RE/MAX Holdings, Inc. (RMAX) Q4 2014 Earnings Report, Transcript and Summary

Good morning and welcome to the Re/Max Fourth Quarter and Full-Year 2014 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference over to Pete Crowe, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone and welcome to Re/Max's fourth quarter and full-year 2014 earnings conference call. Joining me today are our 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 a replay of the call today. If you’re 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’d 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 filing with the SEC and definitions and reconciliations of non-GAAP measures contained in the fourth quarter and full-year earnings press release which is available on our Web site. With that, I'd like to turn the call over to Re/Max's CEO, Dave Liniger.

Thank you, Pete. And thanks to everyone for joining our call today. First, let me say that I’m very excited to again be leading the Executive Team at Re/Max. Over the past four decades, we’ve grown into one of the largest real estate franchise networks in the world. Last week, we had our global convention with close to 6,000 attendees from around the world. Talking to agents and brokers, you can tell they’re excited about the year ahead. We see considerable opportunity for Re/Max to continue to recruit more agents to our agent centric model as the market continues to improve. In 2014, we delivered strong financial results for our shareholders. Let me quickly review the highlights outlined on Slide 3. We delivered solid agent growth and had strong franchise sales in 2014. Even with a slight decline in existing home sales, we grew our global agent network by 5.1% and increased total office franchises sold by 8.7% compared to 2013. We also increased our open offices by 4.2% globally and now have 6,751 offices in 97 countries. Our network growth coupled with our low cost reoccurring revenue model drove revenue growth and margin expansion in 2014. Revenue grew by 7.6% to $171 million. Our recurring revenue streams accounted for just over 60% of our total revenue, demonstrating the stability of our revenue model. Adjusted EBITDA was up 8.8% to $83.8 million and we expanded our adjusted EBITDA margin by 50 basis points to 49% compared to 2013. This performance was even stronger when you exclude the effect of foreign currency fluctuations, which lowered our adjusted EBITDA margin by 116 basis points. Dave Metzger will provide more details on this point later in the presentation. We delivered adjusted basic and diluted earnings per share of $1.54 and $1.51 respectively in 2014. And finally we doubled our regular quarterly dividend to $0.125 per share and announced a special dividend of $1.50 per share. One of the key strengths of our business model is our significant free cash flow generation, which allows us sufficient capital to grow the business and return capital to shareholders. Turning to Slide 4, we focused our efforts on recruiting quality agents who are committed to real estate. We successfully attracted 4,782 agents to our network in 2014, growing our global agent count by 5.1% to 98,010 by the end of 2014. In the United States, we continue to expand our agent network ending the year with 57,105 agents, an increase of 2,614 agents or 4.8% over year-end 2013. Agent growth in the U.S was driven by strong additions in California, Florida, and Texas. In Canada, we ended with 19,040 agents, an increase of 118 agents from year-end 2013. Finally, outside the United States and Canada, we ended 2014 with 21,865 agents, an increase of 2,050 agents or 10.3% over year-end 2013, driven by strong gains in Argentina, Mexico, Portugal, Spain, and South Africa. Slide 5 shows the breakdown of Re/Max agents in the United States and Canada. The graph on the left highlights our organic agent growth of 5.6% in U.S company-owned regions and 3.5% in the U.S independent regions. The graph on the right shows organic agent growth in Canada, Western Canada which is company-owned at an increase of 177 agents or 2.9% in 2014. Eastern Canada which is comprised of two independent regions lost 59 agents, driven by a slight drop in agent count in Quebec, partially offset by agent gains in Ontario. Our agent growth in the company-owned regions in the United States and Canada combined was 5.2% over 2013 due to our consistent focus on recruiting efforts coupled with the launch of the Momentum Training program now being offered to our brokers. Momentum Training is specifically designed to educate our brokers on how to more effectively manage their business as well as proactively plan for future business growth. With that, I’ll turn the call over to Dave Metzger.

