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spk04: Good morning and welcome to the RE-MAX Holdings second quarter 2022 earnings conference call and webcast. My name is Dennis 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 Scholz, Senior Vice President of Investor Relations. Mr. Scholz.
spk14: Thank you, Operator. Good morning, everyone, and welcome to RE-MAX Holdings second quarter 2022 earnings conference call. Please visit the investor relations section of www.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, share repurchases, 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 subject to risks and uncertainties that may cause actual results to differ maturely from those projected in forward-looking statements. These are discussed in our second quarter 2022 financial results press release and other SEC filings. Also, we will refer to certain non-GAAP measures on today's call. We 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 Steve Joyce, our Chief Executive Officer, Terry Callahan, our Chief Financial Officer, and the presidents and CEOs of our brands, Nick Bailey and Ward Morrison. With that, I'd like to turn the call over to Remax Holdings CEO, Steve Joyce. Steve?
spk05: Thank you, Andy, and thanks to everyone for joining our call today. Looking at slide three, our strong second quarter results demonstrates the strength and resilience of our 100% franchise model. particularly amid shifting housing market conditions. Our acquisition of REMAX and Tegra's North America regions continues to perform well, again contributing meaningfully to both our top-line and bottom-line performance. We recently announced certain strategic growth initiatives which we believe will enhance our ability to grow profitably over the long term and should further mitigate the impact of additional market volatility. Some of our notable quarterly highlights include overall REMAX Holdings revenue was $92.2 million, up almost 20% driven by last year's acquisition of Integra, which comprised nearly 16% of our growth, as well as almost 2% organic growth. We generated adjusted EBITDA of $35.1 million, up 14.4%, and our adjusted EBITDA margin was a strong 38.1%. Adjusted EPS increased 6% to 68 cents. Total REVAX agent count grew by almost 4,000 agents to nearly 144,000 agents in total, a new record. And both motto franchise sales and motto open offices continue to grow, with the number of open offices hitting 200 during the second quarter. Ward and Nick will provide additional details on their respective business lines in a moment. First, I'd like to spend a minute discussing our recently announced strategic growth initiatives. Our focus remains on increasing REMAX U.S. agent count and continuing to fuel the growth of our expanding mortgage business. Our team has done a terrific job identifying and implementing those growth opportunities that we believe will yield the best results and contribute to near-term and long-term profitable growth. These initiatives are closely aligned with our current strategy. We think we can make a measurable difference through smart strategic moves, essentially bolstering our growth prospects through institutional focus, accountability, and proper allocation of resources. Our 100% franchise model demonstrates its strength and differentiation during times of change, which has borne out over the past five decades since our founding. Today, We have two industry-leading brands, networks of experienced and productive real estate professionals, a strong balance sheet, and a fantastic ability to generate cash flow, all of which will continue to serve us well in virtually any kind of market. We intend to leverage these strengths to actively seek the best opportunities that will support our future growth. With that, I'll turn it over to Nick.
spk13: Thanks, Steve. Good morning, everyone. Moving to slide four, halfway through the peak summer buying season, signs of a more balance in the market are becoming increasingly apparent, according to the most recent RE-MAX National Housing Report. Although June posted the most home sales of any month thus far in 2022, topping May by 4.7%, they fell short of last June's total, down almost 18% across the 53 metros surveyed. The period of the last few years has been one of the most competitive and challenging times ever for buyers. And we're finally seeing conditions ease up, highlighted by inventory gains and the slowing of price appreciation. For example, inventory grew in June for a third consecutive month, a 34.1% increase over May and 27.5% year-over-year. The median sales price of $428,000 for June, while 11% higher year-over-year, inched up less than 1% above May. Perhaps more notable is the increase in listings after several years of instant sales and low inventory. Markets like Nashville and Phoenix saw an increase in new listings of over 20% in June, bringing new options for buyers who may have sidelined themselves in the heated frenzy of last year. The changing market conditions are being impacted by the rise in interest rates, but many buyers are still finding solutions and alternatives in arms, FHA products, and other financing. Regardless of the macro environment, the reality is homes are bought and sold every year, and good agents and loan originators can make a difference in times like these. Overall household formation remains strong, and favorable demographics still