Re/Max Holdings Inc (RMAX) 2014 Q1 法說會逐字稿

Good morning and welcome to the RE/MAX first-quarter 2014 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 Investor Relations. Please go ahead.

Thank you, operator.

Good morning, everyone, and welcome to RE/MAX's first-quarter 2014 earnings conference call. Joining me today are our Chairman and Co-founder, Dave Liniger; and our Chief Operating Officer and Chief Financial Officer, Dave Metzger.

Our Chief Executive Officer, Margaret Kelly, regrets that she's not able to be on the call today. She is recovering from recent back surgery and will be back in the office soon. Dave Liniger is stepping in for Margaret.

Please visit the Investor Relations page of remax.com to access the live webcast and the replay of the call today. If you are participating through the webcast, please note that you will need to advance the slides as we move through the presentation.

Turning to slide 2, I would like to remind everyone that on today's call management's prepared remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

Examples from forward-looking statements may include those related to agent count, revenue, operating expenses, 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 First-Quarter Earnings press release, which is available on our website.

With that, I would like to turn the call over to our Chairman and Co-founder, Dave Liniger.

Dave?

Thank you, Pete.

And thanks to everyone for joining our call today. I would like to start by reviewing our first-quarter highlights on slide 3.

We delivered strong agent growth as we grew total agent count by 4.9%, adding 4,413 agents to our global network since the first quarter of 2013. Our targeted recruiting efforts helped us attract the most agents in any first quarter since 2007.

Our recurring fee-based model continued to drive revenue growth with solid margins and strong cash flow in the first quarter as compared to the first quarter of 2013.

Revenue increased to $41.9 million, up 7.2%. Our recurring revenue streams of annual dues and continuing franchise fees accounted for 60.2% of our total revenue.

Adjusted EBITDA was up 5.3% to $16.3 million. And adjusted EBITDA margin was 38.8% compared to 39.5% in Q1 of 2013.

Due to the seasonality of our business and expenses associated with our annual convention, we typically see our lowest margin of the year in the first quarter. Our margin and overall results were also negatively impacted by the weakening of the Canadian dollar, which we will discuss later on the call.

We delivered adjusted basic and diluted earnings per share of $0.28.

And finally, due to the strong financial position of the Company, we are well-positioned to return capital to shareholders. On May 8, we were pleased to announce a dividend of $0.0625 per share.

Turning to slide 4, you will see that we had solid agent growth, ending the first quarter with 94,385 agents, up 4.9%, or 4,413 agents, from the first quarter of 2013. Since the end of last year, we grew our network by 1,157 agents, which is the highest agent gain in any first quarter since 2007.

Several factors contributed to the growth in agent count, including our recent agent recruiting campaign, Open Your Eyes to RE/MAX, along with our Missing You campaign targeted at recruiting former RE/MAX agents. Our recruiting campaigns, coupled with our national advertising campaign, Dream With Your Eyes Open, continue to grow our brand awareness and support the growth of our network.

In the United States, we added 3,067 agents since Q1 of 2013. Our US agent growth of 5.9% slightly outpaced the National Association of Realtors' growth of 5.7% during the same period. Compared to the end of 2013, NAR was down 1.7% in the first quarter versus growth of 1.5% for our US agent network.

In Canada, we added 92 agents. With 18,969 agents, RE/MAX agents represented over 17% of the Canadian Real Estate Association membership.

Finally, outside the United States and Canada, we ended the first quarter with 20,130 agents, an increase of 1,254 agents, or 6.6%, over Q1 of 2013. With our international footprint spanning over 95 countries, we continue to connect buyers and sellers around the world.

On slide 5 let's look at the breakdown of agents in the United States and Canada. The graph on the left shows agent count in the independent regions declined 11.9% from the first quarter of 2013.

This is due to the acquisition of the Southwest and Central Atlantic regions and subsequent conversion of those agents in those regions from independent to Company-owned. As you can see in the green portion of the graph we had organic growth of 1,125 agents, or 3.4%, in our independent regions in the first quarter.

The graph on the right highlights agent growth in the Company-owned regions. The majority of the growth is due to the acquisition of the Southwest and Central Atlantic regions and conversion of those agents from independent to Company-owned.

We had organic growth of 1,848 agents since the first quarter of 2013 for a growth rate of 5.7%. In spite of the severe winter weather and a mixed housing market in the first quarter, we are very pleased with our agent growth and the strength of our franchise model.

