RE/MAX Holdings, Inc. (RMAX) Q1 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Re/Max Q1 2015 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 Peter Crowe. Please go ahead.

Thank you, operator. Good morning, everyone and welcome to Re/Max’s first quarter 2015 earnings conference call. Joining me today are Chief Executive Officer and Co-Founder, Dave Liniger; and our Chief Operating Officer and Chief Financial Officer, Dave Metzger. Please visit the Investor Relations page of remax.com for all earnings related materials and to access the live webcast and the replay of the call today. If you’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 filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the first quarter earnings press release which is available on our website. With that I’d like to turn the call over to Re/Max Chief Executive Officer, Dave Liniger

Thank you, Pete and thanks to everyone for joining our call today. Existing home sales are historically slow during the first three months of the year. But during this period, our brokers are very busy recruiting agents. This quarter was no exception as we delivered our strongest quarterly agent growth, since the first quarter of 2006. On Slide 3, you will see we grew our total agent network by 5.9%, compared to the first quarter of 2014, which was above our expectations. Agent gain in the United States was in line with our expectations, while agent gain outside the United States and Canada exceeded our estimates, growing 13.5%, compared to the prior year quarter. Our revenue and adjusted EBITDA margin came in slightly above our expectations, while our selling, operating and administrative expenses were in line with the expectations for the quarter. The weakening of the Canadian dollar against the U.S. dollar negatively impacted adjusted EBITDA margin by approximately $382 basis points. Dave Metzger will comment more on that later. Demonstrating our commitment to the franchise model, we converted six of our 21 owned brokerage offices to independently owned franchise. We feel our first quarter performance was solid and positions us well to deliver on our outlook for the year. Turning to Slide 4, we ended the first quarter with 99,955 agents in our global network, an increase of 5.9%, compared to the prior year quarter. And as we recently announced, we have now surpassed 100,000 agents globally. As we discussed on the previous slide, our agent growth in the United States of 4.8%, compared to the prior year quarter was in line with our expectation and was driven by strong additions in California, Texas, the Pacific Northwest. In Canada, we ended the quarter with 19,161 agents, an increase of 192 agents from prior year quarter. Agent growth was concentrated in Western Canada and Ontario. Finally, outside the United States and Canada, we ended the first quarter with 22,849 agents, an increase of 13.5% over the prior year quarter, driven by strong gains in Argentina, Brazil, Mexico, Portugal and South Africa. Slide 5 shows the breakdown of Re/Max agents in the United States and Canada. The graph on the left highlights our agent growth of 5.7% in U.S. company operated regions and 3.4% in the U.S. independent regions. The graph on the right shows agent growth in Canada. In the first quarter Western Canada which is company-owned had an increase of 210 agents or 3.4% compared to the prior year quarter. Eastern Canada which is comprised of two independent regions lost 18 agents compared to the prior year quarter, driven by a slight drop in agent count in Quebec, partially offset by agent gains in Ontario. Our Momentum Training program, which is specifically designed to educate our brokers on how to more effectively and profitably manage their business, as well as proactively plan for future business growth, is having a positive impact broker engagement and agent recruitment across the United States. Slide 6, highlights our year-to-date agent growth. We grew our global network by 2% in the first three months of the year, compared to year end 2014 agent count. The strong start to the year exceeded our expectations and was driven by solid growth of 1.5% in the United States and 4.5% outside the United States and Canada. We continue to grow our network and our brand globally while we’ve seen strong agent growth outside the United States and Canada our revenue per agent is substantially higher in North America. We expect to continue to generate approximately 95% of our revenue in North America for the foreseeable future. With that, I’ll turn the call over to Dave Metzger.

