Earnings Call: Q2 2021

Aug 5, 2021

Good morning and welcome to the REMAX Holdings Second Quarter 2021 Earnings Conference Call and Webcast. My name is Tabitha, 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 Schultz, Senior Vice President of Investor Relations. Mr. Stoll? Thank you, operator. Good morning, everyone, And welcome to REMAX Holdings' Q2 2021 Earnings Conference Call. Please visit the Investor Relations page at remaxholdings.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 the 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, capital allocation, dividends, strategic and operational plans and business models. Forward looking statements represent management's current estimates. REMAX Holdings assumes no obligation to update any forward looking statements in the future. Forward looking statements address matters that are 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 Q2 2021 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, Terry Callahan, our Chief Financial Officer Nick Bailey, President of REMAX and Ward Morrison, President of Mata Mortgage. With that, I'd like to turn the call over to REMAX Holdings' CEO, Adam Kontos. Adam? Thank you, Andy, and thanks to everyone for joining our call today. Looking at Slide 3, we posted record financial results in the Q2 driven by a historically strong housing market, improved performance from our core operations and contributions from recent acquisitions. Continued execution on our strategy and the benefits of investments we've made in recent years are having With the recently closed acquisition of the REMAX, Integra and North American regions, we're driving economies of scale and delivering a consistent high quality value proposition. And our greater size brings more opportunity to create shareholder value. We remain encouraged by trends in our key leading indicators. We make agent count growth as well as model franchise sales and open offices. We believe our strategy and investments set us up nicely for continued profitable growth. I'm very excited about where we are and where we are headed. Highlights of the 2nd quarter include record revenue $77,200,000 and record adjusted EBITDA of $30,500,000 adjusted diluted EPS of $0.63 A net increase of over 8,000 REMAX agents year over year highlighted by growth across the board in the U. S, in Canada and internationally and a nearly 30% year over year increase in Motto open offices. Turning to slide 4. The Landmark acquisition of REMAX Integra's North American regions bring over 19,000 agents and 1100 offices into our company owned operations. On our February earnings call, we said we believed we could double the size of our revenue, excluding the marketing funds and profit through executing on previously identified growth opportunities. The Integra acquisition was one of those opportunities and gets us roughly Given its size and cross border market presence, it is the latest step in the transformation we have been undergoing over the past 5 years. During this time, we have challenged, reinvented and or transformed nearly every aspect of the company from our branding to our executive leadership team. We've upgraded people, processes and platforms at almost every level. We launched a new franchise brand, ramped up our tech capabilities to expand and diversify our Product lines modernized our marketing and strengthened our core business. As a result, we're a larger, more formidable enterprise with greater opportunities for growth, all while staying true to the principles embraced by Dave and Dale Lineker when they founded the company nearly 50 years ago. Much of our transformation has occurred through strategic M and A activity. Looking ahead, we plan to focus on integrating the acquired Integra regions and paying down our debt. At the same time, with over $100,000,000 of cash on our balance sheet, we can and will take advantage of strategic opportunities to expand even more. Acquiring independent REMAX regions and extending our company owned footprint remains a top priority for capital allocation. At the same time, Also look for complementary acquisitions in the franchising and real estate channels with an eye toward adding value across the entire home buying cycle. Moving to Slide 5, June presented an ideal trifecta for a hot housing market. Record home sales prices as indicated in our REMAX National Housing Report and an increase in inventory for the first time in 15 months. June, typically the biggest month of the year for home sales, saw sales soar more than 14% over a strong May. In fact, June sales topped every other month in the 13 year history of our National Housing Report, which spans 53 metro markets. The median sales price of $336,000 was also a report record, eclipsing the previous record of 320,000 set this April and tied in May by 4.9%. Meanwhile, in welcome news for frustrated buyers, the number of homes listed grew 1.9% over May, the first increase since March 2020. Inventory, however, was still down 37 5% from June 2020. The fact that sales are up and inventory is increasing at the same time indicates