Q4 2019 Earnings Call
Excuse me. This is the operator today's conference is scheduled to begin momentarily until the time your lines will again be placed on music cold.
Thank you for your patience.
[music].
Good morning, and welcome to the remix Holdings fourth quarter 2019 earnings conference call and webcast.
My name is Laura and I will be facilitating the audio portion of today's call.
At this time I would like to turn the call over to it.
Andy show.
Vice President of Investor Relations Mr. show.
Thank you operator morning, everyone and welcome to remix Holdings fourth quarter and for your 2019 earnings Conference call.
Please visit the Investor Relations page remarks, Dot com for all earnings related materials and to access the live webcast a replay of coal today.
If youre participating through the webcast. Please note that you will need to advance the slides as we move through good presentation.
Slide to our prepared remarks and answers to your questions on today's call may contain forward looking statements forward. Looking statements include those related to agent count franchise sales financial measures and guidance brand expansion competition technology housing and mortgage market conditions capital allocation.
Dividends strategic and operational plans and business models.
Forward looking statements represent management's current estimates remarks assumes no obligation to update any forward looking statements in the future.
Forward looking statements dress matters that are subject to risks and uncertainties that may cause actual results to differ materially from those projected in forward looking statements. These are discussed or fourth quarter and for your 2019 financial results press release and other FCC filings also we will refer to certain non-GAAP measures.
On today's call.
You see the definitions and reconciliations of non-GAAP measures contained in our most recent quarterly financial results press release, which is available on our website.
Joining me on or coal today, our Adam Kontos, our Chief Executive Officer, and carry Callahan, Our Chief Financial Officer word Nelson President of motto mortgage and Nick Bailey remix Chief customer officer will join us for the Q away with that I'd like to turn the call over to remix holding CEO Adam Kontos Adam.
Thank you Andy and thanks to everyone for joining our call today, we have many positive topics to discuss so let's get right to it.
Looking at slide three recent rematch recruiting initiatives and model marketing efforts generated positive results almost immediately leading to a bounce back in our U.S. agent count at a record motto franchise sales to our key leading indicators.
The targeted investments we made early in the fourth quarter alongside the continued positive impact from the many strategic moves we've implemented in the past two years contributed to the quarters encouraging results.
Combined with a relatively attractive housing markets in both the U.S. in Canada, We entered 2020 with momentum other highlights of the quarter included revenue of 68.2 million adjusted EBITDA of 22.5 million adjusted EPS of 47 cents total remarks agent count increased over 5% exceeding 133.
I wasn't agents for the first time in our history.
And the technology transformation every Max continued with the ongoing rollout of the powerful boost platform as well as the exciting acquisition of another tech innovator first.
Let's start with the fourth quarters headline improved agent count results.
Turning to slide for Q4 of 2019 was the best fourth quarter of total agent net gain since we started tracking this metric on a quarterly basis in 2002.
Our U.S. agent count grew by almost 600 agents quarter over quarter, primarily in company owned regions worldwide. We added over 2600 agents quarter over quarter and over 6600 agents year over year. The strong fourth quarter performance helped US finished 2019 with more than 130000 age.
It's in our global network, an increase of 5.3% year over year.
In fact, it also closed out the fifth consecutive decade of increasing agent count growth in the rich history every Max despite the industry changes economic downturns and competitive challenges experienced during that time, it's quite a statement about the strength of our brand and the resiliency of our model.
Looking internationally, our agent count outside the U.S. and Canada continues to grow at a robust clip increasing 16% in 2019 and almost 33% over the past two years.
Operations in South America, Europe, and South East Asia led the way and the top performers in 2018 by country included Argentina, Peru, Italy in India.
Moving to slide five in the U.S., our agent count rebounded during the fourth quarter exceeding our expectations as I've mentioned previously rejuvenating, our U.S. agent count growth has been a top priority for a while now and we were extremely pleased with the Q4 results.
On the left while our U.S. agent count was flat year over year. It actually represents a large turnaround given the number of agents. We added between October Onest and December 30, Onest, along with lapping some easy comps from the prior year, we successfully erased a year over year deficit of 1700 agents that we had at the end of the third quarter.
Many factors contributed to our strong fourth quarter performance some of the more impactful forces included our enterprise wide focus on growth our ongoing technological transformation, improving housing market conditions, and perhaps most notably a successful recruiting campaign launched during the quarter.
As we noted on our third quarter call, we watched and agent recruiting initiative in October for the U.S. in Canada.
That time, we said October had posted some of the best agent gains to date in 2019.
That pace accelerated even more in the final two months of the year. Our fourth quarter results were a reminder, that consistency incentives and organizational focus can drive growth.
It's also important to note that we believe our Q4 U.S. agent gain was largely the result of actions taken by us and our franchisees.
Competition for high producing agents remains fierce but the changes we and our franchisees have made over the past few years to augment the remarks value proposition and effectively activator network to make growth a priority are starting to show up in our results.
We stabilized or agent count in Q4, and we're eager to expand upon it in 2020.
We will continue to bring creative new ideas to the recruiting environment and strategically invest in our value proposition as we have over the last few years to bolster our growth opportunities.
As shown on the right our Canadian agent Count grew by 240 agents highlighted by solid gains in Ontario, and Qubec that offset losses in the West Canada is ongoing growth and market share strength continues to be a highlight of the remarks story.
Looking at slide six remix is widely known as being the home of the top producer our per agent productivity levels or the envy of the industry remarks agents consistently outsell other agents that large brokerages by more than two to one.
Several fundamentals tend to drive agent success within our industry. For example, many successful remarks agents to ride the bulk of their business through repeats and referrals. We see this especially among established top producers who built large database is through their relationships community presence and pass clients.
Even so every agent has felt the pain of seeing a competitor sign pop up in the yard of a friend or pass client in the industry almost all client cidade use their age and again, but only a very small fraction actually does that's because agents aren't staying as connected to their sphere as they should.
To help solve this problem remarks acquired first a north Carolina from recognized for its industry innovations. The first App uses data machine learning and predictive analytics to analyze and agents contacts and identify those most likely to move soon.
The app, serving as an intelligent coaching platform then prescribes the strategic action plan for the agent to reach out fortify the connection and be top of mind before any potential move.
With a proven product already on the market first has had a strong track record since its 2016 launch it signature App is a great complement to our current tech offerings and could help make our highly productive agents even more productive.
The acquisition makes the first App a remarks exclusive although current subscribers will be able to use it until their existing contracts run out by the end of 2020 after that they'll need to join remarks access the product and we will of course welcome them to do so.
Remarks agents will access the first step at a heavily reduce subscription price from the normal rates users have paid given the apps quality and the impact it could have on an agent business. We believe this price point will be attractive to our membership and enable us to continue the expansion of our technology offerings.
The first app as well as other products capable of being developed by the first team represent yet another competitive advantage for remarks affiliates. Additionally in acquiring first we not only acquired the App, but we also welcomed another impressive group of real estate technology professionals to the remarks family at a time when software developer steeped in machine.
He learning at predictive analytics are difficult to find it's wonderful to be adding top industry talent as we build on another of our competitive advantages technology leadership and bench strength.
Turning to slide seven we completed the initial rollout of the boost platform during Q4, including customized agent office and team websites. Many of our brokers and agents have been designing their updated web sites over the past couple of months leveraging the easy to use boost platform and that number grows each week.
Earlier this month, we launched our new consumer real estate search app as well as the refreshed remarks dotcom website designed to help consumers find homes and connect with agents. These releases leveraged the number one brand in real estate and deliver real time leads and contacts to remix agents. They also further demonstrate the focus and commitment remarks has on providing.
Oh, Gee that enhances the home buying and selling experience and deepens the relationship between clients enroll state agents the remarks real estate search out as a highlight designed by boost it is a powerful tool that streamlines communication between a remarks agent and consumer at every step of the home buying transaction.
Your next agents can give their clients are personally branded app, which allows consumers to share all their needs favorite properties and save searches with the agent essentially taking the conversation out of the office and into their hands consumers without a preferred agent can find in interact with an agent within the app.
Also introduces new search functionality like augmented reality.
Consumers can point their phone at a home on the market and instantly receive relevant information, including property details a mortgage breakdown and comparable listings then with one click they can inform their Asian about their interest. Additionally remarks, app users can search properties nearby or by drawing specific map boundaries. The rematch real estate search App is available.
For download across the United States.
Likewise, the relaunch of remarks dotcom provides a lot of backend improvements for agents and teams and interconnects with their booz powered agent office and team websites a big enhancement is that information and searches via web site, our instantly shared on the mobile app, giving the consumers all the tools they need at their fingertips, regardless of their location the launch of the new.
Remarks, dotcom and remarks that builds on our vision of becoming the global leader and real estate technology remakes agents already average more sales than other real estate agents. This technology suite is designed to add to that strength and productivity, while creating a better experience for the consumer.
Moving to slide eight the other headline of the fourth quarter was record quarterly motto franchise sales the strength and franchise sales that we saw beginning in September continued through the ended the year.
Sensing opportunity, we launched a targeted motto marketing event in Q4, which helped spur additional sales we flew about 20 interested parties to Denver for a meat motto showcase event. In addition to hearing a current motto owner discuss his experience attend he's got to meet the motto team in person and learn more about this unique franchise opportunity all while interacting with other.
Perspective franchisees.
And encouraging fact about the event was that only about 10% of the attendees were remarks affiliates. The rest were from outside the remarks family.
The discovery event was a great success, and we intend to do it again soon.
Adding to our momentum are the industry accolades model continues to receive including recently, earning a place on entrepreneur magazines franchise 500 list ranking number one in the miscellaneous financial services category for 2020.
Recognition in the franchise 500 is a major honor in the franchise industry and this is the first time motto mortgage has been included in the general rankings as a three year old startup breaking first in its category motto is in rare company.
Since its launch in October 2016 motto has grown quickly averaging 50 franchise sales a year or once a week. The brand currently has over 100 offices open across more than 30 states, but it was also among the top 5% of the fastest growing emerging franchises. According to franchise grade.
Model continues to grow rapidly revenue increased almost 80% in 2019 and open offices increased more than 40%.
Mottos impressive growth trajectory is perhaps best reflected by the fact that the motto mortgage network of office is closed over $1.1 billion in loan volume and served over 5000 families. In 2019, reaching this milestone is a significant accomplishment for any mortgage company, but it is especially notable to achieve it and only three years' time.
Model continues to disrupt the mortgage industry by providing exceptional service more options transparency and convenience for consumers.
Model not only creates in the ancillary business for current real estate brokerage firms and prolific real estate teams, but also offers opportunities for mortgage professionals seeking to open their own businesses as well as independent investors interested in financial services.
We see continued demand from each of these customer types interest in owning a motto franchise remains high and we expect to surpass our 2900 franchise sales total in 2020 with that I'd like to turn the call over to carry.
Thank you Adam Good morning, everyone fourth quarter results were highlighted by the encouraging performance in our two key leading indicators improving U.S. agent count and increasing motto franchise sales for the full year 2019, we were pleased with our resilient revenue and margin performance. Despite the soft housing market that prevailed during the.
First part of the year.
We also continue to invest strategically as Adam mentioned the remarks technology transformation is well underway and we are excited about the recent acquisition, a first and if mobile app.
Turning to slide nine revenue increased to 68.2 million during the fourth quarter due to the acquisition of the marketing funds on January 1st.
The expansion of motto and an improving housing market essentially offset lower revenue caused by declining booze legacy customers and reduced average U.S. agent count.
Excluding the marketing fund organic growth was virtually flat foreign currency movement also had a negligible impact.
Continued attrition of Boozers legacy customer base adversely affected revenue by about 600000 in the fourth quarter.
Excluding that impact our organic growth increased 1.2%, marking our first quarter of organic growth ex legacy Booz customer. Since Q4 2018. This is a welcome development and reflects the growth of motto improving agent count results and the rebounding housing market.
Trends, which we expect to continue in 2020.
Looking at slide 10, selling operating and administrative expenses were 35.2 million in the fourth quarter of 2019, an increase of 5.1 million or 17% compared to the fourth quarter of 2018 and represented 69.3% of revenue ex the marketing fun compared to 59.
9.1% in the prior year period, so any expenses increased primarily due to higher equity based compensation expense the unfavorable timing of certain annual regional events and increased legal expenses.
Moving to slide 11, we acquired first in late December using 15 million of cash on hand, plus time based equity awards, notably this is the second time, we included equity as part of the compensation provided to the sellers of an acquired asset we view our equity is accompanied.
Manage and it has made a difference in both abuse and first acquisition.
As mentioned previously we will employ pay as you go method when it comes to charging users on the first mobile app, the roughly $49 monthly subscription cost it's heavily subsidized and we believe it is a great value for those remarks agency choose to subscribe to it and it is yet another terrific benefit available exclude.
Basically to remix affiliates.
We expect the first acquisition to be dilutive to 2020, adjusted EPS by four to six cents per diluted share and then be accretive to 2021, adjusted EBITDA and adjusted EPS.
Some of our competitors our business generates healthy amounts of cash with over 70% of adjusted EBITDA converting to free cash flow on a trailing 12 month basis generous cash flow means more capital available for those initiative, which we expect to deliver the best returns.
We will continue to strategically invest to spur future growth opportunities like the exciting first mobile app as well as important recruiting and marketing initiatives for both of our brands, while we simultaneously return capital to shareholders.
Earlier this week, we announced an increase to our quarterly dividend just as we have done every year since going public in 2013.
In addition, we're refreshing our corporate office space with an eye on increasing productivity improving the office environment for our colleagues will simultaneously reducing costs.
Our capital allocation priorities remain unchanged, we plan to continue to allocate capital to acquiring independent regions reinvesting to drive future organic growth exploring other strategic acquisitions and partnerships and returning capital to shareholders. We have healthy competition for capital within our company.
As leaders at both brands have compelling ideas to energize future growth.
Through organic and M&A opportunities.
Turning to slide 12, before I get into our outlook a few items to note first as strong as our fourth quarter agent count results, where we acknowledge it was a unique corner with a confluence of activity in factors that Adam previously mentioned.
We expect our agent count results will continue to improve in 2020 on a year over year basis, but just not at the pace we witnessed in Q4.
Embedded in our 2020 agent count guidance is the expectation that we should be flat to slightly up in Canada that will grow at a double digit pace internationally and then we'll continue to add agents in the U.S., our 2020 aging growth in the U.S. will likely be measured in hundreds of agents.
