Good morning, and welcome to the RE/MAX Holdings First Quarter 2020 Earnings Conference Call and Webcast. My name is James, and I will 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?

Thank you, operator. Good morning, everyone, and welcome to RE/MAX Holdings' first 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 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 outlook, brand expansion, competition, technology, housing and mortgage market conditions, including 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 first quarter 2020 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; 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?

Thank you, Andy, and thanks to everyone for joining our call today. Given the unique set of circumstances, we're going to do our earnings call a bit differently today. I'll briefly address the state of our employees, present highlights of the quarter and provide my thoughts on the current environment. I've asked our two brand leaders, Nick Bailey and Ward Morrison, to each spend a few minutes sharing their insights about the state of their respective business lines. Lastly, Karri will briefly review Q1 and address our cost-saving measures and current capital resources. Looking at Slide 3, the health and well-being of our employees, affiliates, customers and communities remains our top priority. Our headquarter staff went all remote on March 16. Due to investments we made in our business this past year, our employees are working productively from home, delivering valuable service and support to our RE/MAX and Motto networks every day. We've embraced and significantly augmented our use of video, digital and social media technologies to stay connected and engaged. In fact, one of the bright spots in this experience is all the virtual face-to-face time our leadership group has spent communicating with our franchisees, agents and loan originators. Our operational transition to a virtual work-from-home environment was relatively seamless. We plan to continue to work all remote until at least June 1st. I'm proud of our team members for their resilience, diligence and professionalism during these challenging times, and I thank them for their terrific work delivering value to our membership and stakeholders. Turning to Slide 4, although we entered 2020 with momentum amid a strong housing market in the U.S., the rapidly evolving COVID-19 pandemic increasingly impacted our industry and operations. That said, we still posted solid first quarter results. Highlights of the first quarter included revenue of $70.3 million, adjusted EBITDA of $19.5 million, adjusted EPS of $0.39, total RE/MAX agent count approaching 132,000 agents for the first time in our history, up 5%, and the launch of our consumer-facing app and the refreshed remax.com website. Although second quarter results are likely to reflect the full brunt of the coronavirus, some leading indicators for housing have already started to turn, and we remain optimistic that housing will recover sooner than many industries. Nick will have more on that in a moment. Moving to Slide 5, one thing I am confident of is that we'll exit this health crisis in a position of strength. We have an enviable set of competitive advantages, including our industry leading brands, entrepreneurial affiliates and skilled experienced headquarters team. The foundation under the RE/MAX Holdings family of brands is rock solid. This isn't the first downturn our organization has faced. In fact, many of our key leaders, including Ward, Nick and myself, helped guide the company through the Great Recession a decade ago. Our Chairman, David Liniger, has noted that RE/MAX has battled through six recessions since he and Gail founded RE/MAX almost 50 years ago. Many of the actions we're taking now are modernized versions of tactics learned while steering through challenging business cycles and market conditions in the past. Most of our affiliates have been successful for years, if not decades, and our newer affiliates benefit from the experience of their peers. Entrepreneurial spirit and the ability to pivot, adapt and overcome challenges have become hallmarks of the RE/MAX network for nearly five decades. RE/MAX and Motto have similar cultures and are professional, productive and collaborative, which gives us a valuable competitive edge during difficult times. We believe we have the best brands and business models in our industries, which is validated by the recognition we continue to receive from multiple well-respected third parties. For example, one leading industry report recently confirmed that RE/MAX agents are far more productive than the norm. According to the 2020 REAL Trends 500 survey, a widely followed ranking of large U.S. real estate brokerages, RE/MAX agents average twice as many transaction sides as competing agents in 2019 for the 10th consecutive year. A second source, Entrepreneur Magazine's widely respected 2020 fastest-growing franchise rankings honored RE/MAX for the seventh consecutive year and Motto for the second consecutive year. This is the 19th time RE/MAX made the list and the second time RE/MAX and Motto were recognized together. Earlier this year, Entrepreneur's 2020 Franchise 500 survey named RE/MAX the number one real estate brokerage franchise for the eighth consecutive time. These types of recognition put our brand strength on display. Turning to Slide 6, RE/MAX was founded based on a simple premise to create an environment where productive agents would come together, share ideas, motivate each other and see their results soar. By helping others achieve their goals, we achieve ours; everybody wins. Almost half a century later, that original business model is still relevant and thriving, all around the world. RE/MAX agents in more than 110 countries and territories are delivering positive outcomes to buyers and sellers. Today, RE/MAX is the worldwide leader in real estate, with leading market share, leading agent productivity, leading global presence and leading brand awareness. Nobody in the world sells more real estate than RE/MAX based on residential transaction sides. We are home to the top producer in multiple annual national big broker reports. RE/MAX agents outperformed other agents 2:1. Our global footprint is unmatched, with about half of our membership outside the U.S., and we have the highest level of unaided brand awareness in real estate among consumers in the U.S. and Canada according to MMR Strategy Group. Obviously, Motto Mortgage is at a much earlier point in its history, but it's built on the same core values and is moving forward on a similar path. Motto remains the first and only national mortgage brokerage franchise in the United States. Motto is just getting started, and its future is bright. With that, I'll turn it over to Nick.

