RE/MAX Holdings, Inc.
Q1 2015 Earnings Call Transcript

Published: 6 May 2016

[Operator:]

Good morning and welcome to the Re/Max Holdings’ First Quarter 2016 Earnings Conference Call and Webcast. My name is Melissa and I will be facilitating the audio portion of today’s call. At this time, I would like to turn the call over to Peter Crowe, Senior Vice President of Communications and Marketing. Mr. Crowe?

[Peter Crowe:]

Thank you, operator. Good morning, everyone and welcome to Re/Max's first quarter 2016 earnings conference call. Joining me today are our Chief Executive Officer and Co-Founder, Dave Liniger; and our Chief Financial Officer, Karri Callahan. Please visit the Investor Relations page of remax.com for all earnings related materials and to access the live webcast and a replay of the today’s call. If you are participating through the webcast, please note that you will need to advance the slides as we move through the presentation. Turning to Slide 2, I would like to remind everyone that on today’s call, 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 fourth quarter earnings press release, which is available on our website. With that, I would like to turn the call over to Re/Max CEO, Dave Liniger. Dave?

[Dave Liniger:]

Thanks you, Pete, and thanks to everyone for joining our call today. Turning to Slide 3, we had a positive start to 2016, as the strength of our business model and continued execution of our strategy yielded solid results. As a reminder, we are focused on three core pillars that create shareholder value are getting growth, acquisition and investment catalysts and return of capital to shareholders. Since the beginning of the year, we have made substantial progress across all three fronts. Agent count, our key nature of organic growth, increased by almost 7% year-over-year in the first quarter, surpassing our expectations. We acquired the master franchise rights to both New York and Alaska. We also continued to strategically reinvest in our business, most notably evidenced by the recent launch of the redesigned Re/Max.com. And yesterday, we announced our quarterly dividend of $0.15 per share. All of this combined with a gradually improving housing market, lays a strong foundation on which to build in 2016. Before we move into our quarterly performance, there are couples of important milestones I want to note. First, a leading real estate industry publication, recently announced the results of their 2015 annual survey of large brokerages. Among the more notable findings were these. First on average Re/Max agents complete double the number of transactions sides of competitors and Re/Max has held number one market share in the United States and Canada, every year since 1999, an impressive 17 years in a row based on industry-wide residential transaction sides. While we are not surprised, we are extremely proud that the Re/Max Network has the most productive agents in the business. I want to thank the entire Re/Max Network for their continued hard work and great results. We continue to provide productive agents with world-class tools, technology and training to enable and promote their success. Whether it’s a moment broker and agent development program or remax.com, we will continue to strategically reinvest in our business. We are excited about the launch of the new remax.com. Already the most visited real estate franchise website, the redesigned remax.com features a fresh dynamic design, a much improved search and mobile experience and personalized features such as mapping, sharing, social and alerts. For the benefit of our agents, we increased calls to action on the site to improve lead generation. Our updated website is a key element in the company’s overall technology, strategy. Remax.com will continue to evolve based on consumer behavior with the ultimate goal of connecting active consumers with Re/Max agents. Now on to the quarter. Moving to Slide 4, our first quarter results demonstrates the strength of the Re/Max model and our ability to deliver on its most attractive features, increasing agent count, acquiring independent regions, growing recurring revenues, expanding margins and generating strong free cash flow. Existing home sales are traditionally slow in the first quarter, but during this time, our brokers are busy recruiting agents. The past three months were no exception as international agent growth propelled us to another strong quarter of agent growth. During the first quarter, we had solid organic revenue growth and our adjusted EBITDA margin expanded a bit more than anticipated as the result of a more favorable FX environment as well as the timing of expected investments. Turning to Slide 5, we ended the first quarter with 106,708 agents in our global network. We grew our total agent network by 6.8% compared to the first quarter of 2015. Agent gain in the U.S. was in line with what we forecasted growing 4.1% and driven by strong additions in California, Texas and Florida. In Canada, we increased our agent network by 658 agents or 3.4% over Q1 2015. Agent growth was driven by gains in British Columbia and Ontario. Finally, agent growth outside the United States and Canada increased 3,723, or 16.3%, over Q1 2015. The growth was driven by strong gains in Argentina, Portugal, Turkey and Spain. Slide 6 shows the breakdown of Re/Max agents in the United States and Canada. The graph on the left highlights our agent growth of 7.3% in United States Company owned regions as well as the decrease of 1.1% in the U.S. independent regions. Our recent acquisition of the New York region figured prominently in both of these changes. After adjusting for the purchase of New York organic agent growth was 4.9% in U.S. Company owned regions and 2.8% in the tenant regions. We are currently setting the foundation for growth in New York and expect our New York agent count to remain flat in 2016. We expect to grow the region in 2017 and beyond the graph on the right shows agent growth in Canada in the first quarter Western Canada which is a company owned increased by 253 agents or 4% compared to the prior year quarter. Eastern Canada, which is comprised of two independent regions, added 405 agents or 3.2% compared to Q1, 2015 driven by agent gains in both Quebec and Ontario. Slide 7, shows our year-to-date agent growth through March 31, 2016. During Q1, we grew total agent count by almost 2% since the end of 2015. Looking at first quarter agent growth by geography, United States results were in line with our expectations, while agent growth in Canada and outside the United States in Canada, were better than we expected. With that, I would turn the call over to our CFO, Karri Callahan

