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RE/MAX Holdings, Inc. (NYSE: RMAX) has reported a stronger-than-expected monetary efficiency for the second quarter of 2024, with vital development in worldwide markets and stable franchise renewals signaling confidence within the firm’s enterprise mannequin. The corporate is targeted on value administration and bettering its monetary metrics, with income of $78.5 million and adjusted EBITDA of $28.1 million in Q2.
Regardless of a difficult macro surroundings and a decline in agent rely within the US and Canada, the actual property large stays optimistic about its future, specializing in value administration, working effectivity, and delivering the very best buyer expertise.
Key Takeaways
RE/MAX reported Q2 income of $78.5 million and adjusted EBITDA of $28.1 million.The corporate’s worldwide agent rely noticed development, significantly in India, Central and South America.RE/MAX launched MAX/Tech Lead Concierge to offer high-quality results in brokers.Mortgage division Motto continues to promote franchises and develop, whereas Wemlo processed its 6,000th mortgage.Regardless of a lower in agent rely in North America, RE/MAX sees development alternatives in different areas.The corporate goals to scale back its leverage ratio and enhance monetary metrics earlier than contemplating capital allocation alternatives.
Firm Outlook
RE/MAX anticipates a decline in agent rely for Q3 however expects a rebound in housing exercise later within the 12 months.For Q3, income is predicted to be between $75 million and $80 million, with adjusted EBITDA between $24.5 million and $27.5 million.Full-year forecasts embrace income between $305 million and $315 million and adjusted EBITDA between $93 million and $98 million.
Bearish Highlights
Agent rely in North America decreased by 4% year-over-year.Excluding advertising and marketing funds, income decreased by 4.8% as a consequence of unfavorable natural development and adversarial foreign money actions.The loss from the mortgage section Motto elevated sequentially as a consequence of market dynamics.
Bullish Highlights
Franchise renewals have been sturdy, reflecting confidence within the RE/MAX enterprise mannequin.The corporate has seen modest market share positive factors within the US from Q1 to Q2.Stable development in worldwide markets, together with Asia Pacific, Europe, South America, Africa, and the Center East.
Misses
The corporate expects some headwinds in Q3, together with property taxes and dangerous debt bills.RE/MAX won’t show dealer charges on remax.com as a consequence of settlement phrases.
Q&A Highlights
RE/MAX has been getting ready brokers for upcoming modifications in purchaser agent agreements.Commissions are negotiable, and the corporate doesn’t present steering on charