Re/Max Holdings Inc (RMAX) 2015 Q1 法說會逐字稿

Good morning. And welcome to the RE/MAX Q1 2015 conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Peter Crowe. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to RE/MAX's first-quarter 2015 earnings conference call. Joining me today are Chief Executive Officer and Co-Founder, Dave Liniger; and our Chief Operating Officer and Chief Financial Officer, Dave Metzger. Please visit the investor relations page of remax.com for all earnings-related materials and 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 on today's call, our 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 materially from those discussed today. Examples of forward-looking statements may include those related to agent count, revenue, operating expenses, financial guidance, housing market conditions, 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'd like to turn the call over to RE/MAX CEO, Dave Liniger.

Thank you, Pete, and thanks to everyone for joining our call today. Existing home sales are historically slow during the first three months of the year. But during this period, our brokers are very busy recruiting agents. This quarter was no exception, as we delivered our strongest quarterly agent growth since the first quarter of 2006.

On slide 3 you will see we grew our total agent network by 5.9% compared to the first quarter of 2014, which was above our expectations. Agent gain in the United States was in line with our expectations, while agent gain outside the United States and Canada exceeded our estimates, growing 13.5% compared to the prior-year quarter. Our revenue and adjusted EBITDA margin came in slightly above our expectations, while our selling, operating and administrative expenses were in line with the expectations for the quarter.

The weakening of the Canadian dollar against the US dollar negatively impacted adjusted EBITDA margin by approximately 382 basis points. Dave Metzger will comment more on that later. Demonstrating our commitment to the franchise model, we converted 6 of our 21 owned brokerage offices to independently-owned franchises in April. Overall, we feel our first-quarter performance was solid and positions us well to deliver on our outlook for the year.

Turning to slide 4. We ended the first quarter with 99,955 agents in our global network, an increase of 5.9% compared to the prior-year quarter. And as we recently announced, we have now surpassed 100,000 agents globally. As we discussed on the previous slide, our agent growth in the United States of 4.8% compared to the prior-year quarter was in line with our expectation and was driven by strong additions in California, Texas, the Pacific Northwest. In Canada, we ended the quarter with 19,161 agents, an increase of 192 agents from prior-year quarter. Agent growth was concentrated in Western Canada and Ontario. Finally, outside the United States and Canada, we ended the first quarter with 22,849 agents, an increase of 13.5% over the prior-year quarter, driven by strong gains in Argentina, Brazil, Mexico, Portugal and South Africa.

Slide 5 shows the breakdown of RE/MAX agents in the United States and Canada. The graph on the left highlights our agent growth of 5.7% in US Company-operated regions and 3.4% in the US independent regions. The graph on the right shows agent growth in Canada. In the first quarter, Western Canada, which is Company-owned, had an increase of 210 agents or 3.4% compared to the prior-year quarter. Eastern Canada, which is comprised of two independent regions, lost 18 agents compared to the prior-year quarter, driven by a slight drop in agent count in Quebec, partially offset by agent gains in Ontario.

Our Momentum training program, which is specifically designed to educate our brokers on how to more effectively and profitably manage their business, as well as proactively plan for future business growth, is having a positive impact on broker engagement and agent recruitment across the United States.

Slide 6 highlights our year-to-date agent growth. We grew our global network by 2% in the first three months of the year compared to year-end 2014 agent count. The strong start to the year exceeded our expectations and was driven by solid growth of 1.5% in the United States and 4.5% outside the United States and Canada. We continue to grow our network and our brand globally. While we have seen strong agent growth outside the United States and Canada, our revenue per agent is substantially higher in North America. We expect to continue to generate approximately 95% of our revenue in North America for the foreseeable future.

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

Thank you, Dave. Turning to slide 7 you will find a breakdown of our revenue streams. Overall, our first-quarter 2015 revenue increased 5.6%, or $2.3 million, compared to the same period in 2014. The weakening of the Canadian dollar against the US dollar adversely affected first-quarter revenue by approximately $650,000 on a constant currency basis.

Recurring revenue, which includes continuing franchise fees and annual dues, accounted for 57.6% of revenues in the first quarter of 2015 compared to 60.2% in the prior-year quarter. Revenue from continuing franchise fees was in line with the prior-year quarter due to increased agent count, offset by changes in our aggregate fee per agent in the Company-owned regions, a reduction due to the sale of the Caribbean and Central America regions on January 1, 2015, negative FX impact and slightly higher receivables. Fee waivers for new agents recruited in conjunction with the Momentum training program contributed to the decrease in fee per agent.