[Karri Callahan:]

Thank you David. Turning to Slide 8, you will find a breakdown of our revenue streams. Overall, first quarter 2016 revenue decreased 2.9% to $42.9 million in line with our outlook The decrease in revenue was due to the sale of all of the company owned brokerages between April, 2015 and January of this year. After adjusting for those sales, revenue would have increased $2.1 million or 4.7% compared to Q1, 2015. Recurring revenue, which includes continuing franchise fees and annual dues increased $1.3 million or 5.3% over Q1 of last year. Recurring revenue accounted for 62.5% of total revenues in the first quarter of 2016 up from 57.6% last year, primarily due to the sale of our company owned brokerages. Revenue from continuing franchise fees was $18.9 million, an increase of $1.2 million or 7.1% compared to first quarter 2015, primarily due to agent count growth. Revenue from annual dues was $7.9 million, up slightly from Q1, 2015 due to agent count growth, largely offset by the impact of the strong U.S. dollar against the Canadian dollar. Revenue from broker fees was $7.2 million, an increase of approximately $800,000 or 12.2% over last year driven by higher agent count and greater sales volume, due in part to improving market conditions. Franchise sales and other franchise revenue was $8.8 million, up $400,000 or 4.4%, compared to the prior year quarter, stemming from increased approved suppler revenue, as well as higher registration income, due to greater attendance at our annual convention held in March. The increase was partially offset by a lower revenue from global franchise sales. Brokerage revenue was $100,000 a decrease of $3.8 million or 97.1% from the prior year quarter. The decrease was entirely attributable to the sale of the company-owned, brokerage offices, which began in April 2015 and as of January 20, 2016, Re/Max became 100% franchised, across our nearly 7,000 office, global footprint. Looking at Slide 9, selling, operating and administrative expenses were $23.2 million for the first quarter of 2016, down $1.8 million or 7.3% versus the first quarter of 2015, primarily due to the sale of our previously-owned brokerages, partially offset by increased compliances’ and technology infrastructure investments. Also our first quarter expenses were lower than our original guidance, provided in February, mainly due to the timing of project related investments, more in that in a moment, when we discuss outlook. On Slide 10, you will see in the graph on the left that adjusted EBITDA increased 14% to $21.4 million for the first quarter compared to the same period in 2015. Adjusted EBITDA increased primarily due to organic growth and the $1.6 million positive year-over-year change in foreign currency transaction gains. It is important to note that we incurred a $1.4 million FX transaction loss in Q1 of last year, prior to repatriating $26 million of Canadian dollar denominated cash. Since that time, we have repatriated certain Canadian cash on a monthly basis in an effort to create a natural hedge and as a result have substantially left mark-to-market exposure. Additionally our adjusted EBITDA margin grew from 42.4% in Q1 last year to 49.8% in Q1 of this year, a 740 basis point improvement. The following three items contributed to the margin growth, first organic growth contributed a 130 basis points. Second, the sale of our company-owned brokerages at a 300 basis point and lastly net FX impact accounted for 310 basis points of improvement. Turning to Slide 11, the graph on the left shows adjusted net income of $11.7 million for the first quarter, an increase of $2 million or 21.1% over the prior year period. Adjusted basic and diluted earnings per share were both $0.39 for the first quarter of 2016, compared to $0.33 and $0.32 respectively for the first quarter of 2015. Turning to Slide 12, our cash position as of March 31, 2016 was $95.7 million, a decrease of $14.5 million since year end. Notable cash outflows during the quarter included the aggregate payment of approximately $4.5 million in dividends, $8.5 million for the acquisition of the New York region and a $12.7 million excess cash flow principal payment on our term loan as required by its covenants. Yesterday, our Board of Directors approved our regular quarterly dividend of $0.15 per share. The quarterly dividend is payable on June 2, 2016 to shareholders of record at the close of business on May 19, 2016. We generated $11.1 million of free cash flow during the quarter. We continue to deploy our capital thoughtfully in accordance with our strategic priorities. We are focused primarily on re-acquiring independent regions, reinvesting in the business and returning capital to our shareholders in the form of dividends. Now I'd like to turn it back over to Dave to discuss the housing market.

