RE/MAX Holdings, Inc. Class A

or earnings conference call. Please visit the investor relations section of www.remaxholdings.com for all earnings related materials, including our standard earnings presentation and to access the live webcast and the replay of the call today. 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 and open offices, financial measures and outlook, brand expansion, competition, technology, housing and mortgage market conditions, capital allocation, credit facility, dividends, share repurchases, litigation settlement, 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 2024 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 Eric Carlson, our Chief Executive Officer, and Kerry Callahan, our Chief Financial Officer. Our brand leaders, Ward Morrison and Amy Lessinger, are also here and will join us for Q&A. With that, I'd like to turn the call over to RE-MAX Holdings CEO, Eric Carlson.

Eric? Thank you, Andy, and thanks to everyone for joining us today. In the short time that's passed since our last call, several events of note have taken place. On the housing front, the industry appears to be in the early stages of recovery. Industry reports and feedback from our network tell us demand remains robust and the supply of for-sale homes continues to rise, providing some relief to frustrated buyers in this most unusual housing market. However, interest rates have moved up, muting the number of transactions and adding uncertainty to whether the Fed will cut interest rates later in the year as some had expected and hoped would be the case. While there are a lot of factors currently affecting the real estate market, one thing remains constant. REMAX agents leverage their skills, experience, and competitive advantages to serve as many customers as they can. Key difference between our business model and that of many of our peers, our model incentivizes agents to help buyers and sellers reach their housing goals, while some other models incent their agents to recruit other agents, many of whom aren't productive. In contrast, our agents' commitment and drive sustain the RE-MAX culture of productivity, and this was recently confirmed by a widely respected industry survey. The 2024 Real Trends Verified Best Brokerages rankings revealed that RE-MAX agents at large U.S. brokerages on average outfilled the competition two to one in residential transaction sides last year. In a survey of more than 1,300 participating large brokerages, REMAX agents average 11.8 transaction sides, more than double the average of other agents. Plus, when the brokerages are ranked by transaction sides per agent, 88 of the top 100 are REMAX firms. This marks the 16th straight year in which the RealTrends data confirms that REMAX leads in average per agent productivity. Known for being skilled, experienced, and very good at what they do, our agents have made REMAX the world's most productive real estate network, as measured by residential transaction size. In addition, REMAX agents in the U.S. and Canada have been voted as the most trusted for several years straight, and trust is a top consideration among consumers when they're selecting their real estate agents. Our industry-leading trust and productivity are key competitive advantages. Our iconic brand is the number one name in real estate. We have an unequaled global presence, a distinct value proposition of services, and most importantly, the best agents and brokers in the business. As I've said previously, RE-MAX agents are simply the gold standard. Our competitive advantages should serve us well, considering recent industry developments taking place amid a lot of noise and misinformation. To recap, on March 15th, the National Association of Realtors announced a proposed nationwide settlement agreement that would release NAR, association-owned MLSs, and most of its membership from liability in multiple seller-initiated commission lawsuits. The proposed settlement includes a payment by NAR, as well as several changes in business practices in our industry. Two proposed business changes that are most relevant to RE-MAX affiliates are expected to go into effect mid-July 2024. First, while offers of compensation to buyer's agents are still permitted by the agreement, they cannot take place in the MLS. And second, written agreements will be required for MLS participants. Notably, about 20 states already require written buyer agency agreements. Let me stress. that we continue to remain steadfast in our support of buyer agency and buyer broker compensation, emphasizing the significant advantages of having buyers and sellers represented by trustworthy, seasoned real estate professionals. These skilled agents ensure that consumers receive guidance and advocacy while navigating the complexities of the home buying and selling process. This representation generally drives better outcomes and experiences for the consumers involved. When the NAR news broke, we quickly moved to communicate with RE-MAX affiliates and help them understand the changes. Our RE-MAX brand president, Amy Lessinger, immediately held informational sessions for our brokers and our agents. With 51 years of history, we've had a front row seat to many sudden changes in our industry, and the wisdom that comes with experience continues to serve us well. Education and outreach, two other core strengths of RE-MAX, were our top priorities following the NAR announcement. Now, in preparation, we had developed and have now deployed materials and resources to help our affiliates navigate the post-settlement landscape. From education and consultation, to marketing and consumer messaging, RE-MAX will continue to support affiliates in every possible way. We advised our network that there were four primary things that they should be focused on. First, RE-MAX affiliates should continue to conduct their business with the security of being released and protected from liability related to these industry lawsuits, pending final court approval of the RE-MAX settlement slated for hearing next week on May 9th. Second, they should start preparing for the two proposed NAR rule changes expected to take effect in July. This includes updating their marketing materials, buyer presentation, and buyer representation agreements. Third, they should continue to speak to their clients in a clear, transparent way about the value they provide and how they are compensated. Fourth, they should stay updated on ongoing industry development. The terms in the proposed NAR settlement would change some aspects of the business, but REMAX agents are well positioned to navigate these changes, and we will help guide them as they evolve. Given the extensive experience within our network, our affiliates are able to lean on and learn from the RE-MAX community. That's the power of a network filled with full-time, productive professionals. Within our settlement announcement, many have asked us how the proposed NAR changes might impact the industry. Only time will really tell. All commissions are negotiable, as they always have been. Ultimately, the responsibility to set fees to clearly communicate value lies within the individual brokerages, teams, and agents. That has always been the case within our network. We're moving intentionally and methodically given these unusual times. We're in a period of transition and some uncertainty, and we'll have a better read on how these developments will impact the industry and RE-MAX as the year unfolds. In the meantime, we'll continue to operate our business as efficiently and effectively as possible, maintaining a growth mindset, and staying laser focused on delivering the absolute best customer experience. We're leaving no stone unturned. We're challenging each process and function to improve not only the velocity, but our outcomes. These efforts should yield measurable results in the aggregate, and we believe we have additional revenue opportunities and the potential for margin improvement driven by control over operating costs. Now, as we said last quarter, this will take time, but we are moving with the requisite sense of urgency. We've got a great foundation to build upon. Our team, our affiliates, they're passionate, passionate about our brands, about each other, and about innovating, growing, and simply getting better each and every day. We recently held our annual agent convention. called R4 in Las Vegas. With thousands of attendees from 60 countries, the event was both inspiring and reassuring. Personally, my first R4, I spent most of my time listening, trying to learn as much as possible from our network and other industry leaders. It was a fantastic experience. Our agents and brokers were not only confident and enthusiastic, but excited about the opportunities ahead and can't wait until next year's events. Regarding our growth initiatives, we continue to iterate, digging into details, gaining insight, and uncovering additional opportunities. To date, we've seen positive results, though not large enough yet to overcome the overall contraction currently being experienced throughout the real estate industry. We launched our expanded Teams initiative April 1st, and we're seeing the first brokerages unlock the benefits by adding the required six new team members. Notwithstanding the macro pressure, our conversions, mergers, and acquisitions, or CM&A program, continues to add brokerages and agents to the network. It also continues to evolve as we work through our pipeline of compelling prospects, identifying new targets, and developing new approaches. We are laying the groundwork, which should serve us well when the market resumes its growth cycle. Now, on the mortgage side, despite one of the most challenging and market conditions, the mortgage industry has faced in recent history, we continue to grow. Here, too, we're focused on what we can control. A recent franchise and loan origin era convention had good participation, despite the market conditions. Attendees were excited, excited about the future prospects of the mortgage industry. Motto is going through its first renewal process as the original cohort of franchises are completing their seven-year franchise terms, and we're off to an encouraging start. With that, thank you, and I'll turn it over to Carrie.