Thank you, Dave. Turning to Slide 7, you will find a breakdown of our revenue streams. Overall, our first quarter 2015 revenue increased 5.6% or $2.3 million, compared to the same period in 2014. The weakening of the Canadian dollar against the U.S. dollar adversely affected first quarter revenue by approximately $650,000 on a constant currency basis. Recurring revenue, which includes continuing franchise fees and annual dues, accounted for 57.6% of revenues in the first quarter of 2015, compared to 60.2% in the prior year quarter. Revenue from continuing franchise fees was in line with the prior year quarter due to increased agent count, offset by changes in our aggregate fee per agent in the company-owned regions. Our reduction due to the sale of the Caribbean and Central America regions on January 1, 2015, negative FX impact has slightly higher receivables. We fee waivers for new agents recruiting in conjunction with the Momentum Training program, contributed to the decrease in fee per agent. We continuously evaluate training and recruiting programs and the Momentum Program is one we believe in. It has been instrumental in getting our brokers focused on growing their offices and their business profitably. And the three month fee waiver is a great way to introduce quality agents to the Re/Max model. Our average agent remains with us for almost eight years. The key is getting those agents in the door and momentum is doing just that. Revenue from annual dues increased 3.9%, compared to the prior year quarter, mainly due to an increase of 2,851 agents in the U.S. and Canada, since the first quarter of 2014. Revenue from broker fees increased by $862,000 or 15.5% over the prior year quarter, primarily attributable to increased agent account and increased transaction activity due impart to improving market conditions. Franchise sales and other franchise revenue increased 6.5% compared to the prior year quarter due to higher revenue from an annual convention and higher revenue from office sales in the U.S. An increase in revenue from our own brokerage operation also contributed to overall revenue growth as the brokerages saw an increase in agents and transactions during the quarter. Looking at Slide 8, selling, operating and administrative expenses decreased $220,000 or 0.9%, compared to the first quarter of 2014. Personnel cost declined $360,000 primarily as a result of reorganization in the fourth quarter of last year design to improve efficiencies at our corporate office and retirement of our former CEO at the end of last year, partially offset by first quarter severance charges. Other selling, operating and administrative expenses decreased $440,000, compared to prior year quarter due to cost synergies, realized from hosting regional advancing conjunction with our annual convention and a reduction and expenses incurred a certain marking publications. The expense reductions were partially offset by a $400,000 increase from professional fees related to previously mentioned, [indiscernible] technology-related projects and higher legal fees incurred during the quarter. On Slide 9, you will see in the graph on the left. That adjusted EBITDA increased 17.2% to $18.7 million for the first quarter compared to the same period in 2014. This was primarily due to the $2.3 million increase in revenue during the quarter and the $1.1 million decrease in selling, operating and administrative expenses after adjusting for non-recurring items. We generated approximately 12% of our revenue in Canada in the first quarter. As a result of the continued weakening of the Canadian dollar against U.S. dollar, operating income was negatively impacted by approximately $570,000 during the first three months of the year. In the first quarter we repatriated substantially all the cash that we had been holding in Canadian dollars to U.S. and incurred foreign currency transaction losses of $1.4 million as a result. Looking at the graph on the right, adjusted EBITDA margin was 42.4% for the first quarter, up from 38.2% in the first quarter of 2014, despite FX headwinds. The weakening of the Canadian dollar against the U.S. dollar negatively impacted our adjusted EBITDA margin by approximately 382 basis points in Q1. The FX impact on our adjusted EBITDA margin in the first quarter of year was 170 basis points. The repatriation of substantially all the cash that we have been holding in Canadian dollars to the U.S. accounted for approximately 317 of the 382 basis point FX-related reduction this quarter. Going forward, we will be repatriating our Canadian cash with U.S. on a monthly basis and will therefore have substantially less mark-to-market exposure. Turing to Slide 10, the graph on left shows net income of $9.1 million for the first quarter, an increase of 17.1% over the prior year period. The increase is primarily driven by $2.3 million increase in revenue, a $220,000 decrease in selling, operating and administrative expenses, and $271,000 increase equity and earnings in investees which is related to a mortgage business associated with one of our own brokerage offices. These items were partially offset by an increase in foreign currency transaction losses of $892,000 when compared to first quarter of 2014, a $343,000 increase interest expense primarily related to cost associated with March amendment to our credit agreement offset by reduction in debt outstanding. The amendment allows us more flexibility to the amount of future dividend payments. The increase was also partially offset by $263,000 increase in the provision for income taxes, as result of an increase in our income before tax. Our effective tax rate remained consistent in approximately 19% during both the first quarter of 2015 and 2014. Based on adjusted net income, we reported adjusted basic and diluted earnings per share of $0.33 and $0.32 respectively, for the first quarter of 2015 compared to $0.28 and $0.27 respectively for the first quarter of 2014. FX negatively impacted Q1 2015 adjusted basic and diluted EPS by approximately $0.04, compared to a negative impact of $0.01 and $0.02 respectively in Q1 of last year. Turning to Slide 11, our cash position as of March 31, 2015 was $114.5 million, up $7.3 million from December 31, 2014. March 11, we doubled our quarterly dividend to $0.125 per share, declared a special cash dividend of $1.50 per share. The aggregate payments for the quarterly dividend and special dividend were approximately $3.75 million and $45 million respectively. Both payments were funded to existing cash and made on April 8, and therefore not reflected in the March 31 cash balance. Balance on our term loan at the end of the first quarter was $203.3 million, down $8.3 million from the end of last year, which gives us a debt to adjust EBITDA ratio of 2.35 times and net a debt to adjust EBITDA ratio of 1.03 times. We made $7.3 million excess cash flow principle payment on our term loan in March. Our balance sheet continues to strengthen and we remain well positioned to continue to reinvest to where the business is, as well as return capital to shareholders. And I like to turn it back over to Dave Liniger to discuss the housing market.

