Re/Max Holdings Inc (RMAX) 2015 Q3 法說會逐字稿

Good morning. My name is Shawn and I will be your conference operator today. At this time, I'd like to welcome everyone to the RE/MAX third-quarter 2015 earnings conference call.

(Operator Instructions)

Thank you. It's now my pleasure to turn the conference over to Mr. Peter Crowe, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, everyone. Welcome to RE/MAX's third-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 today's call. If you're participating through the webcast, please note you'll 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 third 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. Dave?

Thank you, Pete, and thanks to everyone for joining our call today. The housing market continues to improve at a sustainable pace and we continue to attract agents to our network as agents recognize the value of aligning with RE/MAX to grow their business. Our strong third quarter performance is the result of our continued focus on franchise sales, agent recruitment, and broker and agent development as well as our disciplined approach to expense management.

On slide 3, you will see we grew our total agent network by just over 1,500 agents in the third quarter and by almost 6,000 agents since the end of the third quarter of last year. This year, we also achieved our strongest nine-month agent gain in the last ten years.

Similar to our performance in the second quarter, third quarter agent growth in Canada and the US was at the high end of our expectations and agent growth outside the US and Canada exceeded our estimates. Revenue, selling, operating and administrative expenses and adjusted EBITDA margin all came in better than we expected for the quarter.

Turning to slide 4, we ended the third quarter with 103,491 agents in our global network, an increase of 6% over the prior-year quarter. As we discussed on the previous slide, our US agent growth of 4.5% over the prior-year quarter was at the high end of our expectations and was driven by additions in California, Florida, Texas, and the Pacific northwest. In Canada, we ended the quarter with 19,506 agents, an increase of 399 agents over the prior year quarter. Agent growth continues to be driven by Western Canada and Ontario. Finally, outside the United States and Canada, we ended the third quarter with 24,206 agents, an increase of 13.3% over the prior-year quarter end, driven by strong gains in Central and South America, specifically Mexico, Brazil, and Argentina, as well as gains in Europe, notably in Italy and Portugal.

Slide 5 shows the breakdown of RE/MAX agents in the United States and Canada. The graph on the left highlights agent growth of 5% in the United States Company-owned regions and 3.8% in the United States independent regions. The graph on the right shows agent growth in Canada.

In the third quarter, Western Canada, which is Company owned, had an increase of 254 agents or 4.1% over the prior-year quarter. Eastern Canada, which is comprised of two independent regions, gained 145 agents or 1.1% over the prior-year quarter, driven by agent gains in Ontario.

Slide 6 highlights our year-to-date agent growth. We grew our global network by 5.6% in the first nine months of this year compared to 4.7% in the first nine months of last year. Year-to-date agent count increased by 4.7% in the United States and 10.7% outside of the United States and Canada. Our momentum broker and agent development program has energized our brokers and helped them understand that the best way to grow their business is through agent recruitment and development.

As the market continues to improve and brokers continue to attend our momentum program, we are seeing them shift their priorities from controlling expenses to growing their brokerages. We support these efforts and believe they will be contributors to our growth over time.

We continue to see positive indicators in the housing market and our business even as we enter a slower part of the year for the industry. Due to our solid franchise sales results so far this year, our continued ability to attract agents to the RE/MAX network and the sustained growth of the housing market, we are raising our full year 2015 agent growth outlook to 5.6% to 5.8% over 2014. The increase is driven by strong agent growth outside the United States and Canada in the fourth quarter.

Before I turn the call over to Dave Metzger to walk through our financials, I would like to address the resale shelf registration statement we filed last week with the SEC. The resale shelf registration includes up to 7.5 million shares potentially to be offered by RI HI Incorporated. RI HI is currently the majority owner of RE/MAX. Current RE/MAX shareholders will not be diluted by any sales and RE/MAX will not receive any proceeds from the sale of the RI HI shares.

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, third quarter 2015 revenue increased 2% or $870,000 compared to the same period in 2014. Revenue from broker fees, continuing franchise fees, annual dues drove the year-over-year increase due to increased home sale volume and strong agent growth in the US and Canada. The strength of the US dollar against the Canadian dollar adversely affected third-quarter revenue by approximately $1.2 million on a constant-currency basis.

