Good morning and welcome to the RE/MAX Holdings Third Quarter 2016 Earnings Conference Call and webcast. My name is Denise and I'll be facilitating the audio portion of today's call. At this time, I'd like to turn the call over to Andy Schulz, Executive Director of Investor Relations. Mr. Schulz, begin.

Thank you, operator. Good morning, everyone, and welcome to RE/MAX's third quarter 2016 earnings conference call. Please visit the Investor Relations page of remax.com for all earnings related materials and to access the live webcast and the replay of the call today. If you are participating through the webcast, please notice that you'll need to advance the slides as we move through the presentation. Turning to slide two, I would like to remind everyone that on todays call our prepared remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. Examples of forward-looking statements may include those related to agent count, housing market conditions, revenue, operating expenses, financial guidance as well as non-GAAP financial measures. As a reminder, forward-looking statements represent management's current estimates. RE/MAX assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in our filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in our third quarter earnings release, which is available on our website. Upon the conclusion of our prepared remarks by our Chief Executive Officer and Co-Founder, Dave Liniger, and our Chief Financial Officer, Karri Callahan, we will open the call for Q&A, at which time we will be joined by Adam Contos, RE/MAX's, Chief Operating Officer, and Geoff Lewis, RE/MAX's our President and Ward Morrison, Motto Mortgage, President. With that, I would like to turn the call over to RE/MAX CEO, David Liniger. Dave?

Thank you, Andy. And thanks to everyone for joining us on our call. It’s a real pleasure to be with you today as we have a number of exciting events to share. First, our business continues to perform well. Our strong financial performance in the third quarter exceeded our expectations, highlighted by increases in agent count, revenue, margins and cash flow. Second, the recent launch of our innovative mortgage brokerage franchise Motto Mortgage is an opportunity we believe will be a positive catalyst to our existing business for many years to come and yesterday afternoon, we announced we've signed an agreement to acquire the Master Franchise rights to the New Jersey region effective in early December. We will provide more details on each of these topics in our prepared remarks today, while making sure we leave enough time for your questions. So let's get started. Looking at slide four, in the third quarter we successfully executed on our strategic priorities. Our focus on the three pillars of value creation, organic growth, reinvestment and acquisition growth catalyst and returning capital to the shareholders continues to deliver positive results. The launch of Motto Mortgage represents the most important new initiative we have taken in quite some time. It is an investment in our network and in our future growth. At RE/MAX, which owns the status quo continually look to identify the best opportunities for future growth and value creation. Since the introduction of Motto last week, we've heard from many potential franchisees who expressed significant excitement and interest in our first addition to what is now the RE/MAX family of brands. Many are asking us why you're getting into the mortgage brokerage business, why motto and why now? In reality a number of factors impacted our decision to pursue this compelling opportunity.…

Thank you, Karri. Moving to slide 10, to wrap up our prepared comments on Motto. When real estate agents align with the mortgage process everybody wins. For consumers they get and enhanced customer service, convenience, expertise, a simplified mortgage process and most importantly choices for a quality loan all brought together for a better and more efficient home buying experience. For agents, teeming with a professional independent loan originator provides a truly differentiated offering and a more coordinated sale process. This should result in happier customers and a stronger referral network. For brokers and franchisees they can offer their agents, loan originators and customers an increased value proposition. The benefits of a more coordinated home purchase experience. Motto is designed for compliance and builds a transparent seamless path some contract to close. This additional product line is complementary to the real estate brokerage and creates opportunities to grow and expand their business. It should also serve as an effective agent recruiting and retention tool. Lastly, for independent loan originators this is a desirable set of circumstances. They are aligned with professional agents with access to their networks, offering a more coordinated sale process without the pressure of having to sell only their employer's products. Loan originators are the conduit to more choice, greater transparency, ease-of-use and convenience. For investors, we believe Motto is an attractive long-term investment that has significant long-term growth potential for our business. For me personally, I'm more excited about Motto's prospects than anything up come across in a long time. Now let's move back to discussing the third quarter. Looking at slide 11, we continue to see solid agent growth network wide as the total agent count is now over 111,000 agents. In the US and Canada combined markets where revenue per agent is the highest in our global network, agent count has grown almost 4.5% over the past year. International growth since the third quarter of last year is up over 17%. Combined agent count growth in US and Canada continues to track at the high-end of our expectations, while international agent growth now exceeded our estimates. The other pertinent details about our agent count growth are included in the appendix to today's earnings presentation. And of course were happy to answer any questions related to agent count growth on the call today. With that, I will turn the call back over to Karri.

