Good morning and welcome to the RE/MAX Holdings Fourth Quarter and Full Year 2020 Earnings Conference Call and Webcast. My name is Brandy, and I will be facilitating the audio portion of today's call. At this time, I would like to turn the call over to Andy Schulz, Senior Vice President of Investor Relations. Mr. Schulz?

Thank you, operator. Good morning everyone and welcome to RE/MAX Holdings fourth quarter and full year 2020 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 note that you will need to advance the slides as we move through the presentation. Turning to Slide 2, our prepared remarks and answers to your questions on today's call may contain forward-looking statements. Forward-looking statements include those related to agent count, franchise sales, financial measures and outlook, brand expansion, competition, technology, housing and mortgage market conditions, capital allocation, dividends, strategic and operational plans, and business models. Forward-looking statements represent management's current estimates. RE/MAX Holdings assumes no obligation to update any forward-looking statements in the future. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those projected in forward-looking statements. These are discussed in our fourth quarter and full-year 2020 financial results press release and other SEC filings. Also, we will refer to certain non-GAAP measures on today's call. Please see the definitions and reconciliations of non-GAAP measures contained in our most recent quarterly financial results press release which is available on our website. Joining me on our call today are Adam Contos, our Chief Executive Officer; Karri Callahan, our Chief Financial Officer, Nick Bailey RE/MAX's Chief Customer Officer and Ward Morrison, President of Motto Mortgage. With that, I'd like to turn the call over to RE/MAX Holdings' CEO, Adam Contos. Adam?

Thank you, Andy. And thanks to everyone for joining our call today. Looking at Slide 3, surging housing market underpinned our strong fourth-quarter results and provided a fitting capstone to what was an unforgettable year. Our employees are supporting our affiliates well working largely from home and then will continue to do so until it is safe to return to the office on a larger scale, hopefully sometime later this year. I'm proud of our team and the terrific work they did in 2020. We remain encouraged by the trends we are seeing in our business, with the buoyant housing backdrop, expected contributions from our recent acquisitions and an upward progress in our legacy business, we think we are poised for meaningful growth in 2021 and beyond. Highlights of the fourth quarter included revenue of $72.4 million, adjusted EBITDA of $23.8 million, adjusted diluted EPS of $0.47. Total RE/MAX agent count increased up over 5% year-over-year and finished at almost 138,000 agents. And Motto franchise sales finished on a high note capping a record year. Turning to Slide 4, on our third quarter call, I spent some time discussing our overall M&A strategy and our exciting acquisition with Wemlo and Gadberry Group. Since then, many people have asked us to frame up our future market opportunity and in summary, we think it is sizable. Excluding the marketing funds, we generated just over $200 million in revenue in 2020 and the vast majority came from our RE/MAX brand. We think it's possible, we could double that top line figure over time from our existing opportunity set with an incremental $200 million revenue opportunity evenly split between our mortgage and real estate business lines. Ward would provide a little more color on our mortgage opportunity in a few minutes. On the real…

Thanks, Adam. Good morning, everyone. Looking at Slide 6, overall agent count grew at a nice clip, up more than 5% year-over-year. We added almost 7,000 agents worldwide during 2020, an especially impressive feat during a global pandemic. Our agent count performance outside the U.S. and Canada grew at a robust 16% during the year. We saw widespread growth globally with certain countries in Europe, South America, and Africa among the stand-out performers. We also added agents during the fourth quarter throughout Canada, finishing up almost 2% for the year, again another notable performance given our leading market share as well as the events of 2020. After a very solid third quarter, agent count in the U.S. held steady during Q4. Looking ahead, we remain focused on recruiting and retention and creating more opportunities for our affiliates. We expect the macro housing environment will remain robust in the coming year with strong demand outpacing supply. The battle for listings will stay highly competitive and agents who are experienced, productive, and armed with seller-focused tools, such as our First app should enjoy an edge in that regard. We believe our efforts will pay dividends in 2021 and we expect to grow our agent count, including the U.S. and Canada this year. We've made significant investments over the past few years to enhance and improve our value proposition, and we continue to invest heavily. To ensure we're delivering the tools resources and competitive advantages that help RE/MAX agents continue to outpace their competitors, we've looked at our fee structure and decided to make a small adjustment. Effective April 1, 2021 and July 1st in New York State, the monthly continuing franchise fee in the U.S. company-owned regions will increase by $5 per agent. This investment will ensure continued expansion in the systems…

