Andy Schulz – Vice President-Investor Relations Adam Contos – Chief Executive Officer Karri Callahan – Chief Financial Officer Ward Morrison – President-Motto Mortgage.

Jason Deleeuw – Piper Jaffray Vikram Malhotra – Morgan Stanley Stephen Sheldon – William Blair Alan Ratner – Zelman & Associates John Campbell – Stephens Brad Berning – Craig-Hallum.

Good morning, and welcome to the RE/MAX Holdings Second Quarter 2018 Earnings Conference Call and Webcast. My name is Kim, 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 second quarter 2018 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. 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, Motto expansion, booj integration and RE/MAX technology initiatives, housing market conditions and dividends, non-GAAP financial measures, as well as other statements regarding our strategic and operational plans and business models, and any remedial measures taken in response to the special committee 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 second 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 financial measures contained in the second quarter financial results press release, which is available on our website.

Our Chief Executive Officer, Adam Contos; and our Chief Financial Officer, Karri Callahan are joining me today on our call. 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. Looking at Slide 3. Our business continue to perform well during the second quarter and steady performance across our major operating drivers led to double digit revenue growth.

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 almost 7,000 agents’ year-over-year. Motto expansion continued highlighted by an acceleration in office openings.

Adjusted earnings per share increased more than 15% to almost exclusively to the 2017 tax reform as we continue to invest meaningfully in technology and Motto’s growth.

The integration of booj is off to a great start as we shape the future of real estate technology at RE/MAX and another significant report recently reconfirmed our status as the industry leader in agent productivity continuing a multi-year trend of independent recognition will start here. Turning to Slide 4.

REAL Trends recently announced its annual real estate agent rankings. One of the most widely followed reports in our industry REAL Trends America’s best real estate professionals ranks participating U.S. agents based on their 2017 residential transactions sides and volume.

For the fourth consecutive year RE/MAX is home to more top ranked agents than any other brand. In fact, nearly one in four of America’s best were RE/MAX agents. No matter what else might be happening in the real estate space RE/MAX continues to attract and develop the industry’s top producing professionals.

It remains a defining characteristic of our brand and value proposition. We should note, however, that being the world’s most productive real estate network is just one of our many competitive advantages.

RE/MAX is also recognized for a unique agent-centric model for having an unmatched global footprint and for being the number one name in real estate. Nobody in the world sells more real estate than RE/MAX in terms of residential transaction sides and that leadership position creates business opportunities for every member of our organization.

Turning to Slide 5. With our acquisition of leading real estate tech company booj the future of RE/MAX technology looks increasingly bright development work fueled by input from RE/MAX affiliates is already underway on what will become a full ecosystem of products on a single platform.

Everything is being designed to help RE/MAX brokerages, agents and teams to grow their businesses. Connect with clients and operate more efficiently and strategically, providing the best online and offline experience for RE/MAX affiliates and consumers is one of our primary strategic technology goals.

We purchased booj in order to help develop a best-in-class technology platform that creates an online advantage for RE/MAX agents and teams and their clients. An online platform that will deliver substantial value to consumers and allow RE/MAX agents to connect with home buyers and sellers in a more meaningful and efficient way.

Offline are experienced highly productive industry leading agents and teams already provide a second to none experience. Leveraging booj’s existing technology stack we’re developing a custom built integrated platform with products that interact and evolve with one another.

Included will be a CRM integrated with agent, office and team websites, lead cultivation tools, marketing resources, social integration and more, all built with today’s increasingly mobile agent in mind. We will also leverage the capabilities of other strategic partners as we develop advanced technology solutions for the RE/MAX network.

We are extremely pleased with the progress to date, process is critical in tech development and we are engaging our affiliates in the design and development of the platform every step of the way. We were collaboratively with our network together continual feedback from ongoing refinement and enhancement.

And we look forward to reporting on additional milestones achieved in the months to come. The booj acquisition is one of many RE/MAX technology initiatives designed to further bolster our unmatched value proposition.

Behind each initiative is the goal to automate, simplify and customize making our highly productive agents and teams even more efficient and successful. For example, our recently approved design center now automatically generates marketing materials within hours of an MLS listing being created.

This automated marketing platform creates comprehensive, customizable marketing packages including flyers, social pose, e-cards, virtual tours, videos, brochures and single property websites that are sent straight to our agents inboxes at no additional cost.

