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RE/MAX Holdings Inc (NYSE:RMAX)
Q2 2020 Earnings Call
Aug 7, 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 Second Quarter 2020 Earnings Conference Call and Webcast. My name is James, and I'll be facilitating the audio portion of today's call.

At this time, I'd like to turn the call over to Andy Schulz, Vice President of Investor Relations. Mr. Schulz, please go ahead.

Andy Schulz -- Vice President, Investor Relations

Thank you, operator. Good morning, everyone, and welcome to RE/MAX Holdings Second Quarter 2020 Earnings Conference Call. Please visit the Investor Relations page of remax.com for all earnings related materials and to access the live webcast and 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 two. 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 outlook, brand expansion, competition, technology, housing and mortgage market conditions and included statements about recovery of those markets, capital allocation, dividends, strategic and operational plans and business models. Forward-looking statements represent management's current estimates. RE/MAX Holdings 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 second quarter 2020 financial results press release and other SEC filings. 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; Karri Callahan, our Chief Financial Officer; Ward Morrison, President of Motto Mortgage; and Nick Bailey, RE/MAX Chief Customer Officer.

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. Looking at slide three. The coronavirus pandemic of 2020 has been the business stress test that no one could have imagined. And while this year has certainly been challenging, it has also reconfirmed the many strengths of our company, brands and networks. It brought the resiliency of our model in clear focus and reinforced our confidence in our systems, networks and people. Overall, I'm very pleased with the results to date. I'd like to thank our entire team for their hard work, dedication and perseverance amid these extreme conditions. Highlights of the second quarter included revenue of $52.2 million, adjusted EBITDA of $18.9 million, adjusted EPS of $0.38.

Total RE/MAX agent count continued to grow, up almost 4% and finishing at almost 132,000 agents. RE/MAX affiliates increasingly adopted RE/MAX technology tools and took advantage of our training during the lockdowns and perhaps most notably, Motto franchise sales accelerated and we have a real chance to have our best year of Motto franchise sales ever in 2020. We view our performance thus far in 2020 as an affirmation of our business model, our multiyear investments in technology, our financial discipline and our overall strategy. Ward, Nick and Karri will elaborate more on that in a moment. In the field, our RE/MAX and Motto professionals have adapted to the environment exceptionally well leveraging technology and adhering to social distancing guidelines to expertly guide consumers in a safe and largely virtual way.

Our networks are finding opportunities to grow and build their businesses in this demanding time. In fact, Motto saw its sales increase during the second quarter and posted its best second quarter of franchise sales yet. On the RE/MAX side, global agent count continued to rise. While agent count in the U.S. and Canada stabilized in June and July, we also saw a continued uptake of our booj platform as many brokers, agents and teams added contacts, built their websites and positioned themselves to maximize the technology advantages they have at their disposal during their stay-at-home time.

Our franchisees in both brands continue to demonstrate their local leadership by bringing productive agents and loan originators into our networks and then helping those individuals get even better at what they do. Their recruiting efforts, supported by our programs and services are critical to our ability to succeed in every kind of environment. We're grateful for the memberships of both networks for their contributions, and we appreciate their trust in our strategy and vision. Turning to slide four. The second quarter was one for the record books for U.S. housing as the market whipsawed in an unprecedented manner. As we discussed on our last earnings call in May, we saw promising signs in the leading indicators we watch closely, like showings and new listings. We believed back then that consumer sentiment was leaning toward transacting, and we were optimistic housing would snap back. Our views have since been validated.

Despite a record low in months supply of inventory, June home sales posted a month-to-month gain of 37% according to the RE/MAX national housing report based on June MLS data of 53 metros surveyed. This gain was in stark contrast to the significant reduction seen in April and May when many states had stay-at-home orders in place. With historically low interest rates, favorable demographics and increased mobility tied to working remotely, buyer demand remains high in most areas of the country. Many leading indicators such as showings, pending sales and mortgage applications continue to be positive. A potential headwind, however, is available housing supply. Inventory dropped 27.9% year-over-year in June, pushing the supply of inventory to a new report low. The number of homes for sale at June 30 is at low levels not consistently seen since 2018.

In addition to monitoring inventory levels, we are also carefully watching employment trends as well as the effects of the ongoing pandemic. That said, the best agents tend to stand out in times of a shifting market. And many of the best agents hang their licenses at RE/MAX. In fact, for the sixth consecutive year, RE/MAX placed more agents and teams than any other brand in the America's Best Real Estate Professionals rankings. In this year's survey, one in five for 20% of America's Best are RE/MAX agents and teams. And we are hearing from many of them in our network that they are having their best year ever during this unforgettable 2020.

