Re/Max Holdings Inc (RMAX) 2016 Q3 法說會逐字稿

Good morning and welcome to the RE/MAX Holdings third-quarter 2016 earnings conference call and webcast. My name is Denise, and I will be facilitating the audio portion of today's call. At this time, I would like to turn the call over to Andy Schulz, Executive Director of Investor Relations. Mr. Schulz, please begin.

Thank you, operator. Good morning, everyone, and welcome to RE/MAX's third-quarter 2016 earnings conference call. 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 notice 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, 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, housing market conditions, 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 our third-quarter earnings release, which is available on our website.

Upon the conclusion of our prepared remarks by our Chief Executive Officer and Co-Founder, Dave Liniger, and our Chief Financial Officer, Karri Callahan, we will open the call for Q&A, at which time we will be joined by Adam Contos, RE/MAX Chief Operating Officer, and Geoff Lewis, RE/MAX President, and Ward Morrison, Motto Mortgage President With that, I would like to turn the call over to RE/MAX CEO, Dave Liniger. Dave?

Thank you, Andy, and thanks to everyone for joining us on our call. It's real pleasure to be with you today as we have a number of exciting events to share.

First, our business continues to perform well. Our strong financial performance in the third quarter exceeded our expectations highlighted by increases in agent account, revenue, margins, and cash flow. Second, the recent launch of our innovative mortgage brokerage franchise, Motto Mortgage, is an opportunity we believe will be a positive catalyst to our existing business for many years to come.

Yesterday afternoon, we announced we have signed an agreement to acquire the master franchise rights to the New Jersey region effective in early December. We will provide more details on each of these topics in our prepared remarks today while making sure we leave enough time for your questions.

Well, let's get started. Looking at slide 4, (technical difficulty) -- the third quarter, we successfully executed on our strategic priorities. Our focus on the three pillars of value creation, organic growth, reinvestment, an acquisition growth catalyst, and returning capital to the shareholders continues to deliver positive results. The launch of Motto Mortgage represents the most important new initiative we have taken in quite some time. It is an investment in our network and in our future growth. At RE/MAX, we challenge the status quo and continually look to identify the best opportunities for future growth and value creation.

Since the introduction of Motto last week, we have heard from many potential franchisees who expressed significant excitement and interest in our first addition to what is now the RE/MAX family of brands. Many are asking us, why are you getting into the mortgage brokerage business, why Motto, and why now. In reality, a number of factors impacted our decision to pursue this compelling opportunity.

I would summarize the biggest ones as follows. It starts with the consumer. In today's world, the consumer experience is increasingly defined by simplicity, convenience, and choice. Consumers in the real estate industry are no different. They want a simple and enhanced homebuying experience.

Further, based on our analysis and industry research, many real estate agents and brokers are eager to work closely with mortgage professionals, especially if they have access to a range of lending products. However, compliance remains a high barrier to entry for many real estate brokers, especially small to medium-sized owners. We believe there is an opportunity to remove this barrier.

Finally, we have said for years that if we ever considered another business opportunity, it would have to be within our core competencies of franchising and real estate. Motto Mortgage checks all the boxes. Motto is consumer-centric and it simplifies mortgage experience. Motto is designed for compliance, and it fits nicely with our strategy. Our goal is to streamline the process and reduce the barriers to entry into the mortgage brokerage marketplace.

On slide 5, let me give more detail about Motto Mortgage and help define what it is and what it isn't. Motto is a mortgage brokerage franchisor. Motto is not a lender and will not be underwriting any loans.

As a franchisor, as part of our value proposition, we will help our Motto franchisees establish independent mortgage brokerage companies that are compliant affiliated business arrangements under RESPA. Each office will be physically located in its own separate office space, generally within close proximity to a real estate brokerage office. Each Motto franchise will be independently owned and operated consistent with the entrepreneurial spirit of RE/MAX.

Pairing a Motto franchise with a real estate brokerage means homebuyers are able to enjoy a more coordinated experience working with a real estate agent to find a home and a Motto loan originator to secure financing. As a mortgage brokerage, Motto provides its loan originators and consumers access to a variety of quality loan options from multiple sources. And we planned our partner with some of the top wholesale lenders in the business.

Ward Morrison, who is with us today, has been named President of Motto Mortgage. Ward has been with RE/MAX for 11 years and has nearly 20 years of comprehensive experience in the real estate and mortgage industries. Ward is absolutely the right person to lead Motto Mortgage. Under Ward's leadership, the Motto operational team will scale as the business grows using a shared service model for support functions like marketing, technology, and training.