Thank you, Dave. Turning to Slide 6, you will find a breakdown of our revenue streams. Overall, our fourth quarter 2014 revenue increased 5.8% or $2.3 million compared to the same period in 2013 and full-year 2014 increased 7.6% or $12.1 million over 2013. Just over half of the full-year 2014 revenue increase of $12.1 million is attributable to incremental contributions from the Southwest and Central Atlantic regions which were acquired in October of 2013. Revenue growth was also driven by Asian growth, specifically in our company-owned regions as well as the increase in annual dues and continuing franchise fees. On January 1, 2014, annual dues increased $10 for all agents in the U.S and Canada and continuing franchise fees increased by $3 per agent per month in the U.S company-owned regions. The weakening of the Canadian dollar against the U.S dollar negatively impacted 2014 revenue by approximately $1.6 million in 2014 on a constant currency basis. Revenue from broker fees increased 15.6% or $3.9 million compared to 2013 mainly due to increased agent count and incremental contributions from the acquired Southwest and Central Atlantic regions. Franchise sales and other franchise revenue was down compared to the prior year due to lower master franchise sales. We sold franchise rights for 14 standalone regional and master franchises globally in 2013 compared to 5 in 2014. Now that our footprint extends into 97 countries, we are strategically transitioning from selling regional and master franchise rights to helping our international franchisees build their businesses. The decrease in master franchise sales was partially offset by increased office franchise sales in the U.S and outside the U.S and Canada. Brokerage revenue for our 21 company-owned brokerage offices was down 6.4% compared to 2013, primarily due to the sale of one brokerage office in the second quarter of 2013 and a reduction in closed transaction sites and home sales volume at the offices in 2014. The 5.8% increase in fourth quarter revenue over the same period in the prior year was driven by increased agent count and the minor increase to dues and fees in January 2014. We purchased the Southwest and Central Atlantic regions in early October of 2013, so contributions from those regions ceased being considered incremental revenues in Q4 of 2014. The weakening of the Canadian dollar against the U.S dollar negatively impacted fourth quarter revenue by approximately 450,000 on a constant currency basis. Turning to Slide 7, you will find a breakdown of our 2014 revenue by revenue stream and geographic area. The graph on the left highlights our five revenue streams. The blue shaded parts of that graph represent our fixed recurring revenue streams which accounted for 60.5% of our revenue in 2014 and are comprised of continuing franchise fees and annual dues. As you can see from our three-year revenue trend, our recurring revenue streams are consistently about 60% of our revenue. This is a very positive attribute of our franchise business model because it gives us revenue stability and delivered free cash flow generation even when the real estate market fluctuates. On the right, you will note that we generated 95% of our revenue in the U.S and Canada in 2014. We are growing our network and our brand globally, and while we are seeing strong agent count growth outside the U.S and Canada, our revenue for agent is substantially higher in North America. So a large part of our focus will continue to be on growing the business in North America. Looking at Slide 8, selling, operating and administrative expenses decreased $4.4 million compared to full-year 2013 and were 53.7% of 2014 revenue. The decrease was primarily attributable to higher professional fees in 2013 associated with our IPO. Rent expense also decreased largely due to a $1.2 million loss recorded in 2013 related to subleased office space at our corporate headquarters. The expense reduction was partially offset by $4.6 million of expenses incurred in the fourth quarter of 2014 related to a one-time severance charge at our corporate headquarters designed to improve efficiencies and severance related expenses incurred in connection with the retirement of our former CEO, Margaret Kelly. Our selling, operating, and administrative expense outlook for 2014 was 51% to 52% of revenue. After adjusting for the $4.6 million severance charge, we were right in line at 51% of revenue. On Slide 9, you will see in the graph on the left that adjusted EBITDA increased 8.8% to $83.8 million for the full-year and 11.3% to $20.3 million for the fourth quarter compared to the same periods in 2013. The full-year increase was primarily due to a $6.2 million contribution from the acquired Southwest and Central Atlantic regions and a $5.8 million of non acquisition related revenue growth largely associated with agent count growth and fee increases. Offsetting the additional revenue was an increase in selling, operating and administrative expenses of $3.8 million in 2014 after adjusting for non-recurring items. The increase is primarily related to ongoing public company costs of $4 million, which was inline with our expectations for the year. Adjusted EBITDA was also negatively impacted by an additional $600,000 related to foreign currency transaction losses compared to 2013. As mentioned on Slide 7, we generated approximately 40% of our revenue in Canada, in 2014. Due to the weakening of the Canadian dollar against the U.S dollar in both the fourth quarter and the full-year of 2014, operating income was negatively impacted by approximately $400,000 and $1.4 million respectively. We also had foreign currency transaction losses of $844,000 in Q4 and $1.3 million for the full-year, primarily related to cash held at Canadian dollars. Looking at the graph on the right, adjusted EBITDA margin was 47.8% for the fourth quarter, up from 45.4% in the fourth quarter of 2013. For the full-year, we expanded our margin by 50 basis points to 49% despite FX headwinds. The weakening of the Canadian dollar against U.S dollar negatively impacted adjusted EBITDA margin by approximately 240 basis points in Q4 and 116 basis points for the full-year of 2014. Turning to Slide 10, the graph on the left shows net income of $44 million for the full-year, an increase of 55.7% over 2013. The increase was primarily driven by $12.1 million in additional revenue, primarily attributable to incremental contributions from the acquired Southwest and Central Atlantic regions and agent growth, a decrease in selling, operating, and administrative expenses of $4.4 million and a decrease in interest expense of $5.4 million due to the refinancing of a senior debt facility in July of 2013. These items were partially offset by an increase in foreign currency transaction losses of 584,000 when compared to 2013 and a $7.1 million increase in provision for income taxes as a result of Re/Max Holdings federal and state income tax obligations which commenced on the IPO day. Based on adjusted net income, we reported adjusted basic and diluted earnings per share of $0.37 for the fourth quarter of 2014 compared to $0.32 and $0.31 respectively for the fourth quarter of 2013. FX negatively impacted Q4 adjusted basic and diluted EPS by approximately $0.02. We reported adjusted basic and diluted earnings per share of $1.54 and $1.51 for the full-year of 2014 compared to a $1.26 and $1.24 respectively for the full-year of 2013. FX negatively impacted 2014 adjusted basic and diluted EPS by approximately $0.03. Turning to Slide 11, our cash position as of December 31, 2014 was $107.2 million, up $18.8 million from December 31, 2013. In the fourth quarter we made our first payment related to our tax receivable agreement of $986,000. Our payment in Q4 of 2015, for the full-year of 2014 is estimated to be closer to $3.9 million. The balance on our term loan at the end of 2014 was $211.7 million, down $16.7 million from the end of last year, which gives us a debt to adjusted EBITDA ratio of 2.53x and a net debt to adjusted EBITDA ratio of 1.25x. Our balance sheet continues to strengthen and we remain in strong position to continue to reinvest and grow the business as well as return capital to shareholders. Our capital allocation priorities have remained consistent since the IPO. We are focused on acquiring independent agents, reinvesting the business to enhance our value proposition, other M&A opportunities and returning capital to shareholders. Given the stability of our business model and strength of our balance sheet, the Board approved our recommendation to double our record quarterly dividend to $0.125 per share which would be an aggregate payment of $15 million on an annualized basis. The Board also approved the payment of a special one-time cash dividend of $1.50 per share, which will be an aggregate payment of $45 million. Our capital allocation priorities are not mutually exclusive of one another. Our ability to generate approximately $30 million in unrestricted cash flow year provides us ample capacity to pay the higher dividend, reinvest in the business and grow the business through acquisitions. Our focus is and will continue to be on allocating capital to create value for shareholders. Now, I’d like to turn it back over to Dave Liniger, to discuss the housing market.

