Re/Max Holdings Inc (RMAX) 2013 Q3 法說會逐字稿

Good morning, and welcome to the RE/MAX third-quarter 2013 earnings conference call.

(Operator instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Peter Crowe, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us today for the RE/MAX third-quarter 2013 earnings conference call. With me today is our Chief Executive Officer, Margaret Kelly, and our Chief Operating Officer and Chief Financial Officer, David Metzger. Before I turn the call over to Margaret, I would like to touch on a few items. First, our earnings release and presentation are available on the Investor Relations page of remax.com. Second, this call is being recorded. Replays of the call and webcast will be available shortly after the call through December 6. Please visit the Investor Relations page of remax.com to access either version of the replay.

Turning to slide 2, I'd like to remind everyone that on today's call, Management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject risks and uncertainties that may cause actual results from those discussed today. Examples of forward-looking statements may include those related to revenue, operating income, financial guidance, as well as non-GAAP financial measures. As a reminder, forward-looking statements represent Management's current estimates. RE/MAX assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in our filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the third-quarter press release, which is available on our website. With that, I would like to turn the call over to RE/MAX CEO, Margaret Kelly. Margaret?

Thank you, and on behalf of RE/MAX, I would like to welcome you to our third-quarter 2013 earnings conference call, our first as a publicly-traded company, marking another historic event in the 40-year history of RE/MAX. Now, on this call, I would like to highlight our strategic growth objectives, our third-quarter performance, and our business model. And then I will turn it over to Dave Metzger, who will provide detail on the quarterly and year-to-date operating results as well as a view of our balance sheet. After our prepared remarks, we will open up the call for questions.

Turning to slide 3, we have three main growth drivers. Number one, drive agent growth; two, sell franchises to expand our global footprint; and three, acquire independently-owned RE/MAX regions. Our main growth driver is agent growth. RE/MAX agents have both an average of 13 years of experience in the industry and tenure of 8 years with the RE/MAX. With an average of 17.1 transactions per agent, by far the highest of the national brands reported in the 2013 REAL Trends 500 Survey, RE/MAX attracts and retains highly-productive agents and brokers. Since the third quarter of last year, we have added 3,828 agents in the US, Canada, and internationally. Our 4.5% US agent growth outpaces the National Association of Realtors growth of 3.2% for the same period. We ended the quarter with total agent count of 92,731.

Our second growth driver is franchise sales, selling offices in countries to increase our global footprint. We sold 439 franchises through the end of the third quarter. We have also sold franchise rights for 16 countries since the third quarter of last year.

And our third growth driver is acquiring independently-owned RE/MAX regions. We have used a portion of the proceeds from our recent IPO to purchase the Southwest and Central Atlantic regions. By reacquiring these regions, we will see an incremental increase in our revenue, allowing us to further grow our margins without having to invest significant capital. Our focus now turns to increasing franchise sales and agents in those regions. And as part of our growth strategy, we will continue to look at purchasing more of our independent regional franchises, allowing us to further increase our revenue and profitability.

Turning to slide 4, RE/MAX is a true franchisor. Of our 6,300 worldwide offices, only 20 are Company-owned. Our low fixed cost, low capital investment, and recurring fixed-fee model allow us to deliver revenue growth with high margins and strong cash flow the third quarter. Revenues increased 5% to $40 million, compared to the third quarter last year, with our recurring revenue streams of annual dues and continuing franchise fees accounting for 58% of our total revenue. Our transaction-based revenue from broker fees was up 27% to $7.2 million, compared to the third quarter of last year, a sign we are capitalizing on the recovering real estate market. Our adjusted EBITDA was up 13% to $22 million in the third quarter, and increased 20% to $59 million for the nine months ended September 30, 2013. And our adjusted EBITDA margin was 50% for 12 months ended September 30, 2013.

Before I turn the call over to Dave, I would like to comment on our recent IPO, which we completed at the beginning of October. Our business strategy and our Leadership Team remains the same. We still operate RE/MAX as we always have, a growth company driven by motivated entrepreneurs, backed up unique benefits of our brand name, resources, and global reach. We did have one change to the Board as a result of the IPO. We used a portion of the IPO proceeds to purchase all shares held by our private equity partner Weston Presidio. As a result, Scott Bell from Weston Presidio resigned from the Board. We do not foresee any other changes to the Board of Directors at this time. And with that, I will turn the call over to Dave Metzger for more details on our performance this quarter and year to date.