exist. With inventory rising, prices seemingly topping out, and competition decreasing, there are reasons to be optimistic, and most notably for buyers. Moving to slide five, last month we announced the latest step in the evolution of RE-NEXT technology. unveiling a new enterprise relationship with Inside Real Estate, the developers of KV Core. In today's highly competitive market, much of the agent-facing technology, like CRM, websites, et cetera, has become table stakes. Partnering with a leading real estate software firm like Inside Real Estate, which has the size, scale, and expertise to develop world-class agent tech tools, gives us more firepower to deliver value to our affiliates. The focus of this tech is to drive leads and identify transaction-ready consumers for our agents. The use of AI and the power of data is likely going to have a big impact in the way in which agents market to consumers, and we believe this initiative puts our agents at the forefront of the industry. Through a phased rollout beginning later in 2022 and continuing into next year, REMAX affiliates in company-owned regions across the U.S. and Canada will get no-cost access to the state-of-the-art KB Core platform, along with several add-ons, including a module specifically for Teams. The KB Core platform was chosen because REMAX affiliates deserve an industry-leading, complete technology solution. We believe that KB Core's platform is that solution, and based on the feedback we have received from our affiliates, they agree. With the REMAX branded version of the platform, agents will have a seamless new way to automate virtually every aspect of their business. from contact management to digital marketing to data analysis and more. They'll have high-quality customizable IDX websites that attract traffic and drive transaction-ready leads, best-in-class market analysis and presentation tools to win listings, and a marketing center designed to maximize exposure and connect more consumers directly to REMAX agents. Eventually, the platform will integrate the key REMAX technology offerings like the FIRST app, which is a first-of-its-kind tool within the industry. The combination of KB Core and the best existing Renex tools will give affiliates a premier technology solution along with the number one brand and most productive global network. There's nothing like it in the marketplace today. Because of the powerful and comprehensive functionality of the KB Core platform, some of the Boosh products developed in-house over the past few years are expected to sunset in mid-2023. Bottom line, this partnership is about taking the best parts of our tech acquisitions completed in recent years, and combining those strengths with an industry-leading vendor. And we believe this is the best of both worlds. Looking at slide six, overall agent count increased almost 4,000 agents year over year and reached a new high of close to 144,000 agents, highlighted by nearly 8% growth in Canada and continued growth globally. In the U.S., we continue to see slightly depressed results driven primarily by the uncertain housing market. That said, increasing our U.S. agent count remains a top company priority, and we expect our growth initiatives announced last month to make a difference. For years, Renex has been an industry leader and the preferred destination for many of the most productive teams in real estate. However, the data shows we have a sizable growth opportunity when it comes to teams of six agents or more. That's why I'm excited about the recent launch of our Teams-focused initiative. We believe that our aggressive offering that combines education, technology, and attractive economics can help mid to large size teams optimize their productivity and maximize their earnings. This growth initiative is a five state pilot program that modifies the fee structure for teams of six or more licensees. The pilot is designed to incentivize the growth of existing REMAX teams, strengthen retention, and especially help broker owners recruit teams of that size. The pilot is set to run for one year and is available for those brokers who opt in within the states of California, Florida, Maryland, New Jersey, and Texas. These states were selected for the pilot because they have a relatively high number of teams, represent a significant growth opportunity, and give the program an excellent chance of being successful enough to expand to other states. We also recently launched an initiative to help interested brokerages convert to the REMAX network or combine forces with an existing REMAX franchise. With changing market conditions, many independent offices are interested in increasing their value proposition and are looking for competitive advantages like brand name awareness, technology, tools, and support, and ultimately, higher per-agent productivity. All of these are crucial areas of focus needed to drive success in the market ahead. Our data shows that agents who join RE-MAX and stick with us typically increase their sales over time. These figures address a chief concern about agent productivity that has held back many potential mergers or conversions in the past. This is an important message for us to continue to reiterate across the industry, especially now as the market's fluctuating and we see many seasoned, successful brokers looking to transition their business. With that, I will turn it over to Ward.