Thanks, Dave. Turning to Slide 12, I'll review our perspective on the housing market last year, as well as our economic growth and federal initiatives may provide the basis for a stronger housing market in 2015 and 2016. In 2014, we saw the first year-over-year decline of existing home sales in three years. The graph on the top left shows the monthly sales trend for 2014 was very similar to 2013, but 2014 got off to a slow start and was not able to reach the level set in 2013. We believe the slight decrease in 2014 was mostly due to the transition from an investor led recovery in 2012 and 2013 to a market of traditional buyers and sellers in 2014. Traditional buyers have not yet completely filled the void investors left in 2014 for various reasons, including tight credit standards, lack of wage growth, and constrained inventory. The other three graphs on Slide 12, representing the estimates from the National Association of Homebuilders, Fannie Mae and NAR, point to a positive 2015 and 2016 for housing. The three critical items we are focused on in 2015 are affordability, inventory, and lending. We saw strong jobs growth and the start of real wage growth in the second half of 2014. Jobs growth has continued into 2015, while wage growth has slowed. Consumer confidence is essential for a strong housing market and it hit a 7.5 year high in January backed by jobs growth. We believe jobs growth and most importantly wage growth will spur more activity in the housing market this year. Wage growth coupled with the moderate price appreciation of 4% to 5% will help bring affordability back in balance. Inventory has been tight in many markets, but we believe inventory levels will rise as more home owners come into positive equity. New construction will also relieve pressure on existing inventory levels. In 2015, housing starts are estimated to increase by 20% of 25% and new home sales were estimated to increase by 18% to 30%.Homebuilders are now not only catering to move up buyers, but also to entry level buyers which should be a positive catalyst for residential real estate. Accessible credit is the third potential catalyst for the year. Mortgages have been tough to get, but the FHFA and FHA have taken steps to allow qualified buyers access to credit through 3% down payment loans and lower mortgage insurance premiums. As lenders turn their focus from high FICO scores and high down payments to realistic debt to income ratios and income verification, we will see more individuals gain access to credit and access to homeownership as a result. Consumer perception is another hurdle that lenders may overcome this year. Lenders need to make consumers aware of the affordable financing programs, so people understand they don't need FICO score of 780 and a 20% down payment to secure mortgage financing. So we are looking for continued jobs growth, wage growth, new construction, increased affordability, and responsible lending to all propel the housing industry in 2015. Now I'll turn it over to Dave Metzger, to walk through our financial outlook for 2015.

