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RE/MAX Holdings Inc (NYSE:RMAX)
Q4 2019 Earnings Call
Feb 21, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the RE/MAX 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 Andy Schulz, Vice President of Investor Relations. Mr. Schulz?

Andy Schulz -- Vice President of Investor Relations

Thank you, operator. Good morning, everyone and welcome to RE/MAX Holdings fourth quarter and full year 2019 earnings conference call. Please visit the Investor Relations page of remax.com for all earnings related materials and to access the live webcast and the replay of the call today. If you are participating through the webcast, please note that you will need to advance the slides as we move through the presentation.

Turning to slide 2. Our prepared remarks and answers to your questions on today's call may contain forward-looking statements. Forward-looking statements include those related to agent count, franchise sales, financial measures and 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. RE/MAX assumes no obligation to update any forward-looking statements in the future. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those projected in forward-looking statements. These are discussed in our fourth quarter and full year 2019 financial results press release and other SEC filings.

Also, we will refer to certain non-GAAP measures on today's call. Please see the definitions and reconciliations of non-GAAP measures contained in our most recent quarterly financial results press release which is available on our website. Joining me on our call today are Adam Contos, our Chief Executive Officer; and Karri Callahan, our Chief Financial Officer. Ward Morrison, President of Motto Mortgage; and Nick Bailey, RE/MAX's Chief Customer Officer will join us for the Q&A.

With that I'd like to turn the call over to RE/MAX Holdings' CEO, Adam Contos. Adam?

Adam Contos -- Chief Executive Officer and Director

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 3, recent RE/MAX recruiting initiatives and Motto marketing efforts generated positive results almost immediately, leading to a bounce back in our US agent count and a record Motto franchise sales. Two of 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 quarter's encouraging results. Combined with the relatively attractive housing markets in both the US and 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 $0.47, total RE/MAX agent count increased over 5%, exceeding 130,000 agents for the first time in our history and the technology transformation at RE/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 quarter's headline. Improved agent count results. Turning to slide 4. 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 US agent count grew by almost 600 agents quarter-over-quarter primarily in company-owned regions. Worldwide, we added over 2,600 agents quarter-over-quarter and over 6,600 agents, year-over-year. The strong fourth quarter performance helped us finish 2019 with more than 130,000 agents 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 of RE/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 US 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 Southeast Asia led the way. And the top performers in 2019 by country, included Argentina, Peru, Italy and India.

Moving to slide 5. In the US, our agent count rebounded during the fourth quarter, exceeding our expectations. As I've mentioned previously, rejuvenating our US 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 US agent count was flat year-over-year, it actually represents a large turnaround. Given the number of agents we added between October 1st and December 31st along with lapping some easy comps from the prior year, we successfully raised a year-over-year deficit of 1,700 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 enterprisewide 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 launched an agent recruiting initiative in October for the US and Canada. At 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 reminder that consistency, incentives and organizational focus can drive growth.

It's also important to note that we believe our Q4 US 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 RE/MAX value proposition and effectively activate our network to make growth a priority are starting to show up in our results. We stabilized our 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 Quebec that offset losses in the West. Canada's ongoing growth and market share strength continues to be a highlight of the RE/MAX story.

Looking at slide 6. RE/MAX is widely known as being the home of the top producer. Our per agent productivity levels are the envy of the industry. RE/MAX agents consistently outsell other agents at large brokerages by more than 2 to 1 [Phonetic]. Several fundamentals tend to drive agent success within our industry. For example, many successful RE/MAX agents derive the bulk of their business through repeats and referrals. We see this especially among established top producers who have built large databases through their relationships, community presence and past clients. Even so every agent has felt the pain of seeing a competitors sign pop up in the yard of a friend or past client. In the industry, almost all clients say they use their agent 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 RE/MAX acquired first a North Carolina firm recognized for its industry innovations. The first app uses data, machine learning and predictive analytics to analyze an agent's contacts and identify those most likely to move soon. The app, serving as an intelligent coaching platform then prescribes a 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. Its 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 RE/MAX 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 RE/MAX to access the product, and we will of course welcome them to do so. RE/MAX agents will access the first app at a heavily reduced subscription price from the normal rates users have paid. Given the apps quality and the impact it could have on an agent's 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 RE/MAX affiliates. Additionally, in acquiring first, we not only acquire the app, but we also welcomed another impressive group of real estate technology professionals to the RE/MAX family. At a time when software developers steeped in machine learning and 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 7, 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 websites over the past couple of months, leveraging the easy to use booj platform and net number grows each week. Earlier this month, we launched our new consumer real estate search app as well as the refreshed remax.com website designed to help consumers find homes and connect with agents. These releases leverage the number 1 brand in real estate and delivered real-time leads and contacts to RE/MAX agents. They also further demonstrate the focus and commitment RE/MAX has on providing leading technology that enhances the home buying and selling experience and deepens the relationship between clients and real estate agents.