spk02: Thanks, Nick. Looking at slide seven, Motto has sold over 300 franchises to date, and we now have more than 200 open offices. We believe we can eventually grow that number to more than 1,000 open franchises. Motto has a unique and attractive value proposition, and we would like to accelerate our timeline to this milestone. Similarly, we believe our Wemo mortgage processing business has tremendous potential. We recently announced that future Motto franchisees will be required in most instances to use Wemo services, which should help accelerate Wemo's growth. We also recently hired some of our larger Motto owners, former loan processors, as these franchisees now utilize Wemo services. We view this as a win-win scenario. For Wemo, we gain proven processors and immediately add to our volume of business. For Motto owners, they retain access to desired loan processors and steady, reliable loan processing services in a much more cost-sufficient manner. We have been evaluating how to accelerate the growth of our mortgage business. Given our current momentum, we believe this is the right time to invest in additional sales resources for both Motto and Wemo. Each sales professional on our team currently covers a large territory, and we think more personnel will increase our ability to capitalize on incremental opportunities. Currently, we have just over 100 colleagues who work within our mortgage segment, but by the end of the year, we expect to add another 15 to 20 team members. We believe this investment can measurably accelerate our ability to reach our goal of $100 million in annual mortgage-related revenue, perhaps achieving this milestone as early as 2028. We sold just over 60 model franchises last year, and we were tracking to meet and hopefully exceed that number in 2022. We believe by doubling our sales force, we should be able to double our annual franchise sales total starting next year. We expect to provide official guidance next February when we usually introduced our outlook for the forthcoming year. However, at this point, we expect to sell at least 120 model franchises in 2023. Our mortgage segment continues to expand, and we accelerated our franchise sales during the last downturn at the start of the pandemic. Slower times in real estate often cause brokers and team leaders to reflect on the importance of ancillary businesses when they have the time to invest in their futures. We are hopeful many will take this time to take advantage of what a terrific opportunity Motto presents. With that, I'd like to turn the call over to Carrie.
spk07: Thank you, Ward. Good morning, everyone. Moving to slide eight. Second quarter revenue grew almost 20% to $92.2 million. Excluding the marketing funds, revenue was nearly $70 million, an increase of 17%. This increase was comprised of 15.9% acquisitive growth and 1.7% organic growth. FX decreased revenue by about a half a point. All acquisitive growth came from last year's Integra acquisition, which continues to perform well. We lacked the first anniversary of the Integra acquisition in July, so it will start contributing to our organic growth beginning in the third quarter. While our organic revenue growth, ex the marketing funds, fell short of our mid-single-digit expectations for the first time in over a year due to the shifting real estate market, we were still able to grow almost 2% organically. Motto continued to expand and was a notable contributor to our organic growth. With the recent change requiring most new motto franchisees to use our WEMO processing services, we expect WEMO will also start to measurably contribute to our organic growth in the coming quarters. Looking at slide nine, our Q2 selling, operating, and administrative expenses increased 5.1% to $40.8 million. Second quarter 2022 SONA expenses increased primarily due to estimated increases in the fair value of contingent consideration liabilities, higher travel and events expenses, and increased investments in technology, partially offset by a reduction in professional fees due to lower costs associated with acquiring and integrating new companies. Looking ahead, our recent decision to partner with KVCOR is expected to reduce our overall workforce by approximately 17% by the end of this year. This reduction does not include personnel, that we expect to hire because of our additional planned investment in our mortgage segments discussed earlier. As a result of this reduction, we expect to incur a pre-tax cash charge for one-time termination benefits, which consists of severance and related costs, between approximately $5.75 million and $6.75 million in the third quarter of 2022. This one-time charge will be added back to adjusted EBITDA. Additionally, beginning in 2023, the reduction in force should reduce our annual operating expense run rate by approximately $13 million, roughly split two-thirds SONA and one-third marketing fund expenses. Importantly, we anticipate most of this savings will be reinvested back into the business. Moving to slide 10, before I get to our outlook, there are a couple of items I want to briefly mention. First, Regarding our $100 million share repurchase program announced in January, we significantly ramped up our buyback activity during the second quarter. We opportunistically utilized approximately 6 million to acquire just over 250,000 shares in a single block. We hope to capitalize on similar opportunities in the future. We continue to believe that repurchasing our stock at its current valuation is an excellent allocation of capital and shareholder value creation mechanism. Through June 30th, we have allocated almost $12 million to repurchase nearly 500,000 shares. Second, it is important to note the impact that today's increasing interest rate environment has on our earnings. Specifically, we expect rising interest rates will decrease our adjusted EPS by 10 to 11 cents over the last two quarters of this year. Lastly, Our strategic growth initiatives announced last month are expected to ramp up in the back half of this year and start to benefit our results in 2023 and beyond. Now, on to our updated guidance. The company's third quarter and full year 2022 outlook assumes no further currency movements, acquisitions, or divestitures. For the third quarter of 2022, we expect agent count to increase 1.5%, to 2.5% over third quarter 2021, revenue in a range of $87 million to $91 million, including revenue from the marketing funds in a range of $22 million to $24 million, and adjusted EBITDA in a range of $30.5 million to $33 million. For the full year 2022, we are reducing our guidance to reflect current housing market conditions and other related macroeconomic trends. We now expect agent count to increase 1% to 2.5% over full year 2021, down from 2% to 4%, revenue in a range of $354 million to $364 million, including revenue from the marketing funds in a range of $90 million to $93 million, down from $366 million to $376 million, and adjusted EBITDA in a range of $123 million to $128 million, down from $130 million to $135 million. Now, I'll turn the call over to Steve for closing comments.