We believe we are well positioned to help our affiliates build on the existing positive housing momentum given the financial and structural strength of our business model, which has enabled us to continue expanding our value proposition. Looking ahead, we're focused on driving increased adoption of our technology across both brands, enhancing our recruiting and retention efforts and culture and strategically investing for future growth.

With that, I'll turn it over to Ward.

Ward Morrison -- President of Motto Franchising, LLC

Thanks, Adam. Moving to slide five. Motto's three big areas of focus for 2020 are franchise sales growth, technology and enhancing broker profitability. We made meaningful strides on all these fronts during the second quarter despite the pandemic. The headline for the quarter was accelerating franchise sales. As Adam mentioned earlier, we had our best stretch of annual franchise sales ever, exceeding 60 sales during the trailing 12-month period ended June 30. This momentum is particularly notable because we transitioned our franchise sales efforts to a largely virtual experience during the second quarter. Franchise sales have continued to be strong for the month of July, and we recently sold our 200th franchise, a huge accomplishment and major milestone for any franchise brand regardless of industry, but especially when you consider it took us less than four years to achieve.

We anticipated last fall that an inflection point in franchise sales was nearing, and the numbers since then suggest we were correct. We believe a combination of several factors is helping to drive increased sales. First, increased brand awareness and ongoing advertising has produced growing lead generation, which has enhanced our candidate pipeline. Next, with potential franchisees in lockdown during much of the second quarter, the countercyclical nature of our business model was on full display for our various customer types. Existing real estate brokerage owners and teams reflected on the strategic and financial importance of ancillary business opportunity and how it could help them diversify their revenue streams. Investors and existing mortgage professionals saw the strength of the mortgage market and viewed Motto as the right opportunity to support them delving into the financial services industry.

Furthermore, as interest rates reached historic lows, current Motto owners are enjoying a meaningful increase in refinance business and were willing to share their experiences with others. On this note, toward the end of last year, we expanded our marketing efforts and have been more deliberate about leveraging our existing franchise base for referrals. Both initiatives continue to yield positive results. Our market presence also continues to increase the word-of-mouth about many of our successful franchisees, which is contributing to our momentum.

Motto is still the first and only national mortgage brokerage franchisor in the U.S., and we believe our consultative support model is unlike anything in the industry, further differentiating us from other mortgage organizations. Our technology and our overall corporate strategy are aligned concerning unit profitability, brand adoption, franchise sales, support and the ability to adapt quickly during unexpected events like COVID-19. With more than 125 open offices in over 30 states, Motto's presence is growing at a nice pace.

In terms of the total available market opportunity, we believe having over 1,000 open Motto franchises and perhaps many more than that is achievable over time. Current interest in owning a Motto franchise remains strong, and the status of our pipeline is encouraging. We are very excited about how well Motto is currently expanding, and we plan to continue to invest in its future growth and success.

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

Nick Bailey -- Chief Customer Officer

Thanks, Ward. Good morning, everyone. Looking at slide six, the impact of the pandemic on residential real estate during the past few months was historic as the market stalled in late March into early April, and then came roaring back in June and July when buyers and sellers appeared ready to transact a year's worth of activity in just nine months. Of the many conclusions we can draw from recent events, I think the one that's most apparent is that the real estate agent remains the most important part of the transaction and will continue to be for a long time to come. Buying and selling a home is a massive complicated undertaking.

And importantly, consumers and millennials, in particular, are increasingly using agents as they want a professional advisor to offer guidance, explain options and validate their decisions. This is especially true during challenging times like these when clarity can be elusive. Secondly, we knew from our nearly five decades of experience that the most important thing we could do during a changing market was to expand our service offerings to our franchisees and agents. We moved very quickly to make sure our brokers, agents and teams had the tools, training and technology they needed to shift into a more virtual business environment and expand what we believe is the industry's leading value proposition. We also were able to offer meaningful financial support, providing critical relief when it was needed the most. The amount of goodwill we generated was enormous.

Turning to slide seven. Perhaps the most important takeaway from this past quarter is that it really accelerated our technology transformation. We've pivoted from a company launching products to one that is moving toward creating the very best agent-consumer digital experience possible. Over the past couple of years, we've leveraged our numerous competitive advantages like our brand and the productivity of our agents to significantly expand our digital presence. We have the number one brand in unaided brand awareness in the U.S. and Canada according to a survey by MMR Group, and we are known as being the home of the top producer or those aspiring to become one. Consumers care about brand and reputation, and this translates into the success of our digital assets. We're beginning to see the results of our hard work in the numbers.

For example, we see continued momentum in the adoption of our mobile app that was released earlier this year with almost 90% user growth quarter-over-quarter. Additionally, we saw increased engagement from agents and teams logging into the booj platform during the second quarter, even as the market has picked up, and they are becoming busier every day. During Q2, RE/MAX agents and teams created over 5,000 websites, adding more daily. And now about 1/3 of agents in U.S. company-owned regions have a live published website on our booj platform at this point. Our enhanced web presence and mobile app usage in addition to our enhanced remax.com experience are beginning to drive business to our network of highly productive agents. We saw leads continue to increase year-over-year by 33% in May 2020 and by 80% in June 2020, even amid the health crisis.

We are excited about the increased uptake of the platform and its functionality. In addition to the meaningful expansion we have seen with respect to our website, app and booj platform, our network continues to see the value in our proprietary First app. This is a powerful tool that we believe unlike anything in the market today. We made the strategic decision to offer a 90-day trial of the product earlier this year because of COVID-19, and we believe that, that was the right move under the circumstances. We are working now to convert as many agents who took advantage of the trial as possible. It is a potential career-changing tool for an ambitious agent, and we continue to hear very positive feedback from our network about how it has resulted in additional business for them.

Looking ahead, we received tremendous feedback from our network concerning our technology during the lockdown. Our brokers and agents are as passionate as they are professional. We appreciate all of their input. And right now, we're acting on that feedback with our current functionality while continuing to drive further adoption of the tool set. Our end game: increasing agent productivity and improving the agent consumer experience across all digital assets.

With that, I'll turn it over to Karri.

Karri Callahan -- Chief Financial Officer

Thank you, Nick. Good morning, everyone. Turning to slide eight. Our franchise business model, strong balance sheet and overall financial discipline enabled us to successfully navigate the challenging environment during the second quarter. Our franchise model, with both of our brands 100% franchised, has many attractive financial characteristics, including being asset-light and having a comparatively fixed cost structure; combining the strength of the franchise model with our unique business model, one that is attractive to full time, highly entrepreneurial professionals due to its primarily recurring revenues based on dues and fees; generates relatively high margins and strong free cash flow.

The global pandemic moved swiftly, and we believe we were able to respond just as quickly due to the attractive financial characteristics of our business model and the financial flexibility that it provides. We adjusted our cost structure rapidly to align with the environment without resorting, to date, to layoffs or furloughs. Simultaneously, we expanded our service offering, expanded our network's meaningful financial support and maintained our dividend. Despite the extraordinary circumstances of the second quarter, we generated an adjusted EBITDA margin of almost 37% and converted almost 70% of adjusted EBITDA to free cash flow on a trailing 12-month basis through June 30. The strong cash-generative nature of our business was on full display as our cash balance, excluding the marketing funds, has increased $1.50 million to $84.5 million during 2020 despite the pandemic.

Turning to slide nine. Looking at our second quarter performance. Total revenue was $52.2 million, a decrease of approximately $19 million or 27% compared to the second quarter of 2019. Total revenue decreased primarily due to temporary pandemic-related financial support initiatives introduced in April that reduced both continuing franchise fees and marketing fund fees for two months during the quarter; as well as a decline in broker fees, principally due to lower existing home sales. Franchise sales and other revenue decreased $1.6 million, of which almost $1 million was due to the previously disclosed attrition of booj's legacy customer base. Recurring revenue streams, which consist of continuing franchise fees and annual dues, decreased $8.2 million compared to the second quarter of 2019, but still accounted for 63% of revenue, excluding the marketing funds in the second quarter of 2020, essentially flat compared to Q2 last year.

Looking at slide 10. Selling, operating and administrative expenses were $25.3 million in the second quarter of 2020, a decrease of $400,000 or 1.4% compared to the second quarter of 2019, and excluding the Marketing Funds, represented 62.7% of revenue compared to 48.2% in the prior year period. Selling, operating and administrative expenses decreased primarily due to cost savings measures implemented in 2020, including the elimination of the 2020 company bonus and the temporary suspension of the company's 401(k) match as well as a reduction in travel and events spend, largely offset by increased legal fees due to ongoing industry litigation and higher equity-based compensation expense.