The RE/MAX real estate search app is a highlight. Designed by booj, it is a powerful tool that streamlines communication between a RE/MAX agent and consumer at every step of the home buying transaction. RE/MAX agents can give their clients a personally branded app, which allows consumers to share all their needs, favor the 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 and interact with an agent within the app. 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 agent about their interest.

Additionally, RE/MAX app users can search properties nearby or by drawing specific map boundaries. The RE/MAX real estate search app is available for download across the United States. Likewise, the relaunch of remax.com provides a lot of back-end improvements for agents and teams and interconnects with their booj powered agent office and team websites. A big enhancement is that information in searches via website are 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 remax.com and RE/MAX app builds on our vision of becoming the global leader in real estate technology. RE/MAX 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 8, the other headline of the fourth quarter was record quarterly Motto franchise sales. The strength in franchise sales that we saw beginning in September continue through the end of the year. Sensing opportunity, we launched a targeted Motto marketing event in Q4 which helps spur additional sales. We flew about 20 interested parties to Denver for a Meet Motto showcase event. In addition to hearing a current Motto owner discuss his experience, attendees got to meet the Motto team in person and learn more about this unique franchise opportunity, all while interacting with other perspective franchisees. An encouraging fact about the event was that only about 10% of the attendees were RE/MAX affiliates, the rest were from outside the RE/MAX family. The discovery event was a great success and we intend to do it again soon.

Adding to our momentum are the industry accolades Motto continues to receive including recently earning a place on Entrepreneur magazine's franchise 500 list, ranking number 1 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 start up ranking first in this category, Motto is in rare company. Since its launch in October 2016, Motto has grown quickly, averaging 50 franchise sales a year or one a week. The brand currently has over 100 offices open across more than 30 states. Motto is also among the top 5% of the fastest growing emerging franchises according to franchise grade.

Motto continues to grow rapidly. Revenue increased almost 80% in 2019 and open offices increased more than 40%. Motto's impressive growth trajectory is perhaps best reflected by the fact that the Motto mortgage network of offices closed over $1.1 billion in loan volume and served over 5,000 families in 2019. Reaching this milestone is a significant accomplishment for any mortgage company, but it is especially notable to achieve it in only three years' time. Motto continues to disrupt the mortgage industry by providing exceptional service, more options, transparency and convenience for consumers. This model not only creates an 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 2019 franchise sales total in 2020.

With that I'd like to turn the call over to Karri.

Karri Callahan -- Chief Financial Officer

Thank you, Adam. Good morning, everyone. Fourth quarter results were highlighted by the encouraging performance in our two key leading indicators, improving US 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 RE/MAX technology transformation is well under way and we are excited about the recent acquisition of First and its mobile app.

Turning to slide 9. 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 booj, legacy customers and reduced average US agent. Excluding the marketing funds, organic growth was virtually flat. Foreign currency movement also had a negligible impact. Continued attrition of booj's legacy customer base adversely affected revenue by about $600,000 in the fourth quarter. Excluding that booj impact, our organic growth increased 1.2% marking our first quarter of organic growth, ex legacy booj customers since Q4 of 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 funds compared to 59.1% in the prior year period. SO&A 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 as a competitive advantage and it has made a difference in both the booj and First acquisition. As mentioned previously, we will employ a pay-as-you-go method when it comes to charging users of the first mobile app. The roughly $49 monthly subscription cost is heavily subsidized and we believe it is a great value for those RE/MAX agents who choose to subscribe to it. And it is yet another terrific benefit available exclusively to RE/MAX affiliates. We expect the First acquisition to be dilutive to 2020 adjusted EPS by $0.04 to $0.06 per diluted share and then be accretive to 2021 adjusted EBITDA and adjusted EPS.