Thanks Nick. Moving to Slide 8, as Adam mentioned, Motto had a terrific year. Our best year yet in our short history. In 2020 Motto network generated almost $2.5 billion in loan volume and helped 10,000 families finally realize their dreams of home ownership, effectively doubling 2019's results. We had three core areas of focus in 2020, franchise sales, unit profitability and technology and we achieved major milestones in each of them. We also continue to improve, innovate and mature in virtually all facets of the business during this past year. Regarding franchise sales, we had a strong fourth quarter. In fact it was our best quarter ever, with 24 franchisees sold. For the full year, we sold a record 71 franchisees, up over 35% compared to 2019. Our strong performance is quite an achievement for any franchise let alone one, only in it's fourth year of existence. We are making great progress in our lead generation and prospecting efforts. In addition to expanding within the RE/MAX network, we are selling to independent real estate companies and teams as well as brokers and teams affiliated with other national brand. We expect to add to our momentum and have established a new annual franchise sales target expecting to sell between 60 and 80 franchisees this year. Once the franchise sale is completed, our customer success team confidently strives to improve this core process required to assist our franchisees to get licensed, open, and operational. With just over 140 open offices as of December 31, we anticipate that we should have about 200 open offices at the end of this year. As excited as we are about Motto's current momentum, it is only half of the mortgage story. We acquired wemlo last year in order to solve one of our franchisees primary…

Thank you, Ward. Good morning, everyone. In addition to reviewing our fourth-quarter performance, I want to expand on Adam's earlier comments about our growth trajectory, and then outline our Q1 and FY '21 outlook. Moving to Slide 9, increasing existing home sales and Motto growth drove strong organic revenue performance during the fourth quarter, with much of that revenue flowing through to the profit line. Our key leading indicators RE/MAX agent count, and Motto franchise sales continue to grow. Fourth-quarter revenue profit and margins all exceeded our expectations, and our cash flow generation remains solid, as we converted 70% of adjusted EBITDA into free cash flow during 2020. Total revenue was $72.4 million, an increase of approximately $4.3 million or 6.2% compared to the fourth quarter of 2019. Organic revenue rose 4% primarily due to increased broker fees from higher existing home sales, rising home prices and Motto growth. Partially offset by reduced event income due to COVID-19 restrictions and previously announced agent recruiting initiative. Acquisitions contributed to increase overall revenue by 2.1% and effect was negligible. Recurring revenue streams, which consist of continuing franchise fees and annual dues were virtually flat for the fourth quarter of 2019 and excluding the marketing funds, accounted for 61.8% of revenue in the fourth quarter of 2020, compared to 66.6% in the same period in 2019. Looking ahead, we are excited to be holding our Annual Agent Conference next month. Due to the fact that the majority of agents will participate virtually, we anticipate that our Q1 revenue will be approximately $1.5 million less than our historical run-rate and should be largely offset by associated gross saving. Also, for the full year 2021, we believe the run-off of legacy booj revenue should decreased both revenue and adjusted EBITDA by about $2 million this…

Thanks, Karri. Moving to Slide 13. We enter 2021 with positive momentum. Our end-markets are enjoying a nice tailwind right now, we have made some targeted strategic moves to capitalize on those dynamics over the past few which we believe will increasingly show up in our financial results, starting this year. We believe we are poised for meaningful growth in 2021 and beyond. With that, operator, let's open it up for questions.

[Operator Instructions] Your first question comes from the line of Anthony Paolone with JPM Securities, LLC.

