David Liniger - Chief Executive Officer, Chairman and Co-Founder Karri Callahan - Chief Financial Officer Adam Contos - Chief Operating Officer Andy Schulz - Executive Director, IR.

Brandon Dobell - William Blair Jason Weaver - Wedbush Bose George - KBW John Campbell - Stephens Inc. Ryan McKeveny - Zelman & Associates Vikram Malhotra - Morgan Stanley.

Good morning, and welcome to the RE/MAX Holdings First Quarter 2017 Earnings Conference Call and Webcast. My name is Christa, 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, Executive Director of Investor Relations. Mr. Schulz, please go ahead..

Thank you, operator. Good morning, everyone and welcome to RE/MAX's first quarter 2017 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, 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 first quarter earnings press release, which is available on our Web site.

Joining me today are our Chief Executive Officer and Co-Founder, Dave Liniger; our Chief Operating Officer, Adam Contos; and our Chief Financial Officer, Karri Callahan. After prepared remarks we will open the call for Q&A at which time we will be joined by Ward Morrison, Motto Mortgage President.

With that, I would like to turn the call over to RE/MAX CEO, Dave Liniger.

Dave?.

Thank you, Andy, and thanks to everyone for joining our call today. Turning to Slide 3. We started the year off very strong. Continued execution of our strategy combined with the strength of our business model generated solid results.

Highlights of the quarter included, total agent count, our key measure of organic growth, increased by almost 7% year-over-year. In the U.S., we increased our agent count 3.5% compared to the first quarter of last year and we added over 700 agents since the beginning of the year.

We more than doubled the number of Motto franchise sales since our Q4 earnings call in February. And our overall revenue increased more than 12% year-over-year as we began to see the benefits from our recent regional acquisitions, the initial growth from Motto along with solid organic revenue growth from RE/MAX.

The spring selling season has had an encouraging start. Before I get into the current state of the housing market, a couple of quick thoughts though regarding Motto.

Motto's first quarter franchise sales got off to a fast start and benefitted from our first quarter sales tours on both coasts along with sales meetings at our annual RE/MAX convention held in February in Las Vegas.

Looking ahead, we expect to sell more Motto franchises this year but the flow of the sales maybe uneven as we continue to grow the concept and support the on boarding of our current franchisees.

It's exciting to see the first owners open their doors after attending training here at our headquarters, obtaining their broker's licenses, setting up their offices and hiring their initial loan originators. We will continue to focus on making sure the initial group of Motto franchisees is successful. Now a few comments on the housing market.

Turning to Slide 4. According to the April edition of the RE/MAX National Housing Report which is based on MLS data from 53 metro areas, the home buying season started in March with post recession records for increasing home sales and prices amid decreasing inventory. In short, it remains very much a seller's market.

March home sales jumped significantly. Our national housing report showed actual March sales were 6.6% above last March. Of the 53 metro areas surveyed, 38 experienced an increase in sales year-over-year with 16 experiencing double digit increases. Strong demand coupled with tight inventory remain the predominant themes in today's housing market.

Active inventory continued to decline in March, dropping 17% year-over-year. Month's supply is a good way to look at inventory. A six months supply indicates a balanced market between buyers and sellers. During March, the supply of inventory dropped below three months for the first time in the nine-year history of our report.

Moreover, 52 of the 53 metro areas surveyed reported a supply of less than six months. As a result of tightening inventory and strong demand, prices are moving up. The median sales price of $225,000 also a March record, was up 11% year-over-year.

This was the 12th consecutive month of year-over-year price increased and only four metro areas saw year-over-year decreases. 15 of the 53 metro areas saw double digit price increases. Homes continued selling faster with the average days on the market dropping to 64 compared to 68 days in February 2017 and 71 in March of last year.

The three metro areas with the lowest days on the market were San Francisco and Omaha, both at 27 days, and Denver at 32. Bottom line, we don’t anticipate the tightening inventory to ease up in most markets until new home construction can catch up to pre-recession levels.

Meanwhile, sellers should enjoy a fast paced market and buyers will need to work closely with their agents to get into the right home. Today's tight housing market serves as yet another reminder of why it is so vital for consumers to have a good real estate.

A full time professional agent with connections in the local community can help buyers and sellers both achieve their hopes and dreams in this kind of a housing market. Looking at Slide 5. The importance of using a good real estate continues to resonate with consumers.

In fact, almost 90% of our home buyers and sellers use a real estate agent according to the National Association of Realtors. Furthermore, the percentages of home buyers and sellers using an agent has increased over the last decade despite the adoption and widespread use of technology and how it is transformed residential real estate.

Although the role and service an agent provides has evolved, the agent remains as prominent and as critical as ever. This helps explain the continued success of RE/MAX, home of the professional and highly productive real estate agent, or those aspiring to become one. Turning to Slide 6.

REAL Trends recently announced the results of its 2016 annual survey of the largest U.S. brokerages. One of the most widely followed reports in real estate. The REAL Trends 500 ranks brokerages by total residential transaction size. Again in 2016, RE/MAX agents on average outsold competing agents more than two to one.

RE/MAX agents in the survey averaged 17.2 transaction size compared to an average for all competitors of 7.8. We are extremely proud that the RE/MAX network once again has the most productive agents among the national franchise brokerages surveyed by REAL Trends. This is one of the multiple competitive advantages RE/MAX has achieved.

The most productive agents, number one market share and unmatched global footprint, and the number one name in real estate. And these are also among the many reasons why nobody in the world sells more real estate than RE/MAX based on residential transaction size. Now I would like to turn the call over to Adam..

Thanks, Dave. Good morning everybody. Moving to Slide 7. We ended the first quarter with 113,804 agents in our global network, we grew our total agent network by 6.6% compared to the first quarter of 2016. Agent gain in the U.S. was in line with our forecasts, growing 3.5% and driven by strong additions in Florida, the Carolinas and California.

In Canada, we increased our agent network by 1017 agents or 5.1% over Q1 2016. Agent growth was driven by gains in all regions with Ontario the notable performer year-over-year. Agent count outside the U.S. and Canada increased by 3955 agents or 14.9% over the first quarter of 2016. The growth was driven by strong gains in Portugal, Italy and Brazil.

As Dave mentioned earlier, we have an unrivalled global presence and we recently surpassed 30,000 agents outside the U.S. and Canada. We are excited and proud to have reached this global milestone. RE/MAX Europe now has more than 18,000 agents and RE/MAX across Latin America and the Caribbean has more than 6,000 agents.

Global growth and recognition provides an opportunity to all RE/MAX agents in the U.S. and Canada as foreign buyers are continuing to invest in North American real estate. Over 30% of U.S. agents worked with a foreign investor last year, according to the National Association of Realtors.

Over 44 years ago, RE/MAX revolutionized the real estate industry in the U.S. and we are thrilled to say we are having the same impact around the world. My congratulations to our global team for their professionalism, ambition and great work. Slide 8 shows the breakdown of RE/MAX agents in the U.S. and Canada.

The graph on the left highlights agent growth of 3.1% in U.S. company-owned regions as well as an increase of 4.9% in U.S. independent regions. Notably, the performance of acquired regions has been solid with the six regions collectively enjoying 4.7% agent growth year-over-year, including almost a third of that since the beginning of 2017.

The graph on the right shows agent growth in Canada. Western Canada, which is company-owned, increased by 206 agents or 3.1% compared to the prior year quarter. Eastern Canada, which is comprised of two independent regions, added 811 agents or 6.1% growth compared to Q1 2016, driven by agent gains in both Quebec and Ontario.

Demand for housing in Canada in general remains strong with Vancouver and Toronto a bit frothy. The provincial governments have taken steps to limit purchases by non-residents and speculation in those markets. We continue to monitor the situation in Canada closely.

Looking ahead, we believe there is opportunity for continued growth, particularly in the U.S. Slide 9 shows our steady 3% to 4% annual agent count growth in the U.S. since coming out of the great recession in 2011. Against a backdrop of a gradually improving housing market, we believe this level of growth is achievable for some time to come.

Further, we could add another 27,000 agents in the U.S. before reaching our pre-recession agent count high. We continue to have the ability to grow RE/MAX in a sustainable manner domestically and have ample opportunity for growth internationally. With that, I will turn the call over to Karri..

Thanks, Adam. Good morning, everyone. Turning to Slide 10. Motto's first quarter franchise sales got off to a fast start but as Dave alluded to earlier, sales maybe uneven at times for the remainder of the year.

Our focus now properly turns to enabling this initial cohort of franchises by helping them with training, licensure and getting their businesses up and running. We continue to expect to measure our success in selling Motto franchises this year by the tens of units sold.