Thanks, Adam. Good morning, everyone. Looking at Slide 7, while near-term challenges exist for housing on an absolute basis, consumer sentiment continues to lean toward transacting. We believe it's just a matter of when. According to the April National Association of Realtors Pulse report, most buyers and sellers have indicated to their agents that they either want to move forward with the process or just delay by a couple of months. Seeing the majority of buyers and sellers choose a short temporary delay isn't surprising given the shock of initial virus mitigation efforts and the wide variance in state or local restrictions. We remain optimistic about real estate sales recovering relatively quickly, as well as our ability to lead the industry while and after the recovery occurs. While the number of housing transactions is expected to decline materially in the second quarter, forward-looking indicators are showing some positive momentum. Since mid-March, some leading indicators, like new listings have plateaued, and others like showing have begun to see a recovery, as many states and municipalities are loosening their stay-at-home orders and easing other select commercial restrictions. Generational demographics are one of the several key tailwinds for housing. The population is increasing, and the largest age group, Millennials, are in their peak home buying years. So the demand remains strong. Also, interest rates are at historic lows. Headwinds include ongoing inventory challenges and potential affordability constraints, especially with a sudden shift in job figures. That said, although levels of uncertainty remain, current metrics suggest that housing is already showing positive signs of recovery. Likely much of the spring selling season has simply been deferred, and we anticipate the velocity of transactions to increase in the coming weeks and months. Now turning to Slide 8, we continue to focus on supporting the health and sustainability of our franchisees around the world, as our success is directly tied to theirs. In March, we began offering optional deferrals of monthly continuing franchise fees and marketing fund fees to franchisees in company-owned regions for one month. Later, we expanded the program to offer both a pay now option that partially waives these fees for up to two months and a pay later option that extended the initial deferral program for an additional month. These measures, which provide direct financial assistance to our small business entrepreneurs at the local level, have been very well received by our membership, with the pay now option being favored by about 85% of our network. Our experience in previous market conditions and recessions helped us move quickly to shift and enhance the value we deliver to our network. For instance, we took immediate steps to leverage our RE/MAX University platform by developing a series of webinars, Facebook live presentations, and coaching sessions to help agents conduct virtual tours, connect through video, learn new technologies, and deliver value to buyers and sellers, while adhering to social distancing guidelines. We also engaged in our vast approved supplier network to get relevant tools and services into the hands of our brokers and agents, enabling the membership to adapt their business to a more virtual environment. Additionally, we offered a free temporary Zoom Pro account to every brokerage around the world and an enhanced Zoom Basic account to every agent. Affiliates have already logged over 6 million minutes of Zoom Video conferencing through these accounts. We also created new customizable marketing materials that speak with compassion and hope, while noting that RE/MAX agents are here for their clients and communities. Our investments in innovative proprietary technologies, such as our booj platform and the First app give RE/MAX franchisees and agents unique competitive advantages in a largely virtual business environment. We're seeing gains in our networks adoption of these technologies, spurred by the features specific to real estate and due in part to initiatives we've undertaken, such as offering a 90-day trial for the first half. After introducing the app at our Annual Convention in late February, over 30% of the attendees downloaded it before leaving Las Vegas. A tremendous initial response, and the momentum continues to grow ever since. Our network is also embracing the booj platform as evidenced by the fact that on average, our agents are creating just over 100 new consumer websites per day, with more than 15,000 new sites having been created since launch. As a result, leads increased year-over-year by 33% in March 2020 and by 15% in April 2020, all despite the health crisis. We're focused on continued marketing and education to drive further tech adoption during the second quarter and the remainder of 2020. As in any environment, we see opportunities to grow our network by helping our franchisees adjust to current operational realities and grow their brokerages and regions. In fact, on May 1st, we announced our most recent growth and recruiting initiative, which we believe reflects our growth-minded culture. We're moving forward with great confidence in our people, structure, and systems, fully committed to reinforcing our position as the industry leader. With that, I'll turn it over to Ward.

