RE/MAX Holdings, Inc. Class A

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 facilities, dividends, share repurchases, litigation settlement, 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 materially from those projected in forward-looking statements. These are discussed in our second 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 Carrie 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. We had a good quarter with stronger than expected financial performance and several noteworthy conversions of real estate brokerages and teams. It's increasingly clear that our decisions over the past year to right-size our operations, settle industry class action lawsuits, strengthen our leadership team, replenish our cash, and prepare for the days ahead have been prudent and impactful. The notable industry business practice changes set to take place on August 17th, we continue to prepare our affiliates for the future. With 51 years of history, we've had plenty of experience with many shifts that have occurred in our industry, and the associated wisdom that we've gained continues to serve us well. Education and outreach, two core strengths of RE-MAX, have been our top priorities following the NARA announcement. More broadly, we're focused on our playbook, operating our business as efficiently as possible, maintaining a growth mindset, and delivering the absolute best customer experience. In what continues to be an uncertain time for housing and our industry, we remain focused on what we can control. We believe our second quarter financial results are proof that our efforts are making a difference. Kerry will get into the details shortly. But to preview some of our comments, collections are timely, and they continue to improve. Our cost management efforts have also been effective. We continue to see positive results from our growth initiatives, although not yet at a level to offset adverse industry-wide and macroeconomic forces. Our conversions, mergers, and acquisitions, or CM&A program, continues to add brokerages and agents to the RE-MAX network. In late June, we added a 60-agent independent office in Utah. About the same time, we're also excited to announce that a prominent unaffiliated brokerage in Ontario converted to Remax, bringing nearly 130 agents. Just a week later, another Canadian brokerage, formerly associated with a competitor, also converted, adding over 200 agents. That gain of 400 agents is a testament to the strength of our brand, what it represents, and our value proposition. It also reinforces the value of our CM&A program. From the start, we viewed the program as a long-term initiative. It's taking time to educate brokerage owners on the opportunities we have available to them, but our strategic marketing approach is paying off and gaining momentum. And if more conversions occur, even more brokerage owners who are considering a change should see RE-MAX as a viable, attractive option. Combine that exposure with the impending business practice changes, and we believe the coming months and years will offer a unique window of opportunity, both for those brokers looking to make a change and for us. With our half-century track record of success, RE-MAX is a desirable option, particularly in a time of uncertainty. Change brings opportunity, and we've positioned ourselves to capitalize on that. Both in the U.S. and Canada, our CM&A pipelines have many attractive prospects, and we aim to keep that momentum up. Our Teams initiative has also had success. We added several teams during the quarter, and we're seeing more of our broker-owners take advantage of the program. It's good to see larger opportunities converting. Year-to-date, our results are in line with expectations, which is positive in the current environment. We have a growth mindset, and we're working to get our top line moving in the right direction. While better results from our growth initiatives will help, we're also exploring other ways to innovate. To that end, we've identified additional opportunities that can drive revenue while also enhancing the customer experience, a powerful combination. For example, we recently launched MaxTech Lead Concierge. an optional program which delivers vetted, conversion-ready leads from Remax.com to our agents. We know that quality leads will mean more opportunities and more potential closings for our affiliates. MaxTech Lead Concierge solves two main issues with online leads. First, our agents will receive high-quality, pre-screened leads that are worth their time and attention. Second, consumers will enjoy a better customer experience by getting an immediate response from a live person. It's truly a win-win solution. The initial reception has been good, and we're optimistic about the possibilities, but we know we need to execute. Improving agent count is critical to a better top line, so network stabilization and growth remain a major goal, even if we face challenging cross-currents in the macro environment and industry. Now, on the positive side, we saw our international agent count rebound in Q2 after a bit of a sluggish start to the year. Having a presence in over 110 countries and territories means there are many puts and takes in agent count during any given quarter or year. So far in 2024, global growth has come largely from India, Central and South America. Successful recruiting and training programs, positive changes in country ownership, and conversion activity have helped create noteworthy momentum. In Canada, agent count was flat through Q2, but Q3 started strong in July. The Canadian housing market, like the U.S., is currently challenged. and that's reflected in our results. Unfortunately for RE-MAX, we have outstanding leadership in Canada, on both the corporate side and within our broker-owner base, alongside number one market share and brand awareness. We believe the composition of our Canadian network continues to strengthen as lower producers leave the brand and are replaced by more productive agents. In the U.S., our agent count has not yet stabilized. Given the big picture, at a time when some have forecasted significant industry-wide attrition in the agent ranks, perhaps 10% or even more this year alone, our results are more measured, but still below where we'd like them to be. With the implementation of business practice changes later this month, we expect part-time agents to have a tougher time than full-time agents. That dynamic plays into multiple REMAX advantages. Our powerful brand, combined with the most trusted, experienced, and productive network, create an advantage for franchisees, agents, and teams. Our iconic brand is the number one name in real estate. We have an unequal global presence, a distinct value proposition of services, and most importantly, the best agents and brokers in the business. And as I said before, Remax agents are the gold standard. There's a lot of confusion and uncertainty in the marketplace right now. That happens when things change, and when things change, people get uncomfortable. When you think about an agent's work, almost every customer or every house they deal with is slightly different. So we should be able to thrive in a little bit of uncertainty. And I think that's the great thing about REMAX agents. They're full-time, experienced professionals. They're productive, and they're the most trusted agents in the business. They know how to adapt to the marketplace. And we're pushing the envelope with our education, leaning in, and speaking loud about what agents should be doing in order to thrive. Plus, here's where our unmatched geographic footprint can really make a difference. We have more offices in more parts of the U.S. and Canada than anyone else. Not only are we providing industry-leading education from HQ, but we also have education and in-person collaboration taking place at over 3,200 REMAX offices in the U.S. and more than 900 offices in Canada. Local presence and a well-established culture of professionalism and productivity are true competitive advantages. Skill is essential in this market, and REMAX is the place for skilled agents. On the mortgage side, Motto continues to sell and open franchises. We're nearing our 400th sale lifetime to date and recently opened a franchise in our 45th state, New Hampshire. We continue to grow year over year despite some of the most challenging and market conditions the mortgage industry has ever faced. Here too, we've zeroed in on what we can control. To date, franchise sales are approximately 50% to REMAX affiliates, 20% to independent or other competitor real estate brokerages and teams, 20% to investors and 10% to loan originators. Also, while some of our franchises are understandably struggling currently, many other offices are doing quite well. These franchises are grinding, marketing their business, staying active in their communities, and in many cases, taking market share. Even in this market, slightly more than 4 million existing homes will be purchased this year, and that's a lot of associated loans being originated in addition to any refi activity. We want more than our fair share of them at Motto. Now similarly, WEMLO continues to get bigger and better. In fact, it recently processed its 6,000th loan to clear to close, or C2C status. Reaching this milestone is exciting for the WEMLO brand because growth like this validates the benefits to mortgage brokers providing our third party processing services. It's also proof to WEMLO's team of processors who serve as a seamless extension of their broker's teams while providing an enhanced customer experience from submission to closing. Wemo provides highly qualified, customer-centric processing talent, easy-to-use technology, and access to an extensive list of supported lenders and loan products to help our enterprise customers get fast, effective results. In closing, it's an unprecedented time for our industry given the pending changes. Additionally, market conditions remain mixed at best. With inventory and listings rising, while higher interest rates and resultant affordability challenges linger. But opportunity abounds. With our leading brands and the most productive and trustworthy professionals in the business, we like our position in the market and are very optimistic about our future. With that, I'll turn it over to Carrie.