Thanks, Dave. Turning to Slide 12, existing home sales were slow in January and February, but jumped in March to deliver the largest monthly increase since December, 2010. The graph on the top of Slide 12 highlights actual monthly existing home sales. You can see that March was well above March last year and year-to-date existing home sales through March were up 6.6%, compared to the first quarter of last year. While one month doesn’t make a trend, overall it looks like existing home sales are tracking positively so far this year. Consumer confidence continues to slowly improve, while economic fundamentals are in place to support the housing market. More people are getting jobs soon employers may be competing for employees, which had pushed wages higher. Wage growth coupled with increased consumer confidence should spur more activity in the housing market. Inventory increased in March, but continues to be tight in many markets. Together with a much improved home equity situation more inventory should come to the market this year and next. New constructions could also release some pressure from the tight supply in most markets. New home sales have been quiet so far this year, but they are estimated to increase by 18% to 30% over last year. New home sales in the second quarter will give us a better feel for how the year will trend and home builders are going to be a positive careless for inventory this year. We continue to focus on three items this year, affordability, inventory and lending. Due to low interest rates and slower price appreciation, affordability should remain a positive for most buyers. Inventory looks to be improving and we see many signs of lending is becoming more accessible, especially the first-time buyers. With these conditions trending in the right direction, demand continues to rise and should drive existing home sales in the coming months. Now I’ll turn it over to Dave Metzger to walk through our financial outlook.