Second we invested to help revitalize our recruiting efforts.
As we have done in the past our Q4 recruiting campaign incentivize our remarks broker owners in part by leaving certain fees, our newly recruited agents for a limited time.
As a result, we expect we will forego two to 3 million in non marketing fund related revenue through the third quarter, we realize the lifetime value of these agents is worth the opportunity cost many times over.
These incentives are intended to be an investment in our franchisees and agents businesses and reduce the barriers of changing affiliations.
Third as mentioned on our last earnings call faster than anticipated attrition of Boozers legacy customer base combined with higher legal expenses associated with industry litigation are expected to adversely impact 2020 results by approximately four and a half million in aggregate now onto our 2020 out.
The company's fourth quarter and full year 2020 outlook assumes no further currency movements acquisitions or divestitures.
For the first quarter of 2020, we expect agent count to increase 4% to 5% over first quarter 2019 revenue in a range of 68 million to 71 million, including revenue from the marketing funds in the range of 17, and a half million to 18 and a half million.
Adjusted EBITDA in a range of 18 million to 20 million.
For the full year 2020, we expect agent count to increase 3% to 5% over full year 2019 revenue in a range of 285, and a half million to 289, and a half million, including revenue from the marketing funds in the range of 73 million to 75 million.
And adjusted EBITDA in a range of 96 million to 99 million now I'll turn it back to Adam.
Thanks, Kerry moving to slide 13, we concluded 2019 at a high note with a rebound in our U.S. agent Count Historic quarterly model franchise sales and a return to organic revenue growth, excluding buege, our technology and other investments are yielding encouraging result, and we look forward to building on our momentum in 2020 without.
Operator, let's open it up for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.
Please limit your questions to one plus one additional question you May press star one to reenter the queue. If you wish our first question comes from Stephen Sheldon from William Blair.
Hi, good morning.
First here you talked about a lot of factors that drove the improvement you agent count, which which was certainly good the but just curious your view of how impactful each of those factors war between the recruiting incentives.
The booz rollout broader outreach efforts and then.
On the incentives is that something that you may continue doing and how do you think about the ROI.
Okay.
Good morning, Stephen It's Adam first of all we're really excited about all of these things kind of coming together, we've been working on a lot of different projects over the past call it a year or two.
Between when we acquired boost to the build out of that and progressive launch of that as well as the acquisition of first.
The recruiting incentives, bringing on our chief customer officer, Nick Bailey. So you know as far as separately impactful I think everything is stronger as a whole when it comes to all this because this is kind of the whole package of what agents are looking for in order to operate their business moving it forward and into the new decade here. So.
We're we're excited about that because we are seeing.
We're seeing things hit the street, we're seeing results and we're seeing sentiment, which ultimately we're in a business of community and sentiment and the people that they get excited about running their business go out and run it better when they feel like they're confident in the tools and the processes that they have to do so so ultimately that's the foundation of what we've been build.
Got it I'll turn it over to our Chief customer Officer, Nick Bailey and he can kinda talk a little bit more about the incentives and kind of the the mechanics and some of those recruiting aspects, yes. Thanks Adam.
We were super thrilled at the launch of our recruiting system and it wasn't one lever that actually impacted it was the combination of our direct.
Engagement of creating a recruiting system that had many many different levers the best part of it is we had thousands of our brokers engage in it and recruiting is contact sport and so when you put together education, a tech platform communication direct engagement from our leadership team and incentives and.
[music] package that together that was the secret sauce that created so much engagement that we believe our recruiting results were a direct result of that packaging.
And then even this is carried US building on what Adam and Naked study specifically asked about return on investment. We we very much look at the lifetime value of our agents and what is the customer acquisition costs to recruit though than really drive topline growth growth just given overall strength of our business model. So the incentive programs. They are things that we have done.
In the past as Nick said, they were part of a much broader initiative focused really to drive topline growth and so you know, we're looking to balance that across all capital allocation decision.
Got it okay.
And then I guess, it's Paula sounds like gross additions were better was there any notable change or improvement in the agent retention side in the U.S and Canada as well.
You know retention remains pretty much flat you were really focused on the recruiting side of the house because historically you know as we.
Entered into 2019, it was the top of the funnel, where we were really focusing our efforts.
Because that's what we really needed to accelerate so no real material changes to overall retention activity.
In the quarter.
All I have one thing carry to that as we look at the continuation of.
This system that we implemented in Q4 and as it leads into 2020, we look at recruiting retention as both activity drivers here and retention is a key pieces, we're moving into Q1 that is.
I will become even a bigger part of the system that we launched.
Great. Thank you.
Our next question is from Vikram Malhotra of Morgan Stanley.
Oh, Thanks for taking the question case, you can this outline.
The margin sort of just clarify the margin EBITDA margin impact because of the transaction and all the investments in 20 and sort of when exactly that's supposed to turn to be a benefit into anyone.