Whether it is just listed, just sold, a price change or somewhere in between we are automating as much marketing as possible for our agents. Enhancements like this automate time consuming tasks and make our agents and teams lives easier and more efficient and that presents a big advantage in both recruiting and retention.

The network recognizes the added value of innovation such as design center automation. We’re providing a tangible service that helps agents and teams win listings, please our sellers, get property sold and save time and money. The program is a win-win for brokers and agents alike. Moving to Slide 6.

Motto Mortgage franchise sales expanded and office openings accelerated modestly since our earnings call in May. We have now sold over 90 franchises in over 30 states since inception in late 2016. The Motto team’s vision and dedication has helped more than 60 franchisees open their doors and compete in their local marketplaces.

Motto was a start up business, like all successful start ups it is data driven and intensely focused on measuring and continuously improving upon its key performance indicators. One of it’s KPIs is the time between the sale of a franchise and when the office opens and begins operations.

We want this period to be as short as possible, leveraging the help of our initial cohort of Motto franchisees and 45 years of experience onboarding RE/MAX franchisees. The Motto team has done a terrific job of improving the onboarding process and reducing the time between sale and opening.

Continuous improvement of the process has been a hallmark of Motto since day one and we expect this focus to pay dividends in the future. Looking ahead, interest in owning a Motto franchise remains solid and we feel good about our pipeline. We are pleased with Motto’s progress and look forward to even more positive results in the future.

Turning to Slide 7. Halfway through 2018 the story in the U.S. housing market is inventory or more precisely the lack of inventory. Prices are at record highs, inventory is at record lows and home sales are trailing 2017 pace according to the RE/MAX National Housing Report based on June MLS data for 54 metro areas.

June sales were 5.5% lower than June 2017 in the 54 metro area surveyed, marking the seventh consecutive months of year-over-year declines. Headed in the opposite direction, the June median sales price of $258,500 was at an all time high in a nine-year history of the report. It was 5.1% higher than the $246,000 recorded last June.

In each of the previous five years, June has posted the highest median sales price of the year. Year-over-year prices have been climbing for more than two years now, which is great news for homeowners and sellers.

In the hottest markets, demand is especially high, notably, at the entry level price point, because there simply aren’t that many homes for sale. The slower sales figures we’re seeing are tied to inventory more than anything else. To some extent, the slower market is affecting the sales totals of ages across the industry.

42 of the 54 metro areas reported a year-over-year drop in inventory. That trend is reflected in the month supply of inventory dropping to 2.7 months this June. Down year-over-year and the smallest figure ever recorded for June in a nine-year history of our report. Fewer houses for sale generally results in a faster sales process.

Home sold in June average just 42 days on market, five days less than June 2017 and three days under the previous nine-year low of 45 days, which occurred in July 2017. Lack of inventory has become a theme for the year.

Having fewer homes to choose from, especially at the entry level price points poses a challenge for buyers, who need to be ready to act decisively and quickly, working with a full time professional RE/MAX agent can help guide them and prepare them for that. Moving to Slide 8.

We finished the second quarter of 2018 with just over 123,000 agents in our global network, an increase of almost 6% year-over-year. It’s a steady growth rate in line with projections. And we feel good about it, especially given the competitive recruiting landscape in the U.S. and Canada. Our global agent count outside the U.S.

and Canada continues to search. We added more than 5,000 agents over Q2 2017, a 16% gain. Strong selling in South America, parts of Europe and Southeast Asia drove this robust international growth. Countries such as Portugal, Italy, Argentina and India were among our better performers.

As Slide 9 shows, we added more than 1,500 agents year-over-year in the U.S. and Canada, with growth in almost every region of the two countries. On the left, you can see the U.S. growth of over 1,200 agents year-over-year through [indiscernible] increases in many states.

Two of the states showing larger gains New Jersey and New York, were recently acquired and formerly operated as independently owned regions. Our operations in these key states continue to outperform and we are making inroads in markets, where we’re focused on building a greater brand presence.

As always, we continue to evaluate future growth opportunities, which may include acquisitions of additional independent regions or transactions that are strategic and can deliver a long term shareholder value. As shown on the right, our Canadian agent count grew by over 300 agents highlighted by steady gains in Eastern Canada and Quebec.

To put some color and context on these results, especially in the U.S., it’s good to recognize a few factors within the current recruiting environment. First, the competition for agents is as fierce as it’s ever been.