Thanks, Nick. Moving to Slide 9, Motto entered the year with real momentum. And although the pandemic has impacted our business, we believe we can still have a relatively strong 2020. After all, the Motto Mortgage network of offices closed over $1.1 billion in loan volume and served over 5,000 families last year. We, too, have stepped up our efforts to help franchisees by extending financial support and increasing our training, engagement and education programs. In March, we offered franchisees the option to defer their April continuing franchise and marketing fund fees with no interest until September when they would begin to repay the deferred amount. In April, we expanded the program to offer two options. The pay now option provides a 50% waiver of their May and June monthly continuing franchise and marketing fund fees if they pay to reduce fees in accordance with existing payment terms or they could elect to pay later option and defer these fees for May and June with no interest until starting a repayment process in September. Current franchisees have voiced appreciation for the measures we've taken. And if anything, our actions during the pandemic have strengthened the relationship between Motto headquarters and our network. Motto remains a compelling ancillary business opportunity for real estate brokerage firms and prolific real estate teams. It is also an opportunity 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. Franchise sales continued during March and April, but at a slower pace, likely because prospective franchisees have deferred their purchase decision until some of the economic uncertainty passes. We held our second Meet Motto marketing event virtually in April, a very successful event with 35 enthusiastic prospects, a significant increase over the 20 attendees who attended the first event in Q4 of last year. At both events, most of the attendees were from outside the RE/MAX network. And although it's unlikely we will achieve our goal to surpass last year's franchise sales total in 2020, we still believe it is possible. The Motto team is certainly working hard to make that happen. Interest in owning a Motto franchise remains high, and our pipeline is full. In fact, we've had numerous inquiries about ownership opportunities in the past several weeks, as renewal see how owning the ancillary business, like the Motto franchise, can help buffer unexpected hard times. With that, I'd like to turn the call over to Karri.