Yes, no. Good morning, Vikram its great questions. I think you know the resiliency in the strength of our model is definitely one of our most and strongest competitive advantages and the leverage in the business. Obviously continues to remain and we've really invested for that long term topline growth and we're really beginning to see the result.
So for that in terms of just outstanding Q4 agent count growth in the you asked a bounce back not to mention a record quarterly.
Franchise sales performance for motto, there's definitely some noise in the guidance for 2020, obviously the impact of legacy Booz customer base and increase litigation cost of about four and a half million that the drag on earnings and then also as we look at a couple of other factors that are impacting guidance for next year. Those are really designed to contain.
Can you to diversify revenue and position us well for earnings growth in the future. So the first is related to the first acquisition. So are expecting that to have a dilutive impact in 2024 to six cents to diluted adjusted EPS and about a million and a half the two and a half million to adjusted EBITDA and in 2000.
Tony and then the fee waivers that Nick was talking about I think the thing that's really exciting from our perspective, though is that those those things that are kind of noisy for 2020 are going to have.
More impactful impact the kind of Q1 in Q2 of 2020, you know kind of looking at flattish it flattish organic growth in those quarters, but then as we get into the back half the year there's definite.
Definite path to ramping up that organic growth as we look at a continued narrowing of the net investment in Mato as we look at opportunities to grow adoption of first not not only in terms of the price point, but also in terms of increase productivity and then also just the momentum that Nick was real.
We talking about from a recruiting in our attention perspective around agent count. So there's a lot of opportunities to look to really drive the leverage in the business.
And take advantage of the strength of the business model because of the investments that we've made to drive that topline growth.
Okay, Great and then.
Just on the Asian sort of recapture or now kind of flattish growth in the U.S. specifically after a couple of years have declined just.
Why don't understand how all that technology, the investments are making or put position you better to compete one against the legacy brick and mortar the religious either of the world.
And do the laws of the world like what are you looking when the agent recruiting what's the data telling you conversations telling you how are you competing.
Hey, good morning, Vikram its Adam.
Great question. It was something to take note of here is realistically where does the business foreign agent come from and ultimately the the majority of the opportunity for business for an agent comes from the people that they've had contact with in the past and this is one of the key aspects of our most real.
Our acquisition and the launch that we're doing here next week of the first platform. What we know is.
Agents want to go where they have the ability to build their business and that's the Foundationally. What remains is based upon is giving people place where they can build their business.
You know as great as they want it to be and what we know on top of that is that agents.
Potentially are missing up to 70% of business in their contact list. So with the AI platform the technology of first as well as rolling it into the foundational.
Very leading edge technology that that Bush platform is launching we're giving agents a place that they can.
Basically go after some of the business that they're looking at as opposed to going out and trying to buy the business out of the marketplace. So we want them to build their business organically and we know that this works based upon the statistics that we've seen.
In reviewing how an agent builds their business. So ultimately this is the past years been a significant ramp up to this of gaining the confidence the direction the focus of the agents in helping them.
Focus on building their business and helping our brokers and the owners of the franchises at the age is focused on this through training and notification release things like out of these product sets. So essentially that's that's why we're we're optimistic about the the direction of recruiting agent growth things like that because.
Ultimately, we're here to help agents do more business and in helping age do more business, we help our franchises grow it. It just is a cycle that built upon itself and we feel like we've put the appropriate pieces in place an order for that to be.
You know positive into the future.
Adam.
That.
There's one thing that I would say, we when you ask about comparison say two competitors. There is a piece of it that we believe we stand in a category of our own because of the productivity of a remarks agent nearly two to one of the competition and so when you asking the industry.
About the quality of a remarks agent and agent at remarks makes more money because they sell a lot more houses and so the foundation of what Adams referred to with the investment. It first fully supports exactly what the foundation of this company is which is our agent sell more real estate and we're having we're putting tools in place too.
Allow them to expand and grow that business and sell more real estate and that is not the same motivation with some of our other competitors.
Because we're not all things to all people, we know where our niches with top producers.
Okay and just last question side. This is something that I guess, we've been.
I've been trying to get more color on in terms of the there is a brand there is the strength to the agent base their higher producers the whole mix, obviously benefits both threemacs an agent but.
In terms of just the organic power.
The franchise fees and the annual views several years ago, you had talked about in Canada, having automatic bumps refranchise views, but you never really instituted in the U.S. you tried it I think you increase did once a couple of years ago, but.
I'm just kind of wondering is this kind of a driver that in this environment. We're in just does not exist now you cannot bush views and franchise fees anymore for agent.
Hey, good morning, Decrement carry so you know from a from a pricing perspective, we're always looking at evaluating the value that we delivered to our network and we're evaluating that from a pricing perspective, yes. At this point that we haven't announced any changes the pricing, but it's absolutely something that we're evaluating we've talked a lot about the.