Revenue from continuing franchise fees increased by $382,000 or 2.1% compared to the prior-year quarter due to increased agent count and continuing franchise fee revenue recognized from the six brokerage offices sold in April that was previously reported in brokerage revenue. These increases were partially offset by a lower aggregate fee per agent in the Company [known] regions due to fee waivers associated with the momentum program, the December 31, 2014, sale and subsequent conversion of the Caribbean and Central American regions to independent regions and negative FX impact.

Education and training are fundamental components of our value proposition and momentum is an essential part of our overall training program. As Dave mentioned, we have seen good results from the momentum program and we will be extending the fee waiver incentives associated with the program through the remainder of this year and all of next year. We want our brokers to learn, implement and master the program so they have the knowledge and the tools to grow their offices, develop their agents, and increase their profitability.

Revenue from annual dues increased by $313,000 or 4.1%, mainly due to increase of nearly 3,000 agents in the US and Canada since the third quarter of 2014. Revenue from broker fees increased by $1 million or 12.6% over the prior- year quarter primarily due to increased agent count and increased home sale volume. Franchise sales and other franchise revenue increased by $152,000 or 2.8% compared to the prior-year quarter, mainly due to increased office franchise sales in the US compared to the prior-year quarter. The increase was offset by a decrease in the global regional franchise sales due to fewer country sales compared to the prior-year quarter.

Since the RE/MAX brand and network currently spans nearly 100 countries, our focus globally is on helping the master franchise owners grow the RE/MAX network in their countries. Revenue from owned brokerage operations decreased $1 million or 23.9% compared to the prior-year quarter. The decrease is entirely attributable to the sale of the six brokerage offices at the beginning of the second quarter to an established and successful RE/MAX franchisee.

On a year-to-date basis, revenue is up 4% compared to the same nine- month period in 2014. For the first nine months, broker fee revenue was driven by increased agent count and higher home sales volume. Franchise sales and other revenue was up primarily due to higher domestic franchise sales, and higher registration income for our agent and broker events, and our recurring revenue streams increased due to strong agent growth in the US and Canada.

Looking at slide 8, selling, operating and administrative expenses increased $165,000, or approximately 1%, compared to the third quarter of 2014, mainly due to increased personnel and commission-related expenses which were partially offset by lower rent expense. Personnel costs increased $185,000, primarily due to increased employee incentives and expenses associated with the retirement of our former president. The increase was partially offset by a reduction in headcount that resulted from a reorganization in the fourth quarter of last year and costs related to the six previously owned brokerage offices.

Rent expense decreased $260,000, or 8.2%, primarily due to the sale of the six brokerage offices. Other selling, operating, and administrative expenses were up $191,000, primarily due to increased commissions paid associated with our higher office franchise sales in our US Company-owned regions.

On slide 9, you will see in the graph on the left that adjusted EBITDA increased 7.5% to $25.1 million for the third quarter, mainly due to an increase of $870,000 in revenue and a decrease of $610,000 in foreign currency transaction losses compared to the same period in 2014. As a result of the strength of the US dollar against the Canadian dollar, operating income was negatively impacted by approximately $1.1 million during the third quarter.

Looking at the graph on the right, adjusted EBITDA margin was 55.7% for the third quarter, up from 52.8% in the prior-year quarter. In the first quarter of 2015, we started repatriating cash generated by some of our Canadian operations to the US on a monthly basis which substantially reduced our mark-to-market exposure. While this change mitigated most of our mark-to-market risk, the increased strength of the US dollar against the Canadian dollar during the quarter had a negative impact of approximately 139 basis points on our adjusted EBITDA margin on a constant currency basis.

Turning to slide 10. The graph on the left shows net income of $15.2 million for the third quarter, an increase of 8.1% over the prior-year period. The increase was primarily driven by an $870,000 increase in revenue, and a decrease in foreign currency transaction losses of $610,000 when compared to the third quarter of 2014. These items were partially offset by a $165,000 increase in selling, operating, and administrative expenses and a $161,000 increase in the provision for income taxes as the result of higher income before tax.