Thanks, good morning. My first question revolves around just U.S. agent count. Can you maybe give a little more color as to just more broadly, given the strength in housing, whether you're seeing, just more agents to move into the market and just the general opportunity set there and just try to reinvigorate growth, I guess into 2021 on that front?

Sure. Hi, Anthony. This is Nick. Thanks for the question. Yes, when you look at total realtor count in the U.S., The National Association of Realtors just several months ago announced that they hit an all-time high in membership. So we have seen an increase of licensees coming into the market in general, and that does affect some companies, it affects us slightly, but at the same time, we are not the destination for every single agent. We focus on more of the top producing full-time associates. So a lot of those new agents are not our primary targets. That being said though, obviously the pool is large and the investments that we've made in recruiting over the last year are bearing fruit and we expect those to show good results for the upcoming year.

Okay and then this decision to increase the continuing franchise fees, can you just refresh us on where they stand today on a monthly basis? And then I guess, if I am doing the math here right, it would seem to add maybe $4 million a year to revenue. Is that by getting sort of the order of magnitude right?

Hey, good morning, Tony. It's Karri. So with regards to the increase on average, and the company-owned regions before the increased average was about $128 per agent per month and that increased, it is going into effect on April 1st. So the impact to 2021 is actually closer to the $2 million range.

Okay, got it. And then just last one. Sticking with you, Karri. Can you just give us some sense as to run rate stock comp, whether the fourth quarter is an indication or whether that was just outsized?

Yes, the fourth quarter was a little bit outsized. On a go-forward basis kind of looking in that $7 million a quarter range. A lot of that really is tied to the incremental stock comp from the two acquisitions that we did in the third quarter of 2020, where we used some equity as a part of that. So I think about $7 million per quarter run rate for '21 is a good estimate.

Okay, great, thanks for the help.

Your next question comes from the line of Ryan McKeveny with Zelman & Associates.

Yes, thank you. Good morning. And nice job on the quarter. I'm curious on the mortgage side of things with Motto, so, has there been any shift in the last year or maybe even more recently in the last 6 months in terms of, kind of, the interest list of who is showing up for you guys and obviously very nice to see the progress with both kind of RE/MAX franchise owners, as well as other players within the kind of brokerage space with other brands, but I guess there's a lot of discussion about the potential of just the wholesale broker channel in the mortgage market more generally, and potentially getting to a point where there is some movement of mortgage professionals out of the retail channel to the wholesale broker channel, more directly to the broker side. So just curious maybe for Ward, are you seeing that movement thus far, do you expect that movement? Any thoughts you could share there would be helpful. Thank you.

Yes, Ryan. We're still very bullish on brokerage. About 74% of our sales continue to be real estate. About 61% of the overall total are still RE/MAX but we're continuing to grow the other brands, the national brands, whether it's KW teams or ESP teams, C21, Southern Bs, Compass. We pretty much have started to expand across and as soon as we get into a company or an entity, for instance, they just start to refer us out to other people. So we've gotten additional KW teams additional ESP teams speaking recently. What we're really seeing now or hope to see is that movement as the tenure goes up, we tend to have more purchase money transactions in our particular Mottos because we're tied to a lot of real estate companies. So as the tenure goes up and the market changes a little bit and the refi slowdown, we think that's only bullish for brokerage in Mottos in general that are tied to real estate companies. So I think we're going to see some good movement out of retail into brokerage this year, particularly the tenure continues on its trend up that we all think it might, this year a little bit more because Motto's continue to emphasize that purchase money. So that's the key for particularly our network been brokerage.

That's very helpful. Thank you. And Adam and Nick and the Canadian side of things, so you called out in the release, some nice growth in the quarter in agent count. I'm just curious, can you give us an update on kind of the general macro side of things within Canada and sort of what's driving that, the list that you had this quarter?

