Good morning. My name is Shawn and I will be your conference operator today. At this time, I would like to welcome everyone to the Re/Max Third Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions]. Thank you. It’s now my pleasure to turn the conference over to Mr. Peter Crowe, Vice President of Investor Relations. Please go ahead sir.

Thank you, operator. Good morning, everyone and welcome to Re/Max’s third quarter 2015 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 the 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 third 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?

Thank you, Pete, and thanks to everyone for joining our call today. The housing market continues to improve at a sustainable pace and we continue to attract agents to our network as agents recognized the value of aligning with Re/Max to grow their business. Our strong third quarter performance is a result of our continued focus on franchise sales, agent recruitment and broker and agent development, as well as our disciplined approach to expense management. On Slide 3, you will see we grew our total agent network by just over 1,500 agents in the third quarter and by almost 6,000 agents since the end of the third quarter of last year. This year, we also achieved our strongest nine months agent gain in the last 10 years. Similar to our performance in the second quarter, third quarter agent growth in Canada and the U.S. was at the high-end of our expectations and agent growth outside the U.S. and Canada exceeded our estimates. Revenue, selling, operating and administrative expenses and adjusted EBITDA margin, all came in better than we expected for the quarter. Turning to Slide 4, we ended the third quarter with 103,491 agents in our global network, an increase of 6% over the prior year quarter. As we discussed on the previous slide, our U.S. agent growth of 4.5% over the prior year quarter was at the high-end of our expectations and was driven by additions in California, Florida, Texas and the Pacific Northwest. In Canada, we ended the quarter with 19,506 agents, an increase of 399 agents over the prior year quarter. Agent growth continues to be driven by Western Canada and Ontario. Finally, outside the United States and Canada, we ended the third quarter with 24,206 agents, an increase of 13.3% over the prior year quarter end…

Thank you, Dave. Turning to Slide 7, you'll find the breakdown of our revenue streams. Overall third quarter 2015 revenue increased 2% or $870,000 compared to the same period in 2014. Revenue from broker fees, continuing franchise fees, annual dues drove the year-over-year increase due to increased home sale volume and strong agent growth in the U.S. and Canada. The strength of the U.S. dollar against the Canadian dollar adversely affected the third quarter revenue by approximately $1.2 million on a constant currency basis. Revenue from continuing franchise fees increased by $382,000 or 2.1% compared to the prior year quarter, due to increased agent count and continuing franchise fee revenue recognized from the six brokerage offices sold in April that was previously reported in brokerage revenue. These increases were partially offset by a lower aggregate fee per agent in the company-known regions due to fee waivers associated with Momentum program, the December 31, 2014 sale and subsequent conversion of the Caribbean and Central America regions to independent regions and negative FX impact. Education and training are fundamental components of our value proposition and Momentum is at a central part of our overall training program. As Dave mentioned, we have seen good results from the Momentum program and we will be extending the fee waiver incentives associated with the program through the remainder of this year and all of next year. We want our brokers to learn, implement and master the program, so they have the knowledge and the tools to grow their offices, develop their agents and increase their profitability. Revenue from annual dues increased by 313,000 or 4.1% mainly due to increase of nearly 3,000 agents in the U.S. and Canada since the third quarter of 2014. Revenue from broker fees increased by $1 million or 12.6% over the…

Thanks Dave. Turning to Slide 12, existing home sales have now increased year-over-year for 12 months in a row through September according to NAR. Based on the strong summer selling season that pushed into September this year, 5.3 million existing home sales for the year or a 7% increase over last year is within reach. The graph of the actual existing monthly home sales on the top of Slide 12 highlights a steadily improving housing market. If existing home sales continue to improve at a moderate rate of 5% a year with price appreciation of 5% a year, we believe this represents healthy and sustained growth. Availability of credit, low interest rates, affordability and even the rent versus buy decision all point people toward buying a home. Even with tight inventory year-over-year existing home sales continues to increase each month, which means there is a strong demand for homeownership. Lack of inventory and a lower number of first-time buyers as a percentage of the market continue to be the largest constraint on the housing market. A large part of the solution to the inventory problem is increased new home construction. The graph of new residential sales on the bottom of the slide highlights that new home sales are below the long-term average. The 20-year average for new home sales dating back to 1995 is about 800,000 a year, excluding the great recession, when we had new home sales closure to 300,000 a year. The National Association of Homebuilders is estimating 534,000 new home sales this year. We are 260,000 below the 20-year average and that doesn't account for the pent-up demand due to the lack of building during the downturn. It is going to take time for the homebuilders to reach optimum levels of new home starts and it may take some time for first-time buyers to feel financially stable enough to jump into the housing market. Increased construction and more first-time buyers getting into the market are likely to be the key catalyst for growth in the housing market for the next few years. Now I'll turn it back over to Dave Metzger to walk through our financial outlook.