Investments that we've made and something that we continue to evaluate.
Okay, Thanks, and follow up offline.
Our next question is from Tommy Mic join of KBW.
Hi, guys. Thanks for taking my question I wanted to go back to the recruiting campaign and just try to get a sense. If you guys see that as kind of a onetime thing or if that could become part of your regular campaign and then when you think of the markets that you rolled it out and was it just really competitive and I say that was a more broad.
Based across country.
Hey, Tommy it's Adam.
I'll I'll say, a couple of things I'll pass it over to Nick has truly he's he's kind of the captain in a ship of this this massive growth push in its really exciting from our perspective, but ultimately.
What we started here was.
Ill get everybody together get everybody pointed in the same direction excited about this and and start delivering some significant major value here in order to help people grow their businesses so that.
That's foundationally, what we're talking about agents want to be someplace that that really is encouraging for them to grow their business because.
You know when you when you walk into a business or have contact with a business. It's a big big difference in the consumers ice to see somebody who's.
Who they recognize is being that full time professional with a big smile on their face in a positive optimism in order to help them. It will accomplish their goals and overcome their challenges. So what we've done is get everybody together, we've we've aligned our strategies and tactics and then Nick has taken us and run with it.
Pass up to him to get a little deeper.
Without a doubt this is a long term permanent play for us that will make adjustments and investments in along the way Q4, we did broadly to us in Canada to all markets. So it was not just within specific MSC is because we have growth potential with our footprint.
All.
In all of our markets. What we'll continue to do though is really frame our entire culture around recruiting so here's a great example, we have our big annual conference next week, and we have the highest attendance.
This coming year that we've had in a decade and it includes a number of guests that are looking at our company to join US and so that is one component of how we look at this entire system of a number of.
10 to 12 different levers, we can pull and use quarter over quarter to make adjustments throughout the year to keep this program fresh and enhance and top of mind, but it will be the foundation of.
How we think about all of our engagement tools and services.
For our brokers.
Got it thanks.
And then switching over appreciate the the motto slide and the deck on kind of breaking out the revenue in the.
Earnings from that.
You guys think about the growth trajectory, obviously, it's moving toward breakeven.
I guess, how do you think about the incremental margins on that business relative to traditional remarks franchises.
Yeah. Good morning, Tommy at Curiously other occasions, where you're referring to is in the appendix of the Dakich on page 21, and we want it to provide a little bit more transparency into motto because it is a great threaten growth driver in and great diversification of revenue for us as we look at.
At the top line I mean, it's grown the topline almost 80% this year and I think importantly, the net investment continues to narrow on that and so you know looking you know continue to feel that in kind of the back half of next year as when we would look at that business unit moving towards breakeven and then over the long term the inherent leverage in.
The motto business model is exactly the same if not better than it is on the remarks side. So from a long term growth Perth signs off.
The margin the margin upside there are significant.
Great. Thank you.
Our next question is from John Campbell from Steven.
Hey, guys. Good morning, Great work on the agent growth rebound and congrats on the on the consumer at launch in the web site.
On the on the first acquisition that seems like a nice strategically if you guys I'm curious about the revenue synergy opportunities kind over the long haul it sounds like.
Gary I think you said you guys are subsidizing the cost agents I think you said $49 per month so.
First how much of it have a discount is that to the prior market rate and then secondly, any sense for how many agents already use first out of your base.
Yes, so great questions I think the thing about first that we're really excited about is it is a way that we can look to diversify our revenue and at the same time, providing exclusive value to our network of highly productive agents in terms of really enabling them to increase their productivity. The discount is about a 50% discount.
The euro compared to the to the list price and then you know there's kind of in hundreds of agents that have been on the platform I think most notably, though and we have very much been engaging our network. So not only the booz process that were very.
You know with Adam and next leadership very engaged with and that we're trying to understand what are the tools in the market better impactful than we had heard very very positive result of some of the remarked users who are already on the on the first platform and so it's something that we're extremely excited about from a strategic perspective.
From a revenue diversification perspective, but also from a talent perspective, just as we look at really building the bench strength of technologist within the organization.
Okay, and then as a follow up to that.
There was a question asked earlier about the agent fees is there ever a potential where you get you garnering enough adoption. We can just basically give it out quote unquote for free and then basically rate use as a basis to raise agencies.
Yeah. Those are all things from a fee perspective, there we're constantly evaluating and we look to balance. So it's part of the comprehensive view that we take in terms of evaluating the value proposition.
And then what what the associated.
Cost of investments are from our agents and from our networks to be able to put them in a position to grow their business in the most efficient manner.
Okay, and then one little quick tack on on that on the.
Humor App and.
Recall remarks, dot com, whatever kind of internal capabilities you guys look at.
That kind of gauge success for you guys.
I mean right now we're definitely focused on you know looking at adoption, but you know right now the you know we've had a lot of people who have accessed the system.