spk05: Thanks, Keri. Looking at slide 11, our franchise model is built to succeed in virtually every market condition. With our strong brands, healthy balance sheet, and proven ability to generate robust cash flow, we intend to leverage these strengths to actively seek the best opportunities that will support our future growth. We believe we are well positioned to grow profitably over the long term.
spk03: With that, let's give it up for questions. to ask a question, simply press star, then the number one on your telephone keypad.
spk04: For first questions from the line of Anthony Pallone with J.P. Morgan, please go ahead.
spk10: Thank you. Good morning. My first question relates to Motto, and you outlined the path to about 1,000 offices. So I was wondering if you'd just go into you know, how you get to that number, like what kind of hit rate that would mean for your existing, I guess, franchisees, and just any costs you can outline to kind of get there.
spk05: Yeah, so the environment in which we're selling, obviously our franchisees are the number one target, but we're also looking at selling Mono to other brokerage firms, independents and other branded if they're interested. so the market we view is pretty broad we view the opportunity and part of the reason we're doubling down now we view the opportunity going forward particularly in the rate environment we're in which is obviously curtailing refinancing for the time being but because we are a primarily purchase um mortgage uh effort that puts us i think in a good position and in addition It's a great ancillary revenue for brokerage firms, which are more than likely, as this downturn continues, are going to struggle with some margin issues. So we think the timing is good for the effort. Ward, do you want to talk a little bit more about hit rate and sort of how you're seeing that at all environment?
spk06: Sure.
spk02: I would jump in there. You know, we always thought about a third of the REMAX franchise in the U.S. were our cohorts. So that's an easy thousand there, technically, that we would go after. But like Steve said, we will be attacking and we have been attacking. Still about 20% of our sales have been outside the brand, but still real estate. So we'll continue to grow that. Our goal is to grow our sales force, basically doubling it from about eight to about 16 around that area. Why? Because we feel like we have... almost two larger territories for a franchise sales people to fully focus in those areas and we think we're missing incremental opportunities so by growing that sales force on the motto side we think we can double our sales by doubling the sales force so we look in 2023 to hit sort of like that 120 number was our goal we'll have more guidance as we get closer to 23 but um the key there would be growing that and within five years adding another five six hundred franchises out there so getting closer to that overall thousand number as quick as we can. So we think there's plenty of upside. We think Teams is an untapped market that we can grow. So it's not like we're adding a tremendous amount of cost, really adding salespeople, sort of paying them on the basis of commission plus base, but we feel like that sales force can grow the number of sales that we have and we can get towards that thousand open franchises.
spk10: Got it. Okay. Thank you for that. And then My follow-up, I guess, would just tie into some of the costs and, Kerry, your comments. It sounded like some of the costs coming out of the system you'll replace with these initiatives just talked about, but it seemed like on net you could be going into 2023 with a lower OpEx run rate. Did I catch that right or just trying to tie that together? Kerry, you want to cover that?
spk07: Sure. So thanks, Tony. So as we look at kind of at least APEX run rate for the rest of the year, you know, this quarter SG&A X, any kind of acquisition cost or stock comp or any other ad backs was kind of in that $36 million range. If you exclude the ad back associated with the reduction in force itself, looking like the run rate for Q3 and Q4 of this year, is gonna come down a couple million dollars. But again, that's gonna be reinvested back into the business at the earnings level as we allocate capital to all initiatives, both teams, conversions, some of the investments on the mortgage side that Ward was just talking about as well. And so that's, you know, we gotta look at it on a balanced basis and in terms of just holistically at the earnings level, looking to reinvest it back into the business. for the rest of this year. And we'll obviously have more to say as we look further ahead in 2023 later down the line. But right now we're really committed to just reinvesting back into the business.