Thank you, Eric. Good morning, everyone. Effective cost management amidst a challenging housing market summed up our financial performance for the first quarter. Some of the notable quarterly financial highlights included total revenue of $78.3 million, adjusted EBITDA of $19 million with an adjusted EBITDA margin of 24.3%, and adjusted diluted EPS of 20 cents. Looking closer at revenue, excluding the marketing funds, revenue was 58.1 million, a decrease of 9.3% compared to the same period last year, driven by negative organic growth. Organic growth decreased principally due to a reduction in events-related revenue and lower U.S. agent count, partially offset by higher mortgage segment revenue. With respect to events, Recall that last year we celebrated our 50th anniversary at our annual agent convention, which led to exceptional attendance and revenue. This year's conference was smaller in comparison. Q4 selling, operating, and administrative expenses decreased 6.9% to $45.7 million, primarily due to lower expenses from our annual convention and reduced legal expenses, partially offset by higher equity-based compensation expenses. From a capital allocation perspective, we continue to be disciplined and patient, particularly in light of the fact that rate cuts appear less likely to occur in the second half of this year and are pending settlements that have not yet finalized. Though housing appears to be rebounding, it is a slow process. For all these reasons, we continue to be responsible stewards of capital and think it's best to focus on replenishing our cash in the near term. Simultaneously, we believe we still have the financial flexibility to pursue those growth opportunities where we see the greatest potential. Our second quarter and full year 2024 outlook assumes no further currency movements, acquisitions, or divestitures. For the second quarter of 2024, we expect agent count to change negative 1.5% to 0% over second quarter 2023, revenue in a range of $75 million to $80 million, including revenue from the marketing funds in a range of $19 million to $21 million, and adjusted EBITDA in a range of $24 million to $27 million. And for the full year 2024, we continue to expect age and count to change negative half a percent to positive one and a half percent over full year 2023, revenue in a range of $300 million to $320 million, including revenue from the marketing fund in a range of $78 million to $82 million, and adjusted EBITDA in a range of $90 million to $100 million. With that, operator, let's open it up for questions.