With that, I will turn the call over to Dave Metzger.

Thank you, Dave.

On the next several slides, I will review our key operating metrics.

Turning to slide 6, you will find a breakdown of our revenue streams. Overall our first-quarter 2014 revenue increased 7.2% to $41.9 million, compared to $39.1 million for the same period in 2013.

Our recurring revenue streams, which are comprised of continuing franchise fees and annual dues, accounted for 60.2% of revenue in the first quarter, up from 58% of revenue a year ago. This is a very positive attribute of our franchise business model because it gives us stability when the market fluctuates.

Continuing Franchise Fees were $17.7 million in Q1, an increase of 17.2%, or $2.6 million, over the same period last year. $1.5 million of the increase was attributable to the acquisition and subsequent growth of the Southwest and Central Atlantic regions; $1.1 million was attributable to organic agent growth in the US; $300,000 was attributable to the $3 per month, or $36 per year, increase in continuing franchise fees for each agent in a US Company-owned region.

The increase was instituted on January 1, 2014. This fee is paid on a per-agent basis by each brokerage. These increases were partially offset by the weakening of the Canadian dollar, which negatively impacted continuing franchise fees by approximately $300,000.

The second part of our recurring revenue stream, Annual Dues, were $7.5 million in Q1, an increase of $200,000 over Q1 of 2013, driven by growth in agent count. This was offset by an approximately comparable amount of revenue included in the reported revenue for the prior year quarter related to a targeted office conversion program that was subsequently reversed during the second quarter of 2013.

The increase in the annual due membership fee to $400 per agent from $390 instituted on January 1, 2014, for each of our US and Canadian agents, had a minimal impact on Q1 revenue since we recognize this revenue over 12 months beginning on the anniversary date of each agent.

It is important to note that Canadian agents pay their annual dues in Canadian dollars. The weakening of the Canadian dollar against the US dollar negatively impacted annual dues revenue by approximately $100,000 during the quarter.

In the third row of the table is broker free revenue, which increased 18.9% or $900,000 to $5.6 million compared to Q1 of 2013. Broker fee revenue from Company-owned regions in the US and Canada increased $500,000 due to increased agent count and increased $400,000 as a result of the acquisition of the Southwest and Central Atlantic regions.

Broker Fee revenue was 13% of our revenue in Q1 and is the only portion of our revenue that is directly tied to transaction volume. The weakening Canadian dollar negatively impacted Broker Fee revenue by approximately $100,000.

Franchise Sales and Other Franchise revenue were $7.9 million for Q1, down $200,000 from the same period last year, primarily due to a $700,000 decrease in revenue related to lower attendance at our 2014 annual convention. Since the 2013 annual convention celebrated our 40th anniversary, attendance was unusually high that year. The decrease in convention revenue this year was partially offset by an increase in franchise sales and franchise renewals of $600,000.

In Q1 of 2014, we sold 28 more franchises and had 65 more renewals than in the prior-year period. We also had an increase in revenue from the sale of master franchise rights for two countries in Q1.

Finally, Brokerage revenue for our Company-owned brokerage offices was $3.2 million in Q1 of 2014, down $400,000 from the prior-year quarter. The decrease is primarily attributable to the shift of agents from an owned office to a franchised office a result of the sale of one of our owned brokerage offices to a RE/MAX franchisee in May of 2013. While this sale decreased Brokerage revenue, the agents remained within the RE/MAX-owned region network.

For the second quarter of 2014, we currently estimate Brokerage revenue will continue to be down compared to last year. It's important to note that our own brokerage operations have minimal contribution to EBITDA.

Looking at slide 7, Selling, Operating and Administrative expenses decreased by $700,000 to $25.3 million, or 60.4% of revenue, in Q1. This is in line with our expectations for the quarter as we normalize our expenses, which now include the costs associated with the ongoing activities of being a public Company.

Personnel costs decreased $200,000, primarily since we discontinued paying salaries to our founders, Dave and Gail Liniger, after the closing of the IPO. The decrease was partially offset by an additional personnel cost of $500,000 associated with the acquisitions of the Southwest and Central Atlantic regions and an increase of $200,000 associated with employee benefits.

