RE/MAX Holdings, Inc. Q3 FY2024 earnings call

• Addressed recent hurricane activity, providing limited financial relief to impacted affiliates. • Generated better-than-forecasted financial performance for two consecutive quarters, with strong cash flow generation and margin improvement. • Highlighted the strength of the business model, including MAX/Tech Lead Concierge program showing early success in converting leads. • Invested in websites remax.com and remax.ca to improve functionality and customer experience, enabling Lead Concierge and display ads. • Mortgage business saw September as best month for franchise sales and loan submissions, but faced challenges from elevated mortgage rates. • International agent count continued to rise, with Brazil and Argentina as notable performers.

Total revenue was $78.5 million, adjusted EBITDA was $27.3 million, up 2% over Q3 of last year, adjusted EBITDA margin of 34.8%, an increase of 190 basis points over the third quarter of 2023 and adjusted diluted EPS of $0.38. Excluding marketing funds, revenue decreased 3.3% compared to the same period last year due to lower U.S. agent count and reduced revenues from previous acquisitions, partially offset by higher broker fee revenue. International agent count rose nearly 6% in Q3, with over 67,000 agents outside the U.S. and Canada as of September 30, a record. Canada had almost 25,400 agents as of September 30, also a record.

• Fourth quarter financial performance expected to be lower than previously expected due to limited financial support for affected affiliates, reducing fourth quarter and full-year revenue guidance by approximately $1 million to $1.5 million. • Fourth quarter 2024: agent count change 0% to 1%, revenue $71 million to $76 million, adjusted EBITDA $20.5 million to $23.5 million. • Full-year 2024: agent count change 0% to 1%, revenue $306 million to $311 million, adjusted EBITDA $95 million to $98 million.

• Extreme weather events like hurricanes impacting affiliates, causing potential material differences from forward-looking statements. • Uncertainties in housing and mortgage market conditions, competition, technology, litigation, etc., that may affect actual results.

Q: Good morning. Thank you for taking the questions. So first one on the MAX/Tech Lead Concierge, really interesting to think through the potential there. I know it's early days, but I guess anything you could share about how we should think about the potential economics of those deals, how that gets split up between kind of agents, franchise owners and corporate? And similarly, on the cost side and kind of the infrastructure needed to vet those leads, is that done via your partnerships? Is that done internally? And just thoughts around kind of investment needed or costs that may or may not be needed to kind of get this rolled out and scaled.

A: Yes. Hey Ryan, it's Erik. I'll start off. And if my answer needs any cleaning up, the team will help me here. And look, thanks to everyone for joining us the morning after Halloween. So hopefully, everyone got treats and not tricks. But look, the MAX/Tech program, it's really kind of the Lead Concierge program is a capability that we've been building for -- over the course of the year. When you think about it, we get some -- we get decent traffic, organic traffic off of dot com and dot ca. I'll focus a little bit on the U.S. here, Ryan, just for purposes of the example. And it's really about improving the customer experience, first and foremost, right, making sure that those leads, we're responding to them in a very timely manner. Folks that show interest, obviously, we want to get back to and convert in order to improve that experience. And then also, it's about the agent experience really, right? Leads are obviously filtered out, sent to a lot of brokers in today's world, whether it's in real estate or other industries, not qualified. And at least in real estate, the agent has to do a lot of work in order to qualify that lead. So what we're trying to do with Lead Concierge initially is in testing the capability is taking traffic off of dot com, folks that show an interest, warming those leads through a relationship that we have. So it's a low investment from our perspective there and making sure that they're ready and qualified from a sales qualified perspective before we give them to an opted-in agent, right? So you can think about the actors in the play, all of them want someone to take action or they're ready to take action. So I think it's a win-win kind of on the customer side. It's a win-win for the agent because they're opted in. On the economics, we are taking a bit of a piece in order to help support the program. Part of that is shared with our partner that's doing some of the warming or the qualifying of the lead. Some of that comes back to us. Some of that comes to the broker and obviously, the agent sees the majority of that deal. So when you think about it, it's really a low investment from our perspective on this initial program. But for us, it's really about building this capability off a dot com initially, and then we can see kind of where we can take it. Amy Lessinger: I might add to that just a little bit. And this is Amy. In the fact that we're trying to drive productivity in our agents, and we're trying to help enable them to do more in less time. And so I think that the overwhelming response from the network has really shown that they see this as a big value as well.