Our effective tax rate remained consistent at approximately 18% during both the third quarter of 2015 and 2014. Based on adjusted net income, we reported adjusted basic and diluted earnings per share of $0.46 for the third quarter of 2015 compared to $0.44 and $0.43 respectively for the third quarter of 2014. FX negatively impacted Q3 2015 adjusted basic and diluted EPS by approximately $0.03.

Turning to slide 11, our cash position as of September 30, 2015, was $95.4 million, down $11.8 million from December 31, 2014. As a reminder, in April we paid a special cash dividend of $1.50 per share which was an aggregate payment of approximately $45 million and funded from existing cash. We remain in a great position from a leverage perspective with a debt to adjusted EBITDA ratio of 2.3 times and a net debt to adjusted EBITDA ratio of 1.2 times.

In the first nine months of the year we generated approximately $58 million of operating cash flow. Our strong cash flow generation and leverage position continues to allow us to invest in growing the business while returning capital to shareholders.

Now I'll turn it back over to Dave for comments on the housing market.

Thanks, Dave. Turning to slide 12, existing home sales have now increased year-over-year for 12 months in a row through September, according to NAR. Based on the strong summer selling season that pushed into September this year, 5.3 million existing home sales for the year, or a 7% increase over last year, is within reach. The graph of the actual existing monthly home sales on the top of slide 12 highlights a steadily improving housing market. If existing home sales continue to improve at a moderate rate of 5% a year with price appreciation of 5% a year, we believe this represents healthy and sustained growth.

Availability of credit, low interest rates, affordability and even the rent- versus-buy decision all point people toward buying a home. Even with tight inventory, year-over-year existing home sales continues to increase each month, which means there's a strong demand for home ownership.

Lack of inventory and a lower number of first-time buyers as a percent of the market continue to be the largest constraints on the housing market. A large part of the solution to the inventory problem is increased new home construction. The graph of new residential sales on the bottom of the slide highlights that new home sales are below the long-term average.

The 20-year average for new home sales dating back to 1995 is about 800,000 a year, excluding the great recession, when we had new home sales closer to 300,000 a year. The National Association of Home Builders is estimating 534,000 new home sales this year. We are 260,000 below the 20-year average and that doesn't account for the pent-up demand due to the lack of building during the downturn.

It is going to take time for the home builders to reach optimum levels of new home starts, and it may take some time for first-time buyers to feel financially stable enough to jump into the housing market. Increased construction and more first-time buyers getting into the market are likely to be the key catalysts for growth in the housing market for the next few years.

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

On slide 13, I would like to share our outlook for the fourth quarter and the full year 2015. For the fourth quarter of 2015, revenue is estimated to decrease by 4.5% to 5% from fourth quarter 2014. Our Q4 revenue outlook reflects a decrease of $1.2 million in revenue due to the sale of the six brokerage offices in the Caribbean and Central American regions. After adjusting for both sales, revenue would have decreased by an estimated 2% to2.5% over Q4 2014.

Also we estimate FX will negatively impact Q4 revenue by $750,000 to $800,000 and negatively impact Q4 adjusted EBITDA margin by 75 to100 basis points. And we estimate franchise sales and other revenue will decline due to lower estimated international franchise sales revenue and the non-renewal of a partner agreement and we are exploring opportunities to generate revenue through other relationships. Annual dues, continuing franchise fee and broker fee are estimated to be up in Q4 compared to last year.

Selling, operating and administrative expenses are estimated to be 51% to 53% of fourth quarter 2015 revenue and adjusted EBITDA margin is estimated to be in the 48% to 49% range. For the full year, we are raising our full-year agent count outlook to 5.6% to 5.8% from 5% to 5.5% over 2014 and believe the additional agent growth and any upside growth will come from outside the US and Canada. We are trending to the high end of our revenue growth outlook of 1% to 2% over full-year 2014.

We are improving our selling, operating and administrative expenses estimate to 49% to 51% of 2015 revenue from 50% to 52%. We are increasing our adjusted EBITDA margin estimate to 50% to 51% from 49% to 50%.

We are trending towards $4 million of total Capital Expenditures for the year. This includes project-related capital expenditures of $2.7 million to $3 million, which is up from $2 million to $2.5 million and we are lowering our project-related operating expenditures to approximately $2 million. This is down from $3 million due to a portion of project-related expenses being reclassified from operating to capital expenditures, and some expenses being pushed to Q1 next year due to timing of project-related work.