Moving to slide number 6, we are rolling out Motto Mortgage in three phases. The first phase involves selling to RE/MAX broker-owners in approximately 30 states that only require federal franchise disclosure documents to sell franchises. The second phase requires filing with the remaining states that have separate state requirements, and we have already begun that process.

And finally, in 2017, we plan to offer Motto franchises nationwide to select real estate brokers outside the RE/MAX organization. As expected, the initial interest in purchasing a Motto franchise has been very positive. We continue to engage with potential franchisees but likely will not make our first sale until later this month at the earliest.

Once a Motto Mortgage franchise has been sold, then its startup start of cycle will be similar to that of a new RE/MAX franchise. It will likely take at least three months after the sale for the new franchisee to complete training, obtain a brokerage license, secure compliant office space, and hire a loan originator before the new franchise opens its door. Now, I would like to turn it over to our CFO, Karri Callahan, to discuss the market opportunity and some of Motto's financial details.

Thanks, Dave. Turning to slide 7, the mortgage industry is a large and growing market. It represents tremendous opportunity for the right franchise concept. We believe Motto Mortgage is that concept.

Total mortgage originations were $1.75 trillion in 2015. And Freddie Mac forecasts them to increase to as much as $2 trillion near term. As you can see on slide 8, that growth is expected to largely come from purchase originations as the current refinancing rally fades. Our brokers and loan originators will primarily be focused on purchase originations and qualified mortgages, or QM loans in particular.

Moving to slide 9, since 2008, many mortgage brokers and their independent loan originators have left the business due to regulatory and market changes. The end result has been a decrease in market share for mortgage brokers. Approximately 35% of originations heading into the downturn came from brokers. Their market share is now about 10%. However, there insignificant opportunity for brokers to recapture market share.

Now let's get into some of financial details surrounding Motto. We acquired the concept behind Motto along with certain assets from a third-party mortgage brokerage franchisor for $8 million during Q3, which was funded from cash on hand. The seller brings significant industry knowledge to our ongoing business relationship and has a vested interest in the future success and continued development of Motto. We have a revenue sharing agreement, which will provide the seller with 8% of gross revenues through the first 10 years of Motto's existence.

The Motto franchisees will have a fee-based structure similar to what RE/MAX has with its broker-owners. Since Motto was just introduced, at this time we won't provide the specifics of our fee structure; however, it is important to note the following. Franchisees will pay a monthly fee for training, education, and high touch support. This fee will not be transaction-based. Monthly fees will be waived for an initial period of time and will gradually escalate to the full amount over the course of the first year as the franchise builds its book of business.

We are committed to the success of our franchisees, and based on our experience, we believe this gradually escalating fee structure will allow our Motto franchisees to get off on the right foot and grow their businesses. By relying on recurring components in the fee structure, we expect RE/MAX holdings recurring revenue as a percentage of overall revenue to increase and provide even more stability to top-line revenue in the future. Now, I would like to turn the call back to our CEO, Dave Liniger. Dave?

Thank you, Karri. Moving to slide 10 to wrap up our prepared comments on Motto. When real estate agents align with the mortgage process, everybody wins. For consumers, they get an enhanced customer service, convenience, expertise, a simplified mortgage process, and most importantly, choices for a quality loan all brought together for a better and more efficient homebuying experience.

For agents, teaming with a professional independent loan originator provides a truly differentiated offering and a more coordinated sale process. This should result in happier customers and a stronger referral network.

For brokers and franchisees, they can offer their agents, loan originators, and customers an increased value proposition, the benefits of a more coordinated home purchase experience. Motto is designed for compliance and builds a transparent seamless path from contract to close. This additional product line is complementary to their real estate brokerage and creates opportunities to grow and expand their business. It should also serve as an effective agent recruiting and retention tool.

Lastly, for independent loan originators, this is a desirable set of circumstances. They are aligned with professional agents with access to their networks, offering a more coordinated sales process without the pressure of having to sell only their employer's products.

Loan originators are the conduit to more choice, greater transparency, ease of use, and convenience. For investors, we believe Motto is an attractive long-term investment that has significant long-term growth potential for our business. For me personally, I am more excited about my Motto's prospects than anything I've come across in a long time.

