Equity-based compensation expense		(2,186)		(4,051)
Acquisition-related expense (a)		(566)		(72)
Gain on reduction in tax receivable agreement liability		500		—
Fair value adjustments to contingent consideration (b)		505		70
Interest income		269		320
Interest expense		(2,682)		(3,155)
Depreciation and amortization		(6,310)		(5,558)
Income before provision for income taxes	$	9,080	$	10,165

(a) Acquisition-related expense includes legal, accounting, advisory and consulting fees incurred in connection with the acquisition and integration of acquired companies.

(b) Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liability. See Note 9, Fair Value Measurements for additional information.