Thank you, Margaret. As Margaret noted at the beginning of the call, our IPO was a great moment for RE/MAX. We sold 11.5 million shares of Class A common stock at a price of $22 per share. The total net proceeds from the offering were approximately $225 million after deducting underwriting discounts, commissions, and offering expenses. With the proceeds, we were able to reacquire two of our independent regions, RE/MAX Southwest and Central Atlantic. We redeemed 100% of the preferred membership and common units from our private equity partner Weston Presidio. We also purchased a portion of the common interest from our founding shareholders, providing them with partial liquidity. We had a plan for the IPO proceeds, and we executed that plan. We are now in a great position to continue to grow the Company and show positive returns to our shareholders.

On the next several slides, you will see that we delivered strong results across our key operating metrics during the quarter. Turning to slide 5, let's start with our main driver, agent count. Looking at the graph from left to right, first you can see we increased total agent count by 4.3% or 3,828 agents, compared to the prior-year quarter. All of this growth is organic. We ended the quarter with 92,731 agents in our global network. Growth in the US and Canada is particularly important, as we drive over 90% of our revenue from these agents. Moving to the right, you can see that we added 2,325 agents in the United States, an increase of 4.5% since the third quarter last year. We ended the quarter with 54,222 agents of the US.

In Canada, we added 129 agents since the third quarter last year. The 1% increase is on target as RE/MAX agents already account for 18% of the Canadian Real Estate Association membership. RE/MAX's position in Canada continues to be very strong. Finally, outside the US and Canada, we had 19,486 agents as of the end of the third quarter. We increased this segment of agents by 8%, or 1,374 agents from the prior-year quarter. Portugal, Turkey, Spain, Argentina, and South Africa accounted for the majority of our international growth.

On slide 6, you will see the breakdown agents in Company-owned and independent regions in the US and Canada. In Q4 of last year, we reacquired the Texas region. As a result, 4,206 agents were converted from independent to Company-owned. The 4,206 agents are represented in red on the graph. The graph on the left shows our independent agent count dropped 7.6% from the third quarter of last year. The drop is due to the conversion of the Texas agents to Company-owned. We did add 930 agents in our independent region since the third quarter of last year. Graph on the right highlights the agent growth in our Company-owned regions. The majority of the growth is due to the conversion of the Texas agents from an independent region to Company-owned region. We did add 1,524 new agents in our US and Canadian Company-owned regions since third quarter last year, for an organic growth rate of 5.5%.

On slide 7, we break out our agents outside the US and Canada into Company-owned and independent. In November of last year, we converted the Australia and New Zealand regions from Company-owned to independent. As a result, 863 agents, who are represented in red on the graphs, converted from Company-owned to independent. We did add 1,395 agents in our independent regions outside of the US and Canada in the third quarter last year, for organic growth of 8.25%.

On slide 8, you will see we generated total revenue for $40.3 million in the third quarter of 2013, up 5% compared to $38.4 million for the same period of 2012. For the nine months ended September 30, 2013, our revenue was $118.6 million, up 9% from the same period last year. The increase in revenue for both the third quarter and year to date was attributable to growth in agent count, additional revenue as a result of the Texas acquisition which was completed in December of last year, and higher broker fee revenue due to rising commissions resulting from increased home sale transactions.

On slide 9, we have our five revenue streams. First, we have continuing franchise fees, which are fixed fees paid monthly by the broker/owner or the independent region to the Company based on agent count. Continuing franchise fees were $16.1 million for the quarter, up $1.7 million, or 12%, over the same period last year. Continuing franchise fees were $47 million for the nine months ended September 30, 2013, up 11% from the same period last year. The three-month and nine-month increases are attributable to the acquisition of the Texas region and overall growth in US agent count. As a result of the acquisition of the Texas region, agents in Texas are now included as part of Company-owned region agent count. The conversion resulted in $1.4 million of additional continuing franchise fees from the Texas region. Organic agent count growth in the US and Canada added $500,000 in continuing franchise fee, compared to the third quarter last year. The increase was partially offset by a net decrease of $300,000 in continuing franchise fees from the Australia and New Zealand regions, which, as I previously mentioned, were sold during the fourth quarter of 2012 and are now independent regions.