Unlike 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 initiatives, 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 are refreshing our corporate office space with an eye on increasing productivity, improving the office environment for our colleagues, while 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 of both brands have compelling ideas to energize future growth, both 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 quarter with the confluence of activity and 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 that will continue to add agents in the US. Our 2020 agent growth in the US will likely be measured in the hundreds of agents.

Second, we invested to help revitalize our recruiting efforts. As we have done in the past, our Q4 recruiting campaign incentivized our RE/MAX broker owners in part by waiving certain fees on newly recruited agents for a limited time. As a result, we expect we will forego $2 million to $3 million in non-marketing fund related revenue through the third quarter. We realized 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 booj's legacy customer base, combined with higher legal expenses associated with industry litigation are expected to adversely impact 2020 results by approximately $4.5 million in aggregate.

Now, onto our 2020 outlook. 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 $17.5 million to $18.5 million, and 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 $285.5 million to $289.5 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.

Adam Contos -- Chief Executive Officer and Director

Thanks, Karri. Moving to slide 13, we concluded 2019 on a high note with a rebound in our US agent count, historic quarterly Motto franchise sales and a return to organic revenue growth, excluding booj. Our technology and other investments are yielding encouraging results and we look forward to building on our momentum in 2020.

With that, operator, let's open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Stephen Sheldon from William Blair.

Stephen Sheldon -- William Blair -- Analyst

Hi. Good morning. First year, you talked about a lot of factors that drove the improvement in US, agent count which was certainly good to see. But just curious, your view of how impactful, each of those factors were between the recruiting incentives, the booj rollout and just broader outreach efforts. And then on the incentives, is that something that you may continue doing and how do you think about the ROI of those incentives?

Adam Contos -- Chief Executive Officer and Director

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 year or two, between when we acquired booj to the build-out of that and then the progressive launch of that as well as the acquisition of First, the recruiting incentives, bringing on our Chief Customer Officer, Nick Bailey. So as far as separately impactful, I think everything is stronger as a whole, when it comes to all of this. Because this is kind of the whole package of what agents are looking for in order to operate their business moving it forward into the new decade here. So 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 get excited about running their business go out and run it better when they feel like they're confident, in the tools, in the processes that they have to do so. So ultimately that's the foundation of what we've been building on. I'll turn it over to our Chief Customer Officer, Nick Bailey and he can kind of talk a little bit more about the incentives and kind of the mechanics of some of those recruiting aspects.

Nick Bailey -- Chief Customer Officer

Yeah. 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 have thousands of our brokers engage in it and recruiting is a contact sport. And so when you put together education, a tech platform, communication, direct engagement from our leadership team and incentives and you 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.

Karri Callahan -- Chief Financial Officer

And then, Stephen, this is Karri, just building on what Adam and Nick had said. You specifically asked about return on investments. We very much look at the lifetime value of our agents and what is the customer acquisition cost to recruit those and really drive top line growth, just given the 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 top line growth. And so we're looking to balance that across all capital allocation decisions.

Stephen Sheldon -- William Blair -- Analyst

Got it, OK. And then I guess just follow-up, it sounds like gross additions were better. Was there any notable change or improvement in the agent retention side in the US and Canada as well?

Karri Callahan -- Chief Financial Officer

Retention remains pretty much flat. We're really focused on the recruiting side of the house, because historically 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.

Nick Bailey -- Chief Customer Officer

I'll add one thing Karri 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 and retention as both activity drivers here. And retention is a key piece as we're moving into Q1 that is will become even a bigger part of the system that we launched.

Stephen Sheldon -- William Blair -- Analyst

Great, thank you.

Operator

Our next question is from Vikram Malhotra of Morgan Stanley.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the question. Karri, if you can just outline the margin, sort of just clarify the margin -- EBITDA and the margin impact, because of the transactions and all the investments in '20 and sort of when exactly that supposed to return to be a benefit in '21.