The ongoing interest in obtaining a Motto franchise is encouraging and further bolsters our belief in Motto's potential and its ability to contribute meaningfully to our overall long-term growth.

If you had assessed over a year ago what the organic growth profile of RE/MAX Holdings looks like, we would have answered that we generally have low to mid-single digit organic growth. Our growth rate normally trends in line with our combined U.S. and Canadian agent count growth with upside potential in times of a rising housing market.

The introduction of Motto changes things. Once Motto ramps up, we expect to deliver mid-single digit organic growth. Further, Motto should also provide some downside protection in less robust times as we expected to grow per year as we fully build out the brand.

Although we are excited about the initial success of Motto, it is important to remember that revenue from Motto franchisees aside from the initial franchise sales will not materially begin to appear in our P&L until the second half of next year. Let's review just to make sure we are clear on the revenue ramp timeline.

Revenue from the sale of a Motto franchise is recognized after we have sold the franchise and the franchisee attends training. We estimate that this will happen on average 60 days after each franchise agreement has been signed.

Motto franchisees will pay a monthly office fee to us for training, education and high-touch support as well as additional fees for technology.

Generally speaking, monthly fees will be waived during the initial three months after a Motto franchisee has completed the required training and will gradually escalate to the full monthly amount over the course of the next 12 months.

All told, is to take approximately 14 to 17 months after the sale of a franchise before the new franchisee is paying the full set of monthly fees. For example, we expect to be recognizing the full complement of monthly fees from the initial group of franchisees by Q3 of next year.

We believe this gradually escalating fee structure will position our Motto franchisees for initial success and help them grow vibrant businesses. We expect total revenue for Motto for full year 2017 to be measured in the low single-digits, millions of dollars.

We expect revenue from Motto will increase as the year progresses and be back end loaded, impacting our quarterly skews for revenue and profit. We will continue to invest in Motto as its operations scale and expect related expenses to outweigh revenue resulting in a net investment in 2017. Turning to Slide 11.

You will find a breakdown of our revenue streams. Overall, first quarter 2017 revenue increased $5.3 million or 12.4% to $48.2 million. Organic growth increased revenue by 4.6% and the acquisitions of the independent regions added 7.6%. The impacts of FX and the sale of the company-owned brokerages were minor.

Recurring revenue which includes continuing franchise fees and annual dues, increased $4.4 million or 16.4% over Q1 of last year. Recurring revenue accounted for 64.7% of total revenue in the first quarter of 2017, up from 62.5% last year.

Revenue from continuing franchise fees was $23 million, an increase of $4.1 million or 21.5% compared to first quarter 2016, primarily due to contributions from the acquired region, fee increases in the company-owned regions and agent count growth. Revenue from annual dues was $8.2 million, up 4.2% over Q1 2016 due to agent count growth.

Revenue from broker fees was $8.2 million, and increased approximately $1 million or 14.4% over last year, principally due to contributions from the acquired regions and agent count growth. Franchise sales and other franchise revenue was $8.8 million, flat to the prior year quarter.

Increases from the acquired regions, Motto franchise sales as well as RE/MAX global master franchise sales were offset by a decrease in revenue from or preferred marketing arrangements. A trend we expect to continue through Q2.

Looking at Slide 12, selling, operating and administrative expenses were $26.8 million for the first quarter of 2017, up $3.6 million or 15% compared to the first quarter of 2016, principally due to increased personnel costs, including incremental investments in personnel to support the acquired regions and Motto, increased professional fees, primarily related to our technology initiative and the launch of Motto, and increased other selling, operating and administrative costs principally stemming from the acquired regions, Motto and our annual convention.

Depreciation and amortization expense increase $2.3 million or 61%, primarily due to amortization expense related to the franchise agreements from the acquired region. On Slide 13, you will see in the graph on the left that adjusted EBITDA increased $1.5 million or 7% to $22.5 million over Q1 2016.

Adjusted EBITDA increased principally due to the acquired regions, agent count growth and the fee increases in company-owned regions, partially offset by investments in personnel and operations to support Motto's growth and a decrease in revenue from our preferred marketing arrangements.

Please recall that we made modest changes to how we calculate our non-GAAP measures beginning in the first quarter of 2017. You can find more information in our first quarter 2017 earnings presentation available on the investor relations portion of our Web site. Turning to Slide 14.

The graph on the left shows adjusted net income of $12.2 million for the first quarter, an increase of $700,000 or 5.9% over the prior year period. Adjusted basic and diluted earnings per share were both $0.40 for the first quarter of 2017 compared to $0.38 for the first quarter of 2016. Turning to Slide 15.

Our cash position as of March 31, 2017 was $64.6 million, an increase of $7 million since year-end. Earlier this week, our board of directors approved our regular quarterly dividend of $0.18 per share. The quarterly dividend is payable on March 31, 2017 to shareholders of record at the close of business on May 17, 2017.

We generated $13.5 million of free cash flow during the quarter. We continue to deploy our capital thoughtfully in accordance with our strategic priority. We are focused primarily on reacquiring independent regions, reinvesting in the business, strategic acquisition, and returning capital to shareholder in the form of dividend.

On Slide 16 and 17, I would like to share our outlook for the second quarter and for the full year 2017. The company's second quarter and full year 2017 outlook assumes no further currency movements, acquisitions or divestitures. For the second quarter of 2017, we expect agent count to increase 5% to 6% over second quarter 2016.

Revenue in a range of $47 million to $48.5 million. Selling, operating and administrative expenses in the range of 47% to 48.5% of second quarter 2017 revenue. High SO&A expense as a percentage of revenue is expected due to expenses from the acquired independent regions and investments in personnel and operations to support Motto's growth.

And adjusted EBITDA margin in a range of 54% to 55.5%. Turning to Slide 17. We are reiterating our full year 2017 outlook. We expect agent count to increase by 4% to 5% over 2016. Revenue in a range of $194 million to $197 million.

Selling, operating and administrative expenses in a range of 48% to 49.5% of 2017 revenue and adjusted EBITDA margin in a range of 52.5% to 54%. Now I will turn it back over to Dave..

Turning to Slide 18. We are off to an encouraging start this year underpinned by increasing agent count and double digit revenue growth. We are focused on enabling the growth and success of our recently acquisition regions and Motto mortgage.

We continue to help our franchisees become successful business owners and recruit and retain the best agents and loan originators. The spring selling season is off to a promising start and we look forward to continued success this year. With that, operator, let's open it up for questions..

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

Well, I want to focus on a couple of things. First in Canada, just kind of headlines from all that mortgage mess going on there. What do you expect the impact of that to be or how do we think about what the early signs of that mortgage company [MLM] [ph] issues.

And then, I think Dave you mentioned that I think roughly 30% of your agents work with a foreign buyer.

Is that skewed higher in Canada just given the nature of the market?.

Probably skewed higher in Canada just because of the connections they have especially with Europe. As far as the mortgage problem, I think that’s probably an isolated case. Nothing else has shown up on the radar over the last period of time so I think it will be handled..

Okay. And as we think about the long-term financial dynamics of Motto, any reason to think it should be markedly different at scale from current business. I recognize this to be a couple of years before the [indiscernible] feels good on the business.

But any major differences in terms of operating [status] [ph] etcetera that lead us to believe it's different from what RE/MAX looks right now?.

Hey, Brandon, it's Karri. No, I mean nothing in terms of the long term view. I mean obviously as we have said in the scripted remarks, we have got a net investment from Motto into this year and we are still extremely excited about the concept.

You know definitely investing in it for the long-term currently but anticipate it to contribute meaningfully at similar margins as the RE/MAX legacy business long-term..

Okay. And just final one from me. What's your expectations for the balance of 2017 and looking into '18 for the newly acquired territories in terms of agent growth you are seeing. Are there certain signs so far that give you guys the confidence in your ability to really ramp those.

Especially in New York given the opportunity there? Trying to tell what you are thinking of the agent additions in those markets in the next handful of quarters..

We had to absorb six regions fairly quick plus the second brand. But the initial results are, we are recruiting faster in those areas then we are throughout the rest of the country. And so I think it was a breadth of fresh air going in, new marketing teams, new management teams in place and quite a bit of untapped potential out there.

Lots more room to grow and so we anticipate that with that kind of a start, it should continue along the same lines..

And then I had one more follow up [indiscernible] a couple of times the last couple of years. But the incoming agents that you guys are recruiting, seen any shift in terms of sources of those agents in other brands, or turning RE/MAX agents. Anything to talk about with regards to the inbound recruits..

No. Our recruiting has been about the same for almost ten years in a row. We have almost the same amounts from national brands, from local regional giants or independents. We are trending down just a little bit younger in our ages which is good for us and the industry.