that more sellers are coming into the market to list their homes and buyers are lined up at the door still hungry. Despite the pandemic, record high prices and limited inventory, buyers continue take advantage of historically low interest rates and fight for a chance to become homeowners, a milestone that seemingly still appeals to every generation. Although some pundits are now forecasting a lower number of U. S. Existing home sales than they were earlier, 2021 is still shaping up to be a strong housing market, one of the better ones we've seen in the past decade. The return of more sellers is a positive sign that may represent a small step toward a more balanced market, which would be good news for all. With that, I'll turn it over to Nick. Thanks, Adam. Good morning, everyone. Looking at slide 6, overall agent count increased more than 6% year over year. We added over 8,000 agents worldwide since June 2020 with growth in each major geography. In fact, our combined U. S. And Canadian agent count is the highest it has been in nearly 3 years since Q3 of 'eighteen, Despite the immense competition and the unusual circumstances of the past year, the strong housing markets in the U. S. And Canada are both an attraction and a confidence builder for agents. In the U. S, our agent count increased over 7.50 agents, up over 1% compared to last year. In Canada, our growth accelerated and we added almost 1800 agents, up more than 8% year over year. Our growth in Canada is particularly notable given our position as a market leader there. We believe the events of the past year have increased agent awareness on the importance of having a strong brand. Our national market share of more than 30% in Canada is a difference maker, especially during times of uncertainty. It is also one of the many reasons we're excited about the acquisition of Integra's North American regions. These regions have experienced outsized growth in recent years and should be a positive driver in accelerating our overall organic growth rate. Right now, our focus is on integrating these regions as quickly and seamlessly as possible. The process, which began right after closing, is off to a terrific start. We're leveraging our experience with previous acquisitions to help these brokers and agents maximize the advantages of our company owned regional operations. There's tremendous amount of enthusiasm among the brokers and agents in these acquired regions and their excitement is shared by everyone in the REMAX corporate organization And we say welcome aboard to all of them. Turning to Slide 7, we continue to make good progress on the technology front, receiving acclaim for the efforts while we innovate and see increased adoption of our offerings. One of the highlights from Q2 was that our proprietary first app won a distinguished innovation award from Franchise Update Media. Our first app was a 1st place winner in the annual franchise innovation awards, which recognize franchisors that are creating and implementing the most original strategies for their franchisees. The first app uses machine learning to analyze an agent's Friends, family and acquaintances and then identify those most likely to list their home in the coming months. It has been a real difference maker. For example, in terms of transaction size, REMAX agents who began using FIRST prior to April 2020 increased their productivity by 9% on average versus the same period in 2019. The REMAX value proposition includes new ways for busy agents to automate and streamline tasks, creating more time for them to focus on helping customers. The first app helps agents grow their business by helping them refine their contact list, predict those most likely to list their homes and master strategic follow-up activities. In this low inventory market, First is a game changing tool exclusive to REMAX agents. When we initially encountered the first half, we saw possibilities to leverage, optimize and innovate on top of its unique agent productivity suite. We thought to ourselves, can we repurpose this powerful software to help our brokers retain highly productive agents? And our team embraced this challenge. And I'm happy to announce the answer to our question is a resounding yes. We will be unveiling the new recruiting capabilities of the first half at our annual Broker Owner Conference to be held in Austin, Texas next week. We're excited about this extension of the first capabilities and believe this is best in class, first to market product that is truly unique to the industry. This new offering is available only to the U. S. Right now And like most technologies, it's a work in progress and will be growing and refining the functionality over time. The recruiting functionality is free and exclusive to our next franchisees. It's one more worthy addition to our leading value proposition. With that, I will turn it over to Ward. Thanks, Nick. Looking at Slide 8, the U. S. Mortgage market continues to enjoy a tremendous year. Fannie Mae is forecasting the U. S. Will do over $4,000,000,000,000 in mortgage originations in 2021, likely the 2nd best