Second, unemployment is at historic low and third, the number of new well-financed slickly marketed competitors with varying business models is unlike anything the industry has ever seen. There’s a lot of noise out there right now.

It’s taking a great deal of effort on the corporate, regional and brokerage levels, to cut through that noise and help agency to value of joining the worldwide leader. Moreover, unlike many of our competitors RE/MAX is selective in our agent recruiting. We have to be. Our culture and economic model demand it.

It’s both the beauty and the necessity of entrepreneurship. RE/MAX isn’t for everyone and we’re very different in this regard. For example, with the number of agents joining the industry approaching an all time high, the percentage of new realtors is going up as well.

In 2017, over 20% of the National Association of Realtors have been licensed less than one-year, a quadrupling of what the percentage was just five years ago. In contrast, less than 10% of RE/MAX agents were licensed less than one-year. RE/MAX is interested only in highly productive agents or those who aspire to be highly productive.

That high standard is one reason why RE/MAX agents accounted for almost 25% of REAL Trends America’s Best Real Estate Professionals. With that, I’d like to turn the call over to Karri..

Thank you, Adam. Good morning, everyone. Overall, we had a solid second quarter, as mid single-digit organic growth combined with our recent acquisitions led to double-digit overall revenue growth. Adjusted EBITDA remain flat to the prior year, as we continue to invest in modest growth and our strategic RE/MAX technology initiative.

We also generated a healthy amount of free cash flow, converting 60% of adjusted EBITDA to free cash flow on a trailing 12-month basis. Moving to Slide 10. Revenue increased 11.4% to $54.3 million in the second quarter. Organic growth added almost 5%. Acquisitions increased revenue by 6% and favorable FX movements contributed one-half of 1%.

Our Q2 results highlighted the multitude of contributors to solid top line performance, including agent count growth, rising home prices, Motto expansion, pricing and the acquisitions of booj at Northern Illinois. Looking at Slide 11.

Selling, operating and administrative expenses were $28.3 million for the second quarter of 2018, up $7.6 million or 37% over the prior year quarter. The increase in SO&A was primarily due to the acquisition of booj, investments in technology, Motto and Northern Illinois as well as increases in personal costs.

Strategic technology investments related to the ongoing development of the booj platform, ramp slightly slower than initially anticipated, resulting in modestly better-than-expected Q2 results. As we expect, this is just a timing issue, the over performance in Q2 is not expected to translate into higher profit for FY2018.

Turning to Slide 12, one-item to note before, I update our outlook for Q3 and fiscal year 2018. The increasing interest rate environment is getting a lot of attention. Many experts forecast at least one more, if not two, quarter-point rate increases in the fed funds rate this year.

Although, we do not provide guidance at the earnings per share level, we wanted to remind those who are modeling our results of our sensitivity to interest rates. Keeping it simple, each quarter-point rate increase is expected to translate into approximately $600,000 more of pretax interest expense annually at our current debt levels.

Now onto our outlook. The Company’s third quarter and full year 2018 outlook assumes no further currency movement, acquisitions or divestitures.

For the third quarter of 2018, we expect agent count to increase 5% to 6% over third quarter 2017, revenue in a range of $54 million to $56 million and adjusted EBITDA in a range of $27 million to $29 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 13. In conclusion, RE/MAX Holdings had a good first half of 2018, highlighted by double-digit revenue and adjusted EPS growth. Steady agent count additions, Motto expansion and contributions from the strategic acquisitions of booj and Northern Illinois.

We are off to a great start integrating booj, as we work aggressively to define our own future. And once again, more RE/MAX agents represent America’s Best Real Estate Professionals than any other brand. We look forward to more success in the second half of 2018. With that operator, let’s open it up for questions..

[Operator Instructions] Your first question comes from Jason Deleeuw from Piper Jaffray. Your line is open..

Good morning, thanks and a good second quarter results here. I just wondering if we could get a little bit of color on how you’re feeling about the 2% agent growth in the U.S., it’s good to see that kind of stabilized at this level. I know there is the brand refresh. You have the new technology offering.

Can you just give us a sense for how you’re feeling about able to sustain this 2% growth level or maybe even improvement? Just any color and some of the factors you’re considering there..

