Segment Information

12 Months Ended

Dec. 31, 2013

Segment Information

17. Segment Information

The Company has two reportable segments: Real Estate Franchise Services and Brokerage and Other. Management evaluates the operating results of its reportable segments based upon revenue and adjusted earnings before interest, taxes, depreciation and amortization (“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 the summary of significant accounting policies.

Adjusted EBITDA for the reportable segments excludes depreciation, amortization, interest expense, net, taxes and is then adjusted for certain other non-cash and non-recurring cash charges. 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 losses on the sale or disposition of assets and sublease activity, losses on the early extinguishment of debt, equity-based compensation, non-cash straight-line rent expense, salaries paid to David and Gail Liniger that the Company discontinued subsequent to the IPO, professional fees and non-recurring expenses incurred in connection with the IPO and acquisition transaction costs. The Company’s Real Estate Franchise Services segment comprises the operations of the Company’s owned and independent global franchising operations under the RE/MAX^® brand name. All of the Company’s brokerage offices in its Real Estate Franchise Services segment are franchised. The Company’s Brokerage and Other reportable segment includes the Company’s brokerage services business, the elimination of intersegment revenue and other consolidation entries as well as corporate-wide professional services expenses.

The following tables present the results of the Company’s reportable segments for the years ended December 31, 2013, 2012 and 2011, respectively:

	Revenue (a)
	Year Ended December 31,
	2013			2012			2011
	(in thousands)
Real Estate Franchise Services:
Continuing franchise fees	$	65,728		$	57,599		$	58,487
Annual dues		29,527			28,913			28,922
Broker fees		25,078			19,797			16,923
Franchise sales and other franchise revenue		23,577			22,636			19,364
Brokerage revenue		-			-			-
	$	143,910		$	128,945		$	123,696
Brokerage and Other:
Continuing franchise fees	$	(1,263	)	$	(1,249	)	$	(1,287	)
Annual dues		(3	)		(4	)		-
Broker fees		(267	)		(218	)		(159	)
Franchise sales and other franchise revenue		(3	)		(7	)		(10	)
Brokerage revenue		16,488			16,210			16,062
	$	14,952		$	14,732		$	14,606
Total segment reporting revenues	$	158,862		$	143,677		$	138,302

(a) Transactions between the Real Estate Franchise Services and the Brokerage and Other reportable segments are eliminated in consolidation. Revenues for the Real Estate Franchise Services segment include intercompany amounts paid from the Company’s Brokerage Services business of $1,536,000, $1,478,000 and $1,456,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Such amounts are eliminated through the Brokerage and Other reportable segment.

	Adjusted EBITDA
	Year Ended December 31,
	2013			2012			2011
	(in thousands)
Real Estate Franchise Services	$	78,024		$	66,776		$	60,590
Brokerage and Other		(738	)		(32	)		(1,309	)
Total segment reporting adjusted EBITDA	$	77,286		$	66,744		$	59,281

A reconciliation of the Company’s Adjusted EBITDA for its reportable segments to the Company’s consolidated balances is as follows:

	Year Ended December 31,
	2013		2012		2011
	(in thousands)
Segment Adjusted EBITDA	$	77,286	$	66,744	$	59,281
Less:
Depreciation and amortization		15,166		12,090		14,473
Interest expense, net		14,326		11,400		11,831
Loss on sale or disposition of assets and sublease		971		1,352		1,595
Loss on early extinguishment of debt		1,798		136		384
Equity-based compensation		2,995		1,089		-
Non-cash straight-line rent expense		1,183		1,879		1,577
Chairman executive compensation		2,261		3,000		3,000
Acquisition integration costs		495		336		-
Public offering related expenses		6,995		-		-
Income before provision for income taxes		31,096		35,462		26,421
Provision for income taxes		2,844		2,138		2,172
Net income	$	28,252	$	33,324	$	24,249

Segment long-lived and total assets are as follows:

	As of December 31,
	2013		2012
	(in thousands)
Long-lived assets:
Real Estate Franchise Services	$	238,147	$	159,646
Brokerage and Other		4,596		4,693
Total long-lived assets:	$	242,743	$	164,339
Total assets:
Real Estate Franchise Services	$	344,723	$	243,942
Brokerage and Other		8,100		7,474
Total assets	$	352,823	$	251,416

Information concerning the Company’s principal geographic areas is as follows:

	As of and for the Year Ended December 31,
	2013		2012		2011
	(in thousands)
Revenue:
United States	$	124,686	$	106,282	$	102,504
Canada		25,168		24,503		24,284
Other International		9,008		12,892		11,514
Total	$	158,862	$	143,677	$	138,302
Total long-lived assets*:
United States	$	170,922	$	159,970
Canada		4,030		4,332
Other International		-		37
Total	$	174,952	$	164,339
Total assets:
United States	$	345,461	$	243,463
Canada		6,133		6,635
Other International		1,229		1,318
Total	$	352,823	$	251,416

* Excludes deferred tax assets, net