On Slide 13, I would like to share our outlook for the fourth quarter and the full-year 2015. For the fourth quarter of 2015, revenue is estimated to decrease by 4.5% to 5% from fourth quarter 2014. Our Q4 revenue outlook reflects a decrease of $1.2 million in revenue due to the sale of the six brokerage offices in the Caribbean and Central American regions. After adjusting for those sales, revenue would have decreased by an estimated 2% to 2.5% over Q4 2014. Also we estimate FX will negatively impact Q4 revenue by $750,000 to $800,000 and negatively impact Q4 adjusted EBITDA margins by 75 to 100 basis points. And we estimate franchise sales and other revenue will decline due to lower estimated international franchise sales revenue and the non-renewal of a partner agreement and we are exploring opportunities to generate revenue through other relationships. Annual dues, continuing franchise free and broker fee are estimated to be up in Q4 compared to last. Selling, operating and administrative expenses are estimated to be 51% to 53% of fourth quarter 2015 revenue, and adjusted EBITDA margin is estimated to be in the 48% to 49% range. For the full-year, we are raising our full-year agent count outlook to 5.6% to 5.8% from 5% to 5.5% over 2014 and believe the additional agent growth and any upside growth will come from outside the U.S. and Canada. We are trending to the high-end our revenue growth outlook of 1% to 2% over full-year 2014. We are improving are selling, operating and administrative expenses estimate to 49% to 51% in 2015 revenue from 50% to 52%. We are increasing our adjusted EBITDA margin estimate to 50% to 51% from 49% to 50%. We are trending towards $4 million of total capital expenditures for the year. This includes project-related capital expenditures of $2.7 million to $3 million which is up from $2 million to $2.5 million and we are lowering our project-related operating expenditures to approximately $2 million. This is down from $3 million due to a portion of project-related expenses being reclassified from operating to capital expenditures and some expenses being pushed to Q1 next year due to timing of project-related work. A few items to note regarding our 2015 outlook. First, our full-year revenue guidance includes the impact of the sale of the six brokerage offices in the Caribbean and Central American regions. After adjusting for this sale, revenue would have increased an estimated 3% to 4% over 2014. We estimate the sale of these assets will positively impact adjusted EBITDA margin by approximately 150 basis points for the full-year 2015. Next, FX is estimated to negatively impact full-year 2015 revenue by $3.5 million to $4 million and negatively impact adjusted EBITDA by $5 million to $5.5 million or 150 to 200 basis points on a constant currency basis. Now I'll turn it back over to Dave Liniger.

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

[Operator Instructions] your first question comes from the line of Brandon Dobell from William Blair. Your line is now open.

Thanks. Good morning guys. Maybe focus first on expectations for agents during the fourth quarter. It doesn't sound like there is any concern about Canada now is kind of the selling season goes into kind of seasonal slowdown mode but maybe you could talk about your expectations for agent retention fourth quarter into early ‘16, given this is the slow time of the year and maybe people are getting a little more diverse about Canada, just given all the things that are going on out there.

Yes, good morning. This is Dave Liniger. When we look at our agent growth year-after-year, our strongest two months or two quarters are second and third quarter, the third strongest is the first quarter and always the fourth quarter is the weakest that we have. And so that's because of many factors. Often our franchisees are looking at eliminating agents who are marginal. Often agents are thinking about retiring or changing and many agents will not move in the last quarter because they are waiting bonuses that they get in January or February from our competitors. So when we look at the fourth quarter of this year, we think it's going to be similar to the last five or 10 years. The U.S. will be reasonably flat, as will Canada, global will probably up a bit.

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

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

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

Yes, good morning, Brandon. This is Dave Metzger.

Hi Dave.

From the perspective - Re/Max’s perspective on the tech side, I mean, we are focused almost entirely on lead generation. That's the lifeboat of our business and what we can do for our agents. So that's the most important thing. Also looking at improved mobile applications, huge. I think that's just the way for the future, mobiles will continue to play a very big part of the tech in the tools that our agents use. And then finally we have a design center where our agents could prepare brochures and other marketing materials. And so we are going to be focusing on a lot of that. Those are tools that we can give our agents to make their jobs easier. So lead generation, increased mobile - improved mobile and then marketing tools.