Hi, good morning. Jason, this is Adam. And thank you, glad to have you here today. Yes, I mean 2% in this type of market, we feel is pretty good and we’re confident that we hope to continue that and hope to feel that is – hopefully a floor in the lowest of us. But we like 2% right now, given all the noise in the marketplace.

And we’ve always said we want to hit between 2% and 4% in agent growth. So we’re going to continue to push that.

We’ve got some great activities coming up, later on in the year, a lot of our regional retreats, where we get our brokerage together to discuss recruiting strategy and how to continue to move the ball forward, discuss the marketplace things like that. So that’s what we’re looking at continuing..

And Jason just I can build on what Adam was saying.

You mentioned a couple of things from an investment perspective and really focused on that, really honing in on the value proposition and looking at really the investments that have been made over the last 12 months, it’s been really leveraging that from our recruiting and retention perspective to drive that agent count growth on an organic basis, on a go-forward basis..

Thanks. That’s helpful. And just to stay at in the agent growth topic in competition, since it’s like the key issue that a lot of investors are focused on. Could you just help us understand, when RE/MAX loses out on recruiting a high producing agent.

What are the factors for why you typically lose out? I think that would just be helpful for people to kind of understand some of the dynamics around the recruiting environment..

So it’s interesting in this marketplace. So many of the agents have different reasons for operating the way that they doing and that’s the beauty of the real estate. The real estate industry overall is everybody is a independent contractor for the most part.

And they run their business the way that they want to and they select a model that fits their needs. That’s also the strength of our system, because we are a professional system that has a higher tenure in the real estate industry than pretty much anybody else.

Our agents out produce the competition on average, two-to-one, and it’s where do you want to be and how do you want to run your business. The higher producers look for particular marketing pieces, particular business tools to run their particular business. And that’s why we continue to iterate on that and work very closely with field.

Overall, we look at ourselves as a business to build businesses. And we adjust with the marketplace, the needs of those high producers to help accommodate them in those particular places. And that’s how we continue to iterates, which is one of the reasons, why we integrated booj into our set of offerings here, come up in the future.

And we are talking a lot to a lot of these top producers to make sure that we help integrate their needs into the products set there..

Great. Thank you very much..

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

Great. Thanks for taking the question. Can it seems to surprise me at least and perhaps you as well with just how strong it’s been in terms of agent growth, despite maybe talk of the market peaking there.

Can you talk about like what are you monitoring there and maybe what you seeing by submarket or region that may make you sort of step back and pause?.

Good morning, Vikram. Yes, Canada continues to surprise everybody. But the beauty of Canada is, we have such a strong presence there that strength continues to show during any sort of headwinds or crosswinds. And what we continue to see in Canada is what we call rebalancing.

And such a strong housing market, such high home prices, but it continues to show a great deal of strength with the strong, with the high producers in the marketplace. So we feel that our strength there lies in the network itself, the fact that we have such substantial market share and we have such high producing agents and teams up there.

So we feel that Canada will continue to work on their housing market. They’re trying to avoid any sort of major economic instability in the housing market. And they’re testing lots of different things throughout the country, in order to do so. The flexibility of our system allows our high producers to adjust with that and that’s what we’re seeing.

I see it on daily basis on social media and the different listening platforms. The number of new listings continuously emerging in Canada and so many of them continue to be with our agent. So we are always watching Canada because of this really rebalancing that always occurs. But we’re also always pleasantly surprised by the strength of our system..

Okay. That’s helpful. And then maybe just turning to Motto, it seems like you’ve had good success at penetrating in terms of just overall number of franchises.

Can you maybe give us some sense of how much of that incremental from the 60% reported last time? Is RE/MAX agent driven versus non-agents and maybe just give us a sense of where do you think that number could go over the next 12 months?.

Vikram, this is Ward. Yes, we’re continuing to expand our customer base. We – the lion’s share still continue to be RE/MAX franchises. That’s our connection, that’s our relationship. And that’s okay. But we do continue to broaden the base.

We are seeing some new interest from LO’s, who are looking to set up their own shop in this particular market, who also now understand the entrepreneurial model we’re offering them. And we’ve also expanded into some independent real estate’s investors and even some of our competitor brands already.

So we’re excited to see that and see if that attraction will continue..

Got it.

And any sense sort of size the upside, just thinking about – could that number double over the next year? Is it – can you just give us some sense or maybe like a range, where do you think the numbers could shake out? I’m not asking the specific guidance, but just sort of help us model, may be helps us think about the revenue ramp from the 90 you’ve sold into next year?.