Now let's move back to discussing the third quarter. Looking at slide 11, we continue to see solid agent growth network wide as our total agent count is now over 111,000 agents. In the US and Canada combined, markets where revenue per agent is the highest in our global network, agent count has grown almost 4.5% over the past year. International growth since the third quarter of last year is up over 17%.

Combined agent count growth in the US and Canada continues to track at the high end of our expectations while international agent growth count exceeded our estimates. The other pertinent details about our agent count growth are included in the appendix to today's earnings presentation, and of course we are happy to answer any questions related to agent count growth on the call today. With that, I will turn the call back over to Karri.

Thank you, Dave. Turning to slide 12, you will find a breakdown of our revenue stream. Overall, third-quarter 2016 revenue increased 1% to $45.6 million due to strength across multiple measures notably agent count growth, fee increases, and higher transaction volume, which more than offset the impact of the sale of the Company-owned brokerages.

Organic growth increased revenue 5.9%, and the acquisitions of New York and Alaska combined added 1.5%. These increases were partially offset by the sale of the brokerages, which negatively impacted revenue by 6.4% year over year. FX was flat. Revenue would have increased 7.9% after adjusting for the sale of the Company-owned brokerages.

Recurring revenue, which includes continuing franchise fees and annual dues, increased $2.3 million or 8.7% over Q3 of last year. Recurring revenue accounted for 64.2% total revenue in the third quarter of 2016, up from 59.7% last year primarily due to the sale of our Company-owned brokerages. Revenue from continuing franchise fees was $20.9 million, an increase of $2 million or 10.8% compared to the third-quarter 2015 primarily due to agent count growth in the US and Canada, rate increases in our Company-owned regions which were implemented on July 1, 2016, and the acquisitions of the New York and Alaska regions.

Revenue from annual dues was $8.3 million, up $300,000 or 3.9% due to agent count growth. Revenue from broker fees was $10.5 million, an increase of approximately $1.2 million or 12.8% over last year driven primarily by higher agent count and the acquisition of the New York region.

Franchise sales and other franchise revenue was $5.8 million, up $200,000 or 2.8% compared to the prior-year quarter. Franchise sales and other franchise revenue is comprised of several revenue streams, which are nonrecurring in nature and can be more variable as a result. Revenue from certain preferred marketing arrangements bolstered Q4 results last year but is not expected to recur this year. As a result, we expect to see a year-over-year decline in this line item of approximately $1 million in Q4.

Looking at slide 13, selling, operating, and administrative expenses were $20.3 million for the third quarter of 2016, down $400,000 or 1.9% compared to the third quarter of 2015. The decrease was primarily due to the sale of the Company-owned brokerages partially offset by an increase in professional fees and bad debt expense.

On slide 14, you will see in the graph on the left that adjusted EBITDA increased 3.3% to $26 million for the third quarter compared to the same period in 2015. The increase was primarily due to agent count growth and contributions from the acquired New York and Alaska regions partially offset by the sale of the Company-owned brokerages. Additionally, our adjusted EBITDA margin increased to 57% in Q3, up from 55.7% in the third quarter of last year.

Turning to slide 15, the graph on the left shows adjusted net income of $14.6 million for the third quarter, an increase of approximately $700,000 or 4.8% over the prior-year period. Adjusted basic and diluted earnings per share were both $0.48 for the third quarter of 2016 compared to $0.46 for the third quarter of 2015.

Turning to slide 16, our cash position as of September 30, 2016, was $102 million, and our free cash flow on a trailing 12 month basis was $62 million. Yesterday, our Board of Directors approved a quarterly dividend of $0.15 per share. The quarterly dividend is payable on December 1, 2016, to shareholders of record at the close of business on November 17, 2016.

Lastly, as announced yesterday, we have signed an agreement to acquire the master franchise rights for the New Jersey region for $45 million. The agreement is subject to customary closing conditions and is expected to close in early December. The acquisition brings almost 3,000 agents and 170 offices into the Company-owned region.

It is important to note we receive between 15% and 30% of fee revenue from independent regions. By acquiring a region, we capture the additional 70% to 85% of revenue generated by the region. That is why these acquisitions are so attractive and so accretive to our business.

Now, I would like to turn it back over to Dave to discuss the housing market.

Thanks, Karri. Turning to slide 17, the housing market continues to show improvement with multiple drivers and constraints contributing to the equation. Among these, housing demand, inventory, and mortgage rates persist at the dynamics that have the largest impact.