Thank you, Dave. Turning to slide 12, you'll find a breakdown of our revenue streams. Overall third quarter 2016 revenue increased 1% to $45.6 million due to strength across multiple measures, notably agent count growth, fee increases and higher transaction volume, which more than offset the impact of the sale of the company-owned brokerages. Organic growth increased revenue 5.9% and the acquisitions of New York and Alaska combined added 1.5%. These increases were partially offset by the sale of the brokerages, which negatively impacted revenue by 6.4% year-over-year. FX was flat. Revenue would have increased 7.9% after adjusting for the sale of the company-owned brokerages. Recurring revenue, which includes continuing franchise fees and annual dues, increased $2.3 million or 8.7% over Q3 of last year. Recurring revenue accounted for 64.2% of total revenue in the third quarter 2016, up from 59.7% last year, primarily due to the sale of our company-owned brokerages. Revenue from continuing franchise fees was $20.9 million, an increase of $2 million or 10.8% compared to the third quarter 2015, primarily due to agent count growth in the US and Canada, rate increases in our company-owned regions which were implemented on July 1, 2016 and the acquisitions of New York and Alaska region. Revenue from annual dues was $8.3 million, up 300,000 or 3.9% due to agent count growth. Revenue from broker fees was $10.5 million, an increase of approximately $1.2 million or 12.8% over last year, driven primarily by higher agent count and the acquisition of the New York region. Franchise sales and other franchise revenue was $5.8 million, up 200,000 or 2.8% compared to the prior-year quarter. Franchise sales and other franchise revenue which comprised of several revenue streams, which are non-recurring in nature and can be more variable as a result. Revenue from certain…

Thanks, Karri. Turning to slide 17. The housing market continues to show improvement with multiple drivers and constraints contributing to the equation. Among these housing demand, inventory and mortgage rates persist as the dynamics that have the largest impact. Job growth has generally been steady, yet wage increases have lagged home price appreciation and consumer sentiment has dampened slightly. However, existing home sales have been up over the past quarter, driven by first-time homebuyers who appear to be building on the momentum from the summer. First time buyers made up 34% of sales in September, their e highest share since July of 2012. As they continue to take advantage of attractive mortgage rates, ideally we like to see this demographic represent closer to 40% of the market, but the progress thus far in the back half of this year has been encouraging. Housing starts have remained moderate for the year and are still shy of pre-recession levels. But the recent uptick in single-family housing starts was a positive move for the market and we like to see that trend continue. The supply of these starter homes in the market is been short, so we are looking to builders to help alleviate the strain. Furthermore, since the recession the number of years that homeowners have of own their homes is doubled from 5 to 10, contributing to the lack of inventory which remains one of the strongest governors on the housing market today. The good news is mortgage rates remain low in housing demand continues to be very strong, providing opportunity for continued gradual growth of the housing market, as well as our business. Now I'll turn it back to Karri to walk through our financial outlook.