On Slide 13, I’d like to share our outlook for the first quarter and the full-year 2015. The first quarter of 2015, agent count is estimated to increase by 4.5% to 5% over first quarter of 2014. Revenue is estimated to increase by 4% to 5% over first quarter of 2014. Selling, operating, and administrative expenses are estimated to be 56% to 58% of Q1 2015 revenue and adjusted EBITDA margin is estimated to be in the 40% to 41% range. There are three items I’d like to note regarding Q1. First, a quick reminder that our expenses are higher and our adjusted EBITDA margin is lower in the first quarter due to seasonality of the business and expenses associated with our annual convention. Second, our Q1 outlook reflects an estimated exchange rate of US$0.78 for every Canadian dollar. We estimate the weaker Canadian dollar will negatively impact Q1 revenue by 450,000 on a constant currency basis. Third, in February 2015, we repatriated all of our cash held in Canadian dollars. The total amount moved was CAD$24 million or US$19 million. Fluctuations in exchange rate between the Canadian dollar and the U.S dollar prior to this repatriation negatively impacted our first quarter results of operation below the line by approximately $1.4 million through the end of February. Going forward, we will repatriate cash generated by our Canadian operations to the U.S on a monthly basis in order to minimize the mark to market gains and losses we’ve experienced in recent quarters. For the full-year of 2015, agent count is estimated to increase 4% to 5% over 2014. Revenue is estimated to increase by 3% to 4% over 2014. Selling, operating and administrative expenses are estimated to be 50% to 52% of 2015 revenue. Adjusted EBITDA margin is estimated to be in the 49% to 50% range. Project related operating expenditures of $3 million to $3.5 million and capital expenditures of $2 million to $2.5 million. These projects relate to two technology initiatives as started in the fourth quarter of 2014. Every strong business needs to continue to look at its operations and make investments to deliver operating efficiencies and that is what these projects will accomplish. Finally, a few items to note regarding our 2015 outlook. First, incremental contributions from the Southwest and Central Atlantic regions accounted for half of our revenue growth in 2014. We purchased the Southwest and Central Atlantic regions in early October of 2013. So contributions from these regions ceased being part of the year-over-year comparison starting in Q4 of 2014. Second, in 2014, our average realized exchange rate was US$0.90 for every Canadian dollar. For our 2015 outlook, we are using an annualized estimated exchange rate of US$0.78 for every Canadian dollar, which implies a much weaker Canadian dollar than in 2014. The estimated exchange rate negatively impacted our 2015 revenue outlook by an estimated $2 million to $2.5 million and adjusted EBITDA by $3.5 million on a constant currency basis. Third, as part of our strategy to focus on growth in the U.S and Canada, which generate 95% of our revenue. We sold the Caribbean and Central America region to a group of motivated independent owners effective December 31, 2014. The new ownership team lives in the region and we believe will grow our market share there. The sale of the region decreases our annual revenue by $850,000 and our adjusted EBITDA by $400,000, both of which are reflected in our 2015 outlook. Our company culture is based on entrepreneurialism, so having local entrepreneurs own the Caribbean and Central America region boards well for the future. Finally, we believe master franchise sales and revenue from broker fees may provide upside for revenue in 2015. Since our global footprint already extends to 97 countries we are limited in the number of master franchises we are able to sell internationally, but there is potential for sub regional sales to South America and Asia which are considered upside to our outlook. We are forecasting broker fee revenues to be up over 2014. We can see further upside from broker fee revenue, we see stronger than expected Asian growth, price appreciation or transaction size. Now, I’ll turn it back over to Dave Liniger.