Job growth has generally been steady yet wage increases have lagged home price appreciation, and consumer sentiment has dampened slightly. However, existing home sales have been up over the past quarter driven by first-time homebuyers who appear to be building on the momentum from this summer.

First-time buyers made up 34% of sales in September, their highest share since July of 2012 as they continue to take advantage of attractive mortgage rates. Ideally, we would like to see this demographic represent closer to 40% of the market but the progress thus far in the back half of this year has been encouraging.

Housing starts have remained moderate for the year and are still shy of pre-recession levels but the recent uptick in single-family housing starts was a positive move for the market and we would like to see that trend continue. The supply of these starter homes in the market has been short but we are looking to builders to help alleviate the strain.

Furthermore, since the recession, the number of years that homeowners have owned their homes has doubled from 5 to 10 contributing to the lack of inventory, which remains one of the strongest governors on the housing market today. The good news is mortgage rates remain low and housing demand continues to be very strong providing opportunity for continued gradual growth of the housing market as well as our business.

Now, I will turn it back to Karri to walk through our financial outlook.

Thanks, Dave. Before I get to our outlook, I wanted to make a couple of points about Motto and the expected acquisition of the New Jersey region. Since Motto was just introduced last week, the acquisition of the New Jersey region has not yet closed, and we are currently in our annual strategic planning and budgeting process.

It is premature to provide detailed expectations for 2017. However, we want to give you a sense of the combined impact of Motto and New Jersey on our 2017 financials. Assuming the acquisition of New Jersey closes in early December, we estimate Motto and the New Jersey region combined will contribute an incremental $7 million to $9 million of revenue and $1 million to $3 million of adjusted EBITDA in 2017.

Revenue related to Motto is expected to increase slightly during the year as we hit each phase of the rollout. We expect to provide more insight when we announce our 2017 outlook in connection with our Q4 earnings call in February.

Turning to slide 18, the Company's fourth-quarter and full-year 2016 outlook reflects the sale of the Company-owned brokerages, the anticipated acquisition of the New Jersey region, the acquisitions of the New York and Alaska region, the launch of Motto, an estimated exchange rate of $0.74 US for every Canadian dollar, and assumes no further acquisitions or divestitures.

For the fourth quarter of 2016, RE/MAX expects agent count to increase 6% to 6.5% over fourth-quarter 2015; revenue in a range of $40.6 million to $41.6 million; selling, operating, and administrative expenses in a range of 53% to 54% of fourth-quarter 2016 revenue, with project-related operating expenses in a range of $750,000 to $900,000; adjusted EBITDA margin in a range of 46.5% to 47.5%; and capital expenditures in a range of $1 million to $1.25 million, which includes estimated project related capital expenditures of $400,000 to $450,000.

Turning to slide 19, we are raising our full-year 2016 outlook, and we now expect agent count to increase by 6% to 6.5% over 2015 changed from 5.5% to 6.5% driven by strong agent growth outside the US and Canada. Revenue in a range of $172.5 million to $173.5 million, up from $169.8 million to $171.6 million. Selling, operating, and administrative expenses in a range of 48.5% to 49% of 2016 revenue, changed from 48% to 49% of 2016 revenue. Included in selling, operating, and administrative expenses are project-related operating expenditures in a range of $2.5 million to $3 million, down from $3.5 million to $4 million.

Adjusted EBITDA margin in a range of 52.5% to 53% changed from 51.5% to 53%. And total capital expenditures in a range of $4 million to $4.25 million, up from $3.5 million to $4 million. Total CapEx includes project related CapEx of $2.5 million to $2.75 million, up from $2 million to $2.5 million. Now, I will turn it back over to Dave.

Turning to slide 20, our business continues to perform well. The investments, acquisitions, and operational performance we discussed today demonstrate we are executing on our strategic priorities while also reinvesting in our business for future growth and returning capital to the shareholders. The launch of Motto Mortgage is one of the more notable endeavors in the history of RE/MAX. We believe it is a winning franchise concept for consumers, for brokers, for agents, and for you, our investors.

With that, operator, we would like to open it up for questions.

(Operator Instructions)

Vikram Malhotra, Morgan Stanley.

Thank you, and congrats, guys, on the new business. I'm sure there was a lot of back-and-forth on various options.