We continuously evaluate training and recruiting programs and the Momentum program is one we believe in. It has been instrumental in getting our brokers focused on growing their offices and their businesses profitably. And the three-month fee waiver is a great way to introduce quality agents to the RE/MAX model. Our average agent remains with us for almost eight years. The key is getting those agents in the door and Momentum is doing just that.

Revenue from annual dues increased 3.9% compared to the prior-year quarter, mainly due to an increase of 2,851 agents in the US and Canada since the first quarter of 2014. Revenue from broker fees increased by $862,000 or 15.5% over the prior-year quarter, primarily attributable to increased agent count and increased transaction activity, due in part to improving market conditions. Franchise sales and other franchise revenue increased 6.5% compared to the prior-year quarter due to higher revenue from our annual convention and higher revenue from office sales in the US. An increase in revenue from our own brokerage operation also contributed to overall revenue growth, as the brokerages saw an increase in agents and transactions during the quarter.

Looking at slide 8. Selling, operating and administrative expenses decreased $220,000 or 0.9% compared to the first quarter of 2014. Personnel cost declined $360,000, primarily as a result of a reorganization in the fourth quarter of last year designed to improve efficiencies at our corporate office and the retirement of our former CEO at the end of last year, partially offset by first-quarter severance charges. Other selling, operating and administrative expense decreased $440,000 compared to the prior-year quarter due to cost synergies realized from hosting regional events in conjunction with our annual convention, and a reduction in expenses incurred for certain marketing publications. The expense reductions were partially offset by a $400,000 increase in professional fees related to previously mentioned and budgeted technology-related projects and higher legal fees incurred during the quarter.

On slide 9 you will see on the graph on the left that adjusted EBITDA increased 17.2% to $18.7 million for the first quarter compared to the same period in 2014. This was primarily due to the $2.3 million increase in revenue during the quarter and the $1.1 million decrease in selling, operating and administrative expenses after adjusting for non-recurring items.

We generated approximately 12% of our revenue in Canada in the first quarter. As a result of the continued weakening of the Canadian dollar against the US dollar, operating income was negatively impacted by approximately $570,000 during the first three months of the year. In the first quarter we repatriated substantially all of the cash that we had been holding in Canadian dollars to the US and incurred foreign currency transaction losses of $1.4 million as a result.

Looking at the graph on the right, adjusted EBITDA margin was 42.4% for the first quarter, up from 38.2% in the first quarter of 2014 despite FX headwinds. The weakening of the Canadian dollar against the US dollar negatively impacted our adjusted EBITDA margin by approximately 382 basis points in Q1. The FX impact on our adjusted EBITDA margin in the first quarter of last year was 170 basis points. The repatriation of substantially all of the cash that we had been holding in Canadian dollars to the US accounted for approximately 317 of the 382 basis point FX-related reduction this quarter. Going forward, we will be repatriating our Canadian cash to the US on a monthly basis and will therefore have substantially less mark-to-market exposure.

Turning to slide 10, the graph on the left shows net income of $9.1 million for the first quarter, an increase of 17.1% over the prior-year period. The increase was primarily driven by a $2.3 million increase in revenue, a $220,000 decrease in selling, operating and administrative expenses and a $271,000 increase in equity and earnings in investees which was related to a mortgage business associated with one of our owned brokerage offices.

These items were partially offset by an increase in foreign currency transaction losses of $892,000 when compared to the first quarter of 2014, a $343,000 increase in interest expense primarily related to costs associated with the March amendment to our credit agreement, offset by a reduction in debt outstanding. The amendment allows us more flexibility with the amount of future dividend payments. The increase was also partially offset by a $263,000 increase in the provision for income taxes as a result of an increase in our income before tax. Our effective tax rate remains consistent at approximately 19% during both the first quarter of 2015 and 2014.

Based on adjusted net income we reported adjusted basic and diluted earnings per share of $0.33 and $0.32, respectively, for the first quarter of 2015 compared to $0.28 and $0.27, respectively, for the first quarter of 2014. FX negatively impacted Q1 2015 adjusted basic and diluted EPS by approximately $0.04 compared to a negative impact of $0.01 and $0.02, respectively, in Q1 of last year.