[Dave Liniger:]

Thanks, Karri. Turning to Slide 13, we see that even with the usual seasonal fluctuations improvement in existing home sales continues. As the market gradually expands, we're carefully monitoring several key drivers and constraints that will influence future growth this year began as most-years typically do with fewer home sales in January and February. Then just as we would expect March home sales jumped up significantly. Therefore, it looks like the spring season is off to a normal start. National association of Realtors data shows that actual sales, this March were 3.7% above last March and year-to-date existing home sales through March were up 5.6% compared to the first quarter last year and prices in the U.S. are currently about 6% higher than last year, depending on the geographic region. The short supply of inventory has carried over into 2016, with number of homes for sale remaining tight in many markets across the country. One way to look at inventory is the month's supply. The six-month supply indicates a market balanced equally between buyers and sellers. Based on data from 53 metro areas in our Re/Max National Housing report, the number of metros with less than a two month supply was four in January, six in February and then grew to 11 metros in March. This indicates that still very much a seller's market. We're watching the spring season closely to see if slightly higher prices and low inventory would encourage more sellers to enter this market. We also continue to monitor the homebuilders to see if the home starts are increasing to improve inventory. As inventory remains challenged entry level buyers will continue to have difficulty finding the right home at their price point. Nevertheless, we expect to see continued improvement in the market during 2016 mainly due to better jobs outlook, rising household formations, increased new-home construction, and below interest rate environment. Now I'll turn it back to Karri to walk through our financial outlook.

[Karri Callahan:]

Thanks Dave. On Slide 14 and Slide 15, I would like to share our outlook for the second quarter and for the full year 2016. The Company’s second quarter and full year 2016 outlook reflects the acquisition of the New York and Alaska regions, the impact of the strong U.S. dollar against the Canadian dollar, as well as the sale of the company-owned brokerages. Revenue, selling, operating, and administrative expenses, and adjusted EBITDA margin, are subject to currency exchange rate fluctuations, principally related to changes in the U.S. dollar to Canadian dollar exchange rate. The company's outlook reflects an estimated exchange rate of $0.74 U.S. for every Canadian dollar. For the second quarter of 2016, agent count is estimated to increase by 5.5% to 6% over second quarter 2015 driven by strong agent growth outside the U.S. and Canada. Revenue is estimated to decrease by 3.5% to 4.5% from second quarter 2015. Revenue would have been estimated to increase by 2.5% to 3.5% over 2015, after adjusting for the sale of the brokerage offices, the negative impact of FX, and incremental contribution of the acquired New York and Alaska regions. Selling, operating, and administrative expenses are estimated to be 44% to 45% of Q2 2016 revenue. Project related operating expenses are estimated to be $1 million to $1.25 million. Adjusted EBITDA margin is estimated to be between 55% to 56%. Our adjusted EBITDA margin was markedly higher in Q2 of last year, due to a handful of one-time dynamics, most notably strong global franchise sales. Capital expenditures are estimated to be $1.5 million to $2.0 million, which includes estimated project related capital expenditures of $750,000 to $1 million. Turning to Slide 15, we are reiterating our full year 2016 outlook and updating our foreign exchange guidance. Agent count is estimated to increase by 4% to 5% over 2015. Revenue is estimated to decrease by 3% to 4% compared to 2015. Revenue would have been estimated to increase by 3.25% to 3.75% over 2015, after adjusting for the sale of the brokerage offices, the negative impact of FX, and the incremental contribution of the acquired New York and Alaska regions. FX is estimated to negatively impact full year revenue by $1 million to $1.5 million, down from $2 million to $2.5 million on a constant currency basis. As a result, we are trending to the top end of our revenue outlook. Selling, operating, and administrative expenses are estimated to be 48% to 49% of 2016 revenue. Included in selling, operating, and administrative expenses are project related operating expenditures of approximately $4 million to $4.5 million. As we discussed earlier our Q1 selling, operating and administrative expenses came in better than the outlook, we provided on our February call largely due to the timing of project related investment. The remaining $3.5 million to $4 million of project related operating expenses will be spread fairly evenly over the remaining quarters. Historically, selling, operating and administrative expenses have been around 45% of revenue in Q2 and Q3. Adjusted EBITDA margin is estimated to be in the 51.5% to 53% range. Total capital expenditures are expected to be $3.5 million to $4 million including project related CapEx of $2 million to $2.5 million up from $1.5 million to $2 million. Now I'll turn it back over to Dave.

