RE/MAX Holdings, Inc. Class A

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, hurricane-related financial support, 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 third 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. Before discussing our quarterly performance, I wanted to start with a few comments regarding the recent hurricane activity. These were extraordinary storms, and most of us probably know someone who was directly affected by them. Unfortunately, we tragically lost one of our brokers and their spouse, and the thousands of affiliates who were impacted have now begun the task of rebuilding their lives. We are proud of the way Remax and Motto Networks rallied to support their affiliates and their communities. Our team from around the world is doing what they always do in times of crisis, stepping up to help. Given the magnitude of destruction from these historic storms, we plan to provide limited financial relief for those impacted based on individual facts and circumstances. We want to do what we can to help our networks rebuild and bridge the interruption to their respective businesses and lives. Kerry will provide more details in a few moments on the financial impact. Moving to our earnings, we generated better than forecasted financial performance for the second quarter in a row. Our team's working on running our core business better each day, and that effort has contributed to our strong margin over the past two quarters, which is an encouraging trend. Both the real estate and mortgage industries were working their way through uncertain times, so we remain centered on what we can control, and we believe our third quarter financial results are further proof proof that our actions are making a difference. Kerry will get into financial details shortly, but the strength of our business model was again evident during the quarter, highlighted by strong cash flow generation driven by ongoing cost management efforts and strong REMAX collections alongside improvement in our total leverage ratio. The past quarter was also notable for the real estate industry as it implemented business practice changes because of the NAR settlement. The lead up to August 17th brought heightened attention to the crucial role professional agents and brokers bring to their home buying or selling experience. For market participants like RE-MAX, we were confident that trusted professionals would rise to the occasion and adapt as they've done so many times before. And that initially appears to be the case in the weeks immediately after the business practice changes were implemented. We're proud of the way our team and our network handled this significant chapter in the history of real estate. We, alongside our franchisees and many of our nearly 3,200 offices across the U.S., leaned in. We leaned in to focus on education and we spoke loudly about the value professional agents bring to home buyers and sellers and what agents can and should be doing to thrive. Having both a global and local presence along with a well-established culture of professionalism and productivity are true competitive advantages. Skill is essential in this market and RE-MAX is home to the highly skilled, full-time agent who are also the most trusted by consumers. RE-MAX agents are simply the gold standard. As anticipated, additional items will pop up as we navigate the new landscape. One thing that's currently being debated in the industry is NAR's clear cooperation policy. Our view on the matter is straightforward. RE-MAX is in favor of policies that help buyers and sellers achieve their homeownership dreams. We support full transparency in real estate transactions. Agents and companies who promote listings to the widest possible audience are serving the best interests of buyers and sellers alike and honoring their fiduciary responsibilities. Buyers deserve equal access to available properties, and sellers deserve the broadest possible exposure for their homes. We stand for trust, transparency, and professionalism. We believe in prioritizing consumer interests over practices that benefit a few at the expense of many. As the industry moves forward, there will continue to be discussions around industry practices that may result in further change. We consistently remind our affiliates to stay focused, focused on articulating their value as trusted professionals and providing their buyers and sellers the best customer experience each and every day. Another significant event at the macro level this past quarter was last month's 50 basis point cut by the Federal Reserve. Look, this was welcomed by many in the industry. It appears that some negative housing trends may be bottoming out, although October's rise in mortgage rates may result in softer demand trends in the near term. Despite all that, overall, there's growing optimism for 2025. We share that. We're optimistic the moves we're making to drive efficiency and growth have pointed us in the right direction. Granted, there's much more work still to be done, especially when it comes to agent count. but it is rewarding to see our results beginning to show up in our financial performance. Improving agent count is essential to a better top line, so agent stabilization and growth remains a major objective. On the positive side, we saw our international agent count continue to rise in the third quarter, increasing nearly 6% over last year's Q3. In fact, our September 30th total of over 67,000 agents outside the US and Canada was a record. So far in 2024, notable performers include Brazil and Argentina. Successful recruiting, training, and retention programs have aided in their progress. In Canada, we totaled almost 25,400 agents as of September 30th, also a record. In this extremely competitive market, RE-MAX continues to be the place more professional agents choose to operate their business than any other brand. Now here in the U.S., Significant industry-wide agent attrition is widely being reported and is a real factor, but we know we need to improve upon what we can control to advance our performance. One way we aim to stem and ultimately reverse this trend is by focusing on providing the best customer experience we can. For example, at our annual broker-owner conference in August, we announced an expansion of our MaxTech powered by Bull Trail Partnership. In addition to increasing agent-focused process and tools, the expansion aids brokerage functionality, creating a front office, back office alignment that is fitting both REMAX agents and brokers. This platform features a state-of-the-art user interface, AI-driven workflow tools, and actionable business insights aiming to augment recruiting activities, enhance agent productivity, streamline operations, facilitate connectivity between the agent and consumer, and in general, help deliver a superior customer experience. We've got a growth mindset, and we are working to get our top line moving in the right direction. While better results from our growth initiatives will certainly help, we're also exploring other ways to innovate. To that end, we've identified additional opportunities to enhance the customer experience, which can also drive revenue. That's