On Slide 13, I’d like to share our outlook for the second quarter and for the full-year 2015. In April we converted six of our 21 owned brokerage offices to independently owned franchises. The six offices have 270 agents and are located in Maryland in Virginia. The franchises are sold to long time Re/Max broker in the area, who we believe is the right person to successfully operate and grow these offices. Our second quarter and full-year outlook reflect the sale of the six brokerage offices. For the second quarter of 2015, agent count is estimated to increase by 4.5% to 5% over second quarter 2014. Revenue is estimated to increase by 2.5% to 3.5% over second quarter 2014. Selling, operating and administrative expenses are estimated to be 47% to 49% in Q1, 2015 revenue. And adjusted EBITDA margins estimated to be in the 52% to 53% range. There are few items I would like to note regarding Q2. First, let me walk through the impact of the sale of six brokerages offices we have in our Q2 financial. We estimate the sale will decrease Q2 revenue by $825,000, decrease Q2 operating income by $75,000 and increases Q2 adjusted EBITDA by approximately $75,000 after certain adjustments. We will also reorganize a gain on sale of assets for approximately $700,000 related to the sale of six brokerage offices. Second, we estimate the weaker Canadian dollar will negatively impact Q2 revenue by approximately $825,000 and operating income by approximately $750,000 on a constant currency basis. Adjusted EBITDA margin will be negatively impacted by an estimated 50 basis points to 100 basis points. This is factored into our Q2 outlook. It is important to note that we have a foreign currency transaction gain of $835,000 in Q2 of last year, which contributed to the 57% margin for the prior year quarter. Third, we estimate continuing franchise fees will be in line with Q2 of last year, partially due to fee waivers associated with the Momentum Training and recruiting program, reduction due to the sale of the Caribbean and Central America regions and a negative impact of a weak Canadian dollar, compared to the U.S. dollar. We believe annual dues, broker fee and franchise sales will be up for the quarter, compared to last year. Finally, going forward, we will repatriate cash generated by our Canadian operations to the U.S. on a monthly basis in order to minimize the mark-to-market gains and losses it has experienced in recent quarters. The full year of 2015, agent account is estimated to increase by 4% to 5% over 2014. Revenue is estimated to increase by 1% to 2% over 2014 after adjusting for the sale of the six own brokerage offices to an existing Re/Max franchisee. Selling, operating and administrative expenses are estimated to be 50% to 52% of 2015 revenue. Adjusted EBITDA margin is estimated to be in the 49% to 50% range. Project related operating expenditures of approximately $3.0 million and we estimate our total capital expenditures of $3.5 to $4.0 million including project related CapEx of $2.0 to $2.5 million. Few items to note regarding our 2015 outlook. First, we estimate the sale of the six brokerage offices will decrease full year revenue by $2.4 million, increase operating income by $75,000 and increased adjusted EBIDTA by approximately $200,000 after certain adjustments. Our estimated revenue growth over the last year will be between 3% to 4%. If we strip the six owned brokerage offices out of the last three quarters of last year for comparison purposes. Second, as we discussed on our last call we’re using an annualize estimate exchange rate of $0.78 for every Canadian dollar. The estimated exchange rate negatively impacts our full year 2015 revenue outlook by an estimated $2.5 million to $3 million and adjusted EBITDA by an estimated $4 million on a constant currency basis. Finally, we continue to believe master franchise sales, specifically, sub regional sales in Asia Pacific and revenue from broker fees may provide upside for revenue 2015. Now I turn it back over to Dave Liniger.

Turning to Slide 14, we are pleased with our first quarter performance. We experienced our strongest first quarter agent gain since the first quarter of 2006 and we surpassed the 100,000 agent mark in April, both data points are strong proof that our agent-centric business remains a destination for quality agents. With that operator let’s open it up for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from David Ridley-Lane of Bank of America Merrill Lynch. Please go ahead.

Sure. Good morning. Curious on the fee waivers for new agents it sounds like it’s getting the results you expected, is it something that you’ve done in the past, or is it just a brand new approach to get our new agents on the door?

David, this is Dave Liniger. Throughout the history of Re/Max we’ve done recruiting contests, incentive programs, and so on. The momentum program that we’re involved with right now is the most successful we’ve done in over 20 years. What it’s done is it allows us to focus our broker owners back into growing instead of just cutting costs. So far we’ve had about 40% of the core broker owners have gone through the program and you can see the impacts that we are having. So our fee waivers and incentive programs, and so on, we figure as a short-term investment for a long-term gain, since our average agent stays with us for eight years or more.

Got it. And based on performance on the margins in the first quarter about 140 days basis points above the high-end of the guidance range and the mix shift from the sales of the six company owned brokerage offices is a positive for margins. So little bit curious, is the 2015 EBITDA margin guidance that you maintained just on conservatism, would you have a little bit more of a bias towards the higher end of that range because the out performance and the mix shift?