But it's really it's really knew and so we've got internal metrics on that we'll continue to monitor those and as it's been up and running an operational for a longer period of time, we'll continue to evaluate disclosing stuff externally.
Okay, great. Thanks, guys.
Our next question is from Ryan Mac event in Selman and those ships.
Hey, Thanks, so much guys good morning.
A big picture question on the comment around just alignment of interests and some of the strategy is between you guys at corporate and the franchise owners and.
Maybe this is for Nick but I think on on one hand people can on the surface look at the new recruiting efforts and say, okay, well, that's just kind of competing on the economics and ended the day surely theres a lot more going under the hood on competing on the true value proposition both to the franchise owners and the agent. So Nick I'm curious just from.
Active on this.
It should we be thinking about that balance between kind of the economic side of things versus the value prop side of things and then in your field work in your discussions with franchise owners, maybe just walk us through and wondered what are the biggest pain points of the franchise owner base today I know, it's not necessarily just specific to you guys. They can industry dynamics what keeps them.
But what are they most focused on and how can you leverage that you provide better value better solutions that are better partnership et cetera.
Great Great question, we love this one because what we have found.
This is something that has been for a number of years in the industry that when you ask agents why they join why they leave why they move.
Price is never at the top of the list. It is driven by culture and productivity bottom line is if you don't sell houses it doesn't matter what the economics are and so what we tried to look at is what are those things that are are important to an agent to consider in making that moved to increase that.
And then when we talk about your question specifically around incentives. We also look at what are the barriers for an agent specifically to change affiliation and if we can directly go back and help the broker the agents solve those barriers to changing affiliation.
Becomes a win over.
Purely the economics of price it is more about culture and value and.
Productivity.
When we look at brokers and what keeps them up at night. We know this that we have brokers across our system that our new we have some that have hundreds of of agents in multiple locations and so those items will vary based on our our affiliates are field team then focus is very specifically.
Within how we categorize our our ownership within four different categories of what the needs are and we then turn back and deliver in a service model based on where they fit in each one of those categories. So easier said is it's not all things.
To the same audience, we cater those services to make sure that we're focusing in helping them, helping them grow as far as what keeps them up at night.
[music].
I don't know if I could answer that for every single one of our brokers, but we go back to Foundationally they want to grow their business. They want their agents to be more productive and move into making sure that they have a profitable company and so we design all of this around supporting those three pillars and the investments we.
Talked about with technology.
And education and training.
All support those efforts.
That's very helpful. Thank you.
On the international side of things. So obviously, we've we've all seen the very very strong agent count growth.
Can you just update us on kind of though the longer term broader thesis with the international markets.
Is there incremental monetization opportunity.
Kind of technology investments, you're making the U.S. present prison longer opportunity longer term opportunity there.
Maybe just give us the big picture because obviously the growth is very compelling, but I think for all kind of wondering if somebody that translates to too much meetings and much more meaningfully.
Monetizing that side of things.
Hey, good morning, it's Adam.
The answer is yes, I mean is you know, we're we're laying the foundation in the United States.
Spreading through North America and globally, that's the intention with.
These different pieces of the the value puzzle in the rule state.
Sales place as well as you know in the mortgage space as well so.
We are looking at long term, we're excited about the opportunity and that's why when you see these different.
Additions to remix holdings, you'll notice that a great deal of it is our pursuit of talent.
So that we can continue to.
To build upon the value not just in the U.S., but also globally with giving other people the opportunity to utilize these these tools and services that are really.
Forward looking and cutting edge in our space.
I'll I'll add one thing to that specific on the technology and global Yes. We are looking at that as how we can launch in Canada. Specifically is the next step and then how we can support.
Global.
Within that roadmap and so we are looking at this as global solutions for sure within our entire network and it's a matter of how we prioritize and tightened them.
Got it thanks, so much.
Our next question is from Anthony Paolone of JP Morgan.
Thank you my first question relates to the first can you tell us how many subs you need and 2021 for you all to consider.
The product success and also the $600 year like are there any other apps or applicant or things that agents are currently using that you think.
Stop using to spend money on this or other competing things that that this replaces.
The first part of your question Tony its carry you know we're launching first here on Monday at our annual agent Convention that Nick was talking about we're really excited about it and you know we do you believe that it will be accretive in 2021, no as we have as we go through the year and we get through the launch will have more visibility into provide.
Adding additional additional metrics.
From that from that perspective, and then in terms of additional.
Additional features and functionality, whether that's first or other thing I mean, we think that this is a really compelling opportunity because it's really driving the heart of lead generation for our agents, which has repeat and referral business and we think that it will really position are already highly productive network to be even.
More productive the return on investment for our agents to be spending in the other roughly $49 a month is much higher.
Based on how we've looked at it.
Compared to other products that might be in the marketplace.
Yes, Caridad one thing when you look at the the question you ask about what may be will they not spend on I think that there is.
