Segment Information

6 Months Ended

Jun. 30, 2014

Segment Information

RE/MAX HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

14.  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 the 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. All prior segment information has been reclassified to reflect the Company’s new segment structure.

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 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 reportable segment comprises the operations of the Company’s owned and independent global franchising operations under the RE/MAX brand name 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 results of the Company’s reportable segments for the three and six months ended June 30, 2014 and 2013, respectively:

	Revenue (a)
	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
	(in thousands)
Real Estate Franchise Services	$	38,699	$	34,884	$	77,798	$	70,534
Brokerages		3,600		4,357		6,381		7,782
Consolidated revenue	$	42,299	$	39,241	$	84,179	$	78,316

(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 intercompany amounts paid from the Company’s brokerage services business of $463,000 and $393,000 for the three months ended June 30, 2014 and 2013, respectively, and $885,000 and $746,000 for the six months ended June 30, 2014 and 2013, respectively. Such amounts are eliminated in the Brokerages reportable segment.

	Adjusted EBITDA
	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
	(in thousands)
Real Estate Franchise Services:
Net income	$	14,188		$	8,431		$	22,558		$	14,214
Depreciation and amortization		3,742			3,610			7,610			7,221
Interest expense		2,283			3,410			4,745			6,922
Interest income		(66	)		(68	)		(147	)		(142	)
Provision for income taxes		3,073			577			5,056			1,031
EBITDA		23,220			15,960			39,822			29,246
Gain on sale or disposition of assets and sublease		(86	)		(95	)		(282	)		(172	)
Loss on early extinguishment of debt		178			-			178			134
Equity-based compensation		74			321			332			701
Non-cash straight-line rent expense		290			336			502			710
Chairman executive compensation		-			750			-			1,500
Acquisition integration costs		45			222			63			222
Public offering related expenses		-			2,533			-			3,480
Adjusted EBITDA	$	23,721		$	20,027		$	40,615		$	35,821
Brokerages:
Net income (loss)	$	321		$	1,117		$	(251	)	$	741
Depreciation and amortization		70			97			140			211
Interest expense		3			1			7			3
Interest income		-			-			-			-
Provision for income taxes		56			-			(42	)		-
EBITDA		450			1,215			(146	)		955
Loss (gain) on sale or disposition of assets and sublease		39			(10	)		57			(76	)
Non-cash straight-line rent expense		(20	)		35			(85	)		-
Adjusted EBITDA	$	469		$	1,240		$	(174	)	$	879
Consolidated:
Net income	$	14,509		$	9,548		$	22,307		$	14,955
Depreciation and amortization		3,812			3,707			7,750			7,432
Interest expense		2,286			3,411			4,752			6,925
Interest income		(66	)		(68	)		(147	)		(142	)
Provision for income taxes		3,129			577			5,014			1,031
EBITDA		23,670			17,175			39,676			30,201
Gain on sale or disposition of assets and sublease		(47	)		(105	)		(225	)		(248	)
Loss on early extinguishment of debt		178			-			178			134
Equity-based compensation		74			321			332			701
Non-cash straight-line rent expense		270			371			417			710
Chairman executive compensation		-			750			-			1,500
Acquisition integration costs		45			222			63			222
Public offering related expenses		-			2,533			-			3,480
Adjusted EBITDA	$	24,190		$	21,267		$	40,441		$	36,700