Maybe that's a place to start. If you could give a sense of how you sort of -- what made you finalize on this and maybe what some of the alternatives were?

Good morning, Vikram. This is Dave Liniger. We have been working on the project for probably more than six months.

One of our independent regional owners brought the concept to us. We met with them. They had been test marketing the program with two franchisees.

Both franchisees were absolutely delighted with it. We had the opportunity to either joint venture or buy the concept, and we thought it was such a fabulous concept for our broker-owners that we decided to buy it instead of joint venturing. We did put the program together.

We spent months putting the training program and hiring the staff. Last week, when we put out the press release, I did a seminar with over 200 brokers that met in Dallas and the next day 200-plus that met in Orlando, and the reception of the broker-owners was overwhelming.

They were absolutely excited and anxious to get started with it. I think we have got a real winner.

That's great. Just to clarify the structure, I know you can't give specific numbers, but just the fee restructure to RE/MAX. Am I correct in thinking that when you approach the broker approach there is an initial fee for them getting a franchise and then there's ongoing monthly fees? Is that correct?

That's correct. We charge a upfront franchise fee, the initial franchise fee, and the FDD documents is $20,000, but we're offering the early people a discount on that.

And then afterwards, they start paying us a fixed fee by month. Underneath RESPA guidelines, we are not a mortgage broker so we cannot participate in a fee per transaction.

Okay. So just to clarify, the $20,000 is the fixed fee. Is this a one-time fee?

Yes.

And then just so -- just a bigger picture question. The strategy seems that you're initially focused on the broker-owners -- the RE/MAX broker-owners. Can you give us just some sense of your -- from a size perspective, what sort of penetration do you think you can get over -- and even if it's over a longer timeframe, that's fine, with the broker-owners? And then what's the opportunity to branch out to other potential owners?

As far as the RE/MAX broker-owners, it makes financial sense for the offices that have more than 15 to 20 agents. We're rolling it out first to the 30 states that accept the federal FDD for franchise sales. We have already applied to the 20 registration states.

It will take them anywhere from two weeks to two months to get us our approval. And then after the first of the year, we will take it to very select high-quality competitors throughout the United States. Long term, I think it is a significant factor in RE/MAX's future growth plans.

Okay. I have a bunch of other follow-ups on the business, which I can follow up offline with you. Just one clarification. On the New Jersey business, can you just give us a sense of now that you have New York and New Jersey, what is the penetration today and where you think you can take that?

I think New Jersey is in the neighborhood of 6%, 6.5% of the total membership of the realtors, and of course, our stated goal is to get the 10%. We will be very aggressive in selling franchises and helping our existing franchisees to expand and get more agents. In New York, once we bought it, a lot of cleanup we had to do.

Many franchises were out of contract. Some franchisees we did not want to keep, we had a slight decrease in number of agents. However, since we got the authority to sell franchises, we've already sold seven franchises in New York and anticipate a couple more.

Okay. Great. Thank you very much and congrats on the new business.

Thanks, Vikram.

John Campbell, Stephens, Inc.

This is Hayden stepping in for John. Just a further question about kind of the penetration of Motto Mortgage. You just talked about the stated goals for actual penetration of agents in your agent business, and I'm wondering in particularly some of the more desirable geographies here, is there a penetration level as far as the percentage of brokers you expect to be able to get in the broker business as well?

Hayden, I don't think we can make that estimate right now. The enthusiasm level is extremely high. We are going to need two, three, four months maybe.

Maybe by February when we do our earnings call, we will have a sense of how many we have sold and that would give us the ability to forecast what we think we will do in the next year or two.

I got you. And you talked I guess after the New York and I think maybe particularly the Alaska region, that maybe the Pandora's box had been opened, if you will, and that more independent region owners were at least coming to the table to have some of these conversations. So do you see this New Jersey acquisition as a product of that or more like New York and Alaska, is this more of a unique type of situation with the independent region owner?

No. I think that the comments I made almost a year and a half ago at the summer conference with my independent regions was that we were anxious to continue to purchase independents. A lot of my independent regional owners are reaching retirement age, and so that has increased the interest. But as usual, it's very lumpy.

It happens when it happens. I think New Jersey, we probably -- we're negotiating in the neighborhood of four to six months to reach this agreement. So it takes a while for entrepreneurs to make that decision.

They've been building the Company for 30 years. They are in love with it. It's their life.