Turning to slide 11. Our cash position as of March 31, 2015, was $114.5 million, up $7.3 million from December 31, 2014. On March 11 we doubled our quarterly dividend to $0.125 per share and declared a special cash dividend of $1.50 per share. Aggregate payments for the quarterly dividend and the special dividend were approximately $3.75 million and $45 million, respectively. Both payments were funded through existing cash and made on April 8, and are therefore not reflected in the March 31 cash balance.

The balance on our term loan at the end of the first quarter was $203.3 million, down $8.3 million from the end of last year, which gives us a debt to adjusted EBITDA ratio of 2.35 times and a net debt to adjusted EBITDA ratio of 1.03 times. We made a $7.3 million excess cash flow principal payment on our term loan in March. Our balance sheet continues to strengthen and we remain well-positioned to continue to reinvest to grow the business, as well as return capital to shareholders.

Now I'd like to turn it back over to Dave Liniger to discuss the housing market.

Thanks, Dave.

Turning to slide 12, existing home sales were slow in January and February but jumped in March, to deliver the largest monthly increase since December, 2010. The graph on the top of slide 12 highlights actual monthly existing home sales. You can see that March was well above March last year, and year-to-date existing home sales through March were up 6.6% compared to the first quarter of last year. While one month doesn't make a trend, overall it looks like existing home sales are tracking positively so far this year.

Consumer confidence continues to slowly improve, while economic fundamentals are in place to support the housing market. More people are getting jobs, soon employers may be competing for employees, which should push wages higher. Wage growth coupled with increased consumer confidence should spur more activity in the housing market. Inventory increased in March but continues to be tight in many markets. Together with a much improved home equity situation, more inventory should come to the market this year and next. New construction could also relieve some pressure from the tight supply in most markets.

New home sales have been quiet so far this year, but they are estimated to increase by 18% to 30% over last year. New home sales in the second quarter will give us a better feel for how the year will trend and homebuilders are going to be a positive catalyst for inventory this year. We continue to focus on three items this year: affordability, inventory and lending. Due to low interest rates and slower price appreciation, affordability should remain a positive for most buyers. Inventory looks to be improving and we see many signs that lending is becoming more accessible, especially to first-time buyers. With these conditions trending in the right direction, demand continues to rise and should drive existing home sales in the coming months.

Now I'll turn it over to Dave Metzger to walk through our financial outlook.

On slide 13, I'd like to share our outlook for the second-quarter and for the full-year 2015. In April we converted 6 of our 21 owned brokerage offices to independently-owned franchises. The six offices have 270 agents and are located in Maryland and Virginia. The franchises were sold to a long-time RE/MAX broker in the area who we believe is the right person to successfully operate and grow these offices. Our second-quarter and full-year outlook reflect the sale of the six brokerage offices.

For the second quarter of 2015, agent count is estimated to increase by 4.5% to 5% over second-quarter 2014. Revenue is estimated to increase by 2.5% to 3.5% over second-quarter 2014. Selling, operating and administrative expenses are estimated to be 47% to 49% of Q1 2015 revenue. And adjusted EBITDA margin is estimated to be to the 52% to 53% range.

There are a few items I would like to note regarding Q2. First, let me walk through the impact of the sale of the six brokerage offices we have on our Q2 financials. We estimate the sale will decrease Q2 revenue by $825,000, decrease Q2 operating income by $75,000 and increase Q2 adjusted EBITDA by approximately $75,000 after certain adjustments. We will also recognize a gain on sale of assets of approximately $700,000 related to the sale of the six brokerage offices.

Second, we estimate the weaker Canadian dollar will negatively impact Q2 revenue by approximately $825,000 and operating income by approximately $750,000 on a constant currency basis. Adjusted EBITDA margin will be negatively impacted by an estimated 50 to 100 basis points. This is factored into our Q2 outlook. It is important to note that we had a foreign currency transaction gain of $835,000 in Q2 of last year which contributed to the 57% margin for the prior-year quarter.

Third, we estimate continuing franchise fees will be in line with Q2 of last year, partially due to the fee waivers associated with the Momentum training and recruiting program, a reduction due to the sale of the Caribbean and Central America regions and the negative impact of a weak Canadian dollar compared to the US dollar. We believe annual dues, broker fee and franchise sales will be up for the quarter compared to last year.