Thank you, Eric. Good morning, everyone. Continued cost management amid a soft housing market highlighted our second quarter financial performance. Some of the notable quarterly financial metrics included total revenue of $78.5 million, adjusted EBITDA of $28.1 million, up 5.4% over Q2 of last year, adjusted EBITDA margin of 35.8%, an increase of 350 basis points over the second quarter of 2023, and adjusted diluted EPS of 41 cents. Looking closer at revenue, excluding the marketing funds, revenue was $58.4 million, a decrease of 4.8% compared to the same period last year, driven by negative organic growth of 4.5% and adverse foreign currency movement of 0.3%. Negative organic growth was principally driven due to U.S. agent count and reduced revenue from previous acquisitions, partially offset by higher broker fee revenue. Recall that previous acquisitions like Bouge and Gadbury have either wound down or are in the process of winding down. The increase in broker fee revenue was primarily driven by higher sales prices more than offsetting the impact from reduced agent count. Importantly, second quarter selling, operating, and administrative expenses decreased 13.3% to $34.9 million due to several factors, including lower personnel expenses, improved collections, favorable property tax expense and reduced legal and IT-related expenses. Reduced personnel expenses were largely a function of a difficult but necessary decision we made one year ago to streamline our operations, which also contributed to the reduction in IT-related costs. RE-MAX collections continue to improve this quarter and have been comparatively robust despite the challenges of the current housing market. This is an encouraging sign when assessing the overall health of our franchisees. Favorable property tax expense of about a half a million dollars was a one-time event. Lower legal expenses and miscellaneous reductions, eliminations, and efficiencies elsewhere across the enterprise all contributed to this quarter's strong results. From a capital allocation perspective, we remain pragmatic. We believe this is the prudent approach given that a second half of the year real estate rally has not yet materialized. Additionally, while we remain optimistic our industry class action settlement is currently being appealed. We continue to focus on replenishing our cash reserve in the near term. We believe we are trending to get our total leverage ratio or TLR under four and a half to one by the end of the third quarter, which importantly will enable us to regain access to our revolving credit facility. Further reducing our TLR by the end of this year remains a focal point for our entire company. Once our TLR returns to a desired level and we have sufficiently replenished our cash reserves, we expect to have many appealing capital allocation opportunities, including debt repayment, stock buyback, further cash replenishment, and strategically reinvesting in our business, among others. The cash generative nature of our 100% franchise business is perhaps our most attractive financial characteristic. Our third quarter and full year 2024 outlook assumes no further currency movements, acquisitions, or divestitures. For the third quarter of 2024, we expect agent count to change negative 1.5 to 0% over third quarter 2023, revenue in a range of $75 to $80 million, including revenue from the marketing funds in a range of $19 to $21 million, and adjusted EBITDA in a range of $24.5 to $27.5 million. For the full year 2024, we're slightly reducing our agent count guidance and narrowing our revenue and adjusted EBITDA guidance ranges. We now expect agent count to change negative one to positive 1% over full year 2023, revenue in a range of 305 to 315 million, including revenue from the marketing funds in a range of 78 to 82 million, and adjusted EBITDA in a range of 93 to 98 million. With that, operator, let's open it up for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from the line of Soham Afonso with BTIG. Your line is open.

Hey, good morning, everyone. Eric, I think, you know, as you noted, you know, there's some consensus out there that there will be fewer agents in the industry long term, right, as we see this sort of professionalization after these settlements. So let's just assume that sort of plays out. I'm curious if you guys have given any thought on evolving your pricing model to one where, you know, that takes more of the economics on the actual transaction rather than just the number of agents. right? Because if you're in fact providing all this value to your agent and making them more productive, then the thought is, you know, why not participate in some of that upside instead of just agent count where, you know, the macro trend could be somewhat negative long-term. Any thoughts there would be great. Thanks.

Yeah, I appreciate it. And I'll start off and then maybe Amy has a few comments around that. Obviously, she's been pretty close to the network as of late, especially kind of with the changes that are coming up. But it's a great question. I think, you know, as I've been talking about for my eight, nine months that I've been here now, is we have a great brand, we have a really strong community of broker owners, and we have outstanding agents who are really passionate about what they do. As we've talked about, we are in a position where we have a bit more full-time, professional, more productive agents than others. In that perspective, and you know, with agent count decline, very, very likely in the future, we think that we're a little bit more mitigated than others. That doesn't mean that, you know, that we're completely isolated or protected. And we have work to do. And Amy will be happy to talk about some of that work that we're doing to prepare folks. But we do feel like we're in a bit better position than maybe some others relative to the industry. With that being said, Our model has been a strong model for us over many, many decades. But we're not naive enough to think that we might not have to change. And so the way I'd phrase it, Soham, is look, we're trying not to leave any stone unturned. We're looking at all aspects of the business. And whether that's like a wholesale change to the model or whether that's a hybrid in the future, I do think there's opportunities Because look at the fact of the matter is that, you know, agents are changing and it's a dynamic workforce. And so, you know, even as you get, you know, new, newer agents in the business, they want different things and that, you know, can drive towards a different economic model for them. I think what's important to think about really is how we're supporting agents. And that can be from economic terms that can be from how our brokers show up in the market. It can be, you know, how we have tools and tech to help them be more productive and engage with more consumers to gain more listings and to show more transparency through the selling process. Because look, home buying is such an unbelievable experience, especially for the American consumer and a dream. It's the largest purchase they have. So we will continue to lean in to help our broker owners be more profitable and more productive, in addition to agents. So I'm not going to announce any new models today, but know that we're looking at, you know, everything that happens throughout the transaction, not only with a buyer or seller or with an agent's life cycle and things that we think can add value or materially change the outcome of improving the customer experience or making them more productive, you know, we'll definitely focus on. So I do think that, you know, we're laser focused in on monetizing not only you know, the agent itself by providing services and, you know, other tools and tech, things like that, but also the transaction. So I guess more to come on that. Nothing today. And I think really, so we have to, you know, look at 817 is going to cause some disruption, right? I mean, I think, you know, we've done a lot of work. I think we're in a really good position. But the fact of the matter is there's going to be a lot of noise in the system. And so today is a good time to continue to overturn those rocks, build a foundation. We're going to get through this period of transition and put ourselves in a position where we think interest rates will be better, inventory will be better, and we'll be more effective at scaling the business in 2025.

Yeah, and I think I'd add to that because you just mentioned kind of pure agency. Fire agency has been a part of the industry since the 90s. And, you know, interestingly enough, 90% of buyers used an agent last year. And so I think, you know, we're really happy about the spotlight coming into buyer agency because I think it's good for experienced agents, which is a large portion of our population. And, you know, as we've mentioned previously, you know, our settlement came, you know, back in October. We were preparing, you know, all the way leading up to the announcement of the NAR settlement with, you know, education, tool support on this front to make sure that even though our agents are experienced, that they are absolutely ready and able to clearly articulate their value, clearly, you know, have a transparent conversation about how they're paid and really outline to a buyer the benefits of being represented.

Yep. Great. Thanks for that there. And then the second one, Carrie, On the EBITDA guide for the third quarter, it looks like you're forecasting a similar level of revenue quarter over quarter, but the EBITDA is stepping down a little. Is there some investment coming through or something else going on there?

Hey, Soham, it's a great question. As we said in the scripted remarks, we had a really strong quarter in the second quarter. We did benefit from a couple of different things. One, just kind of ongoing efficiencies and really looking at managing the business as efficiently and effectively as possible. But we also did have some one-time items that benefited the second quarter that we don't anticipate kind of flowing through into Q3. I mentioned property taxes specifically in the scripted remarks. And then, as I noted, despite the macro, our bad debt expense and collections have been very, very favorable. And so while we've taken down, we've assumed in the third quarter some good progress there, not quite as strong as Q2. So there could be some upside to the back half of the year if collections really continue on a similar pace as Q2.

Okay, and then just the decision to sort of lower the agent count guide for the year, can you just talk about the biggest drivers there? Thank you.

Sure. So I think we continue to remain optimistic about some of the things that we're doing here from an agent count perspective. Obviously, Eric talked about the momentum on CM&A both in the U.S. and especially some activity that we've had in Canada. And so from, you know, an adjustment to the guide perspective, I think it's really just been informed by the actual performance, you know, through July. kind of similar trends that Eric touched on in terms of the headwinds in the U.S. given the macro environment, kind of flattish performance in Canada. But importantly, outside of the U.S. and Canada, we're seeing some good growth resume, had some large conversion activity actually in Central and South America, and continue to see some pockets of Asian count growth outside of the U.S. and Canada.

Okay, great. Thanks a lot for the thoughts.

Your next question comes from the line of Anthony Pallone with JP Morgan. Your line is open.

Great. Thank you. Good morning. The first question is, do you have a sense or view as to maybe how much of the pressure on aging count thus far has been as a result of the pending changes that are going to go into effect versus, say, just the housing market more broadly? I'm just trying to understand if you think you know, perhaps in the next three to six months, we'll actually start to see some fallout? Or do you think that these changes have been pretty well digested by folks?

Yeah, Tony, this is Eric. Thanks for the question. You know, I don't, I think like, you know, the macro environment is obviously impacting agent count. I think that new buyer representation is impacting agent count. I do think that, you know, the changes associated on 817 will continue to put pressure. I think the macro environment is definitely, you know, playing a big role right now. As I said, you know, like in my opening comments, but then in the last question, I do feel like, you know, we're a little bit more protected because, you know, the fact of the matter is, like, we have more productive agents. So, like, when I think about that, it's just more swings of the bat, right? And so, you know, over a period of time with tenure, experience, productivity, you know, our team, you know, overgeneralizing is, you know, they're just, they're more experienced at negotiating and dealing with customers and explaining their value. And I think, you know, what I've been, I'm not surprised anymore, but, you know, when I came in, what I really, you know, loved about this team and this business is just the passion of our agents around the brand and what they do for buyers and sellers. and the strength of our broker owners. So we're not just reliant really on kind of Amy and her team and HQ deploying some training on changes that are going to occur within the market or how to deal with macro effects or how to go and get additional listings or how to talk about your value. I mean, we've got this outstanding network of broker owners that are providing training on a day-in and day-out basis. and reviewing whether or not they have somebody who's struggling with a particular part of the customer journey and providing those resources at a local level. So not only with more intel on what's actually happening boots on the ground, but they're there to have a face-to-face touchpoint, which I think is one of the strengths of our network. So do I think that that agent count will continue to be under pressure from an industry perspective? Absolutely. Do I think it'll hit part-time harder than full-time? Are we subject to, you know, continued agent count decline? Yes, but I think we are starting to bend the trend a little bit and understand, you know, who's leaving, why they're leaving, and what we can do to course correct there. So we're actually kind of excited that, you know, there might be more at-bats for more productive full-time agents here in the future, and we're excited that REMAX can pick up some of that market share. Hopefully that helps.

Yeah, thank you. And I don't know if this is maybe for Amy, but can you give us some specifics or any anecdotes or data on kind of what you're messaging to the agents in terms of buy-side commission rates, how to suggest negotiating this, or just what the field practices are right now or what you expect them to be in the next month or so?

Sure. You know, we always emphasize the value of the service that an experienced agent provides in the transaction. And, you know, we've been preparing our agents and bolstering their already extensive experience in education on this front, you know, since honestly before the announcement of the NAR settlement. So, you know, we continue close monitoring of buyer broker commission trends. know i'm out in the network all the time and our our brokers are not noting uh any notable changes uh it's and those that's very consistent with our internal analysis so you know we do we're definitely optimistic the remax agents are going to be less impacted due to their experience and their productivity okay so there's no that but has there been any um

sort of, you know, recommendations on, you know, rate or way to, you know, approach, you know, how to set a buy-side commission at this point?

But commissions are always negotiable, and so we don't provide guidance on that front. And I think I'd like to add, too, that, you know, these changes, you know, although new to some markets, they have already, you know, been established in 20 markets across the country. And, you know, buyer agency has been around since the 90s. You know, buyer agency and representation agreements have always been available in the majority of markets. They just simply weren't mandatory. So our agents, given their experience level and the amount of times that they transact, you know, they're just more seasoned in navigating these discussions.

Great. Thank you.

Your next question comes from the line of Tommy McJoy with KBW. Your line is open.

Hey, good morning, guys. Thanks for taking our questions here. Any early learnings, perhaps through trial and error, just of the implementation of buyer-agent agreements without adding too much friction into the process that might otherwise lead to a higher fallout or fall through, I guess, of clients choosing not to engage with an agent?

Yeah, for sure. Thanks for the question. Fire agencies have been around since the 90s. These agreements have been around for decades in the majority of states out there. And 20 of the 50 states, it's been a requirement already prior to the settlement. So the remaining 30, it's not that they haven't had these agreements in place. It's simply that they weren't mandatory. And so I think that when it comes to the spotlight on buyer agency, I think it's healthy for consumers to really now fully, fully understand what it means to be represented by a professional agent. And so given the tenure and the amount of times that our agents transact, they're just more productive. It seems that buyers out there now really have an appreciation and a need and a drive for an experienced professional who they can trust.

Tommy, this is Eric. Let me add a little context to me because I think that, look, there are changes that are going to happen in the market, right? And so, look, we've been really continuing to push education and having our brokers push education about being as transparent as possible, helping the customer understand kind of, you know, we threw a complex transaction, which is very emotional and very important to a family. And so I think it's been good for us to continue to remind our broker owners and agents what we've kind of stood for for, you know, 50 years. With all that being said, whenever there's change in process, there is going to be, you know, some noise and there'll be a bit of a learning curve. I think that because of our experience and our at-bats, we're a bit better off. But we're also talking to our folks about rising above the noise and making sure that they are creating a higher standard for the customer transaction. Because with any change, there are good and bad actors. And I think that this gives the opportunity for some folks that either have intent or don't have intent So no intent, part-time, not enough experience, don't understand the changes, and there'll be friction with that customer experience. And hopefully we can pick up those referrals after customers are dissatisfied. And then there'll be some that will be trying to complete workarounds, et cetera. And so I think from an overall industry perspective, there will be some noise in the system. And here at Remax, we're going to try to rise above and create a standard where, look, we're the most trusted brand. Customers want trust when they engage with a real estate agent, and we're really pushing that for our agents and brokers to continue to provide a transparent, trustworthy experience.

Got it. Does Remax provide templates for buyer agent agreements to the franchises? And are there different types of templates out there that have different levels of services embedded in them?

Yeah, good question. So as a franchisor, we do not provide forms. They are derived from the local governing bodies. And we've been closely listening to our network and monitoring that. And largely we are finding that the governing bodies are producing, you know, what they need in terms of compliance, you know, forms that they can use to implement the changes on the 17th.

Okay. Thank you. And then just last one real quick. Just to try to track your market share in real time, or at least on a quarter-by-quarter basis, Is it a fair exercise to look at your variable broker fee revenues and look at the trends, you know, relative to what industry transaction volumes are doing?

Hey, good morning, Tommy. It's Carrie. So I think that's going to be difficult. There's a lot of different components in terms of puts and takes that impact broker fee, you know, that we disclose more fully in our SEC filings. But obviously there's some differences in the U.S. and Canada, and then there's also just some differences just in terms of the tenure of our agents. So I think that's a little bit difficult. Obviously in the quarter we were very happy to see the broker fee performance that we did have. Despite some contraction in agent count in the U.S., broker fee was still up. So we did see some productivity gains. We did see some benefit from home price appreciation. And when we look at it on a sequential basis in the U.S., we did have some modest market share gains between Q1 and Q2.

Thanks, Jen. Thanks.

Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

Hey, good morning. Thanks for taking my questions. Wanted to go back to the international agent growth. And can you just unpack the puts and takes there, Sam? It's glowed a little bit more in the second quarter, but it seems like you're off to a great start in July. It looks like it's up almost 1,300 sequentially outside of the US and Canada. I think, Kerry, you may have called out agent growth in regions like Central America, but can you just give some overall detail on where you're seeing growth versus contraction or deceleration in some of your key markets outside of the US and Canada?

Sure, I can take that one. This is Amy. So, you know, we've got some, you know, solid, you know, hot spots that, you know, include Asia Pacific, China and Australia. And then in Europe, you know, foundationally, it's Germany and Portugal and Sweden, South America, in Colombia and Chile. And then that includes Africa and the Middle East and Kenya, Nigeria and Dubai. And I think that we're seeing some you know, emerging trends, you know, lots of technological integration, you know, including prop tech, AI, you know, blockchain. And I think, too, you know, there's a high influence on commercial real estate with respect to remote work. So, you know, we've got strong leadership. I'll go to Canada now, strong leadership and market presence there. And, you know, there is an anticipation of a rebound in housing activity later in the year. And I think, you know, our solid pipeline of M&A opportunities, you know, are really exciting to us. So, coupled out with our expectation that interest rates are going to decline there, I think that, you know, we've got opportunity that is still to come for the remainder of the year.

Got it. That's very helpful. I appreciate that. And then just as a follow-up, it looked like the loss from Motto was a little higher this quarter sequentially, even with a slight uptick in revenue. Is there anything to call out there on what would drive the bigger sequential loss? And I'm just curious if there's any incremental investing going on there ahead of a potentially more favorable mortgage market.

Great question. Obviously, with this market, changing the macro economy is a little tough in the mortgage segment for the last year. So we had some increase in terms. We do pick up some money when they do terminate, so that does sort of have a put and take. But it continues to be the fact that sales are down a little bit, but we see some trends changing in that in the positive light. So we hope we can change some of that in the near future.

All right. Thank you.

Your next question comes from the line of Matthew Erdner with Jones Trading. Your line is open.

Hey, good morning, guys. Thanks for taking the question. I kind of have a follow up to that last one with regard to motto. Franchise sales have continued to increase, but the number of offices open continues to kind of remain around that 240 number. Do you think this is more market dynamics or, you know, can I get a little more insight as to what you're seeing there?

Yes, I would totally concur on market dynamics. Obviously, as the volume of loans decreased within the market due to the macro economy, it's tougher for offices to get some of those. They have to go out there and scrap on a daily basis to try and get refis in the market, try and get purchase in the market. We felt even though we sold some and continue to sell and increase that count, we do have terminations. And those terminations are for many different factors. One is, you know, wherewithal the broker owner, financial position, lack of deals, maybe not connected to real estate. So there are a lot of factors that may close somebody. So we've seen some of those terminations increase during this past year, but feel like when the macro economy changes, we'll be able to start regrowing that open office account and continue on the trend that we had prior to the macro.

Right. Yeah, that's helpful. Thank you for that. And then, you know, kind of as that macro picture, have you seen the pipeline expand kind of ahead of the rate cuts? Are you guys, you know, ramping up a little more marketing wise there to try and get in front of it, given the, you know, 12 estimated 12 months to get that office open?

Yeah, obviously we've seen some refinance activity increase across our franchisees. The nice thing is most of them are connected. 75% are connected to real estate. So they see the trend long before sometimes even a traditional mortgage broker would see it because they're seeing that the homeowners come in, buy more homes. So we're continuing to try and stay ahead of that curve, whether it's WEMO trying to do the processing, whether it's our models trying to get the deal. But we firmly know that refinances are increasing as rates go down and feel like, you know, the rest of the year we're going to have a good opportunity if the Fed cooperates.

That's helpful. Thank you, guys.

Your next question comes from the line of Ryan McKeveney with Selman and Associates. Your line is open.

Hey, guys, thank you very much. Carrie, on the cost management side, it's a pretty nice step down, I think, across the kind of categories within SONA expenses. Maybe you can unpack that a little bit in terms of the drivers this quarter and then just thinking about whether any of that was more temporary in nature or more permanent in nature would be helpful. Thank you.

Yeah, great question, Ryan. So I think, you know, as we said in the scripted remarks, we've really been focused holistically around, you know, managing the business really as efficiently and effectively as we can. From a personnel perspective, we're really starting to see now about a year after the difficult decision we made last year to right-size the business from a personnel perspective, you know, kind of the full impact of that. And so when we look at our personnel expense for this quarter and kind of what the run rate looks like for the rest of the year, it's probably a pretty good run rate. I did mention that from our, you know, kind of facilities and our rent costs, we did have a one-time benefit in the quarter that hit that line item. So that was definitely favorable for this quarter. You know, also called out that, you know, when we look at our professional fees on a year-over-year basis, we've had some benefit due to the prudent decision that we made last year with respect to the litigation. And so that's probably, you know, a pretty decent run rate. And then in our other bucket, that's where we really had some favorability this quarter. So again, I mentioned the really strong collections that we had there. Tremendous focus by the team there as it relates to collections. So that definitely is probably a little bit low, but like I said, we could have some upside in the back half of the year from that perspective. We also, in that line item, had a few things from just a normal investment perspective that we kind of had initially planned for Q2. that we expect to push out into the back half of the year. And so kind of if you're looking at SONA run rate for the back half of the year, kind of looking in that high $30 million range for the run rate, just given the focus that we've had on optimizing the cost structure to the best of our abilities.

Perfect. Thank you very much.

Your next question comes from . comes from the line of Ronald Camden with Mark and Stanley. Your line is open.

Hey, good morning. Just two quick ones for me. So one, just starting with the sort of the litigation updates, I know the settlement is in the appeals process and there were sort of other stuff in the 10K that we were going through. But just in terms of timing, do you have a sense of when the next time We'll get updates or hear anything. Do you have a certain timing in your mind, or is it sort of just wait and see?

Yeah, it's a great question, Ron. I think a couple of things. The first is we continue to be very happy that we made the decision that we did to settle these in the interest of all of our stakeholders. We're happy that the district court granted final approval of the settlement. And I think importantly to note, it is going through the standard appeals process right now. I wish that we could say exactly what that timeline looked like, whether it is kind of towards the latter part of this year or into next, but it is on that standard timeline. We continue to, we're gonna continue to vigorously defend ourselves and the settlement during that appeals process and continue to believe that the settlement is fair and reasonable and that the district court's order should be upheld.

Great. And then my quick follow-up is just, and how does the dividend, bringing back the dividend sort of factor into that? Is it something that's concurrent or you sort of wait to see everything clear through?

Yeah, it's a great question. And I think as we think about just the overall performance this quarter, I think one of the things that it highlighted is just the strength of the franchise brand and the franchise model that we have and the cash generation capabilities. As I said in the scripted remarks, Our biggest focus right now is continuing to replenish the cash balance until we get through some of the litigation, focusing on getting our leverage ratios down. We haven't made any decisions as it relates to capital allocation beyond that point, but I think we're looking forward to getting to a place where we have a lot of optionality and focusing on all capital allocation opportunities, including those that I mentioned in the scripted remarks.

Great. And then my last one is just, you guys did a nice job, looks like on expenses, but just going back to the agent count change, maybe just double-clicking on that a little bit, can you talk about just what's changed and what's different in terms of what's happening on the ground with the agents? Is it maybe some of the rulings? Is it just the macro? Just maybe some color on what sort of change, what drove the guidance change and what's happening on the ground? Thanks.