A few items to note regarding our 2015 outlook. First, our full-year revenue guidance includes the impact of the sale of the six brokerage offices in the Caribbean and Central American regions. After adjusting for the sale, revenue would have increased an estimated 3% to 4% over 2014. We estimate the sale of these assets will positively impact adjusted EBITDA margin by approximately 150 basis points for the full year 2015. Next, FX is estimated to negatively impact full-year 2015 revenue by $3.5 million to $4 million and negatively impact adjusted EBITDA by $5 million to $5.5 million, or 150 to 200 basis points on a constant-currency basis.

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

Turning to slide 14, our recruiting and development efforts delivered our best nine-month agent gain since 2005. The steadily improving housing market and the stability of our franchise model, coupled with our strong agent growth continues to deliver margin expansion. We delivered strong results in the third quarter and we are on track to deliver on our outlook for the year, including higher agent growth and higher adjusted EBITDA margin which we discussed on the call today. We will continue to sell franchises, help our brokers recruit agents, and develop those agents into the most productive in the industry.

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

(Operator Instructions)

Your first question comes from the line of Brandon Dobell from William Blair.

Thanks, good morning, guys. Maybe focus first on expectations for agents here in the fourth quarter. It doesn't sound like there's any concern about Canada. Now it's the selling season goes into seasonal slowdown mode, but maybe you could talk about your expectations for agent retention, fourth quarter into early 2016, given this is a slow time of the year and maybe people are getting a little more nervous about Canada, just given all of the things going on up there?

Good morning, this is Dave Liniger.

Hi, Dave.

When we look at our agent growth year-after-year, our strongest two months or two quarters, are second and third quarter. The third strongest is the first quarter and always the fourth quarter is the weakest that we have. And so that's because of many factors.

Often our franchisees are looking at eliminating agents who are marginal. Often agents are thinking about retiring or changing and many agents will not move in the last quarter because they are awaiting bonuses they get in January or February from our competitors.

So when we look at the fourth quarter this year, we think it's going to be similar to the last 5 or 10 years. The US will be reasonably flat, as will Canada. Global will probably be up a bit.

Okay. And then from -- I think it's called regulatory and compliance perspective, doesn't sound like so far from anybody we've talked to that the implementation of RESPA-TILA or TRID had a real big impact on the flow of business Q3 to Q4. Maybe some color on that as well as the CFPB's perspective on MSAs. How you think those two things may impact the business in the very short run, but also as you think about the next couple of years, does it change anything about how you may operate the franchise relationships or the Company relationships?

Oh, I don't think there's much difference in what we are going to be doing. We've been following this as it's progressed for the last couple of years. We're in compliance, as are most of our competitors, and so we think that the industry will learn how to adjust and make the system work. There's just no impact.

Okay, and then final one for me, as you get through the technology platform investments, maybe what are the top two or three or maybe it's four or five things that you think that technology investments are going to provide the brokers and agents, either something they didn't have or something they had, now it's going to be a lot better? Just trying to figure out how -- what the people on the ground are going to see from the technology investments that's going to make their business either easier to run or more productive?

Good morning, Brandon. This is Dave Metzger.

Hi, Dave.

From the perspective -- Re/Max's perspective on the tech side, we're focused almost entirely on lead generation. That's the lifeblood of our business and what we can do for our agents, so that's the most important thing.

Also looking at improved mobile applications, huge. I think that's just the wave of the future. Mobile is going to continue to play a very big part of the tech and the tools that our agents use.

And then finally, we have a design center where our agents can prepare brochures and other marketing materials and so we're going to be focusing on a lot of that and those are tools we can give our agents to make their jobs easier. So lead generation, increased mobile, improved mobile and then marketing tools.

Okay, perfect. Thanks a lot guys.

Your next question comes from the line of Vikra Malhotra from Morgan Stanley.

Thank you. Just start on the agent growth. It's been a couple of quarters now where in the US and now it seems like in Canada, the owned and independent there's been a gapping out of the growth. I'm just wondering, absence of you being able to buy back regions in the near term, what can you do to narrow that gap?