Okay. Perfect. Thanks a lot guys.

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

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

Actually the gap is starting to narrow. The Momentum program we started mostly in the company-operated regions and we had incredible success obviously in the last couple of quarters. We are now starting the second round of training programs in the company-operated regions but many of our independent regions have now come in for training and are embracing this with us. So at the present time, 50% of the core region offices are using Momentum and at the present time 30% of the independent regions are, and that figure is going up pretty dramatically.

Okay. So that should help to narrow the gap. And then just on the productivity of agents. I remember, maybe two years ago when you guys went public, we kind of - there was a stat that you guys did about 17 sites or the individual average broker at Re/Max did about 17 sites. I'm wondering if that's changed even if it's a little bit because to me it seems like you may be taking some market share, and correct me if I’m wrong but your broker fees are going up, call it 10% to 15% on an average over the last few quarters. Home sales are going up call it a mid-single-digit or so and so it would seem even if you adjust for agent growth and some pricing, it seems like you're taking some share.

The agent productivity across the industry has stayed pretty much the same. What's occurring with our broker fee going up is that many of our agents when we instituted the broker fee were grandfathered and that occurred several years ago, and what’s happened now is that many of those were older agents who have retired being replaced by newer agents who are adding to broker fee. So we’ll have year-end statistics out early next year, but I anticipate it's going to be about the same as it has been.

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

Well, at the IPO, I made the comment that I intended on having controlling interest of the company for at least five years. That was important for me to help make the transition from an entrepreneurial company to a public company, and nothing has changed in those viewpoints but I've also said from the IPO that we have too few shares on the market. Most of our investors have said you need more flow to probably be a better company. And so by having a Shelf Registration for a limited number of shares, it allows me to maintain my controlling interest, but allows many of my founding shareholders who are now in their 60s and 70s to be able to monetize and get on with their retirement.

Okay. Thanks guys. Congrats on the stronger results.

Thanks.

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

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

Sure, Ryan. This is Dave Metzger. Good morning. We continue to have discussions with the independent region owners. They are a little bit older. Their businesses are improving. We'll see where they go in terms of deciding to exit, but we continue to have discussions with them. So we'll see where that goes. We still feel very comfortable with the guidance that we gave at the IPO that we could do two to three over the first three to five years of post-IPO. So we feel to be good with that. As far as capital allocation, it’s a very disciplined approach. We talked about in the past that we’ve said it up that we are going to save capital for independent region acquisitions, definitely going to reinvest in the business as we did in ‘15 and as we look at what we need to do in ‘16, ‘17 very important to reinvest in the business, looking to a number of other acquisition opportunities to see if something is out there that will work to the benefit of our agents and brokers. And then we'll consider dividends. Keep in mind that we did double annual dividend last year, paid a special dividend. We'll reassess all of that next year before we come out with fourth quarter numbers. So continue to be very prudent and disciplined in our approach to capital allocation. Very important to keep some dry powder for acquisition opportunities as they arise.

Okay. Thank you. And in terms of the operating expenses, just directionally when we think about 2016 relative to what you're experiencing in ‘15 for the different cost categories, are there any noteworthy shifts that we should expect across any of those categories when thinking about expense growth in ‘16 versus ‘15?

We are looking at them right now. They may be slightly up, but right now we’re in the middle of our budgeting process. I think about where we are, just up marginally would be where you ought to be looking, but nothing - no surprises that we see right now.

Got it. Thank you. And lastly on Project Upstream. We saw they signed their agreement with the NAR yesterday. Any broad thoughts on how Upstream can impact the brokerage industry and any potential long-term benefits specifically to an organization like Re/Max with sort of a diverse franchise network? Thank you.

Realistically speaking, when people first - the general public started hearing about Upstream, they thought that a group of major big brokers were going to try to start a national portal. That was not the purpose of Upstream all along. It’s basically for the brokers to take control of how their listing information is going to be distributed by the MOSs [ph] to various other portals. And so this helps the consumer because it keeps the broker in control of the consumers information and it makes it much more accurate data, and so in reality long-term it helps the industry, it helps the consumer but it's not a threat to any of the portals or anybody out there.

Thanks very much.

Thanks Ryan.

