Segment Information

3 Months Ended

Mar. 31, 2014

Segment Information

14.  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, the provision for income taxes, depreciation and amortization and certain other non-cash and non-recurring cash charges (“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 and the provision for income 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 (gains) 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 integration 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 three months ended March 31, 2014 and 2013, respectively:

	Revenue (a)
	Three months ended March 31,
	2014		2013
	(in thousands)
Real Estate Franchise Services	$	39,099	$	35,650
Brokerage and Other		2,781		3,425
Total segment reporting revenues	$	41,880	$	39,075

(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 $422,000 and $353,000 for the three months ended March 31, 2014 and 2013, respectively. Such amounts are eliminated through the Brokerage and Other reportable segment.

	Adjusted EBITDA
	Three months ended March 31,
	2014			2013
	(in thousands)
Real Estate Franchise Services	$	18,675		$	16,246
Brokerage and Other		(2,424	)		(813	)
Total segment reporting adjusted EBITDA	$	16,251		$	15,433

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

	Three months ended March 31,
	2014			2013
	(in thousands)
Segment Adjusted EBITDA	$	16,251		$	15,433
Less:
Depreciation and amortization		3,938			3,725
Interest expense, net		2,385			3,440
Gain on sale or disposition of assets and sublease		(178	)		(143	)
Loss on early extinguishment of debt		-			134
Equity-based compensation		258			380
Non-cash straight-line rent expense		147			339
Chairman executive compensation		-			750
Acquisition integration costs		18			-
Public offering related expenses		-			947
Income before provision for income taxes		9,683			5,861
Provision for income taxes		1,885			454
Net income	$	7,798		$	5,407

Changes in Reportable Segments

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.