Actually, the gap is starting to narrow. The momentum program was started mostly in the Company-operated regions and we had incredible success, obviously, in the last couple of quarters.

We are now starting the second round of training programs in the Company-operated regions, but many of our independent regions have now come in for training and are embracing this with us. So at the present time, 50% of the core region offices are using momentum and at the present time, 30% of the independent regions are, and that figure is going up pretty dramatically.

Okay, so that should help to narrow the gap. And then just on the productivity of agents, I remember -- maybe it was two years ago when you guys went public, we -- there was a stat that you guys did about 17 sites, the individual average broker at RE/MAX [had] about 17 sites.

I'm wondering if that's changed, even if it's a little bit? Because, to me, it seems like you may be taking some market share, and correct me if I'm wrong, but your broker fees are going up, call it 10% to15% on average, over the last few quarters. Home sales are going up, call it mid single digits or so, and so it would seem even if you adjust for agent growth and some pricing, it seems like you're taking some share.

The agent productivity across the industry has stayed pretty much the same. What's occurring with our broker fee going up is that many of our agents when we instituted the broker fee were grandfathered and that occurred several years ago.

And what's happened now is that many of those were older agents who have retired, being replaced by newer agents who are adding to broker fee. So we'll have year-end statistics out, oh, early next year, but I anticipate it's going to be about the same as it has been.

Okay, and then just last one, thoughts on the shelf registration. I'm just -- it probably gives you multiple options, but I'm just -- if you can you walk us through the thought process as opposed to maybe just doing it in one fell swoop on why -- what's the thought process behind just having this in place and then at some point potentially pulling the trigger?

Well, at the IPO, I made the comment that I intended on having controlling interest of the Company for at least five years. That was important for me to help make the transition from an entrepreneurial Company to a public Company. And nothing's changed in those viewpoints.

But I've also said, from the IPO, that we have too few shares on the market. Most of our investors have said you need more float to probably be a better Company. And so by having a shelf registration for a limited number of shares, it allows me to maintain my controlling interest, but it allows many of my founding shareholders, who are now in their 60s and 70s, to be able to monetize and get on with their retirement.

Okay, thanks guys. Congrats on the strong results.

Thanks.

Your next question comes from the line of Ryan McKeveny from Zelman & Associates.

Hi, thank you, and great quarter. Regarding the capital allocation going forward, any update on the discussions you're having with independent region owners, any changes in your strategy or thought process there? And just in terms of the capital allocation, weighing that against other opportunities to drive shareholder returns?

Sure, Ryan this is Dave Metzger. Good morning. We continue to have discussions with the independent region owners. They are a little bit older, their businesses are improving. We'll see where they go in terms of deciding to exit, but we continue to have discussions with them, so we'll see where that goes. We still feel very comfortable with the guidance that we gave at the IPO that we could do two to three over the first three to five years of the post- IPO, so we feel pretty good with that.

As far as capital allocation, it's a very disciplined approach. We've talked about in the past that we'd set it up that we're going to save capital for independent region acquisitions, definitely going to reinvest in the business as we did in 2015 and as we look at what we need to do in 2016 and 2017. Very important to reinvest in the business. Looking at a number of other acquisition opportunities to see if something is out there that will work to the benefit of our agents and brokers.

And then we'll consider dividends. Keep in mind that we did double our annual dividend last year and paid a special dividend. We'll reassess all of that next year before we come out with fourth quarter numbers. So continue to be very prudent and disciplined in our approach to capital allocation. Very important to keep some dry powder for acquisition opportunities as they arise.

Great, thank you. And in terms of the operating expenses, just directionally when we think about 2016 relative to what you're experiencing in 2015, for the different cost categories, are there any noteworthy shifts that we should expect across any of those categories when thinking about expense growth in 2016 versus 2015?

We're looking at them right now. They may be slightly up, but right now we're in the middle of our budgeting process. I think about where we are, just up marginally, would be where you are to be looking, but no surprises that we see right now.

Got it. Thank you. And lastly, on project upstream, we saw they signed their agreement with the NAR yesterday. Any broad thoughts on how upstream can impact the brokerage industry and any potential long-term benefits specifically to an organization like RE/MAX with a diverse franchise network? Thank you.

