Segment Information

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

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 Note 2, 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 and current presentation.

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, non-recurring 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 nine months ended September 30, 2014 and 2013, respectively:

	Revenue (a)
	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
	(in thousands)
Real Estate Franchise Services	$	40,456	$	36,211	$	118,254	$	106,746
Brokerages		3,784		4,101		10,165		11,882
Consolidated revenue	$	44,240	$	40,312	$	128,419	$	118,628

(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 $485,000 and $383,000 for the three months ended September 30, 2014 and 2013, respectively, and $1,369,000 and $1,130,000 for the nine months ended September 30, 2014 and 2013, respectively. Such amounts are eliminated in the Brokerages reportable segment.

	Adjusted EBITDA
	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
	(in thousands)
Real Estate Franchise Services:
Net income	$	13,459		$	6,754		$	36,017		$	20,968
Depreciation and amortization		3,695			3,571			11,305			10,792
Interest expense		2,252			5,128			6,997			12,050
Interest income		(58	)		(82	)		(205	)		(224	)
Provision for income taxes		3,014			702			8,070			1,733
EBITDA		22,362			16,073			62,184			45,319
Gain on sale or disposition of assets and sublease		(87	)		(94	)		(369	)		(266	)
Loss on early extinguishment of debt		-			1,664			178			1,798
Non-recurring equity-based compensation		-			-			-			701
Non-cash straight-line rent expense		271			321			773			1,031
Chairman executive compensation		-			750			-			2,250
Acquisition integration costs		87			27			150			249
Public offering related expenses		-			2,436			-			5,916
Adjusted EBITDA	$	22,633		$	21,177		$	62,916		$	56,998
Brokerages:
Net income	$	596		$	943		$	345		$	1,684
Depreciation and amortization		72			85			212			296
Interest expense		3			-			10			3
Interest income		-			-			-			-
Provision for income taxes		102			-			60			-
EBITDA		773			1,028			627			1,983
Loss (gain) on sale or disposition of assets and sublease		35			(70	)		92			(145	)
Non-cash straight-line rent expense		(74	)		(60	)		(159	)		(61	)
Adjusted EBITDA	$	734		$	898		$	560		$	1,777
Consolidated:
Net income	$	14,055		$	7,697		$	36,362		$	22,652
Depreciation and amortization		3,767			3,656			11,517			11,088
Interest expense		2,255			5,128			7,007			12,053
Interest income		(58	)		(82	)		(205	)		(224	)
Provision for income taxes		3,116			702			8,130			1,733
EBITDA		23,135			17,101			62,811			47,302
Gain on sale or disposition of assets and sublease		(52	)		(164	)		(277	)		(411	)
Loss on early extinguishment of debt		-			1,664			178			1,798
Non-recurring equity-based compensation		-			-			-			701
Non-cash straight-line rent expense		197			261			614			970
Chairman executive compensation		-			750			-			2,250
Acquisition integration costs		87			27			150			249
Public offering related expenses		-			2,436			-			5,916
Adjusted EBITDA	$	23,367		$	22,075		$	63,476		$	58,775