Moving to slide 11. Early in the pandemic, we implemented a program designed to reduce expenses and help conserve cash. Overall our goal was to preserve jobs as much as possible to support the continued expansion of our value proposition and reduce discretionary spend. We believe we achieved our objective in Q2. Looking ahead, our ability to accurately forecast continues to be impaired by the ongoing global health crisis. So we are not providing third quarter or full year 2020 guidance at this time.

However, on the revenue side, although we saw stabilization in U.S. and Canada agent count in June and July, lower average agent count will remain a slight headwind. Also, as announced in late June, we don't plan to extend additional financial support beyond the initial options offered. But we expect to continue to support our affiliates with the technology and other solutions they need to succeed in this ever-evolving environment.

Lastly, we expect the attrition of the booj legacy customer base to negatively impact Q3 by approximately $0.5 million compared to Q3 2019, with a similar year-over-year impact in Q4. On the expense side, the bulk of our cost-saving measures from Q2 are expected to remain in place through the third quarter. Additionally, we expect about $0.5 million more in legal expenses in Q3 this year compared to last year and $1.5 million to $2 million more in FY 2020 compared to FY 2019 because of ongoing industry litigation.

Lastly, the impact from the pandemic and our strategic decision to offer a 90-day trial for the First app back in March has pushed back our financial expectations for the product. We now think First will be accretive beginning in 2022 and will be a headwind to 2020 adjusted EBITDA of $3 million to $4 million. Our capital allocation priorities remain unchanged. We believe we have taken prudent steps in the current environment. We continue to evaluate investment opportunities with the same rigor we have always employed, and we believe we can continue to strategically invest to spur future growth. Our focus is on diversifying our revenue base and accelerating our organic revenue growth. Our business model has significant leverage. Once we get the top line ramping, then we expect margin expansion can resume.

Now I'll turn it back to Adam.

Adam Contos -- Chief Executive Officer and Director

Thanks, Karri. Moving to slide 12. As we surpassed the halfway point of the year, we've done a great job at adapting to the current challenges just like we have for almost 20 years. We are confident we have the brands, the business model, the financial strength and the networks to endure and thrive. We remain focused, motivated and in constant touch with our membership.

Flexibility leads to productivity, which builds longevity even in times of uncertainty. How we talk to and care for our customers has always been the hallmark of our success. We've gotten closer to our customers than I think we've been in a long time, and I'm super proud of everyone for this because this builds trust. As a business that builds businesses, trust is everything. It builds community and it keeps everyone tightly together.

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

Questions and Answers:

Operator

[Operator instructions] Our first question comes from the line of Ryan McKeveny from Zelman & Associates. Go ahead, please. Your line is open.

Ryan McKeveny -- Zelman and Associates -- Analyst

Hey, thanks so much, and good morning. Adam, so, there's a lot that made in the industry around this kind of urban to suburban dynamic. And, of course, you guys are very nationally diversified and even let's say somewhat less exposed to markets like New York City. But just curious, given the breadth of your footprint, how are you thinking about this kind of suburban boom that's going on? How much do you think is sustainable versus sort of temporary? Just curious, how you're thinking about those pieces and maybe what you're seeing in real time across your network? Thank you.

Adam Contos -- Chief Executive Officer and Director

Hey. Good morning, Ryan. It's interesting, I get this question a fair amount. And it's not really a binary question in this industry, but it's a combination question where, what we're seeing is happening, where we are seeing people move to the suburbs, but there's more. The factors aren't just kind of the current situation going on with respect to COVID, or anything going on in cities that people are moving from. I mean, really, this is kind of the perfect storm in real-estate, I believe. It's a combination of things, obviously, the foundation of which is interest rates are amazing.

I was talking to somebody yesterday, who got a loan for 2.5% on a 30 year, so it's fascinating. So, when you look at that there's an interest that people immediately have, but ultimately, when you start looking at what are the other factors in this, there are many, many out there. And we're very excited about this, because obviously we are very much a suburban-based franchise organization as well, the majority of our franchises do exist in -- out in the outlying neighborhoods in Middle America.

So, ultimately what it boils down to is you've got just several handfuls of factors, including the fact that the largest purchasing amount of the millennial generation has just entered the first time homebuyer, that age range and everything is lining up to be really well set for that. Not to mention the fact that people have experienced life changing circumstances, where they look around their home. They've spent nearly six months in their home, way more critically than before, as well as they're looking at where do I want my kids to go to school? Are we starting a family? All those other mitigating factors, but they've kind of culminated all together at once right now, and we're seeing a great deal of activity.

