Andy Schulz - Executive Director of Investor Relations Adam Contos - Chief Executive Officer Karri Callahan - Chief Financial Officer Ward Morrison - President.

Jason Deleeuw - Piper Jaffray Companies Anthony Paolone - JP Morgan Chase & Co Thomas Patrick - Keefe, Bruyette, & Woods, Inc. Ryan McKeveny - Zelman & Associates LLC John Campbell - Stephens, Inc. David Emerson - BofA Merrill Lynch Bradley Berning - Craig-Hallum Capital Group LLC.

Good morning, and welcome to the RE/MAX Holdings First Quarter 2018 Earnings Conference Call and Webcast. My name is Kelly, 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, Vice President of Investor Relations. Mr.

Schulz?.

Thank you, operator. Good morning, everyone, and welcome to RE/MAX Holdings First Quarter 2018 Earnings Conference Call. Please visit the Investor Relations page of remax.com for all earnings 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. Please remember our prepared remarks and answers to your questions on today's call 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 include those related to agent count, franchise sales, revenue, operating expenses, financial guidance, housing market conditions, dividends, non-GAAP financial measures, as well as other statements regarding our strategic and operational plans and business models, and information concerning the implications of the special committee investigation and the effect of any remedial measures taken in response to the investigation.

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 our first quarter financial results press release, which includes more detailed discussions about these forward-looking statements, including factors that could cause results to differ materially from the forward-looking statements and the definitions and reconciliations of non-GAAP measures contained in the first quarter financial results press release, which is available on our website.

Joining me today on our call are our Chief Executive Officer, Adam Contos; and our Chief Financial Officer, Karri Callahan. Ward Morrison, President of Motto Mortgage, will join us for the Q&A. With that, I would like to turn the call over to RE/MAX CEO, Adam Contos.

Adam?.

Thank you, Andy, and thanks to everyone for joining our call today. Moving to Slide 3. Steady performance across our major operating growth drivers along with robust annual agent conference attendance and favorable timing of expenses led to strong financial results to start 2018.

Some of the high points of the quarter included total agent count, one of our key operating metrics, grew in line with our expectations and increased more than 7,000 agents year-over-year. RE/MAX now has more than 120,000 agents worldwide. Our annual agent conference drew the highest attendance we've seen in 5 years.

Motto continued to grow, adding franchises and opening more offices. Two recent major industry reports again confirmed our wide lead in per agent productivity among large U.S.

real estate brokerages, and as previously announced, we acquired booj, a real estate technology company, making a bold and significant investment in our network, our technology and our future. Turning to Slide 4. REAL Trends recently announced the results of its 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 sides. For the eighth consecutive year, RE/MAX agents in this survey on average outsold competing agents more than 2 to 1.

RE/MAX agents averaged 17 transaction sides per agent, more than double the average for all competitors who averaged just 7.5 sides per agent. Year-after-year, respected industry rankings and studies continue to rank RE/MAX above our competitors.

We are extremely proud that among national franchise brokerages surveyed by REAL Trends, RE/MAX agents rank the highest in productivity. Being the world's most productive real estate network is just one of our many competitive advantages.

RE/MAX is also recognized for our unique agent-centric model for having an unmatched global footprint and for being the #1 name in real estate. These are just some of the many reasons why nobody in the world sells more real estate than RE/MAX based on residential transaction sides. Turning to Slide 5.

We acquired booj, a leading real estate technology company, in February, marking a significant shift in RE/MAX technology strategy. This acquisition will enable us to go beyond adapting third-party vendor products to fit broker, team and agent needs.

Moving forward, RE/MAX will leverage the capabilities of booj and other strategic partners to deliver advanced, scalable technology solutions specifically designed for and with RE/MAX affiliates. Our strategy is to provide core technology solutions that are tailored to the way RE/MAX brokerages and their agents operate.

And that can be easily scaled and adapted as their business grows. Booj has developed powerful enterprise technology systems for more than 40 regional real estate companies, empowering their clients with the technology needed to stay competitive in their local markets.

These platforms designed by and for the real estate industry include websites, mobile apps, predictive analytics and systems for generating and cultivating leads. The booj team is passionate about building technology that improves agent efficiency and makes buying and selling a home easier.

Putting booj's existing platform and new innovations into the hands of RE/MAX agents should prove incredibly rewarding to all involved. We're investing in tremendous talent, proven systems and future innovations by acquiring booj.