year on record. This is good news for all mortgage market participants, including our Motto franchisees, many of whom are enjoying a Strong year to date. That momentum has carried over into our franchise sales. We are selling at a brisk rate just a touch under last year's record pace. It is 5 year anniversary this October and during that time we will have averaged better than 1 franchise sale per week. We are trending towards selling between 6080 franchises in 2021, consistent with last year and in line with our expectations. Office openings have accelerated as expected. We're experiencing the echo effect of last year's inflection in franchise sales and are now witnessing a similar dynamic in office openings, which grew nearly 30% year over year in Q2. The Motto team does a terrific job of helping our franchisees navigate the licensing process and the multiple steps needed to get their Motto offices open. We make it as simple as possible and it is a core part of the Motto value proposition. I'm proud of the great work so many of our Motto colleagues do behind the scenes. I know our franchisees certainly appreciate their efforts and it shows in our results. We now have 164 open model franchises and we are within shouting distance of having 200 open offices by year end. A big area of organizational focus for us is the successful integration of WeMo. We acquired WeMo last year Since acquiring WEMO last fall, we have built out our marketing strategy, sales journey, project management and business operations structure. We continue to get licensed in more states with the goal of being licensed in as many of the 50 states as possible by the end of the year. We are also ramping up resources to handle processing for our anticipated Motto loan volume. We're processing an The number of loans for a growing portion of the Motto network each month and are trending in the right direction. The best in class WEMO technology provides the only enterprise solution This time in the mortgage brokerage space. Although it was purchased primarily to support model franchisees, WEMO will continue to serve clients and market its products throughout the mortgage brokerage industry, providing an additional channel of growth for REMAX Holdings. With that, I'd like to turn the call over to Keri. Thank you, Ward. Good morning, everyone. Moving to Slide 9, a healthy housing market, momentum in our core businesses, The continued impact of our investments and strong collections despite the pandemic helped generate record financial performance during the Q2. Our financial results exceeded our expectations in most categories and we converted almost 70% of adjusted EBITDA into free cash flow during the past 12 months. With the recent closing of the Integra Regional acquisition, the corresponding refinancing of our credit facility and our key leading indicators pointing in the right direction, I believe we are positioned well for continued profitable growth. Total revenue was $77,200,000 an all time quarterly high. Excluding the marketing funds, revenue was almost $60,000,000 Acquisitions increased overall revenue by nearly 3% as we are seeing year over year growth for both Limo and Gadbury. FX lifted revenue by just over 1%. Our organic revenue growth was up significantly given the pandemic and the fee waivers we employed a year ago. The year over year comparisons are not particularly meaningful. What I do think is noteworthy is the momentum we see in our core business. Even after normalizing for the temporary COVID-nineteen fee waivers extended in Q2 of last year and setting aside broker fees. We still generated a mid single digit organic growth rate as many of our organic growth drivers contributed to the top line during Q2, including agent count growth, pricing, motto first, more targeted use of agent recruiting incentives to name the most notable ones. If you exclude the booj legacy runoff, our organic growth improved by nearly another 100 basis points. The magnitude of our top line is what drives our margin and we saw that in Q2. We believe we'll see continued mid single digit organic growth for the foreseeable future. Looking at Slide 10, selling, operating and administrative expenses were $38,800,000 in the Q2 of 2021, up significantly over the prior year. Similar to revenue, the year over year comparisons for SO and A are not meaningful due to the pandemic. While our staff travel is picking up in response to the importance of in person events and training that our customers are eager to participate in, our spending levels remain well behind our pre pandemic level in 2019. On the acquisition front, we continue to see margins from our acquisitions trending in the right direction. In fact, Gadbury has already started to generate a monthly profit ahead of our expectations. 