Yes. I mean, we continue to see that our sales are lumpy as the brand gets out there. It still looks like we’re probably going to be similar numbers to last year. And so we’ll continue to be in the tens of models each year.

Obviously, like in our graphic there, it takes between 14 and 17 months to get in the ramp-up to their fully – full royalty fee base of about $4,800, $4,500 being the royalty, $300 being the advance.

So it’s still in that same range, we’re trying to speed up our opening process and we’re seeing some success there with our team, our service team, and continue to just try and help them get up and running as quickly as humanly possible, so they can then start making money and sort of share the best practices out there to the industry..

Got it. And just maybe one last, if I can, Adam, if you could, you made a comment regarding the competitiveness of the market and all the new models that’s come in. Is it the case that high productive brokers are considering these new models? Or can you maybe just describe the competition a bit more..

The competition is – I mean to describe it is, just describing a vast field of attempts to enter the space. And it’s an interesting space to be entering from so many different angles. People will have a lot of investment opportunity right now in the marketplace with the economy.

And that’s what we’re seeing, this people trying a lot of different things. Ultimately, we’ve seen this happen before. We see it in different changes in the economic landscape. This one happens to be because of marketing capabilities, digital marketing, social media things like that happens to be, what seems to be noisier than before.

But ultimately, it’s interesting. You see a lot of high producing groups within our network, taking a step back and saying, this is my opportunity, because people are being distracted. They always take a look at and you can’t be blind to the competition.

And I know that a lot of our brokers and us we all get together to discuss these different business models. But ultimately it’s to determine, okay, is there something that we can learn from these to make our course corrections and adjustments throughout the marketplace.

So in considering something, I think it would be impulsive for somebody to just make a jump based upon a short-term view of something that’s out there. That has been improvement through a multitude of different economic conditions. And our program, our system has been proven through a multitude of different economic conditions. So they look at it.

They’re interested in it. They see what they can do to make adjustments and answer the questions out there, because if there’s a question, it creates a story and that story may not necessarily be true. Our story is true. It’s proven and that’s what they rest on is understanding, okay, we continue with the basics of the business.

The business gets more complicated and challenging that it ever has been. And it needs a professional like ours to sustain that business model. That’s the way we view, it’s activity in the marketplace, which is healthy, causes evolution. But ultimately, you need a strong foundation to rest on it and that’s RE/MAX is..

Great. Thank you very much..

Your next question is Stephen Sheldon from William Blair. Your line is open..

Good morning. Thanks for taking my questions. I also kind of wanted to ask a little bit about the environment right now. I wanted to specifically ask about turnover trends that you’re seeing both at RE/MAX and then may be more broadly across the industry.

And specifically, do you sense that real estate agents are becoming more transient industry-wide than maybe they have been in the past? Or is it easier now for agents to kind of brand up?.

Hey, good morning, Stephen. It’s Karri. I’ll start it off. So I think one of the things that’s always important to keep in mind is just the low barrier of entry that we have from an industry perspective. And as Adam noted on the call, the industry just in general is noting a significant influx in more inexperienced agent.

And I think that’s one of the things that really differentiates to RE/MAX and differentiate our model. In that we are the home of the top producer and we are the home of the agents, who either highly productive or aspiring to be highly productive.

And that characteristic really translates into our turnover and how that compares from an industry perspective. I think historically the industry turnover has been around kind of that 30% range. We’re actually seeing some positive movement at our end. We talked earlier about agent count growth and how we’re pleased with that.

We’re kind of closer to that 20% range. And so overall, we just really continue to iterate on the value proposition of RE/MAX what it means to join.

To join RE/MAX from an entrepreneurial perspective and from our productivity perspective, and we’re just really pleased with kind of the result – with the result that we’ve had in the quarter and through 2018..

And it’s Adam. I’ll add just a little more color to what Karri said. There’s a big difference between industry turnover and segment turnover. And if you look at the segment turnover in the industry, it continues to turn at the entry level and the lower end of the – the lower segments in the industry, overall kind of what Karri said.

And that’s really what you need to focus on is, where is the churn occurring and where are people moving and what you find traditionally in the industry, which is a big strength of our network is, those that put down their roots in a brand and work their business in a brand.