Professional Fees decreased $200,000, to $2.3 million, in Q1 primarily as the result of higher professional fees of approximately $1 million in the first quarter of 2013 due to the IPO, offset by an increase in legal and compliance-related expenses associated with being a public Company in the first quarter of 2014.

Rent decreased by $400,000, to $3.1 million, due to increased subleased income associated with our corporate office and the renegotiation of leases at our owned brokerage offices.

Other selling, operating and administrative expenses increased $100,000, to $8.9 million, in Q1. This increase was driven by additional expenses associated with being a public Company including higher directors' and officers' liability insurance; transfer agent fees; and other similar expenses partially offset by a decrease in expenses associated with our annual convention.

It is normal for us to have higher expenses in Q1 compared to the remainder of the year due to certain expenses associated with the annual convention and higher legal and compliance-related fees associated with our year-end audit, annual report, and other year-end activities.

We will continue to watch expenses closely. This is a key factor in expanding our margin as we grow revenue, which is one of our top priorities.

On slide 8, you will see in the graph on the left that adjusted EBITDA for Q1 was $16.3 million up 5.3% from the same period in 2013, primarily due to a $1.4 million contribution to adjusted EBITDA from the Southwest and Central Atlantic regions, which we acquired in the fourth quarter of last year.

Revenue growth of $900,000, primarily associated with agent count growth and fee increases, also contributed to the higher adjusted EBITDA in Q1. Offsetting the additional revenue, we had higher foreign currency losses and additional selling, operating and administrative expenses after adjusting for IPO and other nonrecurring expenses incurred in Q1 of 2013.

Looking at the graph on the right, adjusted EBITDA margin was 38.8% for the first quarter, down from 39.5% in the first quarter of 2013. The decrease was due to higher selling, operating and administrative expenses of $800,000, compared to the prior-year quarter after adjusting for IPO expenses and other nonrecurring charges incurred in Q1 of 2013 primarily related to ongoing public Company costs.

Adjusted EBITDA margin was also negatively impacted by the effects of foreign currency, which decreased operating income by $360,000 and increased foreign currency transaction losses related to cash held in Canadian dollars by $458,000.

Turning to slide 9, the graph on the left shows net income of $7.8 million, an increase of 44% from the first quarter of 2013.

The increase was driven by a $3.3 million increase in operating income and a decrease in interest expense of $1 million due to the refinancing of our senior debt facility last year. These items were partially offset by a $400,000 increase in amortization related to the acquisition of the Southwest and Central Atlantic regions, an increase of $458,000 in foreign currency transaction losses mainly associated with the cash we hold in Canadian dollars and a $1.4 million increase in the provision for income taxes.

Looking at the graph on the right, adjusted net income was $8.3 million in the first quarter of 2013 (sic - see slide 9, first-quarter of 2014), up 18.6% from the same period in 2013 due to the same factors that affected net income. Based on adjusted net income, we reported adjusted basic and diluted earnings per share of $0.28 for the first quarter of 2014.

Turning to slide 10, the Canadian dollar has dropped approximately $0.08, or 8%, against the US dollar since the first quarter of 2013. We have not seen this much weakness in over four years.

During the first quarter of 2014, our average exchange rate was approximately $0.91 for every CAD1. We generated approximately 14% of our revenue in Canada during the first quarter. Therefore, the weakening of the Canadian dollar had a negative impact on our financials.

On a constant currency basis, using our exchange rate from Q1 of 2013, the 8% drop in the Canadian dollar decreased first-quarter operating income by $360,000; triggered a foreign currency transaction loss of $529,000; decreased adjusted EBITDA margin by 210 basis points; and decreased adjusted basic and diluted earnings per share by $0.02 and $0.01, respectively.

The foreign currency transaction loss is associated with the marking to market of current assets, primarily cash held in Canadian dollars.

As we see fluctuations in the exchange rate, we will continue to report gains or losses associated with the cash we hold in Canadian dollars. We will continue to monitor the exchange rate, and we plan to convert to Canadian dollars based on the rate at which we were paid.

For example, if we were paid $0.93 on the US dollar, we will look to convert to Canadian dollars at the same exchange rate.

Turning to slide 11, I'd like to give a quick overview of our cash position and our leverage position. Our cash position as of March 31, 2014, stood at $97.2 million, up $8.8 million from December 31, 2013.