Yes David, this is Dave Metzger. Yes we had a great first quarter, but that’s the first quarter several – three more quarters to go through in the year. We think that the first quarter performance will build confidence the height of the buying and selling seasons to come in Q2 and Q3. So it’s kind of early to adjust guidance this time. We probably had it trending towards the higher end, but we’ll look at that and if we think it’s appropriate we’ll adjust guidance after the next quarter, but I think we need to get another quarter under our belt before we decide that.

Got it and just a, quick kind of numbers question, where the company-owned brokerage agents and the agents count are ready?

Yes, they were.

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

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

Got it, well that is it from me and congratulations on the quarter.

Thank you.

Thanks.

And our next question comes from Tony Paolone of JP Morgan. Please go ahead.

Thanks and good morning. On the fee waiver, can you just walk through again, sorry I may have missed, but exactly where the fees are being waivered, is it the agent level or at the franchisee level back up to EURs [ph] and across all of that, just trying to understand what exactly is getting waived?

Well, it is a continuing franchise fee, which is the $125 per agent per month that the broker pays for us. So it would be the fee waiver of those three months, the first three months. And truly we look at it as an investment, most of our agent stay with us for about eight years. So in order to – if we can try it off three months to get seven years plus of revenue. I think that’s a great investment.

Right, so the agent themselves are they getting a cut in there or these are just the franchisees that is not [indiscernible].

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

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

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

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

Okay, got it. And then when you look at your agent count growth, do you think you’re picking up share or how do you think that compares to just the general size of the agent counts in the U.S. or North America for that matter?

Tony, we lag the National Association of Realtors a little bit because in their count they have all the beginners and part timers and people coming back into the market and we are really after quality agents. So I think that rate of growth that we’re having right now is about what we anticipated, it’s following our guidance in the U.S. and Canada. We’ll have to see what happens after this quarter, but it seems to us that the momentum of the market is coming back.

Okay, got it. And I just have question about sort of some of the attractions to your system by the agents and folks coming in. I remember at around the time at the IPO, you talked about some of the things you did during the downturn that was very attractive like offering, training on short sales and things of that nature. I’m just curious like today with a market, what are the things that are most important to the agents or even bring in more franchisees into your network? Like what’s important to net sales processed to bring them on board?

The two most important things are the market share and brand power. And then the second thing of course, everybody is always looking for is lead generation. So strong brand, strong Internet presence, and good market share, mix the phone ring with customers and that’s what turns on real estate agents. And of course, recruiting is what turns on the franchisees.

Okay. And just a question on that lead generation, it seems like a large peer of your are spending a lot of money on technology. How are you guys thinking about that? And how do you coordinate spending and thinking through lead generation because you’ve got yourselves at the corporate level and you’ve got the brokers and then you’ve got the agents and I guess everybody probably does some of that spending?

Yes, Tony, we are always looking to improve our systems, we have a lot of great technology offerings for our lead management, design center Re/Max University. And you are right, lead generation is like Dave just said, Liniger [ph] said that’s the thing. And we are always looking to improve our lead generation and offerings to the agents. And we listen to them, we listen to the agents and brokers and we look at our spending based on what they are saying and what they want, and we try to enhance and improve our systems based on that.

And Tony, this is Dave Liniger. The technology is an interesting aspect of the real estate industry, but it’s not the only thing that makes the industry work. Different companies try to brag about what this technology is. Our agents are extremely entrepreneurial. They are different than most agents. They don’t want us to hand them a box and say use this technology each one of them is at the fore front of the industry and they want to select and choose their own, it’s sort of like some people want an iPhone and some want an android. And so what we try to do is research all the technology, try to get group discounts as best as we can and expose it to the agents and let them make their own entrepreneurial choice.

Okay, got it. Thank you, very much.