Turning to slide 14, our franchise and recurring revenue base business model continues to demonstrate its strength. For 42 years we have been the destination for agents who are looking to provide premier customer service and grow their brand and their business. We continue to operate our business in a manner that allows us to expand our footprint, help agents grow their business and produce attractive returns for shareholders. With that operator, let’s open it up for questions.

[Operator Instructions] Our first question comes from David Ridley-Lane at BofA Merrill Lynch.

Sure. I wanted to ask about price increases in either the annual dues of franchise fees. It sounds like you decided not to increase prices in 2015, but just wanted to double check that. And then how you’re thinking about that over longer term period?

Great. David, this is Dave Metzger, you’re right. Right now we do not anticipate any fee increases in 2015 and have not baked any of those into our guidance. Just a couple of points, as you recall we did increase some of our fees in 2014, our annual dues $10 per agent -- for agents in the U.S. and Canadian regions and then our continuing franchise fees $3 per agent per month in U.S. own regions. And we have got a pretty good pick up of about $1.6 million in revenue in 2014 for that. We’ll get a further impact of that especially on the annual dues in 2015 as we get the full year impact of the annual dues. So we get a little bit of pick up of the existing -- of the fee increases that we had previously. So that’s a benefit that’s already into the model for ’15. Going forward we will re-access when we think it’s appropriate to put -- have another fee increase and we’ll be having discussions about that later in the year to see if we’re going to do something in 2016. All in all I think if we do, do want it will probably be a fairly modest kind of a COLA [ph] adjustment maybe similar to what we’ve done in the past for fee increases.

Got it. And then, what was the run rate benefit of restructuring actions and is there sort of a partial benefit in the first quarter or does the first have kind of the full run rate?

The impact of the restructuring was about $2.8 million on an annualized basis. We won't get a lot of benefit for that in 2015, because we have some other projects, some other reinvestment in the business that we’re going to do. We feel it prudent to reinvest in the business, any good business reinvest in itself over time and we think this is a good opportunity to do it in 2015. But not a lot of pick -- no pick up actually from the restructuring cost in that we did at the end of last year.