Within the industry.
Agents are losing patience on quote just buying leads in general and carries point, we know top producers that the repeat referral business is where the vast majority of their income comes from and that's why we're solving for that.
If you look at according to real true dotcom the number of leads in the U.S. in 2011 were around four and a half million seven years later, it's 90 million, but the number of Homesales has not changed in that same respective fashion and so there are more leads flying around our industry that can be purchased but yet agents are now questioning what is.
That return versus solving for the fact that they generally in many cases have the leads that they need it's just how do the best engage with them within their own sphere, and then turn them into business and that's where we're getting very focused because it has the greatest potential uplift.
Okay.
And then just my follow up question is are.
This includes being spent on technology and so forth, but can you talk about just.
Below the line or for Capex spending and Twentytwenty and the potential for other acquisitions. It sounds like you're starting to be focused on.
Matt as well.
Sure so from a capital allocation perspective specific tech capex, So capex from a technology perspective in 2020, well look pretty similar to what it looked like in 2019. So call. It you know kind of 11 to 13 million and we are going to have a little bit of an increase in capex in 2020, as we mentioned on the scripted remarks because.
Some refresh that we're doing to our corporate headquarters really with the long term guys have looking to really optimize our cost structure and focus on profit improvements in kind of 20 122. So that so capex will go up a little that because of that and then in terms of more broadly capital allocation decisions I mean, we can.
Can you to be disciplined from a capital allocation perspective, and those priorities remain unchanged. However, obviously with NEC and ward.
Place now there's a lot of ideas in terms of how do we accelerate growth what are the different growth opportunities and we continue to evaluate different acquisition opportunities that will drive the most value while at the same time, having that commitment to returning capital.
Okay. Thank you.
Our next question comes from Chris Gamaitoni from Compass point.
Hi, Thanks for taking my call.
Money on the on the first acquisition I was hoping to better understand moving to accretion in 2021 is that assumption on a unit level pricing that you make money in the actual units or is there an underlying assumption over to accelerating kind of agent recruitment AD sales per.
Good where all in that that's accretive I'm, just trying to understand what's implied by that statement.
Yes, so I mean, a lot of it is driven by the monthly subscription, but yes. There are other factors, especially with regards to productivity so from a historical perspective.
We believe that there are opportunities for productivity increases.
And then you know from a recruiting and retention perspective, a little bit of an impact from that as well.
Okay.
And then maybe you could could you help us understand how you view your customer acquisition costs, maybe multiple on forgive him on the incentives the greater investment Tech.
From an outside there's a lot of investment spending to get agents and just understanding how would you view kind of those is multiples.
And gathering over the life of all the major.
Hey, good morning, it's Adam.
This is.
It really kind of a holistic approach to.
Creating a directional shift in the marketplace of Hey agents. This is the place where you can find.
The greatest value delivered business the best.
For yourself so.
You do have to stimulate some movement in doing so.
Ill make some investment in the marketplace in order to to get attention and demonstrate that value as well as to as you've seen make the appropriate acquisitions to build upon that value. It actually see a good return for those agents. So.
It's a holistic approach.
We feel that make new sentiment changes as well as the mechanical changes to help the agents business.
Is proving itself when when you look at just the the number of Andy's at our convention next week.
We didn't expect that we're super excited about it but but the excitement that's building.
Will be gets other excitement in our industry and people start to look at our agents ago. Okay. Why are you doing more business. While we have these different opportunities between boost in first and the new marketing campaigns and.
The growth within our brokerages so.
It all kind of place together.
You know ultimately our goal is to deliver greater value to our agents and as we you know.
We're doing that I can I can assure you have that based upon the recent launches that we've been involved in over the past call. It six to 12 months and other people are starting to take notice of that and it creates a movement. So I'll throw it to Nick if you have anything else there.
No I don't think I do not all right I agree with you and we got it.
All right. Thank you.
You bet. Our next our next question is from Vikram Malhotra of Morgan Stanley.
Thanks for Indulging me just wanted to clarify two things.
Can you give us what the embedded or clarify what the embedded.
Agent growth guidance is for for the U.S. specifically in 2020.
Yes, so we do expect the U.S. agent count growth kind of in the hundreds of agents.
You know, we think that there was solid momentum in that bounce back for Q4, and obviously you know we are positioned well for growth near the magnitude of that we'll obviously continue to monitor as we get through the year.
Okay. So positive increase and then just bigger picture any update on.
Let me read or sort of the DJ investigation that we're going to only request for data from from another company, it's hitting the name, but any update on the legal issues.
Yes.
No we can't comment on any of the industry specific litigation I mean, obviously, the one thing I would say is just given the strength of the business model the productivity of the agents and the diversification of our revenue, we think we're well positioned regardless of what happened.
Thank you.
Thanks Victor.
We have no further questions at this time.
Thank you operator, and thanks to everyone for joining the call today that concludes the call have a great weekend.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].