Together, we're developing modern technology that helps our brokers, teams and agents deliver even better service to their buyers and sellers.

The booj acquisition is one of many RE/MAX initiatives in the past year, demonstrating our drive to continue to lead the industry, including a refresh of the iconic RE/MAX brand, the creation of a new business and product strategy team and the launch of new automated social media and digital marketing solutions for agents. Moving to Slide 6.

Motto Mortgage franchise sales expanded and office openings accelerated since our earnings call in February. We now have sold 80 franchises expanding to 30 states since inception in late 2016. The vision and dedication of the Motto team have helped more than 40 franchises open their doors and compete in their local market places.

With more than a full year of operations now under our belt, we can look back and start to identify trends. Not surprisingly, when reviewing 2017 data, approximately 85% of Motto loan volume was for desirable purchase loans versus only 15% for refits.

Looking ahead, interest in owning a Motto franchise remains high, and we feel good about our pipeline as interest in owning a Motto franchise is spreading across different customer types. We are pleased with Motto's progress and the pace at which the brand continues to expand. Turning to Slide 7.

According to the most recent RE/MAX National Housing Report, which is based on March MLS data from 54 Metro areas, home prices continue to rise in virtually all parts of the country. The median sales price in our study was $236,000, a 5% increase over March 2017 and the progression of a trend we've seen for 2 years now.

Robust demand is translating into healthy sales in the areas we track. In fact, this was the second highest March for home sales in the decade of our report. Inventory remains low in most markets, which somewhat limits the options for buyers, especially first-timers.

As prices keep ticking up, however, the idea of selling should sound more attractive to homeowners who have been waiting for their equity to rise. These potential sellers certainly notice listings moving quickly.

In many cities, homes are being snapped up right after hitting the market, which is great news for sellers as well as for homeowners who might be considering a near-future move. In our 54 Metro areas, the average time on market was just 60 days. The March average just 2 years ago was 71.

11 days represents a significant difference on either side of the transaction. We think the value added by an experienced agent grows higher in conditions like these. Sellers working with a skilled agent receive critical guidance on pricing and maximizing their return.

Buyers become more informed, more market conscious and more prepared to act when the right opportunity presents itself. There is a lot of noise in the real estate industry right now, but the RE/MAX brand promise of putting a smart productive professional in your corner continues to resonate.

This is no time for consumers to be cutting corners, accepting low-ball offers or trying to beat out other buyers on their own. The stakes are too high. The field is too competitive. And as always, we are here to guide them through. Moving to Slide 8.

We finished the first quarter of 2018 with nearly 121,000 agents in our global network, an increase of 6.2% year-over-year. We are experiencing steady growth across virtually every major geography, with particularly strong growth outside of the U.S. and Canada.

Our brand, our value proposition and the opportunity to join the best network in real estate continues to resonate with highly productive agents or those who aspire to be highly productive. We added over 1,500 agents year-over-year in the U.S. and Canada combined, with growth in almost every region. Agent count outside the U.S.

and Canada increased by almost 5,500 agents or nearly 18% over Q1 2017. Strong gains in South America, parts of Europe and Southeast Asia are driving our international growth. Slide 9 shows the breakdown of RE/MAX agents in the U.S. and Canada. The information on the left highlights U.S.

growth of almost 1,200 agents, driven by gains in many states, including New Jersey, California, Florida and New York. The real standouts were New Jersey and New York, which were both previously independent regions that we recently acquired.

As shown on the right, our Canadian count grew by almost 400 agents, highlighted by steady gains in Western Canada and Québec. With that, I would like to turn the call over to Karri..

Thanks, Adam. Good morning, everyone. Overall, we had a strong start to the year, highlighted by steady performance across our key operating growth drivers, which led to double-digit revenue growth in the first quarter.

Better-than-expected attendance at our annual agent conference and the favorable timing of expenses also positively impacted our first quarter results. More on the timing of expenses in a moment. Moving to Slide 10. Revenue increased 11% to $52.6 million in the first quarter. Organic growth added 6.8%.

The acquisitions of Northern Illinois and booj increased revenue by 3.7%, and favorable FX movements contributed 1/2 of 1% of growth.

Our Q1 results highlighted the diversity of factors contributing to solid top line performance, including agent count growth, rising home prices, Motto expansion, pricing, the acquisitions of independent regions and other strategic acquisitions like booj.

Our network is energized by our recent brand refresh and our commitment to providing products and services to help our network of highly productive agents be even more successful.

That genuine enthusiasm is reflected in our growing agent count and was apparent by the visible excitement at our annual agent conference in February, which had the highest attendance we have seen in 5 years. Recall that during times of a growing housing market, we believe our organic growth should be at a mid-single-digit rate.

We grew above this rate during Q1, largely due to the strength of our annual agent conference, which added $900,000 in revenue. Looking at Slide 11, selling, operating and administrative expenses were $34.4 million for the first quarter of 2018, up $7.7 million or 29% over the prior year quarter.

The increase in SO&A was primarily due to $2.1 million in special committee investigation expenses, $1.8 million in severance, the acquisition of booj, investments in Motto and Northern Illinois as well as increases in expenses related to higher attendance at our annual agent conference.

However, our first quarter SO&A expenses were lower than we anticipated due to the timing of certain expenditures. The shift in these expenses was due to many factors, including modifications to our technology investments after acquiring booj.

We had approximately $1 million of expense originally anticipated to occur in Q1 that we now expect to occur later in the year. Turning to Slide 12. Our acquisitions continue to be meaningful contributors to our operational and financial results.

Northern Illinois is performing well at or slightly above our expectations for agent count, franchise sales, revenue and profit.

Our successful integration and growth in Northern Illinois is similar to the performance of other recent independent region acquisitions, including New Jersey and New York, which as Adam noted earlier, were among our better performers in terms of first quarter agent count growth.

As technology continues to impact our industry daily, we are evolving at an accelerated pace. As the global real estate leader, we continue to lead from the front to ensure our network of professional agents can deliver the best home buying or selling experience possible, both online and in the field.

The strategic acquisition of booj is an investment in a talented workforce of real estate technologists with over a decade of experience along with proven processes and products. Booj's legacy business operated at roughly breakeven and is relatively modest in size when compared to RE/MAX Holdings.

As previously disclosed, we expect the booj acquisition to be slightly dilutive to fiscal year 2018 results, reducing adjusted EPS by up to $0.05. As a result of our strong first quarter performance, we intend to invest additional capital back into the business this year.

We are focused on increasing the value proposition for our overall network by bolstering our technology offerings and establishing a foundation to allow for future integration with strategic partners. We believe this is a prudent and opportunistic decision for the future of our business. We remain committed to margin expansion over the long term.

This year being a notable exception, given the impact from booj and the ongoing investments we are making in technology and Motto. Turning to Slide 13. As expected, we benefited from recently enacted U.S. tax reform. Our effective tax rate was approximately 17% in Q1, and we expected to be in the range of 15% to 17% for fiscal year 2018.

Given the strong cash flow generative nature of our business, we continue to allocate capital to the initiatives, which are likely to deliver the best returns. Our capital allocation priorities remain unchanged.

We plan to continue to allocate capital to all 3 pillars of shareholder value creation, reinvestment to drive future organic growth, acquiring independent regions and exploring other strategic acquisitions and returning capital to shareholders. On Slide 14, I would like to share our outlook for the second quarter and for the full year 2018.

The company's second quarter and full year 2018 outlook includes the expected impact from the booj acquisition and assumes no further currency movements, acquisition or divestitures.

For the second quarter of 2018, we expect agent count to increase 5.25% to 6.25% over second quarter 2017, revenue in a range of $52 million to $54 million and adjusted EBITDA in a range of $26 million to $27.5 million.

For the full year 2018, we expect agent count to increase 5% to 6% over full year 2017, revenue in a range of $213 million to $216 million and adjusted EBITDA in a range of $103.5 million to $106.5 million. Now I'll turn it back to Adam..

Thanks, Karri. Turning to Slide 15. In conclusion, RE/MAX Holdings is off to a good start in 2018, highlighted by steady agent count growth and Motto expansion. Our recently acquired regions continue to perform at or better than our expectations.

And with the recent acquisition of booj, we are aggressively shaping our own future by continuing to innovate to meet the needs of our ever-growing agent network. With that, operator, let's open it up for questions..

[Operator Instructions] Our first question comes from Jason Deleeuw from Piper Jaffray. Please go ahead..

Yeah, thank you and good morning. Just a question on competition for agent recruitment. It's obviously a hot topic for the entire industry and the RE/MAX value proposition is differentiated versus others.

But I would like to get your just overall commentary on the competitive environment in recruiting for agents?.

Jason, it's Adam. It is a very competitive environment. I think everybody can say that it's also a very noisy environment currently as well. There's a lot of different business models being tested. There are a lot of new entrants into the real estate space, a lot of newer licensed agents, things like that.

So a lot of that, kind of, dilutes different people's ability to pursue the top agents in the system, and that's what we continue to focus on. The RE/MAX model is based upon going after the more experienced, longer-term agents in the network - in the real estate network, and that's what we continue to go after.

It's - NAR has more people now than pretty much ever before. So we'll continue to see some churn throughout the industry itself in the number of licensed people.

But you're right, it is a very competitive environment right now, and everybody is working hard to provide the best experience for the agents and for the consumer and that's where we continue to focus on with our brokers..

Yes. The only thing that I would just add to that is RE/MAX is very different. And when we look at just overall productivity, as Adam mentioned in his scripted remarks, we still are seeing that our agents are out-producing the competition 2 to 1. And that really is a unique competitive advantage to RE/MAX.

That's where we're focused on in terms of our value proposition being really targeted to those agents that are full-time professionals..

And then, thinking about booj and the technology investments, is this something that you think will help with your agent recruitment? Or is this going to be something that would be more focused on existing agent productivity? What, I guess, I'm trying to get it is how should investors kind of measure the success of booj? Should we see improvement or expect improvement in recruitment or is it more of a productivity focus?.

I think it's a combination of both. The - obviously, agents want to go to a company that provides the tools that they want for their particular business. And that's kind of the biggest challenge in this industry is, everybody has kind of a different need, want and desire when it comes to their own realty business.

They all are independent contractors and they generally operate different ways. So what we do with - and this is particularly a strength of booj is they work with 40 of the leading independent companies in the real estate business right now.

So there is a great measurement of what the broad-based technology that helps the top producers is and that was one of the attractions of us to them is seeing how they structure their business model around functioning for the best in the marketplace. So we think that it's going to do a combination of both.

It's going to provide a great enhancement to the value proposition of the RE/MAX brokers as well as help the agents do more business, and frankly, help the consumer with their involvement in the transaction as well..

Thank you..

Your next question comes from the line of Anthony Paolone from JP Morgan. Please go ahead..

Yeah, thanks. Good morning. So this real estate technology topic is pretty broad.

And so can you maybe just talk to, coming out of your agent convention, what specifically the agents really want right now? And whether there's any particular either apps or platforms or technologies they're gravitating towards?.

Tony, yes, that's a great question, one that we have as a topic of discussion daily around here as well as, obviously, in the booj headquarters. The - really what you see agents want out of technology are just a handful of things essentially that you can kind of boil them down to.

They want, obviously, lead regeneration, they want to create more business, be that through mobile apps, web presence, lead generation through digital automation, social media, marketing things like that.

And we've rolled out a few new initiatives over the past 6 months or so that deal with a lot of those things and help generate that business for the agents. Another thing that they really want is they want to save time in the transaction itself, be it through the integration of the electronic documents.

There are several different platforms out there that different states use. And that's kind of one of the things that we proud ourselves on is we operate not just in all 50 states in Canada, but over 100 countries. And we try to figure out what the digital platforms are that the transactions can occur on in those environments.

And that's a big part of what the agents want to be able to do is provide the consumer the ability to do the transaction on their mobile device and see the documents, things like that. So really it's lead regeneration and its ease of transaction to begin with.

Some of the other aspects, obviously, there is - lead management is huge for the agents to save their time on that side. But when you whittle it down, it's how do I create more business and how do I save time doing it, so that I can go back and create more business.

And that's what the agents essentially want is the components that do those 2 things and what the next app or widget or website or whatever it is that comes out that helps them with that. Some of them will sit back and say, let's see this test and see if it works. Others will jump at it right away and be the testers of it.

So we can't be all things to all people, but we certainly need to understand what all these people want and take that and refine it down to what are the best agents using in need for their business..

Got it.

And then, I guess, as it relates to booj, what exactly are they selling right now? How much does it cost and booj is actually writing them the check?.

So they have - it's all tailored platforms, and that's really their key strengths. So the pricing varies based upon the needs of their different individual customers. But generally, it begins with agent and office as well as brand websites to generate leads.

It involves a lot of SEO digital - I'm sorry, social integration and automated marketing on the consumer facing side. And then it dives into the transaction itself, CMAs and market analysis, data aggregation and reporting from the MLS information as well as down into the transaction management, kind of like what I talked about before.

So it's basically single platform, encompassing the flow of the real estate business for the agent. They're kind of - take all the different components and wrap them into an easy use platform for their customers and make it very attractive to the consumer, if you will. So their full focus in the real estate industry.

They don't perform outside the real estate industry, which really was attractive to us because we want somebody who really knows our space and isn't really pushed to other industries to distract them from what we do..

And so is it basically sold to your franchisees or will it be sold to folks outside of the RE/MAX system or both?.

We - well, we continue to - they have just over 40 customers outside of the RE/MAX system. Obviously, they have been in business for over a decade and they operate with all of those customers. And we hope to continue to operate with those customers, and I think we will. They are aware of the situation and understand the evolution process going on here.

But we value them because they're our partners in the business and that's the great thing about this industry is we cooperate with all the companies to do this business.

So that said, we'll continue to operate serving customers outside of RE/MAX as well as the development and build-out of the platforms that we are working on to service the RE/MAX franchisees. Currently, we provide technology platforms for RE/MAX franchisees as part of their affiliation with the brand and membership and will continue to do that.

Some of it will transition over to the booj platforms..

Okay. And then, just last question on the financial side. You kind of outlined added costs that you're going to reinvest into the business.

As we look beyond 2018, should we assume that those costs and those margins just become part of the run rate? Or are those cost that you think you might take out of the system at some point in the future?.

Yeah, good morning. This is Karri. So with respect to our overall model, we know that we have a great business model and great financial model that has inherent leverage in it. As we look over the long term, we will look to expand the margins, but we'll put a governor on that and invest prudently as we go forward.

So 2018 is definitely an investment cycle, and then we'll come back later with more details on 2019..

Okay. Fair enough, thanks..

Your next question comes from the line of Bose George from KBW. Please go ahead..

Hey, guys. This is Tommy on for Bose. In previous calls, you've mentioned that New York is really kind of an untapped market.

How successful has your recruiting efforts have been there? And kind of what's the runway for growth? How long can that extend?.

Tommy, it's Adam here. We're pretty excited about the acquisitions that we've have made in New York as - it took us several quarters in order to kind of get things all aligned the way that we want them. But what we've seen is some great interest in the brand there, franchise sales and agent recruitment.

We're pleased by the level of growth there, which has really been leading a lot of our regions in percentage of agent growth. So we anticipate that we will continue to put a great deal of pressure on that marketplace with our presence in order to continue to gain there.

We really - possibly could triple our agent count there over the next decade, which we hope to, through current growth rates, achieve. So we are optimistic about New York. It certainly was an untapped market and we're excited about the future there..

And then historically - or I guess looking ahead if you want to, when you expect sort of the sides or number of transactions to decrease, just given that inventory constraints, have you typically found that the number of - like total agents in the market kind of lags that maybe by a few quarters or periods in terms of some agents decide to pursue different careers or anything like that?.

No. We have - we pride ourselves on our business model, which is less affected by those smaller pressures in the marketplace because really the decrease in sides we're seeing is not drastic in fact. The real estate market overall is doing pretty well right now. We're seeing price increases.

We are seeing a constrained inventory, but we're seeing an increase in home starts and new home sales. And frankly, March was the second best month in the past 10 years - second best March in the past 10 years. So - and our agents continue to do more business. So that's the beauty of our system.

When you look at the real estate industry itself, it's the people who kind of jump in and do 1, 2 or 3 deals a year that feel that impact, not the people who're doing 15 to 20-plus deals a year.

So we're okay with the inventory levels, the days on market, the progression of things, and we think that we're going to continue to see the slow and steady growth of the real estate industry..

It makes sense. And then just quickly on Motto, just to get an update here. It seems to be picking up a little bit of momentum.

Have you guys really pivoted your approach to this? And then just - can you just remind us the latest update on the time line for the revenue ramp there?.

We are super excited about Motto. We continue to see franchise sales, franchises opening. So obviously, for a still very young franchise organization, I think you can say we've blown it out of the park when it comes to that type of growth. I mean, you look at 80 franchise sales in a matter of what 18 or so months, that's pretty strong.