Next, we have annual dues, which are fixed fees paid annually by each of our agents directly to RE/MAX. In the third quarter, annual dues paid by each agent were $7.5 million, up 3% from last year. Increase was driven by agent growth of 3,828 from third quarter of last year. Together, these two fixed-fee recurring revenue streams account for 58% of our revenue for both the third quarter and year to date in 2013.

Third is our broker fees, which are fees paid to us by the broker based on commissions received from our agent transactions. Broker fees are transaction based and provide us with incremental revenue during a real estate market recovery. That is what we saw this quarter as broker fees were $7.2 million, up 27% compared to third quarter last year. Broker fees are up 26% for the nine months ended September 30, 2013, compared to the same period in 2012, which signals our agents are capitalizing on the recovering housing market.

Franchise sales and other franchise revenue was $5 million for the quarter, down $1.7 million from the third quarter last year. The decrease is primarily due to the sale of the master franchise rights for China for $2.1 million in the third quarter of 2012. Early the fourth quarter 2013, we sold the master franchise rights for Japan, allowing us to further expand our footprint in Asia. Finally, broker revenue for our 20 Company-owned brokerages was $4.5 million for the quarter, up slightly, $172,000, from the same quarter last year, due to increased transaction volume.

On slide 10, you will see our adjusted EBITDA in the third quarter was $22.1 million compared to adjusted EBITDA of $19.5 million for the third quarter of 2012. The increase in adjusted EBITDA of $2.6 million was 13%, which primarily result of an increased of total revenue of $1.9 million arising from the reacquisition of the Texas region, agent growth, and higher broker fees, offset by a decrease in franchise sales and other franchise revenue due to the sale of the master franchise agreement in China, which was sold during the three months ended September 30, 2012. Our adjusted EBITDA margin was 55% for the quarter and 50% for the trailing 12 months. Our trailing 12-month margin is more representative of the margins we've worked to consistently deliver on an annual basis. The RE/MAX model provides predictable revenue growth, and with its stable cost structure, translates into high adjusted EBITDA margins in the high 40% range on an annual basis as well as strong free cash flow.

The graph on the left side of slide 11 highlights our net of $7.7 million for the quarter, compared to $12.4 million in the third quarter 2012. The decline was driven by an increase in selling, operating, and administrative expenses of $1.5 million due to expenses incurred in connection with the IPO, additional amortization of $900,000 related to the reacquisition of the Texas region, and an increase in other expenses related to interest expense and a $1.7-million loss on early extinguishment of debt associated with our new credit facility. Based on net income, we reported adjusted pro forma basic EPS of $0.18 and diluted EPS of $0.17 for the three months ended September 30, 2013. Since there were a number of one-time expenses and non-cash items this quarter, it is important for us to look at adjusted net income, which is net income before amortization and other one-time costs, like the cost to refinance debt. Our adjusted net income was $9.4 million for the quarter, which is flat compared to the prior-year quarter. Based on third-quarter adjusted net income, EPS was $0.32 and $0.31 per basic and diluted, respectively.

Since RE/MAX did not become a public company until the fourth quarter of 2013, the ownership structure was used to calculate adjusted pro forma EPS for the third quarter of 2013 reflects RE/MAX owning 100% of RMCO. Basic EPS was based on a full conversion of shares to Class A common stock outstanding of 29.34 million, and diluted EPS was based on total weighted average dilutive shares using the treasury stock method of 29.99 million. RE/MAX's actual ownership of RMCO is 39.56%.

Turning to slide 12, we generated $13.8 million of levered free cash flow during the quarter. This is a 20% increase from the third quarter last year. Since our business model has low capital needs, we focus on levered free cash flow, which we define as adjusted EBITDA net of capital expenditures, interest, and principal debt payments, as well as our pro forma tax of 38%. This gets us to a number that truly represents the cash we have available to grow the business and return to shareholders.

Turning to slide 13, our selling, operating, and administrative expenses were $22.1 million, up 7%, or $1.5 million compared to the prior-year quarter, primarily due to a $2.2-million increase in professional fees related to the IPO and a $200,000 increase associated with increased rent at our Company-owned brokerages. These increases were partially offset by personnel costs, down $500,000, and other expenses related to advertising and production, down $400,000. Generally, our selling, operating, and administrative expenses are comprised of personnel costs of roughly 48%, rent of approximately 15%, professional fees of approximately 12%, and marketing, advertising, travel, and other of roughly 25%.