1st and our mortgage business, which represents the combination of WEMO and Motto are both moving toward breakeven and we expect each to start generating a monthly profit likely sometime in the first half of twenty twenty two. Turning to Slide 11, We took advantage of favorable market conditions and refinanced our credit facility last month. We increased our capacity, reduced interest costs and generally improved the terms of the agreement. We raised $460,000,000 in term loans, which allowed us to pay off our existing indebtedness and fund the $235,000,000 acquisition of the REMAX Integra region. Plus, we expanded our revolving facility to $50,000,000 up from the previous $10,000,000 cap. We also pushed out the timeframe of the agreement. The new term loan facility is for 7 years, while the revolver has a 5 year term. Financing the Entyger acquisition exclusively with debt made the most financial sense in light of the attractive conditions in the debt market and should give us a more efficient capital structure going forward. After adding EBITDA contributions from the acquired regions, we expect our leverage to increase to a still comfortable level of approximately 3 times on a net basis and approximately 4 times on a growth basis. Moving to Slide 12, the company's Q3 and full year 2021 outlook includes the financial results of the acquired Integra North American region and assumes no further currency movements, acquisitions or divestitures. For the Q3 of 2021, we expect agent count to increase 5% to 6 percent over Q3 2020 revenue in a range of $86,500,000 to $91,500,000 including revenue from the marketing funds in a range of $21,500,000 to $23,500,000 and adjusted EBITDA in a range of 29.5 to $33,000,000 For the full year 2021, we are increasing our revenue guidance due to the REMAX and Tigra North American acquisition. We are also increasing our adjusted EBITDA guidance due to stronger than expected second quarter results and the REMAX Integra acquisition. For FY 'twenty one, we expect agent count to increase 5% to 6% over full year 2020, Revenue in a range of $321,000,000 to $336,000,000 including revenue from the marketing funds in a range of 80.5 to $83,500,000 up from $300,000,000 to $310,000,000 and adjusted EBITDA in a range of 113 to $118,000,000 up from $103,000,000 to $107,000,000 Now, I'll turn it back to Adam. Thank you, Carrie. Looking at Slide 12, we ended the first half of the year on a strong note with record financial results, encouraging trends in our business and the most We believe we have real momentum right now and we are looking forward to an even better second half of twenty twenty one. With that operator, Our first question comes from the line of John Campbell with Stephens. Hey, good morning. This is James Holly stepping in for John Campbell. Good morning. So on the Integra deal, can you talk about how much was factored into the guidance for the back half? Is it just the annualized run rate and then taking 5 months worth of that for the remainder of the year? Yes, good morning. That's a very good way to look at it. So very consistent in terms of how we looked at guidance when we have the call back in June. The biggest thing that we've really updated in terms of our Expectations in terms of the initial 12 months of contribution has to do with the successful refinance of the credit facility. So interest costs have come down a little bit. The biggest change is just looking at the adjusted EPS contribution. So we're looking at about $0.05 to $0.06 of improvement compared to the range that we gave back in June. But otherwise, pretty consistent in just taking an annualized run rate. We did see a sequential decline after the first time there. Do you think that's a product of that side of the business maturing and could we expect a pricing lever being pulled on the international stage going forward? Just looking for some updates on the side of the business. Yes. Hi, James, it's Nick. When we look at Global, the one thing that we have been considering, short answer, no, we don't believe that it's hit a maturity point That's impacting overall growth. But when we look at last year and we look at COVID, many of the countries Still to this day are experiencing continuation of severe lockdowns that we believe is impacting growth overall, but we do anticipate a strong second half in that category. And like you mentioned, the growth is there. And so we believe some of it is just a temporary pause. All right. Thanks for the time guys. Appreciate it. Thanks. Your next question comes from the line of Vikram Malhotra with Morgan Stanley. Thanks for taking the questions. Good morning. Maybe, Carey, just to start with you, if you could just help us help break out in the What the contribution was specifically from Motto and some of the newer businesses you've added to the company? And just going forward, do you plan to break that out separately or create a new line item? Yes. Good morning, Vikram. Thanks. It's a good question. In terms of how we break things out externally, we do show Motto separately. So very happy with how the mortgage segment in general This quarter we've really combined both the operations of Motto and WEMO into that mortgage segment. I think one of the things that's a big differentiation in the business right now and part of the transformation is just the multiple different levers that we can pull. So mortgage