So we're looking at continuing to sell in the tens of franchises this year like we did last year. And we have a strong pipeline. We're excited about the future of it. I'll pass it to Karri here to kind of discuss a little bit of the revenue growth with that..

Yes. Thanks, Adam. So with respect to the revenue, it's about, call it, 14 to 17 months of ramp-up between when we sell the franchise and when we start to recognize the full complement of monthly fees, which are at about $4,500 per month after that ramp-up period.

One other thing to keep in mind is when we do sell a franchise, which we currently have a price point of $20,000, that's being recognized now under the new revenue recognition rules over the franchise term, which is 7 years. So we're really not seeing as much contribution to the top line just because of the change in the new accounting rules..

Thanks..

Your next question comes from the line of Ryan McKeveny from Zelman & Associates. Please go ahead..

Hi, thanks so much and good morning. Also on the topic of Motto, I was curious if you can just refresh our thoughts - your thoughts on when we should anticipate that reaching the breakeven point? And likewise, I guess, you mentioned the 14- to 17-month ramp.

So it implies that as we get later into '18, you start to see more of those franchise fees - the continuing fees come through.

So just curious if you can frame the - that breakeven point of the revenue coming through against the expenses associated with that from where you sit today?.

Ryan, it's Karri. So yes, you're right. We will see some contributions coming in the back half of 2018. But for purposes of 2018, we do expect the expenses and - the real investment in Motto to outstrip the revenue and so we do expect that investment in 2018.

We're really focused right now on making sure that we get Motto stood up correctly, making sure that we are truly investing in the value proposition, listening to our customers, making sure that we have got the products and services delivered out to our network and making sure that the financial cohort of franchisees is stood up to succeed both operationally and financially.

So we'll continue to evaluate that and make prudent decisions around our investments and more to come as we continue to grow the Motto network. As Adam mentioned, really excited about it, a lot of interest in Motto. And we continue to iterate on it, expand the value proposition and grow the brand.

So a lot of good feedback and a lot of excitement on it..

Great. And then one on booj. Obviously, a lot of this has been covered. But I'm just curious, going forward, are there ways that you'll be able to frame kind of the success to which that's coming through? Whether it's agents on the platform, franchise owners using the platform.

I guess, will there be any kind of key metrics that you'll be focused on or sharing with us to help us see how that's going over time?.

Yes, it's Adam here. That's something that we always keep a close eye on is agent adoption, brokerage adoption of the different technology platforms that we offer. The interesting part about this industry is a lot of people use their brand-provided technology and they also go out and get their own.

And a lot of times they have multiple of their own as well. So it's an interesting space when it comes to technology adoption. But yes, we do look for those metrics.

And over time, we will be gathering those as we rollout platforms and keep a close eye on them and a lot of those we will be reporting back to you as far as what our goals are and our adoption rates..

Great, sounds good. Thanks so much..

Your next question comes from the line of John Campbell from Stephens, Inc. Please go ahead..

Hey, guys, good morning..

Good morning..

So Adam, you have been at the helm for, I guess, a few months now. Just a 2-part question for you. Any kind of new direction or maybe strategic pivot you've undertaken or may be looking to do? I'm guessing the booj investment is something that, that probably stands out.

And then if you guys can maybe just provide us an update on Dave's role now and how involved he is with the business?.

Sure. I'll - let me answer the Dave question first. Dave is - first of all, he's doing great. He's happy. He's serving as, obviously, the Chairman of the Board, which were - his guidance and presence in the network and the real estate industry overall is extremely valuable.

He was truly one of the first and most major disruptors in this business that has ever been part of this business. So he's still actively a part of the industry and participates in industry events and things of that nature. He's still kind of a guiding light in this business.

And he also acts as kind of an ambassador to our brand, attends our major events, still takes calls from and speaks with a lot of our big customers, who he has built relationship with over decades as well as some of the independent regional owners who - he opened their regions with them.

So very much great ambassador, maintains a lot of great relationships in the business. But at the same time, is enjoying some retirement and things of that nature. So he is doing well and - but does continue to be a guiding light in the business.

With respect to me and my integration in the position, this is a great organization to be taking over as the CEO in, because it is such an amazing business model. It has proven itself over decades, but it has continued to make these small course corrections and adjustments over that time to meet the industry needs and grow appropriately.

So I'm not interested in coming in and making massive strategic changes, but you're right. Booj is one of the big components of what we've been focusing on heavily as is Motto. And I have been part of both of those since their inception and continue to believe that those are major parts of our business moving forward.