On the far right of slide 10, you will note we refinanced our senior credit facility during the third quarter. The new covenant light debt facility of $230 million has an interest rate of LIBOR plus 300, with a 1% LIBOR floor. The new rate is 150 basis points lower than our previous rate. Interest savings will be roughly $3 million per year. We also have access to an incremental facility of $50 million under the new credit facility. The refinancing activities cost us $3.2 million to complete. As of the end of the third quarter, our total debt and net debt to adjusted EBITDA ratio stand at 2.99 times. We work to maintain our debt to adjusted EBITDA ratio around 3.0 times or lower.

On slide 14, I would like to touch on a few points related to the fourth-quarter and full-year 2013 performance. We estimate revenue for the full year 2013 will be 7% to 10% higher than 2012. Our fourth-quarter revenue will be slightly down from the third quarter of this year, which is right in line with the seasonality we see in our business. It's normal for us to realize decreases in revenue in the first and fourth quarter of each year due to the seasonality of the housing market. We expect agent count to be in line with our third-quarter number at the end of the year. We would typically see agent count growth slow the fourth quarter, but we feel the positive momentum in the housing market will carry us through the quarter. We also estimate our adjusted EBITDA margin will be in the high 40% range in the fourth quarter.

Two final items I would like to note. We will see IPO costs of roughly $3 million in the fourth quarter. We will also see increased amortization of $400,000 recorded quarterly as a result of the reacquisition of the Central Atlantic and Southwest regions. $900,000 of amortization related to the reacquisition of Texas was included in our amortization number for the third quarter and will continue going forward. Regarding guidance for 2014, we are currently in our budgeting cycle for next year and will come back to you in the coming months. With that, I will pass the call back to Margaret.

Thank you, Dave. Before we open the lines up for questions, I'd like to give you some color on where we see the real estate industry at this time. Turning to slide 15, you will see the housing segment is continuing an upward trajectory in 2013. Existing home sales for September reported by NAR were down an expected 1.9% from August, which had seen the highest sales in 6.5 years. The annualized rate of sales in September was 5.3 million units. This represents 10.7% increase over last year. The inventory of existing homes for sale still remain a bit tight with only a five-month supply. A six-month supply of inventory represents equilibrium in the market, meaning an equal number of buyers and sellers.

Existing home prices also continue to rise, with the median price up 12% from a year ago. To put that in perspective, prices nationwide are now 16% above the trough that was reached in the fourth quarter of 2011, but still remains 17.4% below the peak reached in April 2006. Most markets have not returned to pre-recession levels. Rising home prices have raised concerns about the affordability of homes, but the price increases we are seeing are being driven by low inventory and strong buyer demand. As the inventory grows, prices will stabilize.

Looking at the NAR's home affordability index on the bottom right of slide 15, the index is currently at 155. The red line, or index equilibrium, of 100 marks the point where a family earning a median income has exactly enough income to qualify for a mortgage on the median-priced home. An index above 100 signifies a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20% down payment. The latest index score of 155 in August signals that a family has 55% more income than necessary to purchase a home.

The mortgage interest rate graph on the bottom left of slide 15 shows the last 40 years of mortgage rates. As you can see, current rates are at more than 40-year lows. So even with rates of 1 point higher than a year ago, the industry saw both home sales and home prices increase double digits from last September. Rates moved a little bit lower in October, and we can't predict where they will be coming in in the coming months, but we must keep in perspective that 4% to 5% rates are well below the 40-year average of 8.6% for a 30-year fixed-rate mortgage. We do not see the current rates as a deterrent, but rather as a catalyst to buyers coming into the market.

Overall, we are in the early stages of a multi-year sustainable housing recovery, which is based on an improving economy, increase in job growth, decrease in the unemployment rate, pent-up demand for housing from all four generations, and an increase in household formation and immigration. And with home sales rising, affordability in check, supply starting to normalize, and mortgage rates still well below the 40-year average, we believe we will continue to see positive momentum in the real estate market. With that, operator, let's open up the lines for questions.

(Operator instructions)

Vikram Malhotra, Morgan Stanley.

Hello, guys. Congratulations on your first quarter post the IPO. One quick question just to start off on the EPS adjustments. It appears that you adjusted for the IPO cost in EBITDA, but you did not in the adjusted EPS. Is there a reason for that?