contributed a little over 1% in terms of our overall top line organic growth for the quarter, so really happy to see that. In terms of obviously, still a little bit of In that segment, both legacy Motto as well as Weamlo, continuing to ramp up the Weamlo business and happy about the performance there. In terms of some of the other pieces of the business, again, mid single digit organic growth across the business, excluding the impact of the fee waivers last year as well as broker fee. And some of the other businesses in terms of First and GAD, Gary, they're still relatively small. So just given the contribution that looking to break those out, but contributing definitely to the overall organic growth profile. Just to clarify, so in the guidance, Can you give us sort of a dollar amount or range for just maybe mono combined with the other businesses? Yes. So in terms of the full year, kind of looking in the high single digit range in terms of annual contribution. Okay, got it. That's helpful. And then just building upon sort of the potential doubling of the revenue, You've called out like a couple of different pillars of that. And I'm wondering if you can just update us specifically Fees that you may charge for the suite of services now that you can agents can leverage off of and How you see that playing out specifically? And then secondarily, in that bridge, with Motto accelerating, any updates to that bridge in terms of Motto Yes. So when we framed up the opportunity with respect to doubling the size of the revenue back in February, really Split that between the real estate business and the mortgage business. On the real estate side of the house, I'm very excited about the acquisition of REMAX That gets us a good kind of quarter of the way in terms of the half that could come from the real estate side of the house. Obviously, other independent region acquisitions as well as monetization within the existing network as we think about Continuing to leverage products like First, continuing to ramp the Gadbury business, which we've seen A little bit of acceleration in just this quarter and other opportunities really provide some excitement on Side of the business, specific to your question on the mortgage side of the business, we think that there's a tremendous opportunity there. We've said since the beginning of Motto Yes, we think about a third of the REMAX franchisees in the U. S. Or roughly 1,000 is our total addressable market. But we've seen some acceleration recently In terms of Motto franchise sales to other real estate company participants, so other national brands, independent real estate companies and team, Keep in mind, there's 80,000 other independent and franchise brands, teams and companies out there. So if you even just said another 1,000 potential from a TAM perspective to sell Motto and then that doesn't even consider the capture from a lean low perspective. So we do think that other $100,000,000 on the mortgage side of the business is an exciting opportunity for us as we look to grow the business over time. Great. Thanks so much. And then maybe for Adam or Nick, if I heard you correctly, I think you said obviously you've grown the business through a lot of external acquisition. But correct me if I'm wrong, but I think you said that you're still thinking or you could still potentially look at Other areas that are adjacent to the business to grow and just given where the leverage is, I'm just wondering if you can There was a little bit more color kind of are we done with the external growth or the bolt on acquisition or is there more to come from here? Hey, good morning. We're always keeping our eyes on the market with respect to anything in the homeownership lifecycle that Could better provide a greater customer experience through our agents relationships that they have. 1 of the Really exciting and important parts of our network is the fact that our agents help so many people each year. They do such a great amount of business Comparatively speaking to other agents and as a result, they're looked at as the expert and the provider of that counsel to their customers very, very closely. So we do look at other opportunities to provide our agents and our franchisees the ability to provide Additional types of service to the consumer and as a result, yes, we are exploring other opportunities. Do we have anything teed up right now? No, we don't At this point, but our eyes are open and we're always looking for how do we continue to enhance the transactional process in the home ownership lifecycle. Great. Thanks so much. Your next question comes from the line of Ryan McKeveny with Zelman and Associates. Hey, good morning, guys. Thank you for taking the question. On the Integra piece, can you just remind us whether any identified Cost synergies are baked into that 12 month run rate EBITDA contribution. And If not, I guess, or whether they are or not, how do you think about those cost synergies beyond just year 1 of the initial integration? Yes. Good morning, Ryan. So those on year 1 cost synergies are included. I think one of the things that