Thank you, Ward. Good morning, everyone. Turning to Slide 10, despite the momentum we had entering 2020, the impact of the COVID-19 pandemic began to impact our industry and operations at the end of the first quarter. In the U.S. and Canada, many transactions initiated earlier in the first quarter or at the beginning of the health crisis were able to close, which contributed to relatively strong March housing statistics and our solid first quarter results. During the first quarter, total revenue was $70.3 million, up almost 1%, excluding the marketing funds. First quarter revenue wasn't materially impacted from the coronavirus, except for possibly quarter-on-broker fee revenue, which is difficult to estimate. Increased broker fees and the expansion of Motto essentially offset lower continuing franchise fees related to previously announced recruiting initiatives. Foreign currency movements and acquisitions also had a negligible impact, resulting in virtually flat organic growth, excluding the marketing funds. Looking at Slide 11, selling, operating and administrative expenses were $34.7 million in the first quarter of 2020, an increase of $0.8 million or 2.3% compared to the first quarter of 2019. And excluding the marketing funds, represented 65.7% of revenue compared to 64.7% in the prior year period. Selling, operating and administrative expenses increased primarily due to higher bad debt expense, incremental expenses from the first acquisition, technology investments, and increased legal expenses, partially offset by lower equity-based compensation expense and the elimination of the corporate bonus. Moving to Slide 12, early in the second quarter, 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. Outside of the marketing funds, which I will address in a moment, as announced on April 14, we expect to reduce second quarter expenses by $6 million to $7 million, primarily by eliminating the 2020 corporate bonus, suspending the company's 401(k) match, travel and events, and implementing a hiring freeze. Regarding the marketing funds, recall that the dealer subsidiaries that collect fees on a recurring basis are to be used primarily for advertising and technology purposes for the terms of the company's franchise agreement. We believe in the importance of brand presence and maintaining visibility during these challenging times. As Nick mentioned, we quickly modified our marketing efforts to reflect current consumer sentiment. By strategically reallocating advertising dollars, we were able to save money and expect to reduce second quarter marketing fund expenses by $5 million to $5.5 million. Importantly, we are currently planning to maintain our investments in technology. We also plan to defer approximately $2.25 million to $2.75 million of capital expenditures originally expected for the second quarter. These outlays were principally related to our headquarters remodel. We continue to manage our expenses and capital expenditure programs judiciously. Turning to Slide 13, our 100% franchise business model, primarily recurring revenue streams and strong balance sheet provides financial flexibility to navigate challenging times like these. We believe our financial strength continues to be a competitive advantage. Our business historically generates healthy amounts of cash, and the past year was no exception, with almost 70% of adjusted EBITDA converting to free cash flow on a trailing 12-month basis as of March 31. We had cash and cash equivalents of $80.9 million as of March 31, down just $2.1 million since year-end. Our marketing funds had $24.2 million in cash at quarter end, up about $3.6 million since December 31. Regarding our financing facilities, our current credit facility does not mature until December 2023, and the financial covenants are only applicable if we draw down on our $10 million revolver, which we have not done. Our capital allocation priorities currently remain unchanged. We believe we have taken prudent steps to preserve cash and continue to evaluate investment opportunities with the same rigor we have always employed. We believe we can continue to strategically invest to spur future growth. If circumstances change, we will reassess as needed. Because of the COVID-19 crisis, near-term housing results are anticipated to decline materially, which is expected to negatively affect the company's financial and operating performance through at least the second quarter. The magnitude and duration of the impact from COVID-19, especially on consumer behaviors are unknown, and therefore, cannot be reasonably estimated at this time. As a franchisor, we maintain a relatively low fixed cost structure, healthy balance sheet, and our historically stable fee-based model derives most of our revenue from recurring fees paid by our affiliates. We remain focused on positioning the company for both short-term and long-term success. Now I'll turn it back to Adam.

Thanks, Karri. Moving to Slide 14, our resilient business model, strong brands, geographic breadth of our professional and entrepreneurial networks, and our dedicated employees give us confidence that we will be able to successfully navigate through and emerge from this crisis as we entered it from a position of strength. With that, operator, let's open it up for questions.

Our first question comes from Stephen Sheldon with William Blair. Please go ahead; your line is open.

Thanks. Good morning. First here I wanted to ask what trends you're seeing on the lifting side. I know that's been part of the growing inventory headwind here. Are you seeing any indicators, either internally or through third-party data that listings could also pick back up here relatively quickly?