Sure. When you look at Canada as a whole, we definitely look at it across the country and with the Toronto -- Greater Toronto Area and the Ontario area, just economically has seen just incredible boom with no sight of slowing down. And so just that has worked in the favor of a tremendous growth in the market and the opportunity, which I think in turn has helped our growth as well. And I'll add a little bit to that, Ryan. An great question. Thank you. When you look at the COVID response to -- for the COVID tailwind that's been given to the housing market, we do see that just as much throughout Canada as we have in the United States, kind of the flight to suburbs as well as the emergence of larger home buying sectors with the wealthy millennial, things of that nature. And that has been extremely prolific in Canada as well. It's a great housing market throughout North America, I guess you could say when it comes to looking at the tailwinds and they seem to be consistent throughout the continent.

That's great. Thanks, Adam.

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

Thanks for taking the questions. And nice quarter. I just was hoping you could expand a little bit more on the future revenue opportunity you talked about through the various businesses. Maybe just, if you could break it out a little bit more, talk about potential timing, and just related to that as the revenue growth, can you give us a sense of how the EBITDA margin is likely to trend versus sort of the prior period?

Hey, good morning Vikram. Thank you. And we're excited about the future revenue opportunities and the diversification that we're building into the business model, particularly through the data technology as well as the expansion of Motto and how all of those things lend a tailwind to potential RE/MAX growth and opportunity, as well as the global expansion, so that we can continue to infuse these different opportunities globally as they become available. So the -- we've been relatively understated in our excitement so that we could start building upon the data monetization opportunity. So we have started pulling back the current a little bit more on that and our growth of that infrastructure, given the acquisitions that we've made and particularly one that we're encouraged by is the commercialization capabilities of the very experienced Gadberry Group that we've acquired recently when it comes to our data monetization skills. So with that, I'll hand it over to Karri to dive a little bit deeper.

Yes. Thanks, Adam. So Vikram we really tried to frame up for what we think the opportunity is just of our -- with our existing assets. and really looking at the business now, kind of across two segments between real estate and mortgage. Now on the mortgage side of the house as Ward, was talking about, we've got a lot of momentum with Motto. So really trying to frame this up as aspirational and over time what could be achieved. And so we've talked historically about scaling Motto to be a 1,000 open offices. If we could do that over time and we think there is momentum to do so, that's a $50 million plus revenue opportunity. Then you layer on top of that, wemlo, Ward previously was talking about, just momentum coming into the mortgage brokerage channel. If we can capture even a portion of loans that are coming through thousand Motto office footprint, again we think that opportunity is as significant as it would be from our legacy Motto royalty fees and then flipping onto the real estate side of the house, for the last several years since the IPO, we've talked about allocating capital to independent region. Over time if those catalysts can come to fruition, albeit opportunistic, that's about a $50 million top line revenue contribution. And then, Adam, was talking about other levers in terms of data monetization, looking at how we monetize our global footprint, where we've had tremendous growth and continuing to leverage all of the recruiting and retention initiatives that Nick is working on, pulling on pricing, looking at just continued tailwinds from a macro perspective, that's what we're really bullish about over time. As we think about our existing footprint, but then I think there is even opportunities on top of that because of the leverage in the business, the cash flow generation that we have in terms of expanding into other adjacencies. And so that's what we're excited about. You mentioned the margin as well. And I think that's an inherent strength to our business model. There is inherent leverage there, if we get the top line going, which we're definitely seeing some confidence in that in '21. We think the margin can follow over time.

And I'll just close up with just one kind of final bow on this whole thought Vikram and that's that ultimately, our goal is to make the real-estate agent the franchisee and the loan originator and loan mortgage broker smarter and better capable of helping the consumer in this whole process. So, when it comes to all of these things making each other better, we feel that entire process works to benefit each other in this. And that's how we create a greater tailwind in that that holistic growth.

Got it. That makes sense. Just on the -- going back to the franchise fee, can you remind us, sort of -- is this, I mean it seems like this -- you just increased in the U.S. after a long time. Can you remind us sort of the thinking more broadly on both franchise fees and annual dues, sort of a more -- a systematic increase like you have I think in Canada if I'm not wrong, and how did you think about the -- how much to increase that number by?

Yes, thanks, Vikram. Good question. Right now, we're really focused on continuing franchise fees increase, we're always looking at and evaluating the value proposition, the tools, and services that we're providing to the network. And we'll make decisions with respect to pricing going forward, but right now what we've committed to is the increase in continuing franchise fees.