we have learned already is integration is going well and we'll continue to optimize the cost structure and make sure that we're doing everything that we can to Our franchisees and our agents and continue to look at additional levers that we can pull over time as those operations really do get combined in both the U. S. And Canada. Got it. Thank you. And for Ward, On the mortgage side, so within the wholesale channel, the price war going on and obviously from the wholesaler perspective gain on sale margins Compressing pretty meaningfully. And I guess it's I think it's fair to assume that that's creating a pretty attractive value prop for mortgage brokers to pass along pretty good rates So I guess I'm curious if you're seeing that directly within your mortgage broker network. And also on this In terms of the interest list, are you seeing new folks explore the broker channel either given what's going on or just regardless of what's When you look at kind of the interest list of who might be exploring the idea of a model franchise today versus let's say a year or 2 ago? Thank you Thanks, Ron. Yes, all of the above. I think the broker channel continues to grow. We're I think some of it is the price wars out there, which makes it fantastic for our model franchisees. They are using that tool of Pricing to gain business, year over year our volumes up almost 70%, 72%. So we're seeing great increases and I tie that a lot to the rate The rate war that's going on, but we continue to try and emphasize and I think the wholesalers are trying to emphasize Brokerage in general, so they're supporting us as mottos, selling more mottos. They love the fact that we're tied to real estate Where the purchase money referrals happening because they all know refis are going to go away soon. And the question is, who's going to have to purchase and we're seeing modest have to purchase. Just an example, we sold to some national other brand teams and they're having great success, great capture And it's exciting for them to participate in the lucrative nature of mortgage and they're sharing that. They're becoming validators for us And we think it's just a testament to the overall broker channel. Great. Thanks very much. Your next question comes from the line of Tommy McJoynt with KBW. Hey, good morning guys. Thanks for taking my question. So you noted that Cadbury is profitable and some of the other recent tuck in acquisitions are getting close to profitability. Could you just remind me of the business models there? Are those a la carte options for agents? Are they recurring monthly Subscriptions are more transaction based and what do the margins look like there longer term? Sure. So from a first Perspective, that's a subscription model. So I think the exciting thing there in terms of revenue contribution per agent is that it takes up our revenue contribution per agent by about 20%, it's about $500 of incremental revenue per agent to the top line terms and recurring in nature, they roll through our franchise sales and other revenue line item. And then on the WEMO side, The thing from that perspective is while it is more transactional, it very much balances out the Motto revenue, which is 100% recurring. So the WEMLO revenue is tied to the number of loans that are processed through the WEMLO platform. And so that is A fee per transaction cost, so anywhere kind of between $700 $1100 per file and that's tied to transaction. So as we look at scale over the long term, Again, with Motto and WEMO being combined, we think that that business over the long term has the same margin characteristics as the REMAX brands, as we look over time and scale, consistent with what I was talking about earlier. And then from a first and a Gadbury perspective, we're still very excited about the opportunities there a little bit earlier in the pipeline, but definitely contributing to the overall value proposition. That's great detail. Thanks, Derek. Are you guys seeing any or Any outsized attrition of agents from the conversion from Entegra to the owned franchise, I don't know if you've looked at previous acquisitions and kind of what's normal and how Integra is progressing so far? No, overall we don't, because keep in mind we have the same franchisees that were part of the REMAX system and we have a number of the key leaders that will remain in those positions moving forward. So more about the synergies Scale of bringing them all under our umbrella, but still independently operating as they were prior to, so no. Great. Thanks. And then just last one. Is the incremental margin on broker fees, the 1% of commission that flows up for the owned regions, That come on at nearly like 100% margin or are there any actual OpEx there in terms of processing or supporting those transactions? The vast majority of that does flow through, but obviously, we look at just how we need to support the business and the franchisees that we're collecting that money It's all kind of tied through the from that perspective as well. Great. Thank you. The next question comes from the line of Stephen Sheldon with William