Vikram, this is Dave. Yes, that is correct. We did not adjust for it in the adjusted net income calculation. We talked about that internally and decided only to adjust for the debt refinancing amortization, but that's not to say that's how we'll handle that calculation going forward. And as basically feedback from yourself and other folks, we'll look at that to make sure we give the most clarity on the EPS calculation.

At the end of the day, we had a great quarter, and if we were to adjust for those IPO costs, our EPS would be about $0.05 higher, putting our basic adjusted net per share at about $0.37. There's different methodologies at play here, but again, the numbers behind any calculation used are strong and demonstrate we were delivering on our plans.

Okay. Then just on turning to the agent count, your call for agents to be flat and 4Q is probably in line with the historic seasonality. But if I'm not wrong, last year, did you see sequential uptick from Q3 to Q4 in agent count in 2012? And so is your potentially your call for flat agent count just maybe you being a bit conservative?

Based on historics in Q4 of last year, we were net up about 100. So we did see some drop off in agent count growth at that time. We had two months of positive growth and one month of negative agent growth. So we're in a new normal, and we're waiting to see how our fourth quarter goes with respect to agent count. Historically, the fourth quarter, we have seen a drop-off, but it's tough to say, given that 2007 through 2009, and even a little bit in 2012 in Q4 we did lose agents. So we'll have to see where that goes. Given the positive momentum in the market, we hope to be able to maintain the agent count number that we have at the end of Q3.

And then would you be able to give us, at least in the US, what the count was at the end of October?

It was up slightly. I don't have that exact number, but it was up slightly.

Okay. Then last one for me, can you talk about both the two regions you've bought back? What's the visibility you have? What's the process in terms of conversations you are having. And then generally, how are you feeling about buying more regions in the coming, say, 12 months?

Was your first question about the visibility we have with the couple of acquisitions that we did?

No, no. Visibility about the future. Just visibility about future regions that you may look to acquire.

As we have mentioned in the past, those acquisitions are very opportunistic. We continue to have great relationships and continued conversations with many of the independent region owners. So as we settle in through the end of the year, as those agents see recovery, I think there's people, maybe possibly be more inclined. But we continue to have those conversations, and we'll take advantage of those opportunities as they come up.

Okay great. Thanks guys. Congratulations again on your first quarter.

Thank you.

Sean Kim, RBC capital markets.

Thanks. Congratulations on the IPO and the first-ever earnings. I have two questions. First, on operating leverage and margins, I think on a year-over-year basis, your revenues were up close to $2 million, but your EBITDA was up $2.5 million or more.

So it seemed like you demonstrated pretty good operating leverage. How should we think about that according to what's your longer-term margin target? I think that incremental margins should be pretty high. But it seems like you are pointing more closer to 50% going forward? So I just want a little more color on what we should expect in terms of incremental margins?

Yes, great question. The last couple of quarters, our margins have been up. We've been doing really well, and that's a function of, obviously, increased agent count, which is hitting primarily the continuing franchise line, but also the broker fee line coming up. I think that, as we had talked in the past, that high 40% margins is our goal and our target.

But I think as our revenue increases because of agent count increases, and if broker fee continues to be strong, margins in the low to mid-50% over time are very attainable as more of our revenue will fall to the bottom line because we do focus on maintaining our expenses, and we will continue our focus on that. And if we can keep those expenses under control, those margins will go up.

Okay, great. And I think we clearly understand the differences between -- the economic difference between an owned region and independent region. But if you -- I'm trying to get a sense of -- is there an improvement in the operations, whether it's a pace that you add agents when you look at some of these regions before you reacquire them? I'm just trying to get a sense of whether there's some operational improvements when you actually have ownership of a region?

Actually, there is some improvement. I will give you Texas as a perfect example. When we purchased Texas, they had one franchise salesperson for the entire state. Our goal is to put in seven or eight franchise salespeople so that we can increase that franchised office footprint.

Each additional office we add adds more agents. So when we buy back a region, we really dig into there and focus on the growth that we can obtain through franchise sales, through recruiting agents, and obviously, the retention of the agents we have. So it is very deliberate focus to grow those regions.

Great. Just one more question if I may. Can you give us a little more color on the sales in Japan? If you can give us any color on the financial metrics. And also, if you look at international just outside of the US and Canada, it's only about 10% of revenues right now.