Q: Hey, just morning. I wanted to start on just the pace of RE/MAX franchise sales, whether you guys feel like there's an inflection point back to growth at some point on the horizon? And then just kind of related to that, just some broad color on how impactful the franchise growth has been to just overall agent count growth in prior years.

A: Yes. Sure, John. Thanks for the question. Look, I think as we've talked about a bit before, and I'll let Amy weigh in maybe on a few specifics on kind of what she's hearing from the field, not only regarding kind of agent count growth from maybe existing brokers, but also a bit on kind of franchise and the pipeline. We're in a bit of a -- I call it like a wait-and-see type market. I mean obviously, we've been going through a transition and I'm talking a little bit broader than just RE/MAX. Obviously, at RE/MAX, we're going through a bit of a transition also. However, when you think about the -- what's been happening kind of with the overhang on whether it be lawsuits, it be low inventory, it be policy and practice change, it be higher interest rates. Obviously, you guys know better than I do probably. The number of transactions is at a historic low. And so that's why我 come out to say, like, look, I mean, from a broker perspective, whether you're interested in moving to the power of the RE/MAX brand or not or whether you're a current supporter of RE/MAX and working your local community, there is a bit of a wait-and-see type attitude. And there is still -- like I don't want to say that there's a ton of noise, but there's still a lot of focus on practice changes and doing the right thing by customers. So we at RE/MAX remain the most trusted, the most productive place to be. And so you see in the field, our brokers and owners and agents spending a lot of time on really focusing on their craft, making sure they're winning the right listings; in some cases, actually, unfortunately, reeducating agents on the other side of the table on what the practice changes mean for the transaction. So we're spending some time there. With all that said, I will say that there is interest, right? I do think independents are struggling. I think agents aren't finding necessarily the coaching, the mentorship, the education, whether it be from a brand at headquarters like RE/MAX and the great work that Amy and the team do or whether it's really happening at the local level, which is kind of the power of our position because we have both a corporate and a community-based approach and the education and the training that, that brokerage is doing. So we're seeing some decent kind of inbound activity. However, that activity, I don't think, is necessarily -- I wouldn't look for that to be converting necessarily in the near-term, but we're laying the foundation to help improve some of those conversions going into 2025 just because of some of the overhang that's happening within the industry. Now we'll get rid of one of the overhangs next week, hopefully, on Tuesday. It may take a little bit longer. But just think about the level of noise, John, for a second. And I think that people are cautious but optimistic and working really to improve kind of the business-as-usual business that they're running. So Amy, I know -- I mean, Amy has been in the field a bit lately, and so I'll let her weigh in on a couple of specifics, John. Amy Lessinger: Yes. I think -- hi John, I think many independents, what we're hearing is that they are really distracted and pretty focused on trying to navigate a lot of the industry changes on their own. And they have some frustration, concern. And I think small to midsized brokerages it's very difficult for them to keep up technologically with education, with tools, services and support. And so our interest level is high given everything that we have that can help a broker support agent productivity and education. So I think that, that trend is going to continue without a doubt. And we will continue to keep our [Technical Difficulty] there and make sure that we are at the forefront of capitalizing on those opportunities. I just think it's a fantastic opportunity for us to be their solution and help lead them through change and drive succession planning and growth planning within the industry. Erik Carlson: And John let me just say one more thing. I mean, look, the RE/MAX value proposition is great. I mean it's a great brand. It stands -- I mean it's got tons of awareness. It stands for trust, productivity, and we're only enhancing it with kind of some of the productivity tools and the platform that we're putting in place and some of the programs like Lead Concierge. So you can start seeing some of the fruits of the work that we've done kind of in the first half of the year come to fruition by rolling out programs, whether it's technology, which has process to go along with it or programs like Lead Concierge, which can help agents be more productive and converting consumer-ready sales qualified leads at a higher rate. So look, it's early days still, but I'm optimistic about some of the things we've put in place and some of the investments we've made either with time or money and setting ourselves up to win in 2025.