spk10: Okay. If I'm just make sure I'm getting this right though, it sounds like we'll see some of the costs that are coming out in the next couple of quarters, but then there might be some lag until you get that fully reinvested into the business.
spk03: Is that fair?
spk07: I don't think so, not at the earnings level. So, I think on the cost side, we'll see some of that coming out in the subsequent quarters, but at the earnings level, looking to really reinvest a lot back into those months.
spk03: Okay. Thank you.
spk04: Your next question is from the line of Ryan McKepney with Zellman and Associates. Please go ahead.
spk00: Hey, thank you, and nice job on the quarter. This one's probably for Nick. So on the Teams initiative, it seems like just the concept of Teams has been a pretty notable trend in the industry. And I think it makes a lot of sense for you guys to somewhat stake your claim in competing against others with team-based offerings. So Nick, recognizing there's a lot of different approaches to recruitment and retention, whether it's individual agents or teams, was hoping you can maybe dig in a little on on what you view are the most differentiated aspects of the approach you guys are taking or the teams offering that you guys have versus what others in the market are doing. Thank you.
spk13: Yeah, you bet. We look at it that teams come in kind of a three-pronged area. One of them is education, another is the economics, and the third is the technology. And so with the announcement of the technology moves, that includes a team platform. that retails out of the KV system for around $1,500 a month that we're including at no charge for any teams of two or more. That, in addition to what we announced earlier at our four convention about education on how to build out a team, teams are really kind of a small business. So we think that putting the three components together, which we've been able to do over the last few months, is where it's all going to come together of a really strong offering that may be somewhat different from how our competitors approach it.
spk00: Got it. That's helpful. And I guess in terms of this being, you know, initially a pilot in some of the bigger markets, you know, versus a broader rollout, is the thought process there that, you know, the pilot allows you to assumingly, you know, optimize that offering, kind of figure out what aspects are, you know, maybe working, what others can be tweaked, or just any thoughts on kind of why start with a pilot as opposed to something just more widespread out of the gate? Thank you.
spk13: Yeah, first of all, we spent a lot of time putting this together and what we think is the best form to go to market. But we also realized that the way that we structured the economics with six plus allows us the biggest opportunity to grow an agent count. And there may be some tweaks to it. And so we want to make sure that we're taking the states that one have the largest opportunity for growth, but to also have the biggest TAM of teams of six or more. And those items combined together give us the opportunity to test the market and make some adjustments before it rolls out to other states.
spk03: Perfect. Okay. Thank you very much.
spk04: Your next question is from the line of Tommy McJoint with KBW. Please go ahead.
spk08: Hi. Thanks. Good morning. I just want to ask about, again, about the team's pilot program. I don't want to get a sense of how much of the market this applies to. Do you know what percentage of agents are part of those kind of six-plus member teams? And if you could speak to that for either, you know, Remax specifically or just for the industry more broadly.
spk03: Nick? Sure.
spk13: I don't have a number that just applies universally across the U.S. It differs greatly by state. um and so you see in your major msas and your coastline states those are going to be higher percentages when you get more to the midwest it gets much much lower so uh the spread on it is is is so different state by state i don't know the number across the entire country we look more market by market okay um and it does seem like there are some pretty uh
spk08: solid discounts for agents in this pilot program, especially for some of the higher producing agents. Have you done an estimate to see what the impact on the revenue for agents from those reduced fees would be for some of those agents in the pilot program?
spk05: So, yeah, we've obviously done the analysis, but the, you know, net-net, while it is a different pricing program designed to attract folks, and one of the One of the things I was going to add to Nick's point was, while it varies across the country, a significant portion of the growth recently in agents has come through teams. So that's why you see us targeting this. And so while we are providing a different pricing program, which incents the formation of teams with potentially a lower overall cost as they grow, The relative number of new teams we need to add, we think we can easily achieve, which would offset any price increases. And so our net view of this is that it'll be a positive program, but partly why we're piloting. And so the overall reception so far has been strong. Nick, you want to talk a little bit more about sort of our expectations about when it starts kicking in?
spk13: Yeah, we actually set it up to go live August 1st is when the brokers can start to take advantage of it. And so we plan that this will ramp up through Q3 and Q4. So it will take some time to ramp on it, but it officially goes live August 1st. When we look at each one of the markets in the five states, it accounts for thousands and thousands of agents associated with teams of six plus. We think the market segment is fairly sizable and will continue to be as teams are not going anywhere, and especially the large ones become more and more efficient, and they are exponential in their growth on volume and transaction count, and hence the reason that it's such a large focus.