Realistically, speaking, when people first -- the general public started hearing about Upstream, they thought that a group of major big brokers were going to try to start a national portal.

That was not the purpose of Upstream all along. It's basically for the brokers to take control of how their listing information is going to be distributed by the MLSs to various other portals.

And so this helps the consumer because it keeps the broker in control of the consumers' information and it makes it much more accurate data. And so, in reality, long term, it helps the industry. It helps the consumer, but it's not a threat to any of the portals or anybody out there.

Thanks very much.

Thanks, Ryan.

Your next question comes from the line of John Campbell from Stephens.

Hey, guys, it's Hayden sitting in for John. Just a quick question on the momentum development recruitment program. Can you remind us, is that just a waiver of the continuing franchise fees or does that also incorporate lower annual dues for a certain amount of time? Can you remind us what those discounts are, what are the parameters of eligibility there and how long do those discounts occur?

This is Dave Metzger. Yes, it's just related to the waiver of the continued franchise fees for three months. Dave, do you want to add anything on to the program in general?

Yes, we delay the dues for three months, but the dues do get implemented. And it's basically an opportunity to help people make the transition. And when you look at it, it's a minor investment on our part since the average agent stays with us for about eight years. And the momentum program is not unique to our Company. Since we started the Company, we've always had campaigns and programs to help people make the transition to our Company. It's just been the most successful one that we've ever tried.

Got it, thanks for that. And then just curious with the pace of agent growth that you've had so far this year coinciding with the 4Q guide, if you continue this program throughout 2016 and you continue to recruit agents at the pace that you have been here this year, where do you feel confident -- the most confident, I should say, about your potential for growth next year, I guess outside of purchase transaction volumes growing as a whole or agent productivity growing?

We're a marketing company and the Company's had remarkable growth from starting with only one agent 42 years ago, so we just don't see how our model's changing much. We sell franchises and that fills in the places where we don't have the total market share we want.

It's interesting to note that of the franchises we sold in 2014, they accounted for about 28% to 30% of our agent growth over the last year. And so we've had a outstanding year of franchise sales this year, which bodes well for our franchise growth and our agent growth next year. So we'll keep doing what we keep doing and there's plenty of room in the country for us to grow.

Our stated goal is 10% of the membership of NAR and right now we're about 5.5% across-the-board. Many states, like Colorado, were up to 13%, so this is the basic business model we operate.

Got it, thanks. And one more if I may. As far as the filling franchises, obviously there's only so much green space that you have with the master franchise sales.

I wonder if you might be able to talk with us generally about what pipeline -- what that pipeline looks like? And then if you have any sense of when or if you may eventually fully run out of those master franchises?

Well, the master franchises, obviously, do not exist in North America, because we have completed those processes over several years ago. As we started to open China and Japan, Korea and so on, they do sell master franchises in various regions and those are kind of opportunistic as they come along.

Often master franchises that are sold sometimes don't become successful and we have to remarket them again. So the franchise income from the master franchises will be probably fairly flat over the future. And we've certainly run out of the countries to sell major countries because we've made the entry into almost 100 markets right now. So we'll just continue to do what we're doing and when they come, they come.

One thing I would -- this is Dave Metzger -- I would add in is that to tag on with what Dave Liniger said is, right, we're running out of master franchises to sell. But there's a lot of big countries out there, China, Japan, India, Brazil, things like that.

And so the revenue opportunity there is to sell subregions in there and then help those region owners develop office sales after that and we get a piece of that revenue every step along the way. China and Japan, particularly, are very underdeveloped in terms of subregion sales, so there will be some opportunity there down the road.

That's great color, guys. I appreciate it.

Your next question comes from the line of David Ridley-Lane from Bank of America.

Sure, good morning. Had a question on annual due fee increases. You increased the fee in 2014, held it flat this year. Any early thoughts on what you're looking for in 2016?

Yes, nothing planned -- this is Dave Metzger. Nothing planned for annual dues right now into 2016, but there is planned increase in continuing franchise fee in the core regions, the Company-owned regions, starting in July.

And do you have the rough percentage increase or dollar amount?

$5 per agent per month.

Got it. Okay, and then with the extension of the momentum fee waivers in 2016, are there any dynamics among revenue recognition or anything that would cause this to be an incremental drag to next year in terms of the top line or as you basically anniversary in, it's not an incremental impact?