[Dave Liniger:]

Turning to Slide 16, we were off to an encouraging start this year with our core business fundamentals and growth pillars firmly intact. A strong brand, the most productive network, a steadily improving housing market and continued execution of our strategic plan makes us optimistic about both our near-term and long-term growth prospects. With that, operator, let's open it up for questions.

[Operator:]

Thank you. [Operator Instructions] Your first question comes from the line of Ryan McKeveny from Zelman & Associates. Your line is open.

[Ryan McKeveny:]

Thank you, and good morning. When I look at the cash flow generation, which has been solid and think about just the capital structure and such – maybe just to revisit. How do you think about the opportunity to do things like the special dividend you did last year. I know you want to weigh that against the opportunity for the regional re-acquisitions but any update on the thought process there with the balance sheet and net debt to EBITDA roughly one times. Just trying to grasp, how you weigh those factors? Thank you.

[Karri Callahan:]

Hey Ryan. We continue to take a long-term and prudent approach to our business and our use of capital and you did mention some of the levers that we used to generate shareholder value and in Q1. We did both in terms of regional acquisitions of New York and subsequently Alaska and also raised our quarterly dividend. And so on a quarterly basis, we continue to analyze all the pertinent facts and circumstances with our Board and make decisions in terms of driving shareholder value in the long-term.

[Ryan McKeveny:]

And I guess just to follow-up. As far as the leverage goes is there any opportunity to take on more leverage or would that be – may be associated with a larger acquisition I guess where do anticipate longer term net that leverage ratio potentially shaking out?

[Karri Callahan:]

Yes, absolutely. For the right deal and the right opportunity in terms of something that would increase our shareholder value we would absolutely consider that. We have had a long-term philosophy in terms of what those rates look like in terms of four times on a gross basis and three times on net basis and that continues to be our approach from a leverage perspective.

[Ryan McKeveny:]

Okay. Thank you. That’s very helpful. Second question on the international expenses very strong I’m just wondering if there’s any opportunity there as far as increasing the economics that fall back to guys? Or is the international growth mainly to be thought just terms of – in terms of benefit just of brand name and recognition in these international markets any thoughts there?

[Dave Liniger:]

It’s very difficult to make additional revenues in these foreign countries. Basically we do not provide a great deal of services or class its more trademark protection and getting the brand expansion through a big footprint. Most of the countries that were in have much lower commission rate very unsophisticated multiple listing services if at all, very low barriers to entry, no license laws to speak of and very, very low average sales prices. So very difficult to ramp up in April what we make in places like Canada and the United States.

[Ryan McKeveny:]

Got it, very helpful. Thank you.

[Operator:]

Your next question comes from the line of Vikram Malhotra from Morgan Stanley. Your line is open.