spk03: Makes sense. Thanks, guys.
spk04: Your next question is from the line of John Campbell with Stevens. Please go ahead.
spk11: Hey guys, good morning. I'm having a hard time. Can you repeat that question? There was some background noise. Yeah, I'm just curious about your July agent count update. It looks like the U.S. and Canada combined down a little bit first last month. Just see if you can maybe break out the trends by region. Carrie, you want to cover that?
spk07: Sure. Hey, John. So it was a little hard to hear, but just making sure you're looking at July agent count and kind of unpacking that a little bit between the U.S. and Canada.
spk09: That's right.
spk07: Okay. So I'll start this, and then Nick definitely jump in. So as we look at that, we've seen continued strength in Canada. We highlighted the continued strong performance of the Integra acquisition, which should definitely not be overlooked. The importance of Canadian agents and their contributions to both the top line and the bottom line continued into July. That was offset as the macro just got a little bit shakier, I think a little bit sooner and maybe a little bit more abruptly in the U.S. It's only a couple hundred agents We continue to get very positive feedback on some of the other initiatives that we have, the Teams pilot program that we were just talking about, as well as some momentum on some of the other initiatives around the mergers and conversions. So we are excited that that positions us well to be a little bit more aggressive, as Nick said, in the back half of the year, but did have a little bit of weakness in the U.S. in July.
spk11: Okay, that's helpful. And then maybe two more kind of follow-up questions. I know you guys get a lot of questions on the team incentive in the growth plan. But I want to better understand, I guess, from the team's approach, you know, you guys talked to the three pillars. Maybe I'm interested in kind of better understanding what that one-year program looks like and maybe specifically what that incentive looks like, I guess, monetarily-wise.
spk13: Sure. So in terms of the team structure, we have set this up to where our – our fee structure is two parts. One, the reoccurring revenue, and of course, then the broker fee being variable. And it is structured in a manner that the team leader continues with their full continuing or reoccurring revenue as is today. And with each team leader or team member for those teams six plus, there's a 50% reduction on the monthly reoccurring revenue. And then there is a cap on the broker fee revenue up to $100,000 in GCI. And that runs for each team member, and it's an aggregate of the team total.
spk03: I don't know.
spk11: I mean, it sounds like you guys obviously carefully kind of crafted this in time and pilots and whatnot, but I'm curious, is it Is it that you're trying to align when it's all said and done for the agent's net take? Because I think we can see across the industry there's lots of different kind of ways to skin the cat, I guess you will. Are you trying to get down to a certain number, or was this based on agent conversations and kind of feedback you're getting of what they thought might be a little bit more attractive?
spk13: It's a little bit of both. When we look at the analysis of, say, our per agent revenue that we've stated in the past, Because of the level of productivity that some of these large teams have, some of the contribution to us is somewhat of a hockey stick when their production level gets to a certain spot in volume. And so we just looked at the services that we're providing for teams, the education for teams, and where did it feel in the right way to maximize their earnings, ours as well, but make sure that we didn't have that hockey stick type of revenue impact to the teams at a certain production level.
spk11: The last one for me, and this obviously might be a better question for inside real estate, but any sense for how penetrated KB Corp is just broadly? Like Steve mentioned, there's obviously a real monthly expense incurred by those teams. So you guys providing that in their charge has got to be a pretty nice incentive. Nick?
spk13: Yeah, inside real estate, the number that they have most recently stated is that they currently support over 300,000 agents. And so while we'll be their largest enterprise client, they do have a fairly significant footprint all across the USA and Canada.
spk11: Okay, and I guess just given the ongoing kind of development of teams and trends towards teams, it's probably fair to say out of the 300,000, there's probably a large chunk of those kind of captured in teams.
spk13: They do. They do have a significant number of teams, and that was part of the reasoning that they came to the top of our choice on who to partner with because of not only the platform, the add-ons with the different modules that we're including, but also their focus on their team product, whether it's teams of two or 200. It's a unique offering that is extremely competitive in the market.
spk11: Okay. Thanks for taking my 20 questions. Appreciate it.
spk04: Your next question is from the line of Ronald Camden with Morgan Stanley. Please go ahead.