Good morning, it's Adam. We are starting to see the market wake up, if you will, and I'll pass it over to Nick here in just a second with regards to listings and showings. But inventory is still constrained quite significantly. However, we think that the supply/demand pull will likely start to create a greater base of listings out there. And we're seeing the rumblings on the Street indicating that direction. And Nick, do you want to add anything else?

Yes. I agree with Adam. And plus, as we look at leading indicators, showings is number one. But for example, the National Association of Realtors recently put out a pulse report asking buyers and sellers where they stand. And the encouraging news for our entire industry is when you look at sellers, 90% of them said that they would like to continue to move forward with listing their property. It's just delayed. And so based on showing and listing inventory leading indicators, we believe that much of the spring market uptick, which is when most listings come on the market annually, has just been delayed. And it's also driven locally. Each state still is coming out of this at a different pace. And so we're seeing listings in markets that are deemed essential are coming up faster than some of those that are still coming out of the recovery a little slower. But all leading indicators look very positive.

Okay. Got it, and then two questions on the measures taking to help your franchisees and the agents out in the short term. One, I guess, based upon what you've seen for uptake of the pay now, pay later option so far, what kind of rough impact these changes could have at this point to revenue and profit in the second quarter? And then second, any update on the overall health of your franchisees at this point?

Good morning, Stephen, it's Karri. So I think with regards to the pay now and pay later programs, the feedback that we've heard from our franchisees has been resoundingly positive. And so we're really excited about the measures that we took and the timing in which we took them. With regards to the elections at this point, about 85% of the agents in our company-owned regions in the U.S. and Canada have elected the pay now option. So if you think about that, it's roughly about 48,000 agents between the U.S. and Canada paying about $128 per month for our continuing franchise fees. If you assume that they're going to pay 50% of that for a couple of months, that's a headwind to second quarter continuing franchise fees of roughly $6 million. The other thing that I would point out with regards to the pay later option, if you assume the other 15% who have not elected pay now select that option, the timing for the revenue recognition just looks a little bit different because we'll recognize that revenue when we recover it via the higher broker fee. So although it isn't an impact to the full year, we do think there's, roughly, a couple of million dollars of revenue that would push out of the second quarter, but that would still be recognized in the full year. So that's kind of the impact there. As we look at the overall health of the franchisees on your second question, I'll kick that in and then feel free, Nick, to jump in. But we're seeing strong resilience across the network. This is the RE/MAX network has operated for almost 50 years and been through six recessions. And so the entrepreneurial spirit has really enabled our franchisees to weather the storm. I think no better indication than that, than our collections that we saw on our March bills. We had about $0.97 on the dollar that were collected because of the pay now, pay later programs that required it. So overall, our franchisees are doing well from a financial perspective. They've learned the lessons from previous downturns and have made the necessary adjustments in their business.

Great. Thank you.

Good morning, guys. It's actually Dennis McGill on for Ryan. How are you? First question just deals with the aging count domestically. As you've mentioned, you guys have been through several recessions and are very battle-tested. When you look at the decline that you showed in April and you think about how this might evolve, can you just talk to maybe how that has compared to your expectations? And how this might be similar or different to some of the more recent recessions when agent count has declined as well?

Well, first and foremost, we understood in Q4 of last year, when we put our efforts into growth initiatives, it paid off. And we came into the year with tremendous momentum on growth. We also, as we came into Q2 and the first part of April, we intentionally delayed launching our aggressive growth initiative until May 1st. The time was not appropriate to launch it April 1st for obvious reasons. And so we are thrilled to announce that we have taken our growth efforts starting May 1st, which are very aggressive and the timing is better to move forward through the remainder of Q2. So we're very optimistic about using similar tactics that we did in Q4, now moving into the remainder of Q2 to drive future growth.

And that actually leads into, well, my second question, probably that was going to be. If you think about the two pieces of the agent count, the recruiting side on the gross ads, and then obviously you have losses and attrition that's somewhat normal. Given that you weren't proactively being out there recruiting as heavily during this period, if you just looked at the losses, did you see much difference now versus this time a year ago in driving that decline? Or maybe how to think about the two pieces, both gross and net?