Blair. Hey, thanks. Good morning. It's been 2 quarters of strong sequential agent growth in Canada and you've got over 1,000 net new agents there so far this year. And I know the strong market position that is helping, but is there anything notable that you're doing to drive the increased recruiting traction in Canada? Yes, similar to the U. S, obviously, we have a focus on a lot of the programs that have been rolled out over the past Several quarters that are impacting it. But I think the key thing in Canada that as you know, it's a very strong real estate market. But What really helps us drive that growth during a strong market is the amount of market share that we have across the country. I mean, on average, it's over 30%. And so to have that strong of a market share position, we see that in markets even here through the U. S. Those markets where we have the highest percentage of overall market share make it easier to recruit and grow in strong markets All around. Got it. And then I guess for Carey, I think a couple of quarters ago you talked about the Technology acquisitions being a drag to earnings this year and then becoming a tailwind to earnings in 2022. I think if remember correctly, like close to maybe $10,000,000 Any updates on how your thoughts there, especially with the better than expected bottom line performance you Yes. So great question, Stephen. I think we're very excited still about all of the Acquisitions, some of them, as I noted with Gadbury, seeing some shift to profitability a little bit sooner, continuing to still invest Across the board and not only Gadbury, but first in WeMo as well. We said that back in February that Assuming that the housing market hangs in there and that there is no disruption from a macro perspective, we'd be disappointed next year if we didn't see Excited about that and think that that's doable. That's obviously doesn't include Integra and any contributions for Integra. I mean, obviously, we're Providing guidance for 2022 at this point in time, but still feel good about that initial $10,000,000 and then an additional $10,000,000 on top of As we look at the 1st 6 months of contribution, 6.5 months of contribution for Entegra next year as well. Great. Thank you. Your next question comes from the line of Matthew Cardiasso with Compass Point. Hey, good morning. Thanks for taking the question. Maybe one for you Nick. On the First App And the recruitment piece of that, would be great to just hear what you're envisioning for that, what capabilities that brings to the And just to clarify, did you say that that would be offered for free to franchise owners? Yes. To answer the question about cost, it is going to be free to our franchisees, at least the recruiting functionality piece of it. We're just leveraging the complete stack of firsts by taking what we have within G73 And being able to connect it in a way that we can create a mobile push environment for recruiting. So when we get specific to the functionality, Franchisee can determine which agents they would like to quote follow in their market and they'll see activities when their recruits Get new listings or closed listings. They'll be notified within an average of 7.5 to 8 minutes The time those changes are made within the MLS, so that they can increase communication and drive the recruiting process. And so it's really kind of a first to market in the industry the way that this has been developed to keep the activities of the potential recruits And to make one to 2 touch communication available to the franchisees. And we believe that it is a winning formula to the first 2 out of 5 steps of recruiting. Got it. That's helpful. And will be exciting to see how that shapes up. Maybe one on capital allocation, Terry. Just wondering with you taking the leverage ratio up, do you have any kind of target leverage or other target metrics that you're aiming for and how quickly do you expect to pay that debt down? Yes. So great question. Historically, we've said from a leverage perspective, 4 times on a gross basis, 3 times on a net basis. That's kind of where sitting now, but obviously still have the $100,000,000 of cash on the balance sheet and then the strong free cash flow generation nature of the business. You add Integra on to that and it just further strengthens the cash flow generation of the business. So I think from a debt perspective, we're pretty happy with where we are right now. We think we have really optimized the balance sheet a little bit And the success that we had in terms of the refinance was good, just given the ability to bring some of the interest costs down and diversify our investor base on the debt side and improve the terms of the facility as well. And so I think from a leverage perspective, we're pretty happy with where we are. We've looked at cash generation and other avenues to use for allocation going forward. That's helpful. Thanks. At this time, there are no further questions. I'll turn it back over to Andy Schulz for closing comments. Thank you, operator, and thanks to everyone for joining us on the call today. Have a great week.