a powerful combination. For example, we mentioned last quarter the launch of MaxTech Lead Concierge. It's an optional program which delivers vetted, conversation-ready home buying and selling leads from Remax.com and Remax.ca. With this program, real people, real people contact leads within minutes of their inquiry, a speed that aligns with evolving consumer expectation and aids in maintaining that consumer trust in the Remax brand. Research suggests that the chances of connecting with a lead are 100 times greater if contact is made within five minutes rather than 30. It makes a difference. It's still very early. but the majority of RE-MAX.com leads sent to Concierge have turned into qualified, conversation-ready referrals. Thousands of RE-MAX agents have opted into the program, and we're seeing the initial leads convert. It's exciting to see this capability take hold and show signs of success so early on. We're also interested in optimizing assets across the portfolio. One set of underappreciated assets is our websites, RE-MAX.com and RE-MAX.ca. We've been making purposeful investments in our websites over the past year to improve the functionality and customer experience. These investments not only have enabled lead concierge, but also supported a new capability that allows display ads to appear on .com and they will soon appear on .ca. Given our iconic brand, the strong market share we have, and franchisor-leading websites, we view the monetization of our digital assets as an innovative and relatively low-risk high reward opportunity. Now looking at our mortgage business, our recent results show that rates do matter. September was the best month of model franchise sales since March of 2023. Similarly, during September, WeLo enjoyed its best month of the year so far in loan submissions. Despite this recent bright spot, continued elevated mortgage rates have made it a tough time to be in the mortgage business. We're feeling the effects as a number of open model offices is declining, slightly for the first time ever as franchise sales have slowed. And a few existing franchises have terminated due to their financial position, lack of transaction activity, or not being connected to the real estate transaction. While Mono has seen some of those terminations increase during the past year as the macro economy changes, we do believe we'll be able to start growing that open office account again soon. I'll wrap up my comments by pointing out that we continue to make steady progress at running our business as efficiently and as effectively as possible, having that growth mindset, and most importantly, delivering the absolute best customer experience possible. Setting aside the one-time impact associated with supporting our networks affected by the hurricanes, we believe we're well-positioned, well-positioned to end the year with momentum, with increasing optimism about the trajectory of our future interest rates, about growing global agent count, and about our new initiatives, including providing innovative and enhanced technology products to our networks, improving the agent customer experience through our lead concierge program, and starting to monetize our digital assets. We believe we're headed in the right direction, but we're very optimistic about the future. With that, I'll turn it over to Carrie.

Thank you, Eric. Good morning, everyone. We had another solid quarter, highlighted by effective cost management and strong collections, which generated robust free cash flow alongside expanding margins. Some of our notable quarterly financial metrics included total revenue of $78.5 million, adjusted EBITDA of $27.3 million, up 2% over Q3 of last year, adjusted EBITDA margin of 34.8%, an increase of 190 basis points over the third quarter of 2023, and adjusted diluted EPS of 38 cents. Looking closer at revenue, excluding the marketing funds, revenue was 58.4 million, a decrease of just 3.3% compared to the same period last year, driven by negative organic growth of 3% and adverse foreign currency movements of 0.3%. negative organic growth was principally due to lower U.S. agent count and reduced revenues from previous acquisitions, partially offset by higher broker fee revenue. The increase in broker fee revenue was primarily driven by higher sales prices and, to a lesser extent, slightly increased productivity in the U.S., which collectively more than offset the impact from reduced agent count. The uptick in U.S. agent productivity was great to see and highlighted the strength of our network in the current environment despite the recent industry practice changes. Importantly, third quarter selling, operating and administrative expenses decreased 7.2 million or 16.6% to 35.9 million. The cost reductions were broad based in nature and evidence across most of our cost structure and highlighted by lower personnel costs, a decrease in bad debt, legal and other technology expenses. Like last quarter, decreased personnel expenses on a year-over-year basis were principally a function of the restructuring amounts in Q3 of 2023. And REMAX collections also continued to improve, which is an encouraging positive trend. Lower legal expenses and miscellaneous reductions, eliminations, and efficiencies elsewhere across the company all contributed to this quarter's solid results. From a capital allocation perspective, we remain patient. The good news is our total leverage ratio, or TLR, is now under four and a half to one, as expected. Importantly, we now have access to our revolving credit facility should we need it, although we currently have no plans to tap it. Further reducing our TLR by the end of the year remains a focal point for our entire company. Once our TLR returns to a desired level, we will evaluate our capital allocation opportunities and priorities, including debt repayment, stock buybacks, and strategically reinvesting in our business, among others. The cash-generative nature of our business is perhaps our most attractive financial characteristic. Before I get to our outlook, and as Eric alluded to earlier, several of our affiliates were severely impacted given the magnitude of the recent hurricanes. We currently estimate that our fourth quarter financial performance will be lower than previously expected as limited financial support is extended to affected affiliates. As a result, we reduced our fourth quarter and full year revenue guidance by approximately 1 to 1.5 million. In addition to the impact from the hurricanes, our fourth quarter and full year 2024 outlook assumes no further currency movements, acquisitions, or divestitures. For the fourth quarter of 2024, we expect agent count to change 0 to 1% over fourth quarter 2023, revenue in a range of 71 to 76 million, including revenue from the marketing funds in a range of 18.5 to 20.5 million, and adjusted EBITDA in a range of 20.5 to 23.5 million. And for the full year 2024, we now expect agent count to change 0% to 1% over full year 2023, revenue in a range of 306 to 311 million, including revenue from the marketing funds in a range of 78.5 to 80.5 million and adjusted EBITDA in a range of 95 to 98 million. With that, operator, let's open it up for questions.