No. We realize that within the industry, there is just, as you stated, a natural churn that occurs with real estate agents. And so we don't see any difference year-over-year in that. It was really more focused on what the gross ads on the front end of it look like as an overall impact.

That makes sense. And then second question, just as you spoke quickly about, first, the CRM program. And I think you had the numbers you referenced were in relation to attendees who had downloaded the app at the conference, I think where you announced it. Can you provide maybe broader measures around agent adoption either downloads or something that would be beyond just the conference attendees? And then also the usage beyond download, what type of feedback are you getting? Were you hearing positive or negative that might lead to sort of future interactions?

Yes. The First app, the timing of the acquisition of that could not have been better for us, where the entire app and technology is driven between AI and machine learning to help agents make sure to capture listings on the front end with a delay of sellers saying they are going to list, but it's possibly pushed out by weeks or months. The adoption rate and the usage rates have continued to rise by hundreds by the day and thousands since the launch in just two months. And so we're looking at approximately 10% already within 60 days of the launch, have adopted the technology with our U.S. agents, and it's continuing on a daily basis to increase. If we benchmark that against average adoption rates of technology with the industry, it is far surpassing things that we've seen in the past. And we have seen a number of testimonials from our network saying this has provided immediate results. We mentioned that leaving our conference, 30% of our attendees had downloaded the app and adopted it. And we have a number of examples that within 24 hours of them adopting the technology had listing appointments and were driving their business. So we are over the moon about this technology and the feedback from our network continues to be very, very positive.

Sounds fantastic. Do you have any plans near-term here to just promote that more or drive that adoption, recognizing it seems like it's a feedback loop of people adopting and recognizing the value of it?

Yes, absolutely. It is one of the number one tools that we have made a focus of our Q2 growth initiative that we launched May 1st. It is front and center that we have offered a 90-day trial, which is helping to drive growth as well and adoption. So that will be a big focus as we move forward into our growth initiative this quarter.

Our next question comes from John Campbell with Stephens Inc. Please go ahead, your line is open.

Hey guys, good morning.

Good morning, John.

On the fee deferrals, I know there's obviously a lot of uncertainty out there still. It looks like the forward-looking metrics are looking up a little bit at this point. I think we're seeing that from some other spots as well in the market. I guess the uncertainty and the lack of guidance, is part of the - you're not providing a full guidance update, as part of that, you're kind of reserving or, I guess, the freedom or liberty to defer out fees if things kind of get choppy from here? Is that also a way to think about it?

John, it's Karri. Right now, there's just a lot of uncertainty in the market. One of the things, again, that we've learned from prior recessions is we want to take things on a measured basis. We want to be careful about how fast we're running the race, and we don't know where the end is. And although there are definitely some green shoots that we're seeing around some of the leading indicators, we want to make sure that we're providing the appropriate support, both in terms of the value we're delivering to the network as well as any financial assistance. And so right now, we feel very confident based on the reaction that we've seen, but the deferrals and the waiver programs we've offered for April and May are appropriate and they were at the right time. And we'll just continue to see how things evolve.

Okay. That makes sense. And then maybe this is for Nick. I'm just curious about the conversation kind of dialogue you're having with agents. I know you guys came in this year with a ton of momentum, right? You had significant increase in attendance to the conference. You've had all these - you had the remax.com overhaul. You have the consumer-facing assets. It seems like you had a ton of momentum. I'm just curious about how those conversations went kind of as COVID came on. Are people starting the conversation and then looking to pick it back up later, or people going to Project Dark? Are you still in those conversations? Just some kind of additional detail will be helpful.