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

Hi guys. It’s Hayden sitting in for john. Just a quick question on the Momentum development and recruitment program. Is that - can you remind us, is that just a waiver of the continuing franchise fees or is that also incorporate lower annual dues for certain amount of time? Can you remind us what those discounts are, what are kind of the parameters for eligibility there and how long those discounts occur?

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

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

Got it. Thanks for that. And then just curious with the pace of agent growth that you’ve had so far this year coinciding with the 4Q guide, if you continue this program throughout ‘16 and you continue to recruit agents at the pace that you have been here this year, where do you feel confident - the most confident I should say about your potential for growth next year, I guess, outside of purchased transaction volumes growing as a whole or agent productivity growing?

Well, we are a marketing company and the companies had remarkable growth from starting with only one agent 42 years ago. So we just don't see our models changing much. We saw franchises and that fills in the places where we don't have the total market share we want. It's interesting to note that of the franchises we sold in 2014, they accounted for about 28% to 30% of our agent growth over the last year, and so we've had an outstanding year of franchise sales this year which bodes well for our franchise growth and our agent growth next year. So we'll keep doing what we keep doing, and there is plenty of room in the country for us to grow. Our stated goal is 10% of the membership of NAR, and right now we are about 5.5% across the board. Many states like Colorado were up to 13%. So this is the basic business model we operate.

Got it. Thanks. And one more, if I may. As far as the selling franchises, obviously there is only so much green space that you have with the Master Franchise sales. I wonder if you might be able to talk with us generally about kind of what pipeline that - what that pipeline looks like? And then if you have any sense of when or if you may eventually fully run out of those Master Franchises?

Well, the Master Franchises obviously do not exist in North America because we have completed those processes over several years ago. As we started to open China and Japan, Korea and so on, they do sell Master Franchises in various regions and those are kind of opportunistic as they come along. Often Master Franchises that are sold sometimes don't become successful and we have to remarket them again. So the franchise income from the Master Franchises will be probably fairly flat over the future and we’ve certainly run out of the countries to sell major countries because we've made the entry into almost a 100 markets right now. So we'll just continue to do what we’re doing and when they come, they come.

Yes. One thing I would - this is Dave Metzger, I would add in is that to tag on what Dave Liniger said, is you’re right, we're running out of Master Franchises, but there is a lot of big countries out there, China, Japan, India, Brazil, things like that. And so the revenue opportunity there is to sell sub-regions there and then help those region owners develop office sales after that, and we get a piece of that revenue every step along the way. China, Japan particularly are very underdeveloped in terms of sub-region sales, so there is - there will be some opportunity there down the road.

That's great color guys. I appreciate it.

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

Sure, and good morning. I had a question on an annual due free increases. You increased the fee in 2014, held it flat this year. Any early thoughts on what you’re looking forward in 2016?

Yes, nothing planned - this is Dave Metzger. Nothing planned for annual dues right now into ‘16 but there is planned increase in continuing franchise fee in the core region, the company-owned regions starting in July.

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

$5 operated per month.

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

There should not be an incremental impact.

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

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

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

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

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

Well, just the first part of your question was there would be about $400,000 that we pushed into - roll into Q1 next year. The total project - we will - that won't roll-off. We’ll use that money to reinvest in something else, and we are considering all the different things. As we've talked about a couple of times, we really feel that given where the company is we need to continue to reinvest in the business to find better tools for our brokers and agents. So it will be kind of a place for into next year and we’ll be able to give you better color on what that exactly entails when we give - at the next in February.

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

Yes, those are the main buckets. Franchise sales, we have had a great year on franchise sales in the U.S. and core regions, company-owned regions. We'll see where they go the rest of the year. Global franchise sales. We had the big sub-region sale in the fourth quarter of ‘14. We'll see if there is anything that comes in this - in Q4 of this year. Number of opportunities out there but we are just not sure they are going to come in. So while it's down, there are some headwinds out there. But there are some upside also, waging comp comes in strong, the broker fee comes back or continues to be strong. There is a definite upside potential over there.

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

It's probably a 40%.

In your company-owned?

Yes, in company-owned. And most of the independents, there is no grandfather status. In fact I'd say like I believe almost all there is no grandfather status. So it would be 40% in the company-owned regions.

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

Thanks David.

[Operator Instructions] Your next question comes from the line of Tony Paolone from JP Morgan. Your line is now open.

Thank you. Good morning. You may have mentioned this, I may have missed it. But were there are any outsized franchises in the third quarter that we should think about as we comp that going forward?

No.

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

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

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

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

Okay. Thank you.

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

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

Thank you.

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