With $227.8 million in term loans outstanding at the end of the first quarter, our debt to adjusted EBITDA ratio stood at 2.92 times. and our net debt to adjusted EBITDA ratio stood at 1.67 times. As we continue to strengthen our balance sheet, we remain in a very strong position to opportunistically grow the business.

In addition to our quarterly principal and interest payments, we made an excess cash flow payment pursuant to the terms of our senior secured credit facility of $14.6 million in April of this year. As a result, the new balance on our term loan is approximately $213.2 million.

In line with our commitment to return capital to shareholders, we announced a quarterly dividend of $0.0625 per share payable on June 5, 2014, to shareholders of record at the close of business on May 22, 2014.

Now I'd like to turn it back over to Dave to discuss the housing market and our outlook for the second quarter.

Thanks, Dave.

Turning to slide 12, existing home sales have had a slow start in 2014 for various reasons, including constrained inventory, harsh winter weather, and tight lending standards. The housing data reported in the last few months has been mixed at best, but we do see positive data points that are encouraging.

The March data reported on our recent RE/MAX National Housing Report showed that home sales increased from February to March in all 52 metro areas included in the report, with an average increase of 24.6%. When you look at NAR's existing home sales figures that were not seasonally adjusted, they rose from February to March by a similar amount of 25.5%.

And you can see this increase is right in line with the increase last year of 27.3% from February to March.

Next week, we plan to release the latest addition of the RE/MAX National Housing Report. And preliminary data for April shows home sales were down 7.8% year over year, but increased 10.9% from March, which is slightly higher than last year's monthly increase of 8.1%.

The April data also shows a monthly rise in sales in 50 of the 52 metro areas we survey. The spring selling season may not be quite as robust as last year, but it's starting to gain traction.

Availability of credit is another important factor that is impacting the housing market. Due to the sharp decline in the mortgage refinance business, banks are starting to compete for mortgage originations. As a result, we're starting to see banks ease some of their restrictive lending standards and offer non-QM loans.

As lenders start to accept lower credit scores, reduced down payment requirements, and get back to traditional lending standards, increased activity in the housing market should follow. This will take time to unfold, but we are encouraged to see the easing of strict lending standards has started.

The housing recovery should not be measured by one month or one quarter. We believe this is a multi-year recovery supported by steady jobs growth and a gradually recovering economy.

The year-over-year double-digit growth we saw in 2012 and 2013 is not sustainable. There may be some speed bumps during the recovery, but the housing market is now settling into a normal pace supported by sustainable growth.

On slide 13, I would like to touch on a few points related to our outlook.

For the second quarter of 2014, agent count is estimated to increase by 4% to 5% over second quarter 2013. Revenue is estimated to increase by 5% to 6% over second quarter 2013, subject to fluctuations in the Canadian dollar exchange rate.

Selling, Operating and Administrative expenses are estimated to be 50% to 52% of revenue, and adjusted EBITDA margin is estimated to be approximately 50%.

As a reminder, for the full year 2014, agent count is estimated to increase 4% to 5% over 2013; revenue is estimated to increase 6% to 7% over 2013 selling, operating and administrative expenses are estimated to be 52% to 54% of revenue; and adjusted EBITDA margin is estimated to be in the 47% to 49% range.

Turning to slide 14, our business model is very resilient. Despite the negative impact of foreign currency and mixed market conditions, we delivered a strong first quarter as a direct result of our franchise and recurring fee-based model.

With 60% of our revenue coming from recurring fee-based revenue streams, our earnings are more predictable and less susceptible to wide swings in market conditions.

We have low CapEx requirements and a low-fixed-cost structure that enables us to produce high adjusted EBITDA margins and a strong cash flow, and gives us the capital flexibility to grow our business organically; make selective investments for growth; and return capital to our shareholders.

With that, Operator, let's open the lines for questions.

(Operator Instructions)

Vikram Malhotra, Morgan Stanley

Thank you. Good morning guys. Just a quick clarification, Dave.

The revenue growth, if you were to kind of adjust for the Canadian dollar and maybe the one-time decrease you saw in the convention, would you say revenue growth is probably closer to 9% adjusting for all of the one-time items?

Well I don't have the percent right off the top, but I do know that revenue was down by about $450,000 because of the FX, because of the Canadian dollar adjustment. So if you add that back whatever that percentage is, yes.