Yes. The beautiful part, unfortunately, coming into this is we've seen downturns before. And our business model has proven that we can work any side of the market. And so we responded very, very quickly with making sure that our education tools and our outreach to our network. Speaking on behalf of Adam and me, we literally have touched more agents personally and offices and interacting virtually than ever in our history, because of the technology that we made available; for example, lighting up Zoom accounts for all 8,000 offices worldwide and all 130,000 agents to make sure that we're in front of them immediately. There are a number of agents. When you look at statistically, the agents in the last 10 years during the Great Recession, we were at 1.4 million realtors in the U.S., it dropped just south of $1 million in the $900 million, and we're back to $1.4 million. Over 50% of the agents in the industry have not seen a buyer's market or a downturn. We have as a company. And for us to be able to use that knowledge and immediately respond, communicate, engage with the network, and give them guidance on how to maneuver this downturn, whether it be short-term or longer, is exactly what we put into place. And so the support from our network and the response has been overwhelmingly positive from our owners and our agents.

That's helpful. Thanks. And then one more quick follow-up on that. Similar conversations you're having, maybe with the independent franchise owners. I don't know if that's Karri or Adam's question to answer, but - anything, I mean, as you guys are feeling a little bit of pain, I think everybody is feeling the same thing. So are those conversations picking up? Or is everything kind of quiet there as well?

It's Adam. We continue to have those conversations. And like Nick said, I think just functionally, system-wide, I think our relationships have gotten much closer during this situation than they were before. And that presence has created a significant amount of trust increase and conversation increase. And realistically, it's kept everybody moving in the same direction. So just holistically, the independent regional owners, the franchisees, as well as the agents, it's been kind of an awakening in our relationship with everybody. And I would certainly, like Nick said, label that as a positive for future momentum.

Yes. And I think the only thing that I would add on to that, just from a capital allocation perspective is, our capital allocation priorities currently do remain unchanged. The acquisitions of those independent regions will continue to be opportunistic. But obviously, everything has been re-evaluated from a valuation perspective. And so we continue to evaluate allocating capital to those opportunities that will drive the best long-term value.

Makes sense. Thanks, guys.

It's Dhiraj on for Anthony Paolone. My first question is, have any of your franchisees been eligible for the PPP program? And what were the bad debt for the first quarter? And how do you think that trends in the second quarter?

Yes. So good morning, this is Karri. With regards to the bad debt, as we said, about 85% of our network has opted for the pay now program, highlighting the strength of our network. And I previously mentioned the cash collections that we've seen. We did take a pragmatic approach to increasing bad debt expense during the quarter. And it also relates to some specific reserves related to some individual offices. As it relates to the go-forward, we'll continue to monitor and evaluate housing progress. And as restrictions are lifted and the velocity of transactions accelerate, we'll provide updates in the future. With regards to the CARES Act, that is something that from an education perspective, we were providing a tremendous amount of education to our franchise networks, both on the RE/MAX and the Motto side. We do know that many of our affiliates have been able to take advantage of the CARES Act provisions, and we're definitely working to support them in terms of access to capital to support their businesses in addition to what we're offering.

Thank you. And just like you can still have good liquidity. So like, just wondering if this downturn presents good opportunities on the acquisition side? Or does it change anything on how you have been approaching these?

Yes. So with regards to capital allocation, our current priorities do remain unchanged. We're still looking at independent regions, as we stated in the scripted remarks. Importantly, we have not scaled back our investments in technology. So we are still looking at allocating capital to reinvest back into both of our networks on the RE/MAX and the Motto side. And then we will continue to look at other strategic partnerships and acquisitions if they make sense and can drive long-term shareholder value in addition to continuing to return capital. So nothing has really changed from that perspective.

Okay. And one more. So, just wondering what parts of the changes implemented currently, do you think will stick post the virus? So like how does the business change in the long-term?

I'll jump in there on the Motto side. We've seen the transaction become more digital than ever before. So we were already prepared for that digital change, but I believe both on the real estate side and on the mortgage side, we'll continue to see the transaction move more digital. And all the technology investments we've made are going to allow us to do that, I think, in a very efficient manner.