That being said, and I know Nick addresses this regularly, and I'll pass this off to him to put any final thoughts in it. But, we do have a shortage of inventory and we need that. So, the homebuilders are out there like crazy building, may be the perfect time for them, as well, because there's definitely no shortage of buyers and a lot of interest. So, Nick do you have anything to add that?

Nick Bailey -- Chief Customer Officer

Yes. I think that the combination of interest rates and the desire and the ability to live in a larger property has driven part of this, and of course, people being permitted to work-from-home. Over the past number of decades, we have seen the population get closer and closer to urban areas, and a lot of that was driven by location of where their job is. And so, you see that when those prices rise, people have to increase their commutes because they can get a bigger house for less money, if they're willing to go a little farther from the city.

And with increased job flexibility of being able to work-from-home, it allows them to maybe get a property that better fits their lifestyle or their family.

Ryan McKeveny -- Zelman and Associates -- Analyst

Thank you, guys. I appreciate that color. And, of course, mentioning the low interest rates, I guess, a question for Ward. A lot has been made in the mortgage industry on just very tight capacity, many lenders trying to kind of hire as quickly as they can. I'm curious how just the kind of boom going on in the mortgage market is -- plays into either the competitive strength of Motto as kind of the broker channel. Just curious kind of how you think big picture about, what's going on from a mortgage industry standpoint?

And is that actually given how robust things are and how busy people are, is that actually maybe holding back some Motto activity, even though obviously, you're definitely making very nice progress there? But, just curious how you kind of frame your business in the mortgage space kind of relative to what's going on, and sort of what are the key areas to really push that even further forward?

Ward Morrison -- President of Motto Franchising, LLC

Hey, Ryan. We're bullish on brokerage. The brokerage channel continues to grow. The last number I saw was about 20% market share. Prior to the great recession, we were about 40%. So I still think we have a plenty of upside left to go. But brokerage continues to provide options to people, particularly in this time, like Adam is saying, our brokers are out there shopping across our group of wholesalers and providing the consumers options.

Instead of just going to your local bank and getting one option you're going to a broker who's giving you multiple options. So we continue to be, like I said, bullish on brokerage and the growth of this particular channel. And we see that in Motto. Motto is growing. Through the first seven months, we're almost exactly what we did in all volume last year, so we're excited about that.

The growth on year-over-year and volume is going to be fantastic. A lot of that is due to the refis, but a lot of it's due just to the growth of our network and the success of the network. And sales have been doing fantastic in the last quarter. You wouldn't think, during this particular pandemic, we'd be crushing it, but we're doing a great job in sales. Even though our staff has moved virtually they are continued to be successful in finding the candidates. So, I think mortgage is obviously with the rates been as low as ours is going to be hot for the next few months, if not years. So, we're excited to ride that train.

Ryan McKeveny -- Zelman and Associates -- Analyst

That's great. Thanks so much.

Operator

Our next question comes from the line of Anthony Paolone with JP Morgan. Go ahead, please. Your line is open.

Anthony Paolone -- JP Morgan -- Analyst

Great. Thank you, and good morning. So, I have a question about Motto as well. Just trying to understand since you're not going to participate necessarily in the volume of a given store. Like how do you think about just how many of those you can sell? Can a Motto office do mortgages two towns away the state over? I am just trying to think about the addressable market and how many of these you can really sell?

Ward Morrison -- President of Motto Franchising, LLC

Yes, great question. From our perspective, originally, we were looking at sort of just the RE/MAX base, where we have over 3,000 franchise in the U.S., and we thought about a third of those were our addressable market. But now that we expanded outside to LOs investors and other real estate brands, we think sort of the sky is the limit. We believe that getting to 1,000 or even more than 1,000 is doable over time.

And we'd still have the same types of scale at margins to app scale, that we would have on the RE/MAX side in the franchise system. So although, we don't participate in the transaction, increasing the sales and increasing our office count will produce topline revenue and produce margins that are consistent with what we see on the RE/MAX side.

So, we believe that the addressable market is very large and that we can get a 1,000 plus franchises out there. I get compared to my big brother all the time. So I got to compete, and we'll get there. It's going to take some time, but we're seeing an inflection and an increase in sales. So, we hope we can get to that number sooner rather than later.

Anthony Paolone -- JP Morgan -- Analyst

Got it. So, there's no geographic boundaries, like I shouldn't think about it so physically? So, if a team at some other firm distinct state, this would be really helpful. They could open a Motto office and just go at it.