[Vikram Malhotra:]

Thank you. Just to clarify on the EBITDA margin for the quarter. The positive and negative drivers FX was a negative driver correct?

[Karri Callahan:]

That’s correct. In comparison to the first quarter of 2015 on the operating income line it was about $500,000 negative, however in the first quarter of 2015 we did make a decision to eliminate some of the volatility from a mark-to-market perspective. So we moved $26 million of our Canadian cash but prior to doing that we incurred a transaction loss of about $1.4 million. So we actually have a net positive on a year-over-year basis of about $1.1 million or 310 basis points. So we’re continuing to see the headwinds on operating income line which will continue protectively. However, the volatility below the line has been eliminated so that’s the puts and takes.

[Vikram Malhotra:]

Okay. And then the elimination of the brokerage revenue that you said contributed both 300 basis points?

[Karri Callahan:]

Yes. That is correct. The one thing to remember is we did sell about one-third of those brokerages in early April 2015 and as a result the impact going forward goes down a little bit around the 200 basis point mark.

[Vikram Malhotra:]

Okay, okay. And then following New York you also purchased the Alaska region, wondering if you can just share some thoughts on what the differences in how those two processes have played out and maybe any color on pricing?

[Dave Liniger:]

It’s actually two very different transactions the New York region has been an underperforming region for us entire time. We feel we can turn that region around very rapidly. The state we only have about 2% of the real estate agents in the state compared to almost 6% average in the United States. So the opportunity there is very great to sell franchises when we get through the registration process and dramatically change the number of agents. In Alaska they are pretty well saturated up there. We've got some around 13% or 14% of all the real estate agents in the state of Alaska. Basically we had a regional owner that was ready to retire and we were able to just add that to our Northwest region and services fairly inexpensively but very little opportunity up there for additional sales associate growth. So New York very important. Alaska nice to have but not much that we can do to grow it.

[Karri Callahan:]

And Vikram, with reflect to purchase price for Alaska the $1.5 million purchase multiple very much in line with previous acquisitions. Although a smaller purchase price still excited about it in terms of being able to execute on our strategy.

[Vikram Malhotra:]

Okay. And then just going back last one just on the cash now you guys have close to $100 million in cash and just sort of – I know you’re constantly looking at dividends versus other opportunities. But can you just maybe just elaborate given where we are in the cycle sort of what are those other opportunities you're considering?

[Dave Liniger:]

Well, obviously the most important opportunity is the ongoing conversations that we have with independent regional owners and as the market is recovering and they are not selling at the bottom of the market I think that Alaska and obviously New York were examples of getting people off of dead center. So those opportunities are the most important ones that we look at. In addition we obviously look at the special dividends and increasing our dividend. We've been able to do the acquisitions and the dividends and then finally looking at something that’s very, very close to what our business model is right now to make as an acquisition that would benefit the agents and broker owners and also give us a good return on capital. So we look at that constantly and we just finished our board meeting yesterday and obviously the excess cash was brought up and so we continue to look at it in every single meeting. And we'll make the appropriate decision when the appropriate time is.

[Vikram Malhotra:]

Yes. I mean, we think about other businesses that are somewhat similar I guess it's hard to find businesses that are reducing 50% plus margins I'm just wondering are these sort of not really brokerage but are they complementary businesses or there any color you can give there?

[Dave Liniger:]

They would have to be complementary businesses. When you start looking at may be acquiring a commercial real estate network or acquiring residential brokerages. The margins just aren't there. And if we could find other similar franchisors that have great growth opportunities most franchisors work on very good margins like we do and so those are the types of businesses that we are constantly looking for.

[Vikram Malhotra:]

Okay. Thank you.

[Operator:]

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

[John Campbell:]

Hey, guys good morning.

[Dave Liniger:]

Good morning.

[Karri Callahan:]

Good morning.

[John Campbell:]

You did a pretty good job explaining the New York region buyout last quarter and then David you gave a little bit more color just a second ago – definitely this can be kind of more of a 2017 impact but I think one of those delays was you guys having to wait maybe three months or so to get kind of active selling franchises in the state. And so I guess will be passing that about two weeks. So any update how you’re thinking about growing out that region how aggressive you’ll be maybe in some of those franchise sales?