I would agree with Ward on that. When you look at the virtual environment that consumers have used in the past, but we have been forced as an industry to use in the last month. There will be adoption within our industry on additional technology and tools moving forward that maybe previously agents didn't stop, learn, take time to implement, and it was somewhat of a forcing function now to increase their knowledge, their learnings and those agents, especially our RE/MAX agents that sell 2:1 to the competition on average will be able to create more efficiencies in their business.

So one more question. So, do you think agents would cut this physical footprint and local desk fees because of this?

Yes. So how we look at it and what we're seeing in terms of adoption from agents and offices is it's more about how you utilize the technology to be more efficient so that you can do more transactions. It's more about driving your gross revenue and more closings versus just reducing your costs.

That's all. Thank you.

Our next question comes from the line of Chris Gamaitoni from Compass Point. Go ahead please. Your line is open.

Good morning. This is Matt Gaudioso on for Chris. Can you hear me now?

We can.

Yes. Maybe one for Ward, you commented on some recent inquiries for Motto just as it's viewed as being complementary. With this refinance wave that we're expecting, can you provide any additional color here?

Sure. I mean, obviously, like you said, we have a lot of RE/MAX's who also own a Motto, let alone the independents and the investors that we also have. We've seen applications go down until recently. They've started to increase. So we feel like the rates, as they have been stabilizing, have increased the opportunities for refinances. So we believe that in Q2 and beyond, as rates go back and normalize with the 10-year being below 70 basis points right now, there's going to be a propensity to have the rates be in the high 2s, low 3s. And that's going to give consumers across the U.S. the opportunity to do a refinance. And I think the Mottos are poised to be able to take that on. And particularly those Mottos that are tied to, let's say, RE/MAX, it just allows the real estate offices who also own a Motto almost like not quite recession proof, but like a recession-proof opportunity to capture money from that next coming wave of refinance boom. So we're excited to see Mottos capture that, and we think the opportunity is there for them to do it.

Great. Appreciate the color. And then just shifting gears a little bit. On the international piece, it's good to hear that the U.S. and Canada network seems strong with 85% electing to pay. Are you guys supporting franchises or agents outside of the U.S.? And can you talk a little bit about the health of the network there?

This is Adam. I'll start with talking about the health of the network there and then Karri can talk about the financial aid as far as that goes internationally. We are constantly in contact with our international franchisees. And since this is a global pandemic and regulations globally are different, pretty much everywhere you go, we have been in touch very closely with them. Nick and I have been on a significant number of video calls to so many different countries around the world and probably tens of thousands of agents in doing so. In fact, I was on one with South America. I think we had 2,000 agents on that one. So we're seeing a lot of people that are unable to go out and do business. There's a lockdown in their countries. Some of them have military in the streets, preventing them from going out, things like that. But the interesting part is with the video capability that we've given to all of our franchisees and our agents as well as the social media training and their ability to reach out virtually and digitally to their customer base, they're maintaining a pretty positive presence and are actually continuing to build those relationships even deeper with our customer base. So where the places are that we are seeing things open up, we're seeing people begin to set up transactions. But in some of their businesses, there was a pause. However, keep in mind, this has been a relatively short-term interruption of business to begin with in the grand scheme of things, whereas in the 2008 through '10 period, and we're talking about 3 years. Right now, we're talking about six to eight weeks, so for the most part, a lot of the entrepreneurs they have built strong businesses, but those that are struggling we're working with. And Karri, I don't know if you want to add anything to that?

Yes. I think the only thing I would add from a financial perspective is we are offering similar financial assistance to our global regions to the master franchises who own the franchise rights to operate outside of the U.S. and Canada. The adoption rates look a little bit different. So we've got about 60% of those global master franchisees that have elected the pay now option on the 50% waiver for April and May.

And there are no further questions in queue. I'd like to turn the call back over to our presenters.

Thank you, James, and thanks to everyone for joining our call today. That concludes today's discussion. Have a great weekend.