For sure. I think, you know, no doubt, I think Eric covered it earlier, that there is, you know, definite pressure just industry-wide. And, you know, we feel optimistic that we may have, you know, a little more insulation from that given the tenure and experience of our agents. But, you know, we obviously understand that you know, driving that top line through agent count growth is important. And we focus, you know, mainly on our initiatives, you know, and providing deep support to, you know, bend that trend without a doubt. And, you know, that includes our strategic initiatives, you know, that we've talked about, our CM&A program, the Teams program. And then, of course, working really closely with our brokers to enhance their recruiting skills. And then, obviously, once we add an agent, the big goal is to make that agent more productive once they're added. And I think that's really evident in our numbers that our agents have extremely high productivity. So we will continue to provide that extensive support, that education, and offer tools to help them win no matter what the market conditions are. But obviously, our deep focus is finding other opportunities to grow and drive that top line.

Thanks so much. That's it for me.

Your next question comes from the line of John Campbell with Stevens Inc. Your line is open.

Hey, guys. Good morning. Morning. Hey, great job in the quarter. I mean, it looks like you brought profits up year over year for the first time in, I think, seven quarters. That's on continued revenue declines. So congrats on getting the cost order in place. I wanted to check on the franchise renewals. It sounds like sales. It sounds like you're seeing some success of late, but on the renewals. Just curious if you can give an update on how that's held up so far. Obviously, a lot's changing in the market. So just curious about cancellation rates and then on the successful renewals you've seen, if you're just kind of able to hold the past terms and such.

Yeah, for sure. You know, actually, you know, our renewals have been, you know, strong. And it reflects, I think, the confidence in the business model and the support that, you know, we provide. And obviously we will continue to evaluate, you know, market conditions, but so far, you know, we're seeing, you know, consistency on that front.

Okay. And then I think I'm going to queue you up to kind of tell the productivity of your agents. But I mean, if you look at the U S housing market, at least it looks like it was anywhere from down modestly to maybe up modestly. So your broker fee revenue, it looks like that rose about 1% year over year. to probably in-line-ish with the market. But if you look at, you know, the U.S. and Canada total agent count, that declined 4% year over year. So you're playing from behind a little bit. That was a good result. I'm just curious about kind of what drove the, you know, outpacing of the market just on a, at least on a per-agent basis.

Yeah, it's a great question, John, and you're right. And I alluded to this a little bit earlier. So we did benefit a little bit from price appreciation. in both the US and Canada from a productivity perspective. We benefited a little bit in both geographies as well. And so those probably two things were the biggest drivers from a broker fee perspective.

Okay. And then last one for me. From a strategic standpoint, obviously, again, a lot changed in the industries as far as the MLS ability to communicate and to put the broker fee into the MLS. Obviously, there's going to be a little bit of a void of information in the market. So I'm curious how you're viewing the importance of the REMAX website. Do you feel like that's going to give you an advantage in any way? Just curious about your thoughts there.

Yeah, you know, interestingly enough, you know, offers of compensation, you know, are still allowed and allowed to be displayed on the broker website. That being said, we will not be displaying them on Remax.com given, you know, our data fee is largely derived from the MLS, which, you know, that would be a violation of the settlement term. And so, you know, we continue to monitor channels and we continue to hear about how our brokers you know, are navigating this given their freedom to, you know, display offers of compensation on their own websites. And, you know, foundationally, they're communicating with one another, you know, in their markets and, you know, making sure that they understand if the seller is willing to offer compensation. You know, it's kind of a funny thing, the telephone. It's working really well right now. But obviously that will evolve over time.

Look, John, this is Eric. I mean, maybe I'll talk, you know, productivity here. I mean, the thing is, is that I do think because of the experience of the tenure, the professionalism, the more at-bats, you know, a large population of our agents are just, you know, they're better at negotiating and talking, right? And so, you know, I do, you know, we're really pushing for transparency. We've been pushing that through education. I think our local broker owners are are going to be a significant asset in this transition for us. And by the way, just real estate, the real estate industry in general. So I do think there's going to be noise. And those folks that just depended on items in the MLS or on a website in order to get through their day, that's changing a bit. So I like our position from that perspective.

And the only thing else that I would add there too, John, with respect to Remax.com is I think as we look across just the innate assets that we have in terms of the trusted professional, the productivity of our agents, the strength of our network from a footprint and a geography perspective, our digital assets are assets that we think we can really leverage into the future. And we see, you know, it's under Eric's leadership and he brought some unique insights here from his prior experience, some opportunities to really leverage that in the future.

Okay, that's a great color. Thanks, Cassie.

This concludes the question and answer session. I'll turn the call to Andy Schultz for closing remarks.

Thanks, operator, and thank you to everyone for joining our call today. Have a great weekend.

This concludes today's conference call. We thank you for joining. You may now disconnect.