Thank, Dave. Before I get to our outlook, I wanted to make a couple of points about Motto, and the expected acquisition of the New Jersey region. Since Motto was just introduced last week, the acquisition of the New Jersey region has not yet closed and we are currently in our annual strategic planning and budgeting process. It is premature to provide detailed expectation for 2017. However, we want to give you a sense of the combined impact of Motto and New Jersey on our 2017 financial. Assuming the acquisition of New Jersey causes [ph] in early December, we estimate, Motto, and the New Jersey region combined will contribute an incremental $7 to $9 million of revenue and $1 million to $3 million of adjusted EBITDA in 2017 Revenue related to Motto is expected to increase slightly during the year, as we hit each phase of the rollout. We expect to provide more insight when we announce our 2017 outlook in connection with our Q4 earnings call in February. Turning to slide 18, the company's fourth-quarter and full-year 2016 outlook reflects the sale of the company-owned brokerages, the anticipated acquisition of the New Jersey region, the acquisitions of the New York and Alaska region, the launch of Motto, an estimated exchange-rate of $0.74 US for every Canadian dollar and assumes no further acquisitions or divestitures. For the fourth of 2016, RE/MAX expects agent count to increase 6% and 6.4% over fourth quarter 2015, revenue in a range of $40.6 million to $41.6 million, selling, operating and administrative expenses in a range of 53% to 54% of fourth quarter 2016 revenue, with project -related operating expenses in a range of 750 to 900,000. Adjusted EBITDA margin in a range of 406% to 47% and capital expenditures in a range of $1 million to $1.25 million, which includes estimated project -related capital expenditures of 400 and 450,000. Turning to slide 19, we are raising our full year 2016 outlook and we now expect agent count to increase by 6% to 6.5% over 2015, changed from 5.5% to 6.5% driven by strong agent growth outside the US and Canada. Revenue in a range $172.5 million to $173.5 million, up from a $169.8 million to %171.6 million. Selling, operating and administrative expense in a range of 48.5% to 49% of 2016 revenue, changed from 48% to 49% of 2016 revenue. Included in selling, operating and administrative expenses are project related operating expenditures in a range of $2.5 million to $3 million, down from $3.5 million to $4 million. Adjusted EBITDA margin in a range of 52.5% to 53%, changed from 51.5% to 53% and total capital expenditures in a range of $4 million to $4.25 million, up from $3.6 million to $4 million. Total CapEx includes project related CapEx of $2.5 million to $2.75 million, up from $2 million to $.5 million. Now I'll turn it back over to Dave.

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

[Operator Instructions] Your first question comes from Vikram Malhotra with Morgan Stanley. Your line is open.

Thank you. And congrats guys on the new business, I'm sure there was a lot of back-and-forth on various options. Maybe you could - maybe that's play start, if you could just give a sense of how you sort of - what made you finalize on this and maybe what's some of the alternatives were?

Good morning, Vikram. This is Dave Liniger. We've been working on the project for probably more than six months. One of our independent regional owners brought the concept to us. We met with them. They had been test marketing the program with two franchisees both franchisees were absolutely delighted with it. We have the opportunity to either joint venture or buy the concept and we thought it was such a fabulous concept for our broker owners that we decided to buy it instead of joint venturing. We did put the program together. We spent months putting the training program and hiring the staff. Last week when we put out the press release I did a seminar with over 200 brokers that met in Dallas and the next day 200 plus that met in Orlando and the reception of the broker owners was overwhelming. There were absolutely excited and anxious to get started with it. So I think we got a real winner.

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

That's correct, we charge an upfront franchise fee, the initial franchise fee in the FDD documents is $20,000, but we're offering the early people a discount on that. And then afterwards they start paying us a fixed fee by month underneath RESPA guidelines. We're not a mortgage broker, so we cannot participate in a fee per transaction.

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

Yes, and…

Okay.

Yes.

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

As far as the RE/MAX broker owners it makes financial sense for the offices that have more than 15 to 20 agents. We're rolling it out first to the 30 states that accept the federal FDD for franchise sales. We've already applied to the 20 registration states. It will take them anywhere from two weeks to two months to get us our approval and then after the first of the year we will take it to very select high quality competitors throughout the United States. So long-term, I think it is a significant factor in RE/MAX's future growth plans.

Okay. I have a bunch of other follow-ups on the business, which I can – I'll follow up off-line. But can you just one clarification, on the New Jersey business, can you just give us a sense of now that you have New York and New Jersey, what is the penetration today and where do you think you can take that?

I think New Jersey is in the neighborhood of 6%, 6.5% of the total membership of the realtors and of course our stated goal is to get to 10%. So we will be very aggressive in the selling franchises and helping our existing franchisees to expand and get more agents. In New York once we bought it, a lot of cleanup we had to do, many franchises were out of contract, some franchisees we did not want to keep. So we had a slight decrease in the number of agents. However, since we got the authority to sell franchises we've already sold seven franchises in New York and anticipate couple more.

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

Thanks, Vikram.

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

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

Hayden, I don't think we can make that estimate right now. The enthusiasm level is extremely high. But we're going to need two, three, four months, maybe, maybe by February when we do our earnings call we'll have a sense of how many we've sold and that would give us the ability to forecast what we think we'll do in the next year or two.