Where do you see that going? Do we -- I believe the economics outside the US and Canada are much lower than they are here. So what do we need to see in those other regions to see better economics? Thank you.

Sure. As far as Japan, we did sell the franchise rights to Japan for $1 million in October. We are excited about the opportunity of growth in that particular area. But as far as growth outside of the United States, China for example, we sold the franchise rights last year. China has a two-for-one rule where two offices need to be open for one year before they can begin franchising within the country, and I believe that one year is over, I believe February 2014. And so we haven't even begun to expand in China yet.

The goal in country master franchise agreements is, the owner of the country will actually subdivide that country into multiple regions. They will sell the regions off. We get a portion of that fee. Each region will be owned, and they will, in turn, sell offices and recruit agents, which fees from the office go through the region, and then we get a portion of that fee here. So we are really beginning the footprint in Asia, and we haven't seen the revenue potential yet until they start to expand.

And I would just add in on that that international part of our business, while it's a very important part of our business, over 90% of our revenue does come from the US and Canada. As we expand our footprint globally, and as Margaret talked about, as these regions develop, and it takes a period of years for them to develop, I would see the percentage of our international revenue increasing. But I think for the foreseeable future, we're thinking mid-single digit percentages of our overall revenue.

Very helpful. Thank you very much.

You welcome.

Anthony Paolone, JPMorgan.

Thank you. Good morning. Congratulations on your first call.

Thanks, Tony.

Can you spend a minute maybe talking about the competitive landscape and recruiting agents and anything out there trend wise, whether it's new competitors or just changes in the industry that you are seeing? And then also, anything that you think you all will either change or have to change as a public company in that process going forward?

I think overall, if you go back to the National Association of Realtors, at the peak, they had 1.4 million associates in their membership, and that was in the heat of the market where, quite honestly, anybody thought they could sell a home and make a commission. That's gone down to 1 million associates now. And I think people who jumped into the real estate business really didn't understand the complexity of it.

The associates that are that million, they're the survivors. They take this industry very seriously. They want to be able to be a brand that will really grow their presence, grow their brand name, and allow them to have more business.

And so actually, going forward, whether we are public or private, we really look at our franchised offices, our broker/owners, to go out there and recruit agents very locally. So I don't see a change in what the industry does as far as recruiting. And the other focus we have is on our retention of our agents. And by providing them the tools, the resources, and the systems within the RE/MAX system, increase the retention that we have with our agents.

Okay. And as you look out, you have already laid out the annual dues increases that you expect to make over the next couple of years. How do you think about growth from continuing franchise fees, and what comes back to the Company from that part of the system?

Well I think there's opportunity. We have announced a fee increase in both annual dues and continuing franchise fees commencing in January 2014. I think as we look forward, we'll see how the economy improves and our agent count improves, and I think there are opportunities for regular recurring fee increases that will basically drop the rate to the bottom line. I think there's opportunity to look at those fees, and we're talking internally about when and by how much over time.

Okay. And then just last housekeeping item, Dave, the $3 million in 4Q of items, what's the geography of that going to be on the income statement?

You mean by geography, where it's going to hit?

Yes.

Well, I haven't looked at the nature of those expenses yet. But I think that a portion of that $3 million is comp expense related to some options that were granted at the -- about $2 million that were granted at the time of the IPO, and were fully vested. And about $1 million or so -- and probably will be expensed. And then $1 million or so of IPO costs will probably be expensed. I'm pretty sure most of that is expense that will not be capitalized.

Okay, thank you.

(Operator instructions)

David Ridley-Lane, BofA Merrill Lynch.

Yes. Just had some questions on the -- on perhaps where the agents are joining, where you're seeing -- which states or regions are seeing the greatest area of -- or greatest pace of agent growth?

Okay. Actually, so in the United States, the biggest area of growth so far we have seen is Texas, Florida, and California. Interesting, most of those were some of the hardest hit in the recession, and we are seeing the most growth come from that. Those three areas are also Company-owned.

And then overall, I would just say in Canada, we're generally pretty flat in Canada. So for US and Canada, the bulk of the growth rate now is coming from US, and a large part of that is coming form US Company-owned regions.

Correct.

This concludes our question-and-answer session. I would like to turn the conference back over to Management for any closing remarks.

Thank you so much for being on our first earnings call, and we'll talk to you again later. Thank you.

Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.