Got it. And on the timing of that IT project operating expenses, is that more heavily weighted to the first half of the year or pretty spread evenly through the year?

Its spread pretty much over the first three quarters because we want to have one of the projects done before Q4, there’ll be a little spend in Q4 but primarily over the course of the first three quarters and then there’ll be a reassessment of our dot-com project that we’ll be doing throughout the year that we’ll have some further guidance for you all later in the years to where that project is going, but pretty much over the first three quarters.

Got it. Thank you very much.

The next question comes from Vikram Malhotra at Morgan Stanley.

Thank you. Good morning, guys. Dave could you just on the adjusted EBITDA margin guidance for ’15, if we were to -- you gave the revenue impact or constant currency revenue impact. What would the adjusted EBITDA margin be assuming the constant currency?

In 2015?

2015, yes just the range.

Its about 130 basis points, I think is about what the range would be or the number will be based on revenue being down by about $2.3 million and adjusted EBITDA about $3.4 million.

Okay, got it. And the incremental operating cost towards technology, how should we think about that, I mean in terms of what is permanent and what maybe recurring in 2016 and beyond?

Well, one of the projects will have, the bulk of the expansion will be in 2015. The dot-com project that I talked about we’re assessing those costs now and we’ll be able to give you some guidance later in the years to what we think the ’16 costs are. We’re really kind of doing assessment right now.

Okay. And then just on the dividend -- the dividend increase the special dividend. I’m just wondering if you can give some more thoughts or color on two things, one the special dividend, is this something you think that every -- at the end of every year you may look out and just kind of get a sense of what the buy back opportunities are and so, from time to time we may see sort of the special dividend reoccurring, and two, how would you consider also the leverage levels because, if we assume towards in ’15 you build up cash again. Your leverage will still be fairly low. So I’m just wondering if you -- if there’s some way you can kind of increase the leverage as well, as well as being special dividends.

Right. Yes, kind of our capital allocation strategy is, we’re going to be very disciplined and prudent as we go forward in that strategy. When we did the IPO we said we were going to pay a dividend right out of the gate, we did. We said we would look to increase that over time and this is the annual dividend increase that over time to be more in line with franchisers and we’ll continue to do that and evaluate the ability to increase the annual dividend. The special dividend, we sat down with the board to talk about the cash on the balance sheet which is -- we’re very fortunate to be in a good cash position and we made a decision that we were going to return some additional capital with fixed rate in line with our strategy to acquire additional regions or other acquisitions, reinvest in the business to return capital and we saw this as an opportunity to return capital. We do feel that these things are not mutually exclusive, then we can do all of those. Each year we’ll look at that and see what the opportunity is to return capital to the shareholder especially in annual dividend. As far as the leverage, right we are relatively lowly leveraged, right now we think that’s a great position to be in. It gives us some dry powder did the acquisition opportunities come up. I don’t see the need to lever up right now given the amount of cash on the balance sheet and the ability of the free cash flow generation every year that we have.

Okay, great. Thanks guys.

The next question comes from Ryan McKeveny at Zelman & Associates.

Hi, thanks and good morning. In terms of the agent count guidance, can you just talk about how those expectations might vary between the U.S. Canada and the other international markets? And then within the U.S. and Canada, any thoughts around the growth potential in the company owned versus the independent regions?

When we started talking about agent growth worldwide our international agent growth is slightly higher than it is in the United States and Canada. And probably we’ll continue that way since we’re now in 97 countries. The Canadian market is going to remain relatively flat. We have over 18% of the real estate agents in the Canadian Association of Realtors already with the Re/Max organization. However in the United States we’re growing very well, the result of increased franchise sales which means more offices opening and more people recruiting. The company operated regions obviously recruit significantly better than the independent regions and realistically when you look at that, we put more emphasis and more franchise sales people into the various company operated regions and that helps us increase our sales associate count very well. We also in the company operated regions, we incentivize our staff on franchise sales and net gains with agents and that has been very productive for us.