[Dave Liniger:]

I think will be very aggressive. We are already have a franchise sales team that is starting to work the market. Our problem of selling franchises is we can't have a serious negotiation until our registration documents are accepted by the New York regulators. We filed for those several weeks ago and we should be right about within three or four weeks of getting out of the dark period. We’re already prospecting doing our sales calls and so on, so we’re very excited. The property you get into on making money off of that is that when we do sell the franchises most are startups. And so at that time they have to rip-off a space come to Denver for training and so on. So even if we make three or four, five sales or whatever it is reasonably fast by the time that they open their offices is usually four months to six months. So what we'll concentrate on this year is a flat agent count. But increasing our franchise sales over the next six or seven months which will be reflected then in a steady stream of office openings next year as we continue to sell franchises. So we're excited about the opportunity it certainly has the most opportunity if any region out there to sell franchises.

[John Campbell:]

Okay great. And then just back to capital allocation. You guys are – I think one times or so net debt to trialing 12 month adjusted EBITDA. I’m just curious if you guys would be comfortable taking a little bit more debt maybe some time we playing – paying a special dividend and reacquiring some of the larger independent regions? If it so – what would be kind of max leverage range, we should be thinking about?

[Dave Liniger:]

Well, John. Just to take on the debt to pay a special dividend is not attractive to us at all. However, we do know that we’re under levered and that the cost of these last two acquisitions was very small we just paid it out of our cash. But if we were having the opportunity to pick up one or two of our larger regions, we would probably do sell through debt. We certainly have lines of credit that we can extend upwards of $50 million or $100 million in debt very quick. But the things really interesting is we still have the ability to do both things we can go ahead and pay a special dividend and lever up. And so the opportunities are there we are just waiting for the right opportunity.

[John Campbell:]

Okay, that's helpful. And then last one for me. I saw the RealtyTrac bill announcement the partnership you guys have with them can you kind of explain what that is and if that’s going to be impact for you guys?

[Karri Callahan:]

Yes, John, I think that we can catch up offline on that if you don't mind.

[John Campbell:]

Okay. Sure. Thanks for taking my questions guys.

[Operator:]

Your next question comes from the line of David Ridley-Lane from Bank of America Merrill Lynch. Your line is open.

[David Ridley-Lane:]

Sure. I wanted to dig in a bit on the cost savings that you were able to get in the first quarter. I think you expected three quarters to $1 million of project related expense in the first quarter. How much of that shifted out into the rest of the year?

[Karri Callahan:]

It's about $1 million, David that’s shifting pretty evenly between Q3 and Q4. A total expenses is pushing out about $1 million between Q3 and Q4. Project related is about one half of that.

[David Ridley-Lane:]

Okay. So the project related operating expense in the first quarter was roughly in line with what you're expecting?

[Karri Callahan:]

Yes, roughly in line. And then we've got call it $3 million to $3.5 million that’s going to be spread evenly throughout the remaining three quarters.

[David Ridley-Lane:]

Okay. And then on a year-over-year basis can you remind us of what project-based operating expense was in 2015? Just trying to get a sense of the year-over-year impact versus the $4 million to $4.5 million you’re expecting this year.

[Karri Callahan:]

Yes. So the increase on a year-over-year basis is in the $2 million range.

[David Ridley-Lane:]

Got it. And then I know your overall adjusted EBITDA margin is pretty high. But where – was the greater than expected conference attendance related revenue very high incremental and margins? Or maybe the supply related revenue that you got in the first quarter?

[Karri Callahan:]

The registration income was up about in the $500,000 range, we just had a very successful annual convention with our agents and the agents continue to be excited within the network. So that was the positive for the first quarter.

[David Ridley-Lane:]

Got it. And are you still expecting franchise and other revenues to decline little bit in 2016?

[Dave Liniger:]

We’re actually ahead of schedule on franchise sales in the United States, which basically we find a little bit surprising because we didn't think we could maintain the momentum we had from last year, still thinking that it is going to slow down by the end of year in the U.S. However our global franchise sales are down especially in Brazil and parts of Asia, so definitely it will slow down as we have predicted.

[David Ridley-Lane:]

Okay, got it. Last one from me. Do you have a rough sense of what the incremental EBITDA you'll receive from the Alaska franchise buy in?