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

Thank you. Dave, can you maybe just talk about going forward the strategy for independent regions in terms of improving the agent count growth what can you do there? Seems like the gap has between company-owned and independent has just its kind of widened a bit over the last few quarters. I’m just wondering what kind of levers you have in the near-term assuming that the process of buying a region is just obviously lumpy?

Vikram, what we try to do is lead by example. And so we show them what we are doing that makes us successful and get them to try to imitate it. The reason that we do very well is that we have more franchise sales people than most of the independents and franchise sales actually leads to recruiting. For instance last year 35% of the agents that joined in the company operated regions were from franchises that were sold last year. And so the more franchises you can sell, the more offices that open, the faster you can recruit. And so we do a lot of brain storming with them, we show them what we pay our franchise sales people and many of them are in the process of hiring new franchise sales people at this time.

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

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

And sorry the other one Vikram sorry the Texas is though the one that we brought most recently, that was an independent the other three that we brought back Mountain States, Central Atlantic and Southwest were company-owned, they were already part of the Re/Max program for growing agent count. We’ve seen a good pickup in the amount of agents we’ve added in the Texas region since we’ve take it over because the increased focus like Dave said on selling franchises and programs like the Momentum program.

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

Well, the conversations continue we’re always talking to the independent regions or as to what their plans are and as we’ve talked about in the past there has to be a transaction that works both sides. I think there’s definitely some interest as the independent regions. Yes there is an improving market, there is not selling that the low point of their EBITDA. So I think we’ll – we are having discussions in that that’s really good and when it happens is when it happens. So…

And Dave just last one from my side, just on the margins given kind of the strength you’ve seen now in the second quarter and obviously you’ve been a public company now for awhile. So I’m just kind of getting a – wanted to get a sense of just longer term, how are you thinking of the kind of the long-term margin target, EBITDA margin target?

I think we’re approaching 50% and I think that’s a good target for the near-term we’ll have to adjust that going forward. Right now we need to reinvest the business we think that’s very prudent to do and that will drive the business going forward. But I think that low 50% range is where we’re focused for right now. And we’ll see where it goes from there.

Okay, thank you.

[Operator Instructions] Our next question comes from the Ryan McKeveny of Zelman & Associates. Please go ahead.

Hi, guys thanks and good morning. Given the introduction of the fee waivers, how do you think about that playing against the long-term opportunity to potentially increase the continuing franchise fees? And similarly on the annual due is, is there a long-term opportunity there to increase those dues and I guess specifically on 2016 relative to 2015, should we expect much movement there?

Right now, we haven’t determined when we’re going to. If we’re going to raise fees, obviously that is part of the plan, it’s not the core, it’s not what drives the business. Organic agent growth, selling franchises and we get portion up to acquiring an independent region. Fee increases are a part of the plan at some point and we’ll look at that down the road. But at this point nothing has been decided for 2016.

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

No, about half of the independent regions are using the momentum program. However, the other half of their own programs and they’ve instituted. So I think everybody is trying to use incentives to try and grow the business. This is the fee waivers are kind of a to get the program started, but basically its reeducating our brokers and saying, you went through four or five year period of cutting your expenses, now let’s emphasize gaining agents and growing your cash flow.

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

We’ve got a good amount of cash on the balance sheet. So, if we want to use that first. Our leverage range is down to 2.35 times on total debt EBITDA. We would feel comfortable going up to the four times, approximately three times to four times. I think we have to look at if there was independent region acquisition that really made sense and if we needed to lever up to do that one, absolutely. Fortunately, we generated lot of free cash flow and we have some cash on balance sheet we try to use that cash first. But if a good independent region up, acquisition opportunity came up we would definitely lever up to do that.

Okay, thanks. And last one, may be just any update on the Canadian housing market and It seems that the agents counts there have been may be little stronger than expectations. Just any thoughts around that?

.:

Great, thank you.

Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Dave Liniger for any closing remarks.

Well, we appreciate everybody dialing in and talking with us this morning. Have a great day and we’ll talk to you next time.

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