Finally, going forward, we will repatriate cash generated by our Canadian operations to the US on a monthly basis in order to minimize the mark-to-market gains and losses we have experienced in recent quarters. For the full year of 2015 agent count is estimated to increase by 4% to 5% over 2014. Revenue is estimated to increase by 1% to 2% over 2014 after adjusting for the sale of the six owned brokerage offices to an existing RE/MAX franchisee.

Selling, operating and administrative expenses are estimated to be 50% to 52% of 2015 revenue. Adjusted EBITDA margin is estimated to be in the 49% to 50% range. Project-related operating expenditures of approximately $3 million and we estimate our total capital expenditure of $3.5 million to $4 million, including the project-related CapEx of $2 million to $2.5 million.

A few items to note regarding our 2015 outlook. First, we estimate the sale of the six brokerage offices will decrease full-year revenue by $2.4 million, increase operating income by $75,000 and increase adjusted EBITDA by approximately $200,000 after certain adjustments. Our estimated revenue growth over the last year would be between 3% to 4% if we strip the six owned brokerage offices out of the last three quarters of last year for comparison purposes.

Second, as we discussed on our last call, we are using an annualized estimated exchange rate $0.78 for every Canadian dollar. The estimated exchange rate negatively impacts our full-year 2015 revenue outlook by an estimated $2.5 million to $3 million and adjusted EBITDA by an estimated $4 million on a constant currency basis. Finally, we continue to believe master franchise sales, specifically sub-regional sales in Asia-Pacific and revenue from broker fees may provide upside for revenue in 2015.

Now I'll turn it back over to Dave Liniger.

Turning to slide 14, we are pleased with our first-quarter performance. We experienced our strongest first-quarter agent gain since the first quarter of 2006, and we surpassed the 100,000 agent mark in April. Both data points are strong proof that our agent-centric business remains a destination for quality agents.

With that, operator, let's open it up for questions.

Thank you.

(Operator Instructions)

Our first question comes from David Ridley-Lane of Bank of America Merrill Lynch. Please go ahead.

Sure, good morning. Curious on the fee waivers for new agents. It sounds like it's getting the results you?d expected. Is this something that you have done in the past? Or is this just a brand-new approach to getting new agents in the door?

David, this is Dave Liniger. Throughout the history of RE/MAX we have done recruiting contests, incentive programs and so on. The Momentum program that we are involved with right now is the most successful we have done in over 20 years.

What it has done is it allows us to focus our broker-owners back into growing instead of just cutting costs. So far we have had about 40% of the core broker-owners have gone through the program, and you can see the impact that we are having. So our fee waivers and incentive programs and so on, we figure is a short-term investment for a long-term gain, since our average agent stays with us for eight years or more.

Got it. Pretty strong performance on the margins in the first quarter. About 140 basis points both the high end of the guidance range and the mix shift from the sale of the six Company-owned brokerage offices is a positive for margins.

So a little bit curious, is the 2015 EBITDA margin guidance that you maintained just on conservatism? Would you have a little bit more of a bias towards the higher end of that range because the outperformance in the mix shift?

Yes, David, this is Dave Metzger. We had a great first quarter but that's the first quarter; three more quarters to go through in the year. We think that the first-quarter performance will build confidence. The height of the buying-selling season is to come in Q2 and Q3. It's early to adjust guidance at this time.

Probably trending towards the higher end. But we'll look at that and if we think it's appropriate, we will adjust guidance after the next quarter. But I think we need to get another quarter under our belt before we decide that.

Got it. And a quick numbers question, were the Company-owned brokerage agents in the agent count already?

Yes, they were.

Okay. So they were already there. And then plans to re-franchise the remaining I guess you have 15 offices left?

Yes, we said at the time we went public, that we wanted to be a pure franchisor. And as the market conditions improved and the price would go up, we would divest ourselves of all those offices. And so we're continuing to look at that. Obviously if we do get them divested, they will stay within the RE/MAX organization, either with their existing management or another RE/MAX franchisee.

Got it. That's it for me and congratulations on the quarter.

Thank you.

Our next question comes from Tony Pallone of JPMorgan. Please go ahead.

Thanks and good morning. On the fee waiver, can you walk through again, sorry I may have missed this, but exactly where the fees are being waived? Is it at the agent level? Or at the franchisee level back up to you all? Or is across all of that? Trying to understand what exactly is getting waived.