Typically, that turn is way lower than it is of somebody, who doesn’t carry, listings has very limited investment in their business, because keep in mind, every penny that an agent is spending on their business comes from their pocket. So it’s easy to move when you don’t have much to move. And ours are doing a lot of business.

They have a lot of great customers that realize the power of their affiliation with the brand. And that’s a lot more challenging to move and that’s why we continue to iterate our value to them as to keep them satisfied and in place..

Got it. That’s helpful. And then, I got a second here, was curious about the accelerating growth you’ve been seeing in annual agent dues on a year-over-year basis.

Is there anything specific that may be driving that to take that a little bit higher this quarter than agent growth?.

Yes. So I mean, there’s a couple of things that, we did institute a price increase on July 1 of 2017. So we’re just continuing to see some tailwinds from that. So that’s really the biggest driver. And there is a little bit of tailwind is well coming from FX as we look at Canadian agent annual dues as well, but the biggest driver is that price increase..

Great. Thank you..

Your next question comes from size Bose George from KBW. Your line is open..

Hi, guys. This is Tommy on for Bose.

Are you just surprised for that agent growth both at RE/MAX and kind of that industry level has been able to sustain such good growth, while sides appear to have really kind of flattened with the supply constraints out there?.

Good morning, Tommy. Not particularly, when you look at the market overall, we look at – we see fluctuations in the market. But overall, we still see the high producing, high level agents continue to – they’re doing their work. In fact, I keep hearing from quite a few agents, I’m having my best year ever.

And I’ve already hit my 2017 numbers things like that from a lot of these producers. It’s fundamentally you look at the 80-20 rule in the marketplace. And those that are doing business are pretty much continuing to do business, because the shifts in the industry are not drastic enough to knock them off of their core business model.

And we’re not seeing this massive change in how houses are bought and sold right now, in this economy, like we were in say, 2008, 2009, when everything so much shifted to short sales, OREOs, things like that. So really it’s – we’re – the movements mostly, I think are occurring in the low end of the market.

Everybody feels pressure, of course, but those that adapt are seeing the results in their business from the adaptation.

So ultimately, this is a professionals business now, a professionals market and that’s what we’re resting on is, is the quality of our agents and our system, that’s why we continue to push iteration on that to keep making them better..

Thanks. And separately could you break out the 6% organic – sorry, acquisition related revenue growth that you guys reported year-over-year.

How much of that breaks down between reacquiring independent region versus the booj acquisition or anything else you might have done?.

Yes. Good morning, Tommy. So with respect to that 6% about 40% of it is coming from the acquisition of the Northern Illinois region and about 60% of it is coming from booj. So booj is included in franchise sales and other in that line item on the financial statement..

Thanks. And then last one, you mentioned regional retreats coming up later in the year.

None of those have the financial impact at the Annual Conference, is that right?.

That’s correct..

Okay. Thanks guys..

Thank you..

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

Hey guys, good morning. Thanks for taking my question. So I wanted to ask something more on the macro housing side. Your comments on the just the tightness of resale inventory certainly we hear that as a big challenge as well towards driving stronger transaction volume.

Some of the data suggests that inventories been picking up a little bit here in the last few months, I think on the NAR data in June it was actually up slightly year-over-year for the first time in a few years.

And it’s still at extremely low levels but we’ve been a little surprise on a few of the homebuilder conference calls this quarter they’ve actually cited rising resale inventory is a bit of a headwind to buy or urgency and just the overall environment.

Certainly with as tight as the inventory is today it’s hard to imagine that a little uptick here would really have a dramatic impact on buyer activity or urgency or anything like that.

So I was curious, what are you seeing on the inventory side, has the pickup over the last couple months is that enough to flip the modest declines in sales to a gain in the back half of the year.

And ultimately do you think the market can absorb a little bit more inventory or is the buyers a little bit too sensitive just given all the various moving pieces with rates going higher et cetera..

Good morning. It’s Adam. It’s something that we’re watching closely as well. Obviously, we could use a more – if you call it a normal market which a little ease on the inventory constraints would be a nice thing. I don’t necessarily know that overall it’s going to have as drastic an impact or a headwind on the homebuilders.

Because frankly we still have a pretty significant shortage of housing particularly entry level housing. And I think you can kind of judge that by the fact that there’s just a great deal of offers on different properties. Now while the new homebuilders might not see a great deal of offers.