Yes, the one thing I would just add to that is, it's been approximately five years since we've made an adjustment to that particular category. And given the investments that we've made and where we are, it seem to make sense on timing.

That makes sense. And then just last one from a branding standpoint, this may be down the road, but given now you have multiple pods or multiple business lines, I'm wondering sort of, is there a view our thought, could there be a benefit by just unifying it all under just like one brand. I know it is Motto Mortgage, and booj, and others, but I'm just wondering, just from a branding perspective, do you envision sort of, having these business lines under different brands or eventually could it be one RE/MAX brand?

Yes, that's a question that we've been kicking around and analyzing very, very carefully. However, there are benefits to having multiple brands and there are benefits to being known as the particular and very succinct focus leader in your space. So definitely considerations that we've taken a look at, but we're not necessarily willing to strip away some brands that we've been building as very strong at this point to combine them and we want to make sure when people here a name, they know what that name refers to. And that's -- brand matters. Ward, you want to add a little to that?

Vikram, I also think something like Motto gives you an example where we would call that RE/MAX mortgage, we wouldn't have been able to sell outside of our network. So by calling it Motto Mortgage, it creates an independent nature that allows us to expand across the whole real estate ecosphere and sell to other brands. So I think as we look at adding brands, it's trying to figure out is it only real estate specific where we're going to sell within just the RE/MAX base versus whether we're going to sell outside. And if we're going to sell outside, we may keep branding separate, so that we can still attract those people who may not be attracted to the RE/MAX name at additional onset. So that's sort of where we're looking at.

That's a good point. Thanks so much for the time.

Thanks.

Your next question comes from the line of Stephen Sheldon with William Blair.

Hi, thanks, good morning. When you talk about the...

Good morning.

When you think about the $200 million top line opportunity, how much of that could come from better monetization of the agent base outside of the U.S. and Canada and any updated thoughts on how you can drive better monetization there over time?

Yeah, so I mean I think it's really a two pronged approach. Because I think if you think about overall our competitive advantages, our global footprint and the 50,000 plus agents that we have in over a 110 countries and territories is absolutely a competitive advantage. We think over time, we could double that base and that's an incremental $10 million just at the existing revenue per agent. But I think the true opportunity set their lies with enhanced value proposition and really looking at how we leverage our data and technology infrastructure and that's a huge focus of ours right now. Obviously, starting in the U.S., a deliberate focus on Canada in the near term here in '21 but already proactively thinking about how we expand on that over time and increase that revenue per agent to that base outside of the U.S. and Canada.

Got it. That's helpful. And then within the 2021 guidance and apologies if I missed it, any details on how much of a drag to adjusted EBITDA you've included from the recent tech acquisitions, wemlo and Gadberry, First. I know you said the drag should moderate through the year, but just any detail on the rough full year drag you'd expect?

So -- Yeah, so looking at the rough full year drag, it's kind of in the $2.5 million to $3.5 million range and that's embedded in the guidance. I think the thing that's really exciting now and want to make sure that was captured, was included in the scripted remarks, is we do you think that the foundation is being laid here in '21 and you're seeing that in the top line. But we would be disappointed if that kind of collective group of acquisition didn't contribute at least -- call it $10 million more in earnings in 2022. So it's kind of a $3 million drag next year and then we are expecting that we believe that we can see some nice earnings tailwind in '22.

Great, thank you.

Your next question comes from the line of Matthew Gaudioso with Compass Point.

Hey, good morning. Maybe just a question for Nick. You talked about kind of the agent-consumer experience in your script, I was wondering if you could just kind of talk a little bit more about how booj and your technology team is really to evolving that? We've had some kind of increased acquisition activity in the tech space between showing time, home snap so just wondering if you view any competitive implications there?