Karri Callahan -- Chief Financial Officer

Yeah. Good morning, Vikram. It's great question. So I think the resiliency and the strength of our Motto is definitely one of our most and strongest competitive advantages. And the leverage and the business obviously continues to remain and we've really invested for that long-term top line growth and we're really beginning to see the results show for that in terms of just outstanding Q4 agent count growth in the US, that bounce back, not to mention our record quarterly franchise sales performance for Motto. There is definitely some noise in the guidance for 2020, obviously the impact of legacy booj customer base and increased litigation costs of about $4.5 million, that's a 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 continue 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 2020, about $0.04 to $0.06 to diluted -- adjusted EPS and about $1.5 million to $2.5 million to adjusted EBITDA in 2020. And in the fee waivers [Phonetic] that Nick was talking about. I think the thing that's really exciting from our perspective though is that those -- the things that are kind of noisy for 2020 are going to have a more impactful impact to kind of Q1 and Q2 of 2020, kind of looking at flattish organic growth in those quarters.

But then as we get into the back half of the year, there is definite, it doesn't impact to ramping up that organic growth. As we look at a continued narrowing of the net investment in Motto, as we look at opportunities to grow adoption of First, not only in terms of the price point, but also in terms of increased productivity. And then also just the momentum that Nick was really talking about from a recruiting and retention perspective around agent count. So there is 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 top line growth.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, great. And then just on the agent sort of recapture or now kind of flattish growth in the US specifically after like couple of years of declines. Just want to understand how all the technology, the investments are making -- are positioning you better to compete one against the legacy brick and mortar, the realities of the world and two, the zillows of the world, like what are you looking when the agency recruiting, what's the data telling you, conversations telling you? How are you competing?

Adam Contos -- Chief Executive Officer and Director

Hey, good morning, Vikram. It's Adam. Great question. It was something to take note of here is, realistically, where does the business foreign agent come from, and ultimately, the majority of the opportunity for business foreign 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 recent 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, foundationally what RE/MAX is based upon is giving people a place where they can build their business, 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 the 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 the booj platform is launching. We're giving agent 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 build their business. So ultimately, this is -- the past year has been a significant ramp up to this of gaining the confidence, the direction, the focus of the agents in helping them, focused on building their business and helping our brokerage and the owners of the franchises, get the agents focused on this through training and notification, release things like that out of these product sets.

So essentially, that's why we're optimistic about the direction of recruiting agent growth, things like that, because ultimately, we are here to help agents do more business. And in helping agents do more business, we help our franchises grow and it just is a cycle that builds upon itself. And we feel like we've put the appropriate pieces in place in order for that to be positive into the future.

Nick Bailey -- Chief Customer Officer

Adam, I'll add to that. [Speech Overlap]

Vikram Malhotra -- Morgan Stanley -- Analyst

Sorry, go ahead.

Nick Bailey -- Chief Customer Officer

There is one thing that I would say, when you ask about comparison, say to us, to competitors, there is a piece of it that we believe we stand in the category of our own because of the productivity of a RE/MAX agent, nearly 2 to 1 one of the competition. And so when you ask in the industry about the quality of a RE/MAX agent, an agent at RE/MAX makes more money, because they sell a lot more houses. And so the foundation of what Adam has referred to with the investment in First fully supports exactly what the foundation of this Company is, which is, our agents sell more real estate and we're having, we're putting tools in place to 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 niche is, with top producers.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. And just last question. So 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 a strength to the agent base, they hire producers. The whole mix obviously benefits both RE/MAX and agent. But in terms of just the organic power of the franchise fees and the annual dues, several years ago, you talked about in Canada having automatic bumps for franchise dues, but you never really instituted it in the US, you tried it. I think you increased it once a couple of years ago, but I'm just kind of wondering, is this kind of a driver that, in this environment we are in, just does not exist now, you cannot push dues and franchise fees anymore per agent?

Karri Callahan -- Chief Financial Officer

Hey, good morning, Vikram, it's Karri. So from a pricing perspective, we're always looking at evaluating the value that we deliver to our network and we're evaluating that from a pricing perspective. At this point that we haven't announced any changes to pricing, but it's absolutely something that we're evaluating. We've talked a lot about the investments that we've made. It's something that we continue to evaluate.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, thanks. I'll follow up offline.

Operator

Our next question is from Tommy McJoynt of KBW.