spk01: Hey, just a couple quick ones. Starting back with sort of the model mortgage and sort of the expansion there. Maybe can you talk about, you know, as you're thinking of getting to sort of a thousand offices and so forth, how you're strategizing by market, by region and so forth. Just trying to get a sense of Like what's the adoption curve look like and where's the highest opportunities?
spk02: Sure, I can jump in there. Obviously, our business development consultants who are out there selling the franchise offering are in different segments. We basically want to get to the size where each is having basically two major metros. So it's still in the major metros where we tend to focus. But when we look at potential opportunities, whether it's a brokerage, If they have 20, 25 more agents, they are a target for us. If you look at a team, if they're doing about, you know, $40 million in production, they probably fit our model as well. So when we look at it, it's broadly across the United States. We're heavily concentrated right now in Texas and Florida. However, we believe the opportunity exists everywhere. I mean, we're in, you know, we've sold in 44 states. We're open in 39, so we still have a few more to get. But we're trying to have broad coverage across the nation and feel like those 33 metros would be our main emphasis.
spk01: Great. And then just sticking on model, I think you talked about sort of the synergies with the sort of the real estate brokerage businesses, you know, 200 offices in. Is there a way to sort of quantify that, whether it's, you know, profitability or recruitment or anything? Is there a way to put some numbers around sort of the synergies that you're seeing?
spk02: Yeah, from the perspective, we know for a fact if somebody's doing, you know, $100 million in mortgage production, we can, you know, gather what they're making in profitability, right, which is something they didn't have before if they had monos. So right away, anybody who has a mono and is doing any type of volume, we know typically they're probably netting about 1%. This is the part where I have to say, you know, all franchises are not graded equal, but that's typically what we see out there in the marketplace. So, with that, we know that they're adding additional incremental revenue that they didn't typically have before if they didn't have a mortgage entity. So, from that perspective, we are very excited that they pick up this ancillary revenue and are able to benefit from the mortgage slash real estate relationship that they have, particularly in a market like this where purchase is the emphasis. You know, with 73% of our sales are real estate companies, they still have purchase. So, yes, refi is going to hurt a little bit, but not as much as it does to the broader mortgage market.
spk01: Great. And then my last one was just on the guidance, you know, the age and count growth. Apologies if you said it already, but can you just sort of clarify what that assumes for the U.S. and how you're thinking about that? Thanks.
spk03: Sure. Sure.
spk07: Sure. So in terms of how that unpacked, we are assuming kind of flat to slightly down for the U.S., and then that's being offset by strength in Canada and continued growth globally.
spk01: Great. Many thanks.
spk04: Your next question is from the line of Jason Stewart with Jones Trading. Please go ahead.
spk12: Hey, guys. This is Matthew filling in for Jason. So how many independent agents do you guys expect to convert to company-owned, and I guess what are the initiatives around that to try and get them to convert over?
spk03: Nick?
spk13: Yeah, the market itself with the number of independent agencies is quite large. There are well over 80,000 brokerages. When you look at the number that are 20 agents or less, that's literally in the tens of thousands. You get into the 50 to 100, which we believe is somewhat of the sweet spot for where we'll focus, those are also in the thousands. But when we talk to the brokers that are involved in not only the valuations, but actually brokering these deals between agencies, one of them had indicated recently on a panel that we had him on that in his 40 plus years of doing this, he has never seen the demand as high. And so I think given the macro of what's happening in the market combined with the TAM that's out there and the demand, that the focus of this is going to yield great results for us. We've already had, we started this first of the year, and we've already had a number of successes with this, but we believe that The more we do, we'll get better at it, and especially with the larger ones can increase that velocity between now and year end.
spk12: Awesome. And then following up on that, given the, I guess, slowdown somewhat in the market in terms of prices, do you guys look at this as an opportunity to gain more market share in terms of motto and agents?
spk03: Sure, I can jump in.
spk02: Yeah, from the model side, we hope to continue to grow our base and grow the open footprint. So far this year with the mortgage market being down a tremendous amount, model's only down about 3% of volume. So compared to the industry, we're doing fantastic right now with refis dropping off as much as we have. So we still think there's continued opportunity for gaining market share, growing the number of open offices, growing the number of sales. and growing motto in general. So very, very positive about motto for this year.