Yes, so first off, in terms of the agent consumer experience, that is twofold. One that we're looking at kind of the buyer, seller experience, how they utilize our assets that are public in search, and how they interact with agents, how we tie consumers to agents via the toolset. And that's part of the reason that now we've been, God, it's just about a year since launch, we've increased leads by over 50% year-over-year to the network, partly due to how we are engaging consumers in the platform. The other piece of it as we look at pulling the platform together for a better agent experience to serve the consumer is creating essentially a single type of ecosystem. One of the biggest challenges we have in the real estate industry, or an agent has, is just for systems with multiple logins that agents to do their business with. So as we look to solve this, if we make the agent experience more seamless, that allows them to connect and stay tied to their database. And you can see that with the example on leads that I mentioned and also with the testimonials and some of the results that we're seeing out of our first half, which is all tied to how agents are staying connected to their consumers. This is really showing a -- or shining a light on the fact that we have such low, low inventory and agents being connected via AI machine learning and a single ecosystem is really driving overall efficiency for top producers.

Got it. Appreciate the thoughts there. And then switching gears, maybe one for Ward. Just on the wemlo acquisition, wondering what work there is to do on the integration side and how quickly do you think the Motto franchisees can ramp up on the wemlo platform?

Yes, I think they can ramp up pretty quickly. One is licensed here, so we have to make sure we're licensed in all the states that the Motto's are in. So trying to get up in all 38 states that Motto is currently up, and then getting some level of compliance around disclosures in those states as well, fairly simple process. So it's really just taking it, we're looking it -- we're looking at, we've ranked all the states that Motto are in, which ones we have the most Motto's, the easiest Motto, the easiest states and we've already ranked all that and started making calls and getting those particular Motto's up and running. I think our intent moving forward will be any new Motto, we probably will put on to the wemlo platform, quicker than even existing, as we sell, they won't know any difference. So we can get them using that platform fairly quickly. But then the existing Motto's, I think we can roll out during the course of this year and have the opportunity for any Motto in any state that we're licensed in, ready to go. Remember, I think the other thing is that wemlo is going to sell outside of Motto and the mortgage, broker channel probably did an average -- at an average on an average year they do about 1.2 million loans within the broker channel. Our total addressable market, we can just pick up 5% of that. That's the kind of number that Karri was talking about, we're talking about $50 million at $800- $900 a file. So, the upside is very, very possible there and that's what we're excited about. Not only Motto's but outside the industry, what we think the technology that we purchased through the acquisition is outstanding when it comes to processing and can be manipulated to be more like a loan brokering system in the future as well.

Great, thanks.

Your next question comes from the line of Tommy Mcjoynt with KBW.

Hey, good morning guys. Thanks for taking my questions. So just to clarify that the $10 million change through '21 to '22, the $3 million drag to a $7 million contribution, do that include Motto or is that just more or kind of the other tech enabled solutions?

Yeah, so I guess a couple of things to keep in mind there, right. If you look at -- what we were really saying with that $10 million is kind of, if you look at the point estimate for the earnings guidance this year as you move ahead to 2022, we'd be disappointed if that earnings didn't grow by $10 million. So just wanted to make sure to point that out and clarify it. And yeah, look, we are looking, we did include Motto in that basket of companies as well, just because it's historically been a net investment and so we're kind of just packaging everything together because we're excited that we think that the net investments across all of those businesses this year are going to turn in 2022.

Okay, got it, thanks. And then as we kind of think about those businesses, do you guys have the planned or targeted or targeted kind of long-term organic growth rate for those businesses, not looking at Motto or RE/MAX, but looking at these kind of the new solutions that you've acquired?

Yeah. So we haven't really broken it out that way. Right. We're really looking at what initiatives and what levers can we pull to just drive overall top line organic growth. We are expecting for 2021, even excluding the fee waivers that were granted in 2020. Kind of that mid single-digit range of organic growth and I think as we're starting to see momentum here on the top line, we really look at it more in aggregate.

Okay, makes sense. Thank you.

There are no further questions at this time, I would now like to turn the call back over to the speakers for any closing remarks.

Thank you, operator and thank you to everyone joining the call today. That concludes today's session. Have a great weekend.

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