Great. Thanks. And one on the adjusted EBITDA guidance, in 2014 I think there was roughly $6 million of sort of non-core adjustments. Within your guidance are these type of non-core items incorporated that for the 2015 guidance?

We’ve subtracted out those one time adjustments or things that happen in 2015, yes we did take those out for purposes of ’15 guidance.

Okay. And any thoughts around how the magnitude of that might compare to the roughly $6 million we saw in ’14?

I’m sorry. Say that again.

I think there was roughly $6 million of sort of non-core adjustments in ‘145, I was just curious any sense of the magnitude how that might compare in ’15?

Well, yes the reduction was about $5 million to $6 million for those one time adjustments. We will have some pick up in expenses for some comp and some other project and services about $2 million. So, expenses will be going up after you subtract those adjustments the kind of the one time severance related to the restructuring and mortgage severance. It will get it down to a number in the $87 million range, and then if you add all the new expenses, actually expenses for ’15 by apples-to-apples comparison is going up by relatively modest 2% to 3%.

Okay. Thank you.

[Operator Instructions] Our next question comes from Brandon Dobell at William Blair.

Thanks. Good morning. As we think about the 2014 agents that you guys added, maybe some color on how many of those were previous Re/Max branded agents and did you see any change in the kind of people that were coming back to you recognizing that there is various levels of productivity for different agents out there. You’re recruiting really high productive, somewhat lower given the early stages of recovery, just some color on how those agents looked in ’14?

In the United States approximately one-sixth of the agents joined us last year were Re/Max agents who were returning to the brand. And then when you look at the balance of the agents almost statistically the same is over the years. Seven years experience, pretty productive agents and so on. If you look at where they come from, they come broadly across every place, independent agencies about 17% national franchises again almost 18% and then the balance from all different sources. So, we see that as the market is returning, we have the opportunity to bring more of the top producers in. We’re trying not to lower our standards at all.

Got it. Did the franchise territory sales force, any change in the number of people you have out there or how they’re organized sales codes, those kinds of things for ’15 versus ’14?

Actually, we decreased the number of sales people in the field zone franchises, but we increased several people in the call center and the call center made, I think 26,000 calls to potential franchise purchasers last year, and that cold calling takes some pressure off of the sales force. It allows us to set up appointments for the sales force to meet face-to-face and that’s actually working better for us than it ever has.

Okay. And then final one, if you think about the IT investments kind of a two par question, what are the kind of, that’s the top one, two, three things you hope to get out of the spending this year, and if you think about the agents and what they’re using with technology, do you feel you’ve got an opportunity to help them really change their conversion rates on leads that comes through the site or that was just tough given how productive those agents are, its more about the referral network.

The quality of the Re/Max’s associates and the length of time they’ve been in the business, they’re getting the majority of their business from repeats, referrals and past customers. So, technology is a valuable tool for us. It does not replace the sales associate at all. So as far as we’re concerned we keep looking at all the technologies that is being offered. We try to evaluate it and take it to the agents so that they can make their own choices. But it’s still an agent centric business where the agent has a relationship with the consumer. So technology has had a limited effect. The portals, internet leads and so on obviously are of some value, but its still a person to person business.

And Brandon this is Dave Metzger, the current projects that we are working on will have some both internal and external benefits. The projects that were doing to enhance our membership and office building [ph] process will befit us both internally and externally. It will improve our process automation, enhance our online billing, be better integration, less manual entry, then well as on our financial statement side, we will have some system consolidation and reduce the audit burden, and that will have some benefits on for both of those parts of that project both internally and externally and then the assessment of the Re/Max.com project will be to have a better outward facing website and I think which will obviously benefit not only to public but also our agents.

Okay, great. Thanks guys. I appreciate it.

This concludes our question-and-answer session. I would like to turn the conference back over to Dave Liniger for any closing remarks.

Thank you operator, and thank all of you for joining us on the call today. This will conclude the program.