RE/MAX Holdings, Inc. Class A

Good morning and welcome to the RE-MAX Holdings preliminary third quarter 2021 earnings conference call and webcast. My name is Julianne and I will be facilitating the audio portion of today's call. At this time, I would like to turn the call over to Andy Schultz, Vice President of Investor Relations. Mr. Schultz.

Thank you, operator. Good morning, everyone, and welcome to REMAX Holdings' preliminary third quarter 2021 earnings conference call. Please visit the investor relations section of 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 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, 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 preliminary third quarter 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. Please note that our third quarter 2021 financial results and other related information discussed on this call are preliminary. Our final results and financial information for the third quarter 2021 may vary materially from the preliminary financial information discussed on this call. Joining me on our call today are Adam Contos, our Chief Executive Officer, Kerry Callahan, our Chief Financial Officer, Nick Bailey, President of RE-MAX, and Ward Morrison, President of Motto Franchising. 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. Looking at slide three, we again posted record financial results in the third quarter. Our strong performance was driven by better than anticipated results from our recent acquisition of RE-MAX Integra's North American regions, broad-based contributions from our core operations, and a healthy housing market in both the U.S. and Canada. We believe the third quarter was a strong affirmation of our strategy. Over the past few years, we've been investing to diversify and expand our revenue and growth opportunities. Our third quarter results illustrate how those efforts are paying off. Model is perhaps the best example of that expansion and diversification. Model recently celebrated its fifth birthday, and the brand is truly coming of age. Franchise sales remain brisk, and the open office count was up more than 30% year-over-year during the third quarter. We expect Motto to start generating a profit beginning next year, which is a notable achievement for our startup franchise. Overall, REMAX Holdings revenue for the third quarter was $91 million, an all-time high, with much of the year-over-year increase driven by our recent Integra acquisition, which so far has exceeded our expectations. More on that in a moment. Among our other recent acquisitions, Gadbury Group, now called G73, was another outperformer, hosting a quarterly profit. First, in Wemlow, our two tech startups are both showing steady progress, and we expect to see more meaningful revenue contributions from them in 2022. Excluding the marketing funds, our core business generated almost 7% organic revenue growth in the third quarter, with contributions from multiple facets across the company. As our acquisitions lap their respective first-year anniversaries and start to fill more of the organic bucket, we're confident we'll see continued organic growth, which we expect to be in the mid-single digits. We will continue to drive additional organic revenue growth, leveraging the strength of our business model, as much of each incremental dollar of revenue tends to translate into profits. We saw that dynamic play out in Q3 as we generated a record adjusted EBITDA of 35 million and record adjusted diluted EPS of 71 cents. These strong results enabled us to again, increase our profit guidance for 2021. Sherry will update our outlook in just a few minutes. As I noted earlier, our Integra acquisition is off to a great start. This is a large, complicated and important investment. Tremendous progress has been made to date with significant portions of the integration already completed, primarily where we have prioritized transitioning the customer-facing elements of the business. The teams involved are doing a terrific job and are focused on ensuring that our franchisees and agents continue to receive the outstanding support, services, and products they need to help them grow their businesses. For the immediate future, at least the remainder of this year and the first part of 2022, we'll focus largely on facilitating a smooth transition and enhancing the future growth trajectory of this significant investment. Moving to slide four. On the heels of the second most active September in the 14-year history of the RE-MAX National Housing Report, October home sales in 51 surveyed metros dropped 6.4% from September, almost double the typical seasonal decline. In many markets, home sales are getting pinched by new record prices and record low inventory. We're seeing the effects of a long, sustained run-up in prices and month-over-month home sales, and the days of immediate sales, multiple offers, and bidding wars on virtually every property are beginning to wane. This cool-down is somewhat overdue, and the October dip in sales could be a step toward a more balanced housing market. Overall, the market remains relatively robust. even as it trends towards more seasonal norms. Sales are still happening quickly, but at a slightly slower pace than earlier this year. October's average days on market of 27 was one day more than September and reflected sales that were 11 days faster on average than in October 2020. Inventory remains an issue. The 1.3-month supply of inventory in October was down from September's 1.5-month supply, and having more homes on the market would be welcome news. Homebuyers are trying to fill the gap, especially with multifamily home construction, but many of them are being delayed by shortages in labor and materials as well as general supply chain challenges. Homebuyers may see some relief in price appreciation during the coming months, even as sales levels stay high. Sellers remain in a very strong position, but with price stabilization and the continuation of competitive interest rates, buyers should find the coming months to be more advantageous than any time earlier this year. In any event, 2021 has been a strong year for sales and should continue to be. The value of a skilled full-time real estate professional will be even more evident as the market rebalances a bit. With that, I'll turn it over to Nick for some greater detail on rematch. Thanks, Adam. Good morning, everyone. Looking at slide five, overall agent count increased nearly 5% year-over-year to a new record of almost 141,000 agents. We've added over 6,000 agents worldwide since September 2020, highlighted by exceptional growth in Canada. In fact, our combined U.S. agent count is approaching levels we haven't seen in over a dozen years, despite the competitive marketplace and the unusual circumstances of the past year. UF Agent Count helps steady year over