There are certainly an impact of many of the millennials are very entrepreneurial and in many cases I think our average age of the franchisees that we are selling to has started to go down fairly significantly. So that’s good for us..

And your next question comes the line of Jason Weaver with Wedbush Securities. Your line is now open..

I was just -- on the last question, I was just wondering if the current environment is affecting anything that you are offering prospective new agents to bring on board?.

No. We started our momentum program two or three years ago. It's continued to work well for us through now. And so we really haven't changed any of our recruiting efforts, are actually not doing anything different than what we have been doing for 44 years..

Okay. And next, on the franchise revenue, Karri, if I understand your comment correctly, the expected $1 million decline that was offset by Motto franchise sales.

Is that correct?.

It was offset by a couple of different factors. Our Motto franchise sales did contribute to it. But we also had good strength across the RE/MAX legacy business from a franchise sales perspective as well. The acquired regions performed strongly in the first quarter, specifically Georgia, Kentucky, Tennessee and New Jersey.

And so those all were factors that contributed to the offset in the other franchise sales revenue for the quarter..

Okay. Thank you. And then the last one. The debt you have taken on to acquire the last independent regions.

Are you comfortable with the leverage level here or how do you see that?.

Absolutely. We definitely look at debt leverage levels on an ongoing basis. We look at the balance sheet and we look at the ability to position the company for long-term growth. And so we do believe that we have capacity to borrow on an incremental basis going forward.

But that will really be done strategically to really contribute meaningfully to the company's long-term overall growth opportunity..

Your next question comes from the line of Bose George with KBW. Your line is now open..

I just wanted to go back to the Motto and to the fee.

Apart from the monthly fee, how does the upfront franchise sales fee work?.

Good morning, Bose. It's Karri. So there is an upfront franchise fee. So it's a $20,000 fee. We are currently discounting it by $5000. So it's a $15,000 fee that is being charged to existing RE/MAX brokers who buy a Motto franchise.

And in terms of the revenue recognition, there is just a little bit of an elongated time frame in which we would recognize that revenue. So on average we are going to recognize that $15,000 about 60 days after the franchise agreement is signed..

Okay. And so the revenues from Motto this year is really entirely from that because the $4000 pieces really start kicking in, I guess, at the end of the next year.

Is that right?.

Yes. It's going to be a gradual ramp up to that $4000. And that will start -- we will start seeing a little bit of that in the later months of 2017 but we are not going to see the full complement of that $4000 that you noted until the back half of 2018..

Okay. Great. And then just can you describe sort of the typical broker who is signing up at Motto, how long have they have been in the industry? Any sort of characteristics about the type of people..

Bose, this is Dave Liniger. When we analyze the offices in the United States and what it would cost to operate the mortgage operation to make it profitable, we came up with a productivity of approximately 20 agents in an office.

And so when we looked across our network, over a third of our offices easily fit within that and obviously we have lots of offices that are in the hundreds to two hundred agents. So minimum 20 agents or thereabouts and it should be profitable. So we have lots and lots of prospects to work with on that basis..

Okay. Great. That’s helpful.

And then just one on the -- just in terms of -- can you just remind us how much is left in terms of potential acquisitions of your independent agents?.

Yes. No, absolutely. So there is ten different regions across the U.S. and Canada. In the U.S. it's about 50,000 agents and in Canada it's about 20,000 agents. So definitely a good opportunity for us in terms of long-term growth opportunity..

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

Back to Motto. First, I believe you guys said you doubled the franchises since February. So I guess 38 or so. But can you tell us how many exactly you have as of to date..

You know we don’t know. It's right, approximately 40, I believe..

Okay. And then back to the margin there.

You guys did say it's going to be dilutive this year as you get it going but just curious about that kind of breakeven point and what type of revenue you need to get there? And then maybe if you guys can help us better understand the kind of marketing or one time rollout costs that are baked into the 2017 run rate..

Yes. So in terms of the 2017 run rate, John, I mean there is a fair amount of investment around personnel and then also just some marketing in terms of sale tour, as well as marketing to industry events that we are investing in right now.

Because of the ramp in terms of getting up to the close to 40 franchise sales that we have right now, we have actually accelerated some of that. And that’s part of what's contributing to some additional investment in the second quarter of this year.

And so looking longer term, once we start to see the full complement of revenue from this initial cohort of franchisees, we should get into more of closer to a breakeven perspective looking at the back half of 2018..