That’s almost kind of a little bit of a different marketplace although it is an option for those resale buyers. So I like what we’re seeing with a little bit of increase in inventory, listings are good for the marketplace, they’re good for our industry and good for our agents. Our agents control a great deal of the listings out there.

So it’s a positive move for us and we’ll continue to help the new homebuilders sell their product as well as much as we possibly can. They’ve got some great new product out there, new innovation in sustainable housing things in that nature.

So we don’t know what the impacts going to be yet but those slight ticks that you’re mentioning, yes, we do notice those but we are still in a very, very constrained market inventory wise. We do have a lot of movement that we can see before it starts causing any sort of buyer pressure if you will..

Great. And I appreciate that. And the second question just on affordability.

With a big drop in prices as well as rates earlier in the year are there any markets you’re hearing from your franchisees where you feel like affordability is starting to hit a little of a wall California is one in particular there’s been a lot of focus around tax reform and in general it feels like the sales environment there’s been a little bit softer this year.

So I was curious, if you think affordability constraints are driving that at all..

Hey, good morning, Alan. It’s Karri. So I think from a California perspective, those trends are pretty consistent with what we’re seeing in our network as well. We have looked more holistically at the small states really – it’s still too early to tell this Alan, mention in terms of the market.

But we really continue to perform well there and across the network. And so we’re still encouraged by what it means to be with RE/MAX. I’d say we’re kind of more insulated from overall market dynamics but we’re not really immune to anything. So we continue to really watch the market and understand where the pressures are coming from.

But from an affordability perspective with rates going up there is still in terms of historic levels affordable and just we continue to see really strong demand coming from the breadth of the network, which is obviously just very dispersed across the country.

And we just don’t have as much variability to the high price point that are specific jurisdictions like some of our competitors may..

Okay. I appreciate that. Thanks guys..

Thanks..

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

Hey, guys congratulations on the good quarter. Kind of a two-part question here on booj. Can you provide a little more color on the revenue contributions that you guys were expecting from booj for the rest of this year maybe for 2019.

And then you guys had mentioned on the – before the booj’s generating revenue on the – before you serve customers outside of RE/MAX. Is there a focus on increasing the number or is the focus more on given the RE/MAX agents access to that kind of technology..

Hey, good morning John. So I’ll answer the second part your question first. So the focus is really on the RE/MAX technology initiative. They were really excited about it, a huge focus on automation and differentiation and efficiencies through the booj platform as well as a couple of other significant initiatives that we have.

So we’re not really looking to grow the revenue base for booj despite the fact that there would definitely be demand from local and regional brokerages to do so.

In terms of their revenue contribution for this year kind of mid to slight high single digits in terms of revenue on a – next year kind of in that – really more solid little less than double digit revenue contribution from their existing customers..

Okay, perfect. That’s helpful. Thanks guys..

Your next question comes from Brad Berning from Craig-Hallum. Your line is open..

Hey good morning. Two follow-ups a number of issues have been addressed. And one is instead of the newer participants in the market, maybe you can talk a little bit more about the more traditional competitors you have.

And are they getting more aggressive – the retention of productive agents? And how do you feel about recruiting agents away from them? And the second part of that question is, I know you are 20% churn that you guys see how many of those are leaving the industry versus leaving for competitors and do you see any dynamics in that? And the second real question is, why is inventory tight? And you guys as you – is it really that baby boomers are staying in their homes longer and they’re just going to have to age out of their house in a different way? Or are you seeing other dynamics of people post financial crisis less willing to flip into homes then they have been traditionally just kind of curious as to what you think it will take to get inventory to loosen up..

Hey, good morning, Brad. I’ll start with the recruiting question and the traditional competitors in the marketplace. Recruiting is that’s the life part of our industry really. That is how these businesses power their businesses and how they generate the revenue is recruiting producing agents or recruiting agents that pay a monthly fee and a split.

Overall recruiting the big players from the competitors is always been a key to the marketplace. However, really what the key to our marketplaces is taking those hypo agents and turning them into hyper agent.

So the high potential agents, the ones that are doing a good business, $75,000 to $125,000 in GCI and turning them into something that is $200,000 or $300,000 in GCI. And that’s really been a great deal of the RE/MAX marketplace.

That is – there are a lot of that type of agent emerging in this marketplace as marketing and sales trends and techniques adjust with digital type means and different community dynamics things in that nature.