So yes, we will be iterating on both of those. We are excited about both of them and what the future holds for those. So just mostly what I'm working on are some kind of small cultural shifts as we move forward in getting people used to my leadership style as the CEO as opposed to Dave's.

But I've been here for nearly 15 years, and I think they're relatively comfortable with how I operate and what I do. But we're going continue to make the necessary shifts and move the ball forward in the business to continue to be the best..

Okay, great. Thanks for that color. And then on the broader U.S. housing market, Adam, you talked pretty positively about the trends.

Just curious, as best you can tell, how do the transactions or just general trends shake out in April?.

Actually, Karri just dug into this, this morning. So I'm going to throw it over to her to play with that..

So we've actually seen some really - we've seen some really good progress and really good performance in our network, both holistically as well as in some of our key markets. And so transactions are actually looking pretty positive for us, especially when we look year-over-year.

So not significant pressures in terms of numbers of transactions or our full on commission for the first quarter. So we're really looking at first quarter results. So holistically, across the network, solid performance on transaction as well as limited pressure - actually, no real pressure on commission.

And that has actually been apparent even kind of in the south states as well. So as Adam mentioned in our prepared remarks, we've had really good outsized growth in New York and New Jersey, but really, really strong transaction growth, in particular, in New York as well. So overall, the business continues to perform well.

Our network of highly productive agents even in this environment, where we have got tight supply, but really, really strong demand, they really continue to shine and really it continues to demonstrate our competitive advantage in the marketplace..

Okay, great. Thanks guys..

Your next question comes from the line of David Ridley-Lane from Bank of America Merrill Lynch. Please go ahead..

Good morning. The midpoint of the prior guidance suggested EBITDA was above $107 million. It's now $105 million.

Could you bridge what changed in the outlook?.

Sure. David, it's Karri. So when we announced the booj acquisition back in late February, we did disclose that we expected the acquisition to be slightly dilutive to current year results, up to about $0.05 and that's really the difference between what we had previously guided to and the updated guidance.

So as Adam has mentioned previously, we're really, really excited about booj. We think it brings a lot of value to the company and will bring a lot of value to our network.

And when we see opportunities like this, we really think it's a prudent and an opportunistic business decision to invest in the future of the network and then in the future of the business..

Okay. I guess, I was thinking that the company is operating at breakeven today and that the EPS impact will be mainly due to increase in the amortization of intangibles.

So I would've thought that it wouldn't have that much of an impact on EBITDA, but it is about a $2 million EBITDA drag?.

Yes. So there's additional investments that we're making on our end as well just as a result of integrations and then making sure that we can take their platform and really in a high-quality manner deliver it out to the RE/MAX network..

Okay.

And what is the step up in amortization of tangibles as it relates to the acquisition?.

So the purchase price allocation is really preliminary. So we'll be able to come back on that next quarter, once we have some more information..

Okay.

And then are there any earnouts that we should be aware of booj? Or was it the purchase price and the cash flow statement pretty comprehensive?.

Yes. I mean, the purchase price from a cash flow perspective was accurate in terms of what's on the cash flow statement.

We - as Adam mentioned, we really are investing in a high-quality talent force - workforce of real estate technologists, and we know that being able to retain that talent over the long term is absolutely a key aspect of the acquisition itself.

So we did grant some equity as part of the transaction as well and that equity will vest over time, if and when certain performance milestones are met as well as just the passage of time to keep that very highly talented workforce engaged with our company..

And then when you look at other tech-enabled brokerages - I mean, Redfin is the largest, probably the best known. But there's other - a number of VC-backed ones, like Compass and TripleMint. They're gaining agents and market share.

When you look at those business models, what are they getting right? And what would you like to copy at RE/MAX?.

The - it's a good question and we typically don't jump into different people's business models. But instead, we kind of focus on our own and what our strengths are and what we can build upon.

And really the key component of this marketplace is building a customer experience that is what the agents approve and enhances best their interaction with the consumer. And that's what we're focused on, that's why we acquired booj, that's why we started Motto. And that's what we continue to iterate on.

And realistically, you could - you look at the marketplace as a whole and really the most successful agents are the ones who are willing to go out there with a handful of business cards and get face-to-face with the customers and solve their problems. And that's - the tech enables that and enhances that, but it doesn't replace that.