Okay. Thanks, Karri. And then Dave, a more high level question. You guys obviously have a more balance, let's say U.S. housing mix than some of your competitors. But can you provide a little insight, I guess to the extent that you can, into the difference in the high end kind of luxury market trends versus the lower to mid market.

It seems like the high end has suffered over the last, call it two years but might be showing some, I thought just kind of early signs of recovery.

Are you seeing that same kind of development?.

Yes. I would say that’s correct. The massive number of potential buyers are in the low and middle ranges. And we are kind of constrained there because there is just not enough inventory yet. There is plenty of inventory in the luxury market and that is keeping prices under control and as the demand picks up, that will start to work itself out.

But that’s been true in all markets..

[Operator Instructions] Your next question comes from the line Ryan McKeveny with Zelman & Associates. Your line is now open..

Nice quarter. One question on the domestic agent count growth, 3.5% this quarter.

When you think about the context of the full year guidance, do you anticipate that that can actually trend higher relative to that 3.5%, given whether it's the newly acquired regions performing better or different factors to get more back closer to maybe the levels of growth that were in earlier parts of the recovery..

You know, I think that right now what we are forecasting is accurate. We are seasonal in our net adding of agents. Our best months are generally the second and third quarter followed by the first quarter is good. And then the fourth quarter is always the slowest of the year.

And so until we get through the second quarter, we won't have a real idea if we are accelerating our growth or not..

Got it. Okay. Sounds good. And another question. So we saw a press release a couple of weeks ago on the collaboration with House Canary and it looks like a nice partnership. Can you maybe talk about that platform, how your agents will use it and ultimately the benefits to the RE/MAX proposition of that program..

Hey, Ryan, it's Karri. So, yes, we are really excited about the partnership. It's one of several approved suppliers and agreements that we have to really help our agents market themselves.

We obviously have the most productive agents in real estate and it's really focused on using data and comparative market analysis to help our agents attract customers and really build their book of business. So we are really excited about it.

It's one of the many different things that we offer to the network and it really continues to enhance our value proposition..

And your final question comes from the line of Vikram Malhotra with Morgan Stanley. Your line is now open..

So just going back to Motto, I am just wondering just over the near term, I know the long-term potential is great but just over say a two or three year period.

How do you think about the growth in sort of penetration with the existing RE/MAX franchises versus non-RE/MAX?.

Well, Vikram, there is always a group of people who are early adopters, if you will, and they see the vision of it and the jump right on.

Realtors as a group are fairly conservative and so there is a wait and see attitude of a lot of people who are stating, I want to see how it works for some of the other brokers for the first few months and if it works as good as we think it does then of course we are interest in it.

And so I would say the success we have had so far has been right along the expectation that we had. And as they become successful that should accelerate..

Okay. And is it the right way, you described how the revenue ramp would be, but if I am thinking correctly if it's low millions of dollars this year, would that eventually just translate into high single digit next year..

Yes. I mean I think depending on the assumptions and how we are able to successfully execute in terms of the number of franchises, absolutely we do see that. Probably we want to make sure that we are taking the time to provide the high touch service and get this up and running and make sure our initial set of franchisees are successful.

And so it's going to be a slow snowball that we are going to roll here but anticipate some sustainable long-term and meaningful growth..

Okay. That’s helpful. And just last one, Dave, if you can just update us on over the near term any plans on additional management changes? Eventually, how you are thinking about succession as well..

We do have a very robust succession plan. It has been something that my board has been very interested in for over ten years and so I will tell you, we made a lot of changes over the past few years. Average age of our officers has dropped dramatically taking Gail and myself as founders out of the equation.

Our officers ages now are not 42 with a significant number of them that are in the 32 to 35 there. So well experienced, well trained, average time with me about 15 years now. And so our successors are planned in every key position. I think that’s about all I can say. It's great to see a young, enthusiastic crew that’s following along in our footsteps.

Those of us that founded the company obviously are all retired are in our 65s to 75 and so we will be anxious to pass over the mantle of power at some point. Not anxious to today..

No. It definitely seems like you have really good team and I hope you stay on for quite a while..

And we have no further questions at this time. We will turn the call back over to the presenters..

Thank you, Christa. Thank you to everyone for joining us on the call today. That concludes today's remarks. Have a great weekend..

And this concludes today's conference call. You may now disconnect..