It's the continuing franchise fee, which is the $125 per agent per month if the broker pays for us. So it would be the fee waiver of those three months, the first three months.

And truly we look at it as an investment. Most of our agents stay with us for about eight years. If we can trade off three months to get seven-plus years of revenue, we think that's a great investment.

Right. So the agent themselves, are they getting a cut in their fees? Or is it just the franchisee that's not paying -- (multiple speakers).

No, it's the agent. It's an incentive for the broker to help the agent make the switch. Obviously, when agents start to work for us, even if they make sales within the first 2 to 4 weeks, they don't get the closings for the first month or two after that. And so it gives them an incentive to come on board at this time and then we catch up later.

And Tony, this is Metzger again, it's a three-month lag is really what it is. They come on for three months and then we start picking it up after that, getting the revenue after that.

Got it. And so will you run this program effectively for some period of time? Or is it something you see lasting for a little while here? How do you think about the duration of it?

Well, the fee waiver is an incentive to get the program up and running. However, this is not a flavor of the month. We will continue the Momentum training and continue updates to it for several years.

Okay, got it. And then when you look at your agent count growth, do you think you are picking up share? Or how do you think that compares to the general size of the agent count in the US? Or North America for that matter?

Tony, we lag the National Association of Realtors a little bit, because in their count they have all the beginners and part-timers and people coming back into the market. And we are really after quality agents.

So I think that the rate of growth that we are having right now is about what we anticipated. It's following our guidance in the US and Canada. We'll have to see what happens after this quarter, but it seems to us that the momentum of the market is coming back.

Okay, got it. And this is a question about some of the attractions to your system by the agents and folks coming in. I remember around the time of the IPO you talked about some of the things you did during the downturn that was very attractive, like offering training on short sales and things of that nature.

I'm curious, today with a better market, what are the things that are most important to the agents or even bringing in more franchisees into your network? What's important in that sales process to bring them on board?

The two most important things are the market share and brand power. And then the second thing of course, everybody is always looking for, is lead generation.

So strong brand, strong Internet presence and good market share makes the phone ring with customers. That's what turns on real estate agents. And of course, recruiting is what turns on the franchisees.

Okay. And then a question on that lead generation. It seems like a large peer of yours is spending a lot of money on technology. How are you guys thinking about that?

And how do you coordinate spending and thinking through lead generation? Because you've got yourselves at the corporate level and you've got the brokers and then you've got the agents. I guess everybody probably does some of that spending?

Yes, Tony, we are always looking to improve our systems. We have a lot of great technology offerings from our lead management design center, RE/MAX University. And you are right, lead generation like Dave Liniger just said, that's the thing. We're always looking to improve our lead generation and offerings to the agents.

And we listen to them. We listen to the agents and brokers and we look at our spending based on what they are saying and what they want. We try to enhance and improve our systems based on that.

And Tony, this is Dave Liniger. The technology is an interesting aspect of the real estate industry, but it's not the only thing that makes the industry work. Different companies try to brag about what their technology is.

Our agents are extremely entrepreneurial. They're different than most agents. They don't want us to hand them a box and say use this technology. Each one of them is at the forefront of the industry and they want to select and choose their own.

It's like some people want an iPhone and some people want an Android. And so what we try to do is research all of the technology, try to get group discounts as best as we can and expose it to the agents and let them make their own entrepreneurial choice.

Okay, got it. Thank you very much.

Our next question comes from Vikram Malhotra of Morgan Stanley. Please go ahead.

Thank you. Dave, can you talk about, going forward, the strategy for the independent regions in terms of improving the agent count growth? What can you do there?

Seems like the gap between Company-owned and independent, it's widened a bit over the last two quarters. I'm wondering what kind of levers you have in the near term, assuming that there's a process of buying back region is obviously lumpy?

Vikram, what we try to do is lead by example. And so we show them what we are doing that makes us successful and get them to try to imitate it. The reason that we do very well is that we have more franchise salespeople than most of the independents, and franchise sales actually leads to recruiting.

For instance, last year 35% of the agents that joined in the Company-operated regions were from franchises that were sold last year. And so the more franchises you can sell, the more offices that open, the faster you can recruit.

And so we do a lot of brainstorming with them. We show them what we pay our franchise sales people. And many of them are in the process of hiring new franchise sales people at this time.