So it’s not necessarily where the agent is at that we’re we look to go after be it the traditional or the more modern or maybe they’re with one of the employee-based organizations or something like that. It’s with the potential of that agent and how can we put them into the culture of our organization best.

So recruiting is a science and with a significant amount of art attached to it the same as sales. You’re basically selling your business model and dream to those agents. And they look very hard at what can this do for me and my business and my lifestyle.

So to take a look at our traditional competitors, I think everybody’s at – in the target zone for recruiting if they have good agents or good high potential agents in their organization, you don’t necessarily go and try and pick off the number one producing agent from an office because they may require more resources than other agents do in that office.

And you can build your foundational business better by grabbing more of those high potential agents then the high performance agents. Our business revolves around that art and science of the recruiting. So we’re always looking at those different aspects of it and we can go on with that answer for a long time.

So we can catch more that offline if everyone wants to talk recruiting. Looking at the 20%, I’ll pass it over to Karri for that..

Yes. Good morning, Brad. With that, we’re always looking at what that looks like from a turnover perspective and analyzing that. And it’s really all over the board. And so we continue to kind of evaluate that and it’s just hard to evaluate trend.

What we’re really focused on is the retention back of the house and making sure that we’re differentiating our value proposition. And really making an effort to differentiate why high producing and highly motivated agents want to come to RE/MAX and the value that we can offer to keep them here..

Understood, and then the inventory thoughts..

Yes. When you take a look at the inventory, inventory is always kind of an interesting science project in our business. The inventory constraints that we’re see everybody speculate on different aspects of that.

And truly what it boils down to is, the consumer confidence in coming out to the marketplace and saying, okay, if I sell my house two things going to happen. One, am I going to see a good benefit from doing so. And two is, is the move going to benefit me in the future.

So it’s – we venture some shaky economic times over the past decade and I think people still to an extent are wondering, okay, do I have a fear of something else happening and we start to see emergence from that. We’ve got a generation that had to put off retirement for quite some time.

And we also have an emerging generation some of which have a great deal of cash built up in the bank and investments and they’re considering, okay, is this a good movement for it. So I think overall inventory is both a function of the economy and also the education of the marketplace.

And that’s what we’re working hard on developing is a better education platform to help the marketplace see those options and measure those with data to determine what’s best for them. What we’re seeing is, people are deciding to move their family formation going on which is fantastic.

Yes, the bloomers are staying put in some cases but to a great deal of extent a emptiness family or emptiness couple that has decided, okay, we’re going to sit here tight because we’re comfortable with everything.

They do want to move now and it’s incumbent upon the downsizing aspect of that to sit them being new home build, I can tell you, my dad has actually moved a couple times in the past five years to find the right home for him and it happened to be new homes each time.

So when you look at the bloomer market they are competing for the first time home buyer market that’s a competitive marketplace because you do see 10 or 12 offers at different places and you also see a rush for inventory in some communities that have emerged from a homebuilder.

That being said, a lot of those new communities that are emerging from homebuilders are still in their infant stages and that’s tough to envision yourself moving in there because it’s a bunch of dirt and holes in the ground.

So the second move in those communities a lot of times the resale move is good for us, good for the new home buyers, good for the emptiness things like that. But I think we’re still seeing the younger stages of a new housing market emerge and we’ll start to see increased inventory as that happens..

Yes. And Brad just putting some quantitative things behind that. We’re seeing about 1.1 million of an increase in household formation over the last couple of years. But existing home sales have really mean things flat.

And as a result of that and the trends prior to that we’re just seeing a huge deficit that’s accumulative from a housing perspective driven by multiple factors. Less buildings coming from the homebuilder coupled with just an increase in household formation and the fact that the number of existing home sales have stayed flat.

Then you add on top of that the fact that a lot of investors came in during the recession and [Audio Dip] homeownership to rental properties. And all of those are just a confluence of factors that are causing a constrain from an inventory perspective on the market..

Sounds like you guys need to build some senior housing. Appreciate all of those thoughts very helpful. Thank you..

Thanks, Brad..

[Operator Instructions] Your next question comes from Nikita Bely from JPMorgan. Your line is open. Nikita, your line is open..

Are you unmute Nikita?.

[Operator Instructions] There are no further questions in the queue. I’ll now turn the call back to the presenters..

All right. Thank you, Kim. And thanks to all for joining us on the call today. Have a great week..

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