Thomas McJoynt-Griffith -- KBW -- Analyst

Hey, guys, thanks for taking my question. I want to go back to the recruiting campaign and just try to get a sense of if you guys see that as kind of a one-time thing or if that could become part of your regular campaign. And then when you think of the markets that you rolled out and was it just the really competitive MSAs or was it more broad-based across the country?

Adam Contos -- Chief Executive Officer and Director

Hey Tommy, it's Adam. I'll say a couple things and I'll pass it over to Nick, because truly he's kind of the captain of the ship with this massive growth push and it's really exciting from our perspective. But ultimately, what we started here was get everybody together, get everybody pointed in the same direction and excited about this and start delivering some significant major value here in order to help people grow their businesses.

So 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 when you walk into a business or have contact with a business, it's a big -- big difference in the consumers eyes to see somebody who's, who they recognize as being a full-time professional with a big smile on their face and a positive optimism in order to help them accomplish their goals and overcome their challenges. So what we've done is get everybody together, we've aligned our strategies and tactics and then Nick is taking this and run with it, and I'll pass it off to him to get a little deeper.

Nick Bailey -- Chief Customer Officer

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 and Canada to all markets. So it was not just within specific MSAs, because we have growth potential with our footprint 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 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 enhanced on top of mind. But it will be the foundation of how we think about all of our engagement tools and services for our brokers.

Thomas McJoynt-Griffith -- KBW -- Analyst

Got it. Thanks. And then switching over, I appreciate the Motto slide in the deck on kind of breaking out the revenue and earnings from that. When 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 RE/MAX franchises?

Karri Callahan -- Chief Financial Officer

Yeah, good morning, Tommy, it's Karri. So yeah, the page that you're referring to is in the appendix of the deck, it's on page 21. And we wanted to provide a little bit more transparency into Motto, because it is a great growth driver and a great diversification of revenue for us. As we look at the top line, I mean it's grown the top line almost 80% this year. And I think importantly, the net investment continues to narrow on that. And so looking -- continue to feel that in kind of the back half of next year, is when we would look at that business unit moving toward 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 RE/MAX side. So from a long-term growth potential, the margin upside there is significant.

Thomas McJoynt-Griffith -- KBW -- Analyst

Great. Thank you.

Operator

Our next question is from John Campbell from Stephens.

John Campbell -- Stephens -- Analyst

Hey, guys, good morning. Great work on the agent growth rebound and congrats on the consumer app launch and the website rehaul. On the First acquisition, that seems like a nice strategic play for you guys. I'm curious about the revenue synergy opportunities kind of over the long haul. It sounds like, Karri, I think you said you guys are subsidizing the cost agents. I think you said $49 a month. So first, how much of 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?

Karri Callahan -- Chief Financial Officer

Yeah. So great question, John. 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, 50 compared to the list price. And then there's kind of been hundreds of agents that have been on the platform, I think most notably though we have very much been engaging our network.

So not only the booj process that we're very -- with Adam and Nick's leadership, very engaged with the network trying to understand what are the tools in the market that are impactful. And we have heard, very, very positive results of some of the RE/MAX users who are already 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 technologists within the organization.

John Campbell -- Stephens -- Analyst

Okay. And then as a follow-up to that, I think there was a question asked earlier about the agent fees, is there ever a potential where you garnered enough adoption where you can just basically give it out quote unquote for free, and then basically use that as a basis to raise agent fees?

Karri Callahan -- Chief Financial Officer

Those are all the things from a fee perspective that 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 the associated costs and investments are from our agents and from our network to be able to put them in a position to grow their business in the most efficient manner.

John Campbell -- Stephens -- Analyst

Okay. And then one little quick tack on here, on the consumer app and the rehaul of remax.com, what are the kind of internal KPIs you guys look at that kind of gauge success for you guys?

Karri Callahan -- Chief Financial Officer

I mean, right now, we're definitely focused on looking at adoption. But right now we've had a lot of people who have accessed the system. But it's really -- it's really new. And so we've got internal metrics on that, we will continue to monitor those. And as it's been up and running and operational for a longer period of time, we'll continue to evaluate disclosing stuff externally.

John Campbell -- Stephens -- Analyst

Okay. Great. Thanks, guys.