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

No, I think that the comments I made almost a year and a half ago at the summer conference with my independent regions was that we were anxious to continue to purchase independents. A lot of my independent regional owners are reaching retirement age and so that is increased the interest. But as usual, it's very lumpy. It happens when it happens, I think, New Jersey we probably we're negotiating in the neighborhood of 4 to 6 months to reach this agreement. So it takes a while for entrepreneurs to make that decision. They've been building the company for 30 years, they are in love with it, it’s their life. And so it happens when it happens. But we're enthusiastic about it. I committed at the IPO that we would do two or three in the first five years, obviously Alaska and New York were smaller, this is a really good size region. So I think my forecast is coming through.

Got it. Thanks and congrats on the business development.

Thanks, Hayden.

Your next question comes from Alan Ratner with Zelman & Associates. Your line is open.

Good morning. Congrats on the good results in all the exciting things going on in the company. Dave. My first question just on New Jersey, just kind doing some math here, on our end its looks like the price you paid for the region was a little bit higher on a per 80 [ph] basis versus some of the other transactions you’ve done for. So curious if that is the case, and if so what kind gave you the confidence to pay up a little bit before New Jersey?

I'll let Karri Callahan answer that, she handled all the negotiations in the last few month. So she's more familiar.

Thanks, Dave. Hey, Alan. So you know, a great question and as Dave previously mentioned each independent region acquisition that we do is different and it’s based on unique facts and circumstance, you know, size, risk, growth opportunity and many other factors that we look at. So we really look at the price we pay for these as a market multiple was in a range that we target for the independent region acquisitions that are really instantly accretive to our business. So a couple of specific things with respect to New Jersey. First, keep in mind that the home price point in New Jersey is higher than the Re/Max National average, which results in higher revenue per agent. The other thing to keep in mind as Dave mentioned they are about 6.5% of the national association of realtors, they are number one in terms of transaction side in the state. So again, they've got productivity and volume which increases their average revenue per agent. And again it was a very well run region, it’s differently than New York from that perspective. From an expense standpoint they ran extremely efficiently, significantly higher margins than even we operate at the public company level. So all of those factors were taken into consideration, a lot of work and due diligence, but the most important thing is we're really excited to bring them into the company-owned region.

That's very helpful, Karri. Thank you for all that detail. And second if I could just get to question on Motto, you addressed all of the various regulations and kind of hoops you're jumping through to make sure that it's complying with the various regulatory agencies. But just curious if you can maybe walk through a specific in terms of a potential buyer coming through the door there, how – what exactly is going to be done to avoid conflicts to make sure that everything is in accordance with the CFPB, et cetera. I mean, how does it work at the local office levels assuming somebody comes in looking to buy home with the broker and then he is also interested in the mortgage services, if you could just give a little bit of a background there that would be helpful? Thanks, again.

Alan, by law if you have a real estate brokerage franchise and you also have a mortgage broker's license you have to have full disclosure with a potential customer. And so at the time that you start discussing a mortgage you have to have them signed an agreement that they understand, you have common ownership that kind of takes the conflict of interest out of it. The situation with the broker most of them do not have a franchise broker license or a loan originator license. So part of our training program is to get them licensed, show them basically mortgage in the box. And so we have the technology, the computers, we have the arrangements already made with the wholesale lenders. And so they become a conduit between the buyer and the buyer’s agent and the wholesale mortgage company. These would take about three months to open. It takes a month or more to get licensed, come to Denver, get your training, established the office within the office. And so as we sell the franchises there will be a lag period of about three months before they are up and running.

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

Thanks, Alan.

[Operator Instructions] Your next question comes from Fred Small with Compass Point. Your line is open.

This is actually Janet Leon on for Fred. I just have a quick couple of questions. First on, can you explain how much operating leverage you've gotten on the previous New York and Alaska acquisitions, maybe in terms of like the EBITDA contributions? And second, would you expect a similar level of EBITDA contribution from the New Jersey acquisition?

So if you look New York and Alaska for the third quarter on about 20 basis points of increase to the margin there, can expect that you know, New York has really performed even better than our expectations. So as Dave mentioned, a lot of cleanup from that - in the reason, getting it stabilized and we expect to see some good gradual growth for the foreseeable future. With respect to New Jersey, we do anticipate that that will close in early December and we've got about one month baked into our Q4 guidance. So again, are instantly accretive to our business and we're really excited about the completion of the acquisition.

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

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

Okay. Thanks for taking my question.

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

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

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