Ward Morrison -- President of Motto Franchising, LLC

Absolutely. And the biggest thing about mortgage is that, it's not localized like real estate. Mortgage once your license and let's say the State of Florida, you can do it from the Panhandle down to the Keys, you can do alone. So even if you're a team there in Tampa Bay and buy a Motto and are concentrating on a lot of the volume coming through your team. You can still do a refi throughout the state.

We also allow ours to expand virtually into to other states, as long as state allows reciprocity. And we're seeing success where somebody might have a license and a Motto in Michigan, but they're doing loans in Florida because a lot of their client base or snowbirds who go down there. So, we do give them an opportunity to be as successful as they want to be. And so that's sort of how we do it. So, we limit a little bit of their footprint, because we want to sell more franchises, but we don't make it detrimental to them.

Anthony Paolone -- JP Morgan -- Analyst

Got it. Thank you. And then just second question. In this environment, does this create any change in appetite for acquisitions or any sort of other capital investments? Or does it open up any opportunities?

Karri Callahan -- Chief Financial Officer

Hey, good morning. Tony, it's Karri. So, as we stated our capital allocation priorities remain unchanged, and I think despite the pandemic, the strength of our business model and the financial flexibility and stability that it provides, were really highlighted. And so we're always looking at opportunities to really diversify our revenue streams, and drive our topline from an organic growth perspective.

And I think, we we're very fortunate with the strength of the business model, the free cash flow that is generated to be able to think about strategic capital allocation opportunities.

Anthony Paolone -- JP Morgan -- Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Stephen Sheldon with William Blair. Go ahead, please. Your line is open.

Stephen Sheldon -- William Blair -- Analyst

Hi, thanks. Nick, can you give some details on agent uptake of booj that I didn't catch. Can you go through that again? And then just beyond general uptake of booj, how much engagement have you seen within it? And how much are you seeing agents incorporating it into their day-to-day operations?

Nick Bailey -- Chief Customer Officer

Yes, great question. We talked about that the increase, for example, just in websites that over 5,000, we continue to increase our digital footprint fairly significantly. And so from there, we not only look at total adoption, but then when we think of engagement of daily users, and we've seen that increase as well as activities within the system, and that has turned into the number of leads. We saw that go up by over 30% in March and over -- or in May, rather, and over 80% in June. So, that's direct leads that are going to our top producing agents and that continues to increase.

Stephen Sheldon -- William Blair -- Analyst

Got it. That's helpful. And then just good to hear the U.S. agent -- U.S. and Canada, agent count stabilized in June and July. Still down a touch in the quarter overall. So can you talk about some of the moving pieces there, gross adds and retention? And what impact did you see from some of the growth initiatives to promote the technology offerings in May and June?

Adam Contos -- Chief Executive Officer and Director

Hey, Stephen, this is Adam. I'll give a little bit of front end to this and I'll pass it back to Nick. I'm really excited about how we are seeing the agent count stabilize. Nick and his team have been doing just a fantastic job of really, really increasing engagement with our franchisees and the recruiting spectrum there, which as you know, our organization is a membership-based organization, where we open and support our franchisee business owners, and help them grow their businesses. We're a business that grows businesses.

And Nick has implemented some great new programs. I'll pass it back to him for. But I have to tell you, I'm very pleased with the engagement level and the activity level of our franchisees at this point. And I think that's part of the results that you're seeing, our communication with them and everybody moving in the same direction. With that, Nick, what would you like to add?

Nick Bailey -- Chief Customer Officer

Yes. I think overall, when we came off of fourth quarter last year, we had some tremendous momentum, one of the best fourth quarters and growth that we've seen in 17 years. And that momentum carried into the first of the year, and obviously the pandemic created a quick shift.

However, the one thing to note, though, we are not the home for every real estate license. We are known for having top producing, full time real estate agents. And so, we're not known just to warehouse non-producing agents. And so, as the level of uncertainty, especially the first part of the second quarter, affected the decisions of where people -- where agents hung their real estate licenses. We're thrilled with the fact that now how we're executing on all of the recruiting strategies is showing that, as the certainty returns at some level to the real estate industry, we're seeing that stabilization that we can move forward on from June, July.

Stephen Sheldon -- William Blair -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Go ahead, please. Your line is open.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the question. So just maybe first to get some additional color on Motto. Just curious to see how the mix of sales has trended between RE/MAX owners versus non? And kind of what do you expect going forward?