Operator

Our next question is from Ryan McKeveny of Zelman & Associates.

Ryan McKeveny -- Zelman & Associates -- Analyst

Hey, thanks so much guys. Good morning. So big picture question on the comment around just alignment of interests and some of the strategies between you guys at corporate and the franchise owners and maybe this is for Nick. But I think on one hand, people can, on the surface look at the new recruiting efforts and say, OK, well that's just kind of competing on the economics. And end of the day, surely there's 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 your perspective on this, how 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, I mean what are the biggest pain points of the franchise owner base today? I know it's not necessarily just specific to you guys, but kind of industry dynamics, what keeps them up at naive? What are they most focused on? And how can you leverage that to provide better value, better solutions, better partnership, etc.?

Nick Bailey -- Chief Customer Officer

Great, great question, and we love this one. Because what we have found and this is something that has been for a number of years in the industry that when you ask agents why they joined, 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 try to look at is what are those things that are important to an agent to consider in making that move to increase the productivity. And 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 and the agent solve those barriers to changing affiliation that becomes a win over purely the economics in 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 are new, we have some that have hundreds of agents in multiple locations. And so those items will vary based on our affiliates. Our field team then focuses very specifically within how we categorize 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 and helping them -- helping them grow. As far as what keeps them up at night, 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.

Ryan McKeveny -- Zelman & Associates -- Analyst

That's very helpful. Thank you. And one on the international side of things. So obviously, we've all seen the very, very strong agent count growth. Can you just update us on kind of the longer-term broader thesis for the international markets? Is there incremental monetization opportunity, just the kind of technology investments you're making in the US present longer-term opportunity there? Maybe just give us the big picture because obviously the growth is very compelling. But I think we're all kind of wondering if someday that translates to much more meaningfully monetizing that side of things?

Adam Contos -- Chief Executive Officer and Director

Hey, good morning. It's Adam. The answer is yes. I mean it's, we're laying the foundation in the United States and spreading through North America and globally I see attention with these different pieces of the value puzzle in the real estate sales place as well as 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 RE/MAX Holdings, you'll notice that a great deal of it is our pursuit of talent, so that we can continue to build upon the value not just in the US, but also globally with giving other people the opportunity to utilize these tools and services that are really forward-looking and cutting edge in our space.

Nick Bailey -- Chief Customer Officer

Adam, 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 then 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 how we prioritize and time them.

Ryan McKeveny -- Zelman & Associates -- Analyst

Got it. Thanks so much.

Operator

Our next question is from Anthony Paolone of J.P. Morgan.

Anthony Paolone -- J.P. Morgan -- Analyst

Thank you. All right. My first question relates to First, can you tell us how many subs you need in 2021 for you all to consider the product a success and also the $600 a year, like are there any other apps or things that agents are currently using that you think, they stop using to spend money on this or other competing things that this replaces?

Karri Callahan -- Chief Financial Officer

The first part of your question, Tony, it's Karri. We're launching First here on Monday at our Annual Agent Convention that Nick was talking about, we're really excited about it. And we do believe that it will be accretive in 2021. As we go through the year and we get through the launch, we will have more visibility into providing additional metrics from that perspective. And then in terms of additional features and functionality, whether that's First or other things. I mean we think that this is a really compelling opportunity, because it's really driving the heart of regeneration for our agents which is repeat and referral business. And we think that it will really position our already highly productive network to be even more productive. The return on investment for our agents to be spending 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.

Nick Bailey -- Chief Customer Officer

Yeah, Karri, I will add one thing. When you look at the question you asked about what maybe will they not spend on. I think that there is within the industry, agents are losing patients on quote, just buying leads in general. And to Karri's 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 Realtor.com, the number of leads in the US in 2011 were around $4.5 million, seven years later, it's $90 million, but the number of home sales 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 they 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 of lift.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay. And then just my follow-up question is your EBITDA, obviously includes things spend on technology and so forth. But can you talk about just below the line for capex spending in 2020 and the potential for other acquisitions as it sounds like you're still going to be focused on that as well?