[Karri Callahan:]

Yes, it’s in the $150,000 to $200,000 range.

[David Ridley-Lane:]

Okay. Perfect. Thank you very much.

[Operator:]

[Operator Instructions] Your next question comes from the line of the Bose George from KBW. Your line is open

[Chas Tyson:]

Hey, guys. Good morning. This is actually Chas Tyson on for Bose. First question is on the 2016 guidance that you reiterated. Just I want to make sure, I understand it fully. You bumped up the conversion from the Canadian dollar to the U.S. dollar from $0.74 from $0.70 and I know you highlighted that – my pushups to the upper end of the range. I just want to make sure that there wasn't something else that's offsetting that within the guidance and why because you bump up the guidance overall?

[Karri Callahan:]

Yes. I mean at this point you’re right. We’re trending towards the high end of the range on revenue. With respect to the flow through from an EBITDA perspective of probably trending towards the high end of the range there as well. However, it is the first quarter and just due to the seasonality of our business it’s early in the year. So we'll watch Q2 pretty closely and then evaluate, if we do that, it will be end of the second quarter.

[Chas Tyson:]

Okay. And then on the agent growth, I mean, obviously healthy agent growth this quarter year-over-year, and then projecting pretty healthy growth in 2Q. But full year is on the 4% range. So wondering kind of what you guys thinking for the back half and how you are thinking about the trends there over the full year?

[Dave Liniger:]

Our first quarter and fourth quarter are our lowest recruiting months, second and third quarters are the ones that we get the superior results in. I think the guidance we've given is probably going to stay where it's at. However, we’ll have to wait until the end of the second quarter to see if it continues to do as well since we did better in the first quarter than we anticipated. However, a big part of that was international or global growth, which of course is not nearly as profitable to us. We've just opened so many countries in the last few years that they're getting their feet on the ground and opening offices and starting to recruit. So, percentage-wise global will definitely be higher than what we can do in the U.S., and then in Canada, surprisingly, we’re still gaining agents and we’re very saturated up there. We think the Canadian growth would have to stay relatively flat.

[Chas Tyson:]

Okay. And then last one. I know you guys have talked about getting the New York brokerage franchise on its feet, hopefully increasing it to a similar share that you have nationally. But I just wanted to ask you if you think that kind of the overall national share of the Re/Max has the right comp? Or if there’s maybe neighboring states like Pennsylvania where you on the franchise is a better comp and if the markets share high there or maybe other kind of major real estate states like Florida or California? If there any comp that would be more useful?

[Dave Liniger:]

No. There really isn't. Selling franchises is a lengthy process in the offices start with one or two agents and they continue to grow. If you look at Pennsylvania, we’re much higher than the 6% average. If you look at New Jersey, we’re closer to a 7% average. But this is a high probability we can get to 6% to 10%. If is not going to happen in one or two years, and we just have to sell dozens and dozens of franchises.

[Chas Tyson:]

Okay, thank you very guys.

[Operator:]

Your next question comes from the line of Tony Paolone from JPMorgan. Your line is open.

[Tony Paolone:]

All right, thanks. Good morning. Just one question on my end on that market share idea, if I look at the 4% or so that you're running in the U.S. and then 3% or so in Canada, can you give us a sense of how that's comparing with – in whether it’s nor data or some other sort of broader data on agents?

[Dave Liniger:]

Well, we’re growing in the U.S. between 4% and 5% a year, which has been pretty steady for the last couple of years. In Canada, our growth is slowing. It’s surprising that were still growing but were at 18% 19% of the market up there so were reaching a saturation point. When you look at NAR statistics we lag NAR because of quality agents what’s happening with NAR right now is a lot of marginal agents are coming back into the business that are qualified to work for Re/Max. So we lag when the market turns down because our agents are better and last longer and we lag when the starts increase members again because so many of the members are not qualified for our company.

[Tony Paolone:]

Okay thank you.

[Operator:]

There are no further questions at this time. Mr. Crowe, I turn the call back over to you.

[Peter Crowe:]

Okay operator, I’d like to say thank you and everybody else that joined us today. Have a great day.

[Operator:]

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