There should not be an incremental impact.

Got it. And then the non-renewal of the partner relationship you mentioned in the script, could you maybe size that for us just so we have a sense of the headwind you're facing?

Yes, I mean, really, that was a partner agreement that there was a renegotiation point in the agreement and we decided that it was -- given where it was going, it just wasn't something we needed to move forward with. We have a pipeline of other opportunities out there that we think would be probably better suited for us and give us better opportunity there. So not overall -- not a huge part of -- a big drag on the business.

Got it. And what was IT -- the technology project-related IT expense in the third quarter and what's remaining for the fourth quarter?

For the third quarter, it was $650,000 and in the fourth quarter, it's $1 million.

Okay. And should we think about the full -- because you did say some might roll into first quarter of 2016, so I'm wondering, rough magnitude, does $1.5 million roll off next year?

Well, there's -- just the first part of your question was there will be about $400,000 to roll into Q1 next year. The total project, we will -- that won't roll off. We'll use that money to reinvest in something else. And we're considering all of the different things.

As we've talked about a couple times, we really feel that, given where the Company is, we need to continue to reinvest in the business to find better tools for our brokers and agents. So there will be a placeholder into next year and we'll be able to give you better color on what that exactly entails when we give -- at the next call in February.

Got it, okay. And if I just take the big buckets for fourth quarter revenue guidance down $4.5 million to $5 million, I think there's the 250 basis points drag from the sale of the Caribbean and Central American regions, maybe about 75 basis points drag from the momentum fee waivers, and about 200 basis points for FX, is that the bucket?

Yes. Yes, those are the main buckets. Franchise sales, we've had a great year on franchise sales in the US and core regions, Company-owned regions. We'll see where they go the rest of the year. Global franchise sales, we had a big subregion sale in the fourth quarter of 2014. We'll see if there's anything that comes in in Q4 of this year.

Number of opportunities out there, but we're just not sure they're going to come in. So while it's down, there are some headwinds out there, but there are upside also if agent count comes in strong, if broker fee comes back, or continues to be strong, there's some definite upsides potential there.

Got it. And just as a sort of a rough idea, how much -- how many of the agents are grandfathered on the broker fee versus paying the broker fee? Is it 50/50? Is it further along?

It's probably about 40%.

Grandfathering?

In Company-owned. In most of the independents, there is no grandfather status. In fact, I'd say I believe almost all of them there's no grandfather status, so it would be 40% in the Company-owned regions.

Perfect. Thank you very much and congratulations on the quarter.

Thanks, David.

(Operator Instructions)

Your next question comes from the line of Tony Paeloni from JPMorgan.

Thank you, good morning. You may have mentioned this and I may have missed it, but were there any outsized franchise sales in the third quarter that we should think about as we comp that going forward?

No.

Okay. And if we think about just the first couple quarters of 2016 and the continuing franchise fees, it would seem like if agent count growth holds pretty steady here, should that growth in franchise fees accelerate to about the agent count level? Because it would seem like you'd anniversary some of the fee waivers in the next couple quarters and you'd also start to anniversary some of the move in the Canadian dollar. Is that a fair way to think about it?

There could be a little pick up in there, yes. It's really on the momentum program and the impact, it's really when they utilize the credit. So we'll see, but there could be a pickup -- there will be a pickup, I believe, based on organic growth and increase in agent count, some pickup in CFF. And we'll be able to give you better color on that at the next call.

Okay. And I know you talked about your efforts recruiting and what you do on the marketing side there to advance the business, but any way to put brackets around just how much of the agent count growth you have been experiencing has come from just a better real estate backdrop versus initiatives that you have put in place that you found just particular --

The -- Tony, this is Dave Liniger. The agent growth continues to be about the way it has been all along. The market is improving, which helps a little bit. But for the most part, we continue to attract the best producing agents, and so I just don't see much of an impact other than the way its always been for the last few years.

Okay, thank you.

There are no further questions at this time. I'll turn the conference back to the presenters.

Thank you, operator, and thanks everybody for joining us on the call today. We appreciate it and talk to everybody later.

Thank you.

This concludes today's conference call. You may now disconnect.