year, highlighting the resiliency and attractiveness of our brand. Because of their productivity, REMAX agents tend to be recruited aggressively and consistently, especially by brands with an agent-to-agent recruiting model. Productive agents stay with our network, however, because they value its many benefits and advantages. Our focus continues to be on providing the best services so that our agents can focus on increasing their productivity and helping consumers close more sales. The industry is filled with discount options and complex compensation structures, but we continue to build our market presence by appealing to full-time professionals who would rather work with buyers and sellers than recruit other agents. We believe it's a sound strategy that will spur new growth, productive growth over time. It's happening in Canada right now where our growth is accelerating. We've added over 2,000 agents, a significant 10% gain year over year. In Canada, where being a real estate agent is widely viewed as a full-time profession, RE-MAX is the market leader and the best choice for those who want to work among other strong, like-minded professionals. Adding the Canadian portion associated with the Integra transaction positions us for even greater things across the country, bringing the RE-MAX Ontario Atlantic Canada region and our company-owned Western Canada region together as a unified force is enabling us to scale our efforts in technology, marketing, and other services. The alignment will create a more seamless experience for franchisees, agents, and even consumers. And shifting 12,000 Canadian agents from an independent region to a company-owned will open up even more opportunities in the future. When you factor in our long-time market leadership in Quebec, the prospects across all of Canada become even more exciting. It is also one of the many reasons we continue to invest in our Canada operations. To this point, we officially announced earlier this month that Booge was launched in Canada. The introduction of our proprietary technology suite greatly enhances our value proposition and further differentiates us from the competition. Speaking to the global arena, our international agent count increased over 8.5% to more than 55,000 agents. Recall when that was surpassed 50,000 agents outside the U.S. and Canada in the summer of 2020, so increasing more than 10% in a little over a year during a pandemic has been impressive growth. And despite already being in over 110 countries and territories, we continue to move into new geographies due to the strong desire to be affiliated with the Renex brand. During the past 90 days, we've announced the sales of master franchise rights into three additional countries, Pakistan, Guyana, and Uzbekistan. Very exciting news, and with these sales come additional opportunities to grow. Turning to slide six, we continue to invest in our business and enhance our overall value proposition. We recently announced a complete reinvention of our REMAX University platform, an exclusive to REMAX Learning Hub designed to help agents level up their professional expertise. Built on intuitive new technology, REMAX University puts agents in control of when, where, what, and how they learn. It's a modern mobile-based user experience, and it will help our affiliates develop new skills. And that's a good point because we believe the more you learn, the more you earn. In fact, REMAX has found that agents who engaged with REMAX University on average closed more transactions and earned more commission. Having been a leader for decades, REMAX understands that markets change over time. When that shift comes and education becomes a more immediate priority, the new REMAX University will already be in place. It's another example of us working ahead of the curve and being prepared for whatever the future may bring. With that, I will turn it over to Ward. Thanks, Nick. Looking at slide seven, the last 90 days have been a very exciting time for our mortgage segment. On the model side, we continue to sell franchises at a near record rate through September 30, and we expect to sell 60 or more franchises this year. Lifetime to date, we have now sold almost 300 franchises. We expect to eclipse that significant milestone before year end. Notably, office openings continue to accelerate as expected. We are seeing the echo effect of last year's inflection in franchise sales and are experiencing a similar uptake in office openings, which grew more than 30% year-over-year in Q3. In fact, year-to-date, we have opened more offices than we have sold, a first in our history. We now have over 175 open motto franchises in almost 40 states, and we are aiming to have 200 open offices by year-end. A big area of organizational focus for our motto mortgage business this year has been the continued development of WEMO. We acquired WEMO last year to solve one of our motto franchisees' primary pain points, finding steady, dependable, and economic loan processing services. With the addition of WEMO, model offices now have access to an operationally ingrained third-party loan processing team, which is held to the same high standards of customer service that have come to define the model mortgage brand. The exciting news we announced last month was the introduction of Wemo's Loan Brokering System, or LBS. We believe our LBS is a revolutionary technology, a software suite purpose-built to address the exacting needs of the professional loan originator operating in the mortgage broker channel. And importantly, the streamlined Wemo LBS doesn't require brokers to navigate through a relevant system path designed for other lending channels. We have spent the past five years gathering real-world experiences from hundreds of model loan originators so we could understand precisely where traditional origination systems fall short for the broker channel. In developing the WeMo LVS, we have been obsessed about how to better leverage a mortgage broker's most valuable resource, time. Our team knows that loan originators often spend precious time navigating through unneeded components in antiquated loan systems. That lost time could be better spent developing value-add solutions for our franchisees and high-quality service to their consumers. Our model affiliates deserve the efficiencies of a purpose-built platform, and the broker channel is more than ready for modern technology that simplifies their unique workflow. The Wemo LBS will officially launch to the mortgage brokerage industry in January 2022, but model offices will be granted first access and begin onboarding this year. Motto affiliates are receiving the LBS platform at no additional fee, as well as initial discounts on the integrated WeLo loan processing offerings and exclusive LBS product features. With that, I'd like to turn the call over to Carrie.