Okay. And then just on the EBITDA margin, I saw that for 2Q you typically provide a range. So I'm just wondering kind of is it -- is that thinking 49% to 51%?

Or what drove you to give that specific number? And then just going forward, I know those costs are higher this year because of you being a public company, but would you say you -- we probably can look forward to kind of a more normalized increase in the EBITDA margin from 2015?

In 2015 absolutely. We think as we settle into kind of the new normal with our expenses in 2014 we'll see the margins in the high 40% range.

If we add more agents obviously and if we're not subject to anymore foreign currency fluctuations we think that those margins will stick. We think as we settle into that and as we grow the agent base and control our expenses that going into the 50% margin range is very obtainable.

And then just last one on the international front, can you maybe give us some idea of where you saw the agent growth? And if you can remind us in China are you now able to open more offices?

In China we're restricted the first year on a two-for-one system of you have to have two offices open for at least a year before you can start franchising. So we are going through that time period now, but would anticipate we'll start our expansion in China over the next few months as we start to sell our first regions there.

We have similar opportunities in that we have recently opened South Korea and Japan. Obviously we don't expand the day we get to a country. There are several months required of meeting the legal requirements of those countries, but we anticipate good growth in Asia.

And to your question, Vikram, about the agent growth, we've seen it kind of across the board, but there's been a couple countries that had growth above others: Portugal, Spain, South Africa had a little bit of growth in our agent count. Obviously keeping in mind that revenue from international operations is 4% to 5%.

But we are seeing some growth there and we'll see where we go as China and Japan open up.

Great. Thanks guys.

Sean Kim, RBC Capital Markets.

Hi, thanks. A couple of questions.

First I guess you saw pretty robust growth in US agents, up 6% year over year. I think if you look at home sales volume in the first quarter was more flattish.

So I guess my question is what sort of home sales activity or home sales volume growth do you need to sort of maintain that level of US agent growth? Or is it just less dependent on that?

It's less dependent at this time. We're kind of working towards a new normal when it comes to the amount of real estate being sold.

If you go back to the year 2000 more normal market before the boom and bust cycle, it was about 5 million resales a year. A lot of people think that the market's a little soft this year, but that's comparing it to two very robust growth years in 2012 and 2013. So with the current forecast of about 5 million resales a year we think this is the growth rate we can achieve.

Great. Thanks. And I guess my next question, kind of a follow-up to Vikram's question on margins.

It seems like the two factors that are impacting margins negatively this year are FX and public company costs. So if we sort of strip that out or add those back to the 1Q result, it seems like your incremental margins are closer to about 80% or so. Do you think that's a better indication of the operating leverage potential of the business?

You know I mean, I hear those 80%, those numbers, I look a little bit lower than that. But I do agree with you that the operating leverage is there. We'll see some of it this year.

Really into 2015 when we get our normalized costs because we are adding about $4 million of pub co costs. But I do think margins will go up as we get into 2015 and the revenue grows in a large significant part, 70%-ish range will probably fall to the bottom line, maybe more depending on the growth.

Okay. Thanks. I just had two questions, but if I -- just one more if I may.

Certainly

The broker fees grew 19%. I think some of that strength has to do with the two regional rights buybacks in the fourth quarter. So if you look at it more on an apples to apples basis, assuming you own the same regions in 1Q 2014 as you did in 1Q 2013, what do you think the growth would have been?

You know the increase was probably $400,000 to $500,000, maybe a little bit more just on an organic basis.

Okay. Great. Thank you very much

David Ridley-Lane, Bank of America Merrill Lynch

Sure. So Dave, I know you have a long history and wanted to ask about a period. Might be similar in terms of housing pause and that's back in 1995.

So housing sales grew over 1992 to 2005, but there was this pause in 1995 due to rising mortgage rates and a bit weaker US economic growth. And existing home sales did fall that year by about 1%.

And I'm curious how did RE/MAX's agent growth, or agent count, performed during that period? And how do you think the current housing pause impacts the propensity of agents to join the RE/MAX network?

I don't have the exact amount at this time going back to 1995, but I do know that we did grow every year for almost 34 years in a row. And so a minor slowdown in the market has never stopped the agent growth pattern that we've had.

The only time it occurred was in the terrible recession we went through a few years ago, and that affected everybody in the real estate industry the same. We think that we're back to really a new normal and we also think that the agent growth will continue as NAR's growth continues.