Karri Callahan -- Chief Financial Officer

Sure. So from a capital allocation perspective specific to capex, so to capex from a technology perspective in 2020, will look pretty similar to what it has looked like in 2019, to call it, kind of $11 million to $13 million. We are going to have a little bit of an increase in capex in 2020, as we mentioned on the scripted remarks, because of some refresh that we're doing to our corporate headquarters, really with the long-term guys of looking to really optimize our cost structure and focus on profit improvements in kind of '21 and '22. So that -- so capex will go up a little bit because of that.

And then in terms of more broadly capital allocation decisions, I mean we continue to be disciplined from a capital allocation perspective. And those priorities remain unchanged. However obviously with Nick and Ward in 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.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay. Thank you.

Operator

Our next question comes from Chris Gamaitoni from Compass Point.

Chris Gamaitoni -- Compass Point -- Analyst

Hi. Thanks for taking my call.

Karri Callahan -- Chief Financial Officer

Good morning.

Chris Gamaitoni -- Compass Point -- Analyst

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 on the actual units? Or is there an underlying assumption of it accelerating kind of agent recruitment and sales per agent were, all in that's -- that's accretive. I'm just trying to understand what's implied by that statement.

Karri Callahan -- Chief Financial Officer

Yeah, so I mean a lot of it is driven by the monthly subscription. But yeah, 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 from a recruiting and retention perspective, a little bit of an impact from that as well.

Chris Gamaitoni -- Compass Point -- Analyst

Okay. And then maybe could you help us understand how you view your customer acquisition costs, maybe multiple on forgiving on the incentives, the greater investment in tech from an outside, there's a lot of investment spending to get agents and just understanding how you view kind of those multiples of agent gathering over the life of an agent?

Adam Contos -- Chief Executive Officer and Director

Hey, good morning, it's Adam. This is 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 to build your business, the best for yourself. So you do have to stimulate some movement and in doing so, make some investment in the marketplace in order to get attention and demonstrate that value as well as to as you've seen, make the appropriate acquisitions to build upon that value and actually see a good return for those agents.

So it's a holistic approach. We feel that making the sentiment changes, as well as the mechanical changes to help the agents business is proving itself. When you look at just the number of attendees at our convention next week, we didn't expect that. I mean we're super excited about it, but the excitement that's building begets other excitement in our industry and people start to look at our agents to go, OK, why are you doing more business? Well, we have these different opportunities between booj and First and the new marketing campaigns and the growth within our brokerages, so it all kind of plays together.

Ultimately our goal is to deliver greater value to our agents. And as we -- we're doing that. I can assure you 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 to add.

Nick Bailey -- Chief Customer Officer

No, I don't think I do. I agree with you, Adam.

Adam Contos -- Chief Executive Officer and Director

We got it.

Chris Gamaitoni -- Compass Point -- Analyst

All right. Thank you.

Adam Contos -- Chief Executive Officer and Director

You bet.

Operator

Our next question is from Vikram Malhotra of Morgan Stanley.

Vikram Malhotra -- Morgan Stanley -- Analyst

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 the US specifically in 2020?

Karri Callahan -- Chief Financial Officer

Yeah. So we do expect the US agent count growth kind of in the hundreds of agents. We think that there was solid momentum and that bounce back for Q4. And obviously we are positioned well for growth. The magnitude of that will obviously continue to monitor as we get through the year.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, so positive increase. And then just bigger picture, any update on the Merrill or sort of the DOJ investigation that was into -- or on request for data from another company, I'm forgetting the name, but any update on the legal issues?

Karri Callahan -- Chief Financial Officer

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 happens.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thank you.

Adam Contos -- Chief Executive Officer and Director

Thanks, Vikram.

Operator

And we have no further questions at this time.

Andy Schulz -- Vice President of Investor Relations

Thank you, operator, and thanks to everyone for joining the call today. That concludes the call. Have a great weekend.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Andy Schulz -- Vice President of Investor Relations

Adam Contos -- Chief Executive Officer and Director

Karri Callahan -- Chief Financial Officer

Nick Bailey -- Chief Customer Officer

Stephen Sheldon -- William Blair -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Thomas McJoynt-Griffith -- KBW -- Analyst

John Campbell -- Stephens -- Analyst

Ryan McKeveny -- Zelman & Associates -- Analyst

Anthony Paolone -- J.P. Morgan -- Analyst

Chris Gamaitoni -- Compass Point -- Analyst

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