Adam Contos -- Chief Executive Officer and Director

Hey Vikram. Yes, I mean, we've decreased obviously the amount to RE/MAX's, so they're now make up less than 70% of our overall sales. So, the other 30% are investors, loan originators, or independent real estate brands.

Real estate still combine does more than about, just about 75%, 80% just shy 80% is still real estate, accounting RE/MAX's. We continue to believe that RE/MAX's will be a lion share, but other brands are stepping up and jumping into the fray. We've had some recent sales to some other brands and are excited about supporting them in that, and still trying to expand across all the brands out there. We'll get them, it just takes some time.

But we recently sold to a C21 in a market place, and we're excited about the opportunity for them. And expanding across it. So, I still think will decrease RE/MAX, but they'll still be the lion share, and the other types are having equal if not better success than even RE/MAX's. So everybody is doing well of all the customer types.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, great. And then just on the U.S. agent trend obviously, agreed, it's good to see it stabilize. I'm just wondering in this environment, you tend to see more of a shakeout, where I'm assuming higher producers are more stickier and then, maybe there's some distress in some of the smaller brokerages, smaller competitors of yours.

I want to just get a sense of as you go out to try to recruit, maybe give us a bit more color on how you are segmenting the field so to say? Is there any region, any areas where you think you can have better success in the U.S. or Canada?

Adam Contos -- Chief Executive Officer and Director

Yes. So, overall, I think you're correct there in terms of there are companies that have cracks, and shifts in market bring out the best in the worst in some of those models. And the one thing that we look at, that we're very fortunate is, this is the seventh recession that RE/MAX has experienced. And being around nearly fifty years, we have the experience to know that the model has been so strong on any side of the market, whether it's going up or whether it's going down.

And then, how we look at recruiting on that, is our offices now are looking for potential opportunities that exist now that maybe didn't four or five months ago, which includes roll-ins or possible acquisitions of companies. And so there are now likely more opportunities, not just to recruit one by one, but possibly roll in smaller companies, that maybe did not have the wherewithal to sustain even a short temporary shift like we've experienced.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, great. And then, just last one on the international front. Now it's obviously, it's been a while, we've seem pretty stupendous growth in agents internationally. I'm just wondering, how should we think about sort of the very near-term, but maybe even the medium-term three year outlook for international? Could they start to become a more meaningful contributor? Are there specific regions you're targeting to maybe change? I know the model there is more based on offices versus agents in terms of fee revenues, but any additional color would be helpful?

Adam Contos -- Chief Executive Officer and Director

Yes. We see the global side of it, is being continuing to be tremendous opportunity, because when you look at the footprint that we have just in the U.S. and Canada, and compare that to where we're globally, there is still a lot of runway in many, many countries that have -- that are early on in their growth. And so, as we believe that moving forward the global side has upside to it.

Karri Callahan -- Chief Financial Officer

Yes. Vikram, this is Karri. The other thing that I would add too to that is part of the reasons that we've been so excited about the investments that we've made from a technology perspective, is really thinking about how we can leverage those competitive advantages, both in terms of the global footprint as well as the technology blueprint. And so, really combining all of those things and really leveraging all of those strings, is something that we're really excited about, as we think about the medium and long-term.

Vikram Malhotra -- Morgan Stanley -- Analyst

Great. Thank you so much.

Operator

[Operator Instructions] And our next question comes from the line of Tom McJoynt with KBW. Go ahead, please. Your line is open.

Tom McJoynt -- KBW -- Analyst

Hey, good morning. Thanks guys for taking my question. I wanted to ask again about Motto, it looks like there are no new openings in July. Was that just a function of perhaps no sales back in kind of March, April when we were at kind of peak uncertainty? Or just there is a normal for kind of one month and not having any new opening?

Ward Morrison -- President of Motto Franchising, LLC

Yes. Tom, obviously, we're trying to always decrease the days to open and are focused on that. But some of the things that we did have continue to be the states. We can't control always how the state is going to process a new application. So, some of that is relative to the states still getting back into the swing of things. So, as they do that, I think we have over 40 plus that are in licensing right now. So, I would expect that to open up very soon as the states approve those licenses. But some states take 20 days, some take 45 days to review application. So, as the states review those, I think we'll see a lot more opens moving forward.

Tom McJoynt -- KBW -- Analyst

Got it, thanks. And switching gears, you guys called out some higher legal expenses and I believe this spans maybe at least one or two quarters. Is that just the piece of industry litigation? Or is there any other thing going on that I wish to be aware of?