And that's what we feel is the focus of our business model along with our industry-leading brand that really provides that familiarity to the consumer and lets them know that they're comfortable with dealing with our professionals..

Alright, thank you very much..

Yeah..

Your next question comes from the line of Brad Berning from Craig-Hallum. Please go ahead..

Hey, good morning. And to follow up on that building customer experience.

When you look strategically and technology-wise combined across the new kind of platforms that are out there as well as what booj does for you, can you kind of pull that together and talk about where do you see a good customer experience being built by competitor models? Where do you see potential areas of interest for you? Whether that'd be like the iBuyer type models where people get bought out quickly, whether that be other technology platforms.

Just help us understand where do you see strengths and weaknesses in that customer experience?.

Brad, customer experience continues to evolve as their interest and involvement in the transaction changes. And I think that's a part of it is.

The customer wants to have some involvement in the search for their home and the sale of an existing home to an extent, but only to the extent that they're not really - there's kind of this fear boundary of, am I doing the right thing for myself or not? And that's where we really - the consultative aspect of our full-time professional agents comes into play there.

So you look at the different platforms around there. A lot of them have to do with, how does the agent communicate with the consumer? A lot of it BDO on the front end or marketing reports and CMA's in the area and things like that.

But ultimately, it's a communication aspect that - when it comes down to what the consumer wants, the consumer wants good communication with their agent and with the business that they're involved with, whatever that brand might be. And that's what we push our agents towards. All of our technology focuses on how do we enhance that.

How do we enhance that communication aspect that helps the agent do the business better, saves them the time and helps generate more business. So you look at the weaknesses in the marketplace that you asked about. Ultimately, the biggest weakness in the real estate marketplace is communication with the consumer.

And whoever can enhance that the best wins, and I think that the - a lot of that has to do with the availability of the agent to speak with the consumer and their focus on helping the consumer the best that they can, which boils down to professionalism. So to single one thing out, that's got to be it.

And that, ultimately, is people communicate with people and that makes them feel better, no matter where you go. Other industries and other businesses, you don't walk into Disney and not get greeted by somebody with big white hands. They - that's their communication with you and it makes you feel good.

And that's - that continues to happen across industry as well as in this really, really important transaction that people are making in the real estate space..

Understood. And then a couple of other follow-ups. U.S.

agents down sequentially this quarter, is that right? And just thoughts on kind of some of the drivers behind the specific quarter aspects of that?.

Brad, it's Karri. So as we've mentioned previously, we really expect 2018 agent count growth in the U.S. to be pretty much on par with what we did in 2017. Looking to make sure that we're really focused on recruiting the right agents for RE/MAX, high-quality, professional real estate agents to RE/MAX.

Looking - probably in that 1,500 to 2,000 agents in terms of gain. But we're starting - we're seeing good traction. We've got a lot of excitement around the network right now. Our annual agent conference was really strong, 45th anniversary, a lot of enthusiasm and excitement.

The brand refresh, the investment in booj, really focusing our value proposition on automation and some of the things Adam has talked about in terms of making our agents even more successful.

And so as we look at agent count growth, if we look at even March '18 compared to March '17 year-over-year and even the performance we've seen in April year-over-year, it's a little bit better than last year. And so we're cautiously optimistic and really enthusiastic about the future from a growth perspective..

Understood. And then one more follow-up on Motto. I understand there will be some lumpiness along the path and it sounds like a great pipeline here. Can you just talk specifics this quarter? Are we just a little bit in a lull this quarter just on timing wise of that pipeline? Just kind of curious as to any thoughts.

So obviously, a slower pace this quarter..

I think Motto is going to continue to grow this year, like Adam said earlier, in the tens of Mottos, and it's going to be a little bit lumpy. We always have quiet periods in our franchise system. So during that, we do slow down a little bit, but we expect that to pick up like it normally does and continue to close out the year in a positive manner..

Final quick question. The legal investigation type expenses that were in the quarter, are those largely behind us at this point? It sounds like it is..

Yeah, largely they are. We'll have a little bit coming through just as we do some remediation efforts throughout the rest of the year. But nothing nearly as significant as what we saw in the first quarter..

Good to hear. Thanks a lot. I appreciate it..

There are no further questions at this time. I will now turn the call over to Andy Schulz for any closing remarks..

Thank you, Kelly, and thanks to all for joining us on the call today. That concludes today's prepared remarks. Have a great weekend..

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