And so it happens when it happens, but we're enthusiastic about it. I committed at the IPO that we would do two or three in the first five years. Obviously, Alaska and New York were smaller.

This is a really good size region so I think my forecast is coming true.

Got it. Thanks and congrats on the business developments.

Thanks, Hayden.

Alan Ratner, Zelman & Associates.

Good morning. Congrats on the good results and all the exciting things going on in the Company. Dave, my first question is on New Jersey.

I'm just doing some math here on our end. It looks like the price you paid for the region was a little bit higher on a per agent basis versus some of the other transactions you've done before, Curious if that is the case, and if so, what kind of gave you the confidence to pay up a little bit for New Jersey?

I will let Karri answer that. She handled all the negotiations in the last few months so she's more familiar.

Thanks, Dave. Hello, Alan. Great question, and as Dave previously mentioned, each independent region acquisition that we do is different. It based on unique facts and circumstances, size, risk, growth opportunity, and many other factors that we look at.

We really look at the price we paid for these as a market multiple within a range that we target for the independent region acquisitions that are really instantly accretive to our business. So a couple specific things with respect to New Jersey. First, keep in mind that the home price point in New Jersey is higher than the RE/MAX national average, which results in higher revenue per agent.

The other thing to keep in mind, as Dave mentioned, they are about 6.5% of the National Association of Realtors but they are number one in terms of transaction size in the state. So again, they've got productivity and volume which increases their average revenue per agent. Again, it was a very well run region.

It's different than New York from that perspective. From an expense standpoint, they ran extremely efficiently. Significantly higher margins than even we operate at the public company level.

All of those factors were taken into consideration, a lot of work and due diligence. The most important thing is we're really excited to bring them into the Company-owned region.

That's very helpful, Karri. Thank you for all that detail. Second, if I could get a question in on Motto. You addressed all of the various regulations and kind of hoops you're jumping through to make sure that it's compliant with the various regulatory agencies. But just curious if you can maybe walk through a specific in terms of a potential buyer coming through the door there.

What exactly is going to be done to avoid conflicts to make sure that everything is in accordance at the CFPB, et cetera? I mean, how does it work at the local office level assuming somebody comes in looking to buy a home with the broker and then is also interested in the mortgage services. If you could just give a little bit of a background there, that would be helpful. Thanks, again.

Alan, by law, if you have a real estate brokerage franchise and you also have a mortgage broker's license, you have to have full disclosure with a potential customer, and so at the time you start discussing a mortgage, you have to have them sign an agreement that they understand you have common ownership. And that kind of takes the conflict of interest out of it. The situation with the broker, most of them do not have a franchise broker license or a loan originator license.

So part of our training program is to get them licensed, show them basically a mortgage in the box, and so we have the technology, the computers, we have the arrangements already made with the wholesale lenders, and so they become a conduit between the buyer and the buyer's agent and the wholesale mortgage company. These will take about three months to open. It takes a month or more to get licensed, come to Denver, get your training, establish the office within the office, and so as we sell the franchises, there will be a lag period of about three months before they are up and running.

Got it. Thanks for all that detail, Dave. Good luck with everything.

Thanks, Alan.

(Operator Instructions)

Fred Small, Compass Point.

This is actually Janet Lee on for Fred. I just have a quick couple of questions. First one, can you explain how much operating leverage you've gotten on the previous New York and Alaska acquisitions?

Maybe in terms of like the EBITDA contributions. And second, would you expect a similar level of EBITDA contribution from the New Jersey acquisition?

If you look at New York and Alaska for the third quarter, about 20 basis points of increase to the margin there. You can expect that -- New York has really performed even better than our expectations. So as David mentioned, a lot of cleanup in the region, getting it stabilized, and we expect to see some good gradual growth for the foreseeable future.

With respect to New Jersey, we do anticipate that will close in early December and we've got about one month baked into our Q4 guidance. So again, these instantly accretive to our business, and we're really excited about the completion of the acquisitions.

Great. That's helpful. Just one follow-up from me. On the P&L side, will Motto Mortgage sales, is that going to flow into the franchise sales line item or broker fees or can you just give us any color on those economics?

Yes. The initial sales that Dave was mentioning will roll into the franchise sales line item.

Okay. Thanks for taking my questions.

There are no further questions queued up at this time. I'll turn the call back over to Andy.

Thank you, operator, and thanks to everyone for joining us on the call today. Thanks for your time and interest and have a great weekend.

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