Karri Callahan -- Chief Financial Officer

Yes. Good morning, Tom. It is related to the ongoing industry litigation. So, it is some noise that we knew about heading into 2020, and we're just continuing to see that impact the P&L.

Tom McJoynt -- KBW -- Analyst

Okay, got it. That's it for me. Thanks, guys.

Operator

Our next question comes from the line of John Campbell with Stephens Inc. Go ahead, please. Your line is open.

John Campbell -- Stephens Inc -- Analyst

Hey, guys. Good morning.

Adam Contos -- Chief Executive Officer and Director

Good morning.

Karri Callahan -- Chief Financial Officer

Hey.

John Campbell -- Stephens Inc -- Analyst

It sounds like you had some pretty encouraging, I guess tech trends across the app usage and some of the agents kind of launching the new personalized websites. I might have missed this. I don't know if you guys provided this. But what was the traffic growth to the kind of overhaul in remax.com? I know a lot of the portals in the space obviously saw pretty meaningful traffic growth. Did you guys kind of experience the same thing in the quarter?

Adam Contos -- Chief Executive Officer and Director

We did, month-over-month traffic increased. And it was approximately 125% that we saw out of the first month within the pandemic, and it continued to increase. Hence, the reason that we saw the increase in leads in May by over 30%, and then of course, 80% in June.

John Campbell -- Stephens Inc -- Analyst

Okay, that's helpful. And then you guys have talked about, I guess, expectations for U.S. agents to be up to kind of hundreds of agents this year. And just kind of getting back, I think you guys said, the U.S. agent growth at some point this year, you still feel like that's pretty achievable goal?

Nick Bailey -- Chief Customer Officer

Yes, that's what we're excited about. We look at the recruiting initiatives that are firing on all cylinders from every angle that we started to implement, at the end of last year. We continue to refine that. And we've seen the engagement level from our membership increased dramatically at how many people are taking advantage of all the offerings. And what we have done to completely refresh the assets of our recruiting materials and our training, I believe will continue to bear great fruit as we continue throughout the year.

Karri Callahan -- Chief Financial Officer

Hey, John it's Karri. The one thing that I would add to that is, Nick is absolutely right. There's been tremendous initiatives and momentum going in terms of everything that we're seeing from an agent count perspective. And the stabilization that we've seen in June and July is really encouraging, and we're really excited about that. Obviously, the pandemic did up end things, and it is causing a little bit of noise, just because of some of the headwinds that we saw in April. So, I just want to make sure that we do call that out, but there's going to be a little bit of headwind in Q3, because of that.

John Campbell -- Stephens Inc -- Analyst

Okay. And then Karri, with the degree of recurring revenue, I was a little surprised you guys didn't provide an official kind of 3Q guidance. I missed some of your commentary. But what are you guys holding off? Is that mainly just kind of a macro thing? Are you reserving the right to cut or maybe the defer fees again?

Karri Callahan -- Chief Financial Officer

No. I mean, look, the decision we made in June to not offer any additional financial support, we feel very solid about. The green shoots that we're seeing in terms of the macro are strong. It is more of a macro decision that we decided to pull back on that. When some of that macro uncertainty wanes, we'll get back to providing kind of formal guidance.

Nick Bailey -- Chief Customer Officer

Yes. And Karri, if I can add one thing to that. I mean, the one thing that we're hearing over the past several weeks when we engage with many agents and our offices, the number that have said that this is historically some of the best months that offices have had in decades, or agents that are having their very best years ever, that is not what most people were thinking three months ago. So, some of the recoveries that we're seeing would indicate that those decisions were made and we don't believe we'll have to provide that again anytime throughout the rest of the year.

John Campbell -- Stephens Inc -- Analyst

Okay, great. Thank you guys.

Operator

There are no further questions in queue at this time. I'd like to turn the call back over to Mr. Schulz.

Andy Schulz -- Vice President, Investor Relations

Well, thank you, operator, and thanks to everyone, for joining us on the call today. Have a great weekend. That concludes the call.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Andy Schulz -- Vice President, Investor Relations

Adam Contos -- Chief Executive Officer and Director

Ward Morrison -- President of Motto Franchising, LLC

Nick Bailey -- Chief Customer Officer

Karri Callahan -- Chief Financial Officer

Ryan McKeveny -- Zelman and Associates -- Analyst

Anthony Paolone -- JP Morgan -- Analyst

Stephen Sheldon -- William Blair -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Tom McJoynt -- KBW -- Analyst

John Campbell -- Stephens Inc -- Analyst

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