spk13: And on the Remax side, this is where we do get pretty excited about the fact that productivity becomes the number one value proposition in the marketplace. And that's something that as we outproduce our next closest competitor on a per agent productivity two to one, when you take someone that does on average 16, 17, 18 sales a year, if the market contracts by a couple of sales, those people are still in the real estate business year over year. If you are in the single digits, mid-single digits, and your business contracts by a couple transactions, that's the difference of whether you can stay in this business or not. And so we do believe that this is a time to gain market share because the most productive agents, and we average 15 years of experience where the National Association of Realtors is right about half of that, most of our agents have seen market changes in the past. And so they're not afraid of them and they know how to adjust. And so this is where we lean into these market changes and use our production to grow share.
spk05: Awesome. From an overall standpoint, I think the idea is, and partly why you have seen us do what we do, is we think this environment creates an opportunity for us to take share on both sides of the business. because in the case where we've got both the brokerages coming under pressure from a margin standpoint, they're going to be looking for ancillary revenues. So that's where the model wing low piece comes into play. And then on the REMAX side, people that feel uncomfortable or uncertain about the coming environment are going to look for what they view as the most productive brand out there, and that's where we think we shine. So from an overall perspective, The reason that you see us making the investments we're making is we think this environment will provide us incremental market share in a significant growth opportunity.
spk12: Awesome. That's helpful. Thanks. I got one more. Is there a certain price point in the market where you guys are seeing the most stress or falling prices in terms of demand and just that kind of situation?
spk03: Nick?
spk13: I don't believe we've seen any major fall in prices. We did believe that most of the price appreciation based on the demand and short inventory was going to be in the first half of the year. So we continue to believe that that is the case. And we're seeing with increases in inventory prices are flattening. But the major pressure still sits in the first time home buyer price range. The demand is extremely high and will continue to be just with the population and household formation over the next few years. And that inventory is the lowest. Surprisingly, usually the very high end starts to kind of dip first, but we're not quite seeing that yet. But still, most of the pressure at the entry-level price.
spk03: Awesome. Thank you.
spk04: Your next question is from the line of Steven Sheldon with William Blair. Please go ahead.
spk09: Hey, good morning, everyone. This is actually Matt Filick on for Steven. Thanks for taking my questions. Was wondering if you could talk some about the capabilities of the KV Core platform from the agent's perspective. Seems to be a very robust platform with a variety of capabilities. So any insights on those capabilities and then how they compare to what Booj offered would be great.
spk13: So it is a pretty robust platform. And what's great about it is we've got some proven results from it. We have thousands of our agents and brokers in Canada and the US that have had this product for a number of years. And so we have been able to lean on those brokers and agents for what their results look like. And the product is designed not only from the base platform with CRM and IDX agent websites, similar to the Booj platform, But there are some differences in terms of AI, how it's connected to their digital marketing center. And we were relying on the use of a number of APIs with our different systems between Booj and Megaphone and some of our other offerings to work together. Where I think the power of this platform is all designed around lead generation, conversion, and automation. And so there are pieces that overlap the Booj product and There are other pieces like the AI on the buyer's side that we didn't have. We have AI on the seller's side with our first app that we'll be looking to integrate. And so there were just some nuances throughout the product that were a little different. But certainly the ecosystem, if you will, of being a single platform with the different components of their core present product, which we've included, plus the team product, plus the design center, All of that working in one ecosystem, I believe, brings the strength of their platform at the forefront of the market versus having somewhat disparate systems like we had before that stitch together. And I think that's the biggest advantage and the difference.
spk09: That's great to hear, and thank you for that, caller. And then switching gears a little bit here, just curious on what agent reception has been like to the recent shift in strategic priorities?
spk03: Nick?
spk13: Well, I can give you a real one. I was at an industry event yesterday, and this, I think, encapsulates the positive response from our network. We had a broker come up and said that the network is just a buzz, that the competition is nervous, but Asked if he could give me a hug based on our direction. So kind of a silly example, but it's been overwhelmingly positive. Believe that it sets us up to go in the right direction. And according to many of our brokers that these are some of the most ambitious moves headed to where the market, where we're matching where the market is going. And we have our broker and our conference coming up in just about a week. And we believe we're on target hit record attendance, and people are excited about it. So we're thrilled.
spk09: Awesome. Great to hear the feedback's positive. That's it for me. Thank you.
spk04: And at this time, there are no further questions. I will turn the call over to Mr. Schultz for any closing remarks.
spk14: Thank you, Operator, and thanks to everyone for joining the call today. This concludes the call. Please have a great weekend.
spk04: ladies and gentlemen thank you for joining today's call you may now disconnect
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