And then for some of the regions that you bought back over the last few years, can you give us an update how the re-franchising of those regions, how the growth in agents in those specific regions that you bought back? Just to get a sense for the ones that you bought back, how the progress has been?

Yes, the three that we bought back in 2007 were hurt very bad with the economy, that was Florida, the Carolinas and California. And obviously that's where the bulk of our recruiting is happening at this time. Their economies are recovering, and we have been extremely successful in selling franchises in those three regions over the last two or three years.

And Vikram, Texas is the one that we bought most recently that it was an independent. The other three that we bought back, Mountain State, Central [Enneck] and Southwest, were Company-owned. They were already part of the RE/MAX program for growing agent count. We've seen a good pick-up in the amount of agents we have added in the Texas region since we've taken it over, because the increased focus, like Dave said, on selling franchises and programs like the Momentum program.

And then any further thoughts on, or any update on, the buying back of the independent regions? And if you were presented with an opportunity, given where the debt levels are today, would that be funded with cash? Or could you raise debt to do that?

Well, the conversations continue. We are always talking to the independent regioners as to what their plans are. As we've talked about in the past, it has to be a transaction that works for both sides.

I think there's definitely some interest as the independent regions -- there's an improving market, they're not selling at the low point of their EBITDA. We are having discussions and that's really good. When it happens is when it happens.

And Dave, last one from my side. On the margins, given the strength you have seen now in the second quarter and obviously you've been a public Company now for a while. I wanted to get a sense of longer-term how are you thinking of the long-term margin target? EBITDA margin target?

I think we are approaching 50%. I think that's a good target for the near term. We will have to adjust that going forward.

Right now we need to reinvest in business. We think that is very prudent to do and that will drive the business going forward. But I think that low 50% range is where we are focused for right now, and we will see where it goes from there.

Okay, thank you.

(Operator Instructions)

Our next question comes from Ryan McKeveny of Zelman & Associates. Please go ahead.

Hi, guys, thanks and good morning. Given the introduction of the fee waivers, how do you think about that playing against the long-term opportunity to potentially increase the continuing franchise fees?

And similarly on the annual dues, is there a long-term opportunity there to increase those dues? And specifically on 2016 relative to 2015, should we expect much movement there?

Right now we haven't determined when or if we're going to raise fees. Obviously that is part of the plan. It's not what drives the business.

Organic agent growth, selling franchises, and if we get fortunate enough to acquire an independent region. Fee increases are part of the plan at some point and we will look at that down the road. But at this point nothing has been decided for 2016.

Okay, thanks. And I might have missed this, but with the Momentum program, is that specifically Company-owned regions?

No, about half of the independent regions are using the Momentum program. However, the other half have their own programs that they've instituted. So I think everybody is trying to use incentives to grow the business. The fee waivers are to get the program started, but basically it's re-educating our brokers and saying you went through a four- or five-year period of cutting your expenses, now let's emphasize gaining agents and growing your cash flow.

Got it, makes sense. And on the capital structure, longer-term, how would you think about that? What factors would lead you to potentially increase leverage?

We've got a good amount of cash on the balance sheet, so we want to use that first. Our leverage range is down to 2.35 times on total debt to EBITDA. We would feel comfortable going up to the 4 times, possibly 3 to 4 times.

I think we would have to look at if there was a independent region acquisition that really made sense and if we needed to lever up to do that one, absolutely. Fortunately, we're generating a lot of free cash flow. And if we have some cash on the balance sheet, we'd try to use that cash first. But if a good independent region acquisition opportunity came up, we would definitely lever up to do that.

Okay, thanks. Last one, any update on the Canadian housing market? It seems that the agent counts there have been a little stronger than expectations. Any thoughts around that?

Well, the Canadian market, we've got so much market penetration with the RE/MAX operation, it's very difficult to grow it more than where we are at right now. We are seeing that probably the market in Alberta is going to slow down just a little bit, and perhaps even in Quebec.

However, it seems to be very strong in Toronto and in Vancouver. So we're looking at a flat market, and I think most of the economists up in Canada are stating that they think it's going to remain fairly flat for the foreseeable future.

Great, thank you.

I'm showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Dave Liniger for any closing remarks.

We appreciate everybody dialing in and talking with us this morning. Have a great day and we will talk to you next time.

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