So we're very confident in the future of continuing to expand our company. One of the things that we depend upon of course is selling additional franchises and so our franchise sales for the last four years have been in the range of about 700 a year, and we think that that is probably going to continue or accelerate.

I see that the franchise sales renewal fees were up in the first quarter so I think that's continuing. Question for Dave Metzger.

You've kept the full-year agent count growth at 4% to 5% sort of despite the weaker US home sales. I'm just kind of curious, did your additions in April in May give you an additional bit of confidence in keeping that agent count guidance?

Yes. We continue to grow agent count despite what's going on with the housing market, the tight credit, the low inventory.

So we feel confident. We went back and looked at our agent count projections for the year based on where we ended Q1, the growth we've had, and we've seen growth in agent count since then. So yes, we feel comfortable with that projection through the balance of the year.

Great. And then I wanted to ask about the trends you've seen in your Internet traffic and the leads you've gotten from your own company website. Are you seeing -- continuing to see that rise and traffic to continue to be strong?

Yes. The Internet traffic is increasing and that's increasing for all of our competitors when we tracked it on Hitwise and so on.

But do bear in mind that the spring selling season does increase the internet traffic because more people are interested in what's going on. So I would think that we're kind of like in a normal market right now in that the cyclical nature of the business is internet traffic goes up all the way through September or so.

Got it. And just one more for Dave Metzger. Is this first quarter's GAAP tax rate around 20% a good proxy for the full year?

The GAAP tax rate. Yes, I think it is.

I think it's right. The overall rate is 38%, but I think the GAAP tax rate, I think I remember looking back, was 19% to 20%.

Perfect. Thank you very much

(Operator Instructions)

Brandon Dobell, William Blair.

Thanks. Good morning.

Wondering if the kind of slow start to the year for home sales has changed at all the conversations that your salespeople are having with potential new territories or the kinds of conversations you're having with the independent territories of when they might think about either selling out to you guys or accelerating those types of discussions?

Yes. It's such a minor change that it really doesn't affect the thinking of our entrepreneurial independent regions. Most of them have been with me now for in excess of 25 or 30 years and they've seen the market change up and down.

I don't think market conditions will stimulate someone into thinking now is the time to sell. The factors that are much more important are age, health, the decision that after this many years it is time to retire.

And we continue to -- Brandon, we continue to have the discussions with those folks as they're running their business now, but we also continue to have discussions with them as to what is the right timing for some of them. So we're still in contact with them.

Got it. And then the agents that are being recruited in the US in particular, anything notable about the types of people that are coming over to your brand?

Are they materially different from what you've kind of seen in past cycles at this stage of the cycle or looking at last year the types of agents, I guess productivity-wise, right? Age, transactions, those kinds of things. Anything different to be looking at?

Well one interesting factor is that a pretty good percentage of the people that we're picking up were previously with RE/MAX before. The market has improved enough to where they can see they can actually pay their own way and they see the opportunity as it continues to recover to increase their income over whatever commission split they're on.

So we think that is an excellent trend, but, for the most part, our agent growth is as it has been for many years. And that is we continue to grow mostly by experienced agents who are leaving our competition, whether they be regional or national franchises or the small mom and pops, and they're looking for a larger company, a better commission split, a better image or whatever. So not much has changed.

Okay. And then final question from me. Looking at the marketing strategy for the individual agents, so not from a corporate point of view of the individual agents out there.

I know some agents seem to love what the portals are bringing to the table, just in terms of scale and visibility and things like that. And some agents are on the opposite side saying that they'd cede too much control to the portals.

Maybe what's your stance Dave on how the franchisees or the company-owned territories can work with the portals? What's the best strategy or structure to get the most out of those relationships for your agents?

Well, the agents are very independent and each one does their own business their own way. Most of us have come to accept the portals as being another source of advertising just like the newspapers were 10 and 20 years ago.

It's less expensive with vastly improved information for people who are shopping for property. And so we look at the portals as being our partners.

They have put tens of millions, maybe hundreds of millions of dollars into technology which is not something that we as brokers tend to do. We work with the customers, they're providing a technology. As long as we have that partnership together they are excellent partners for us.

Great. Thanks a lot. Appreciate it.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Dave Liniger for any closing remarks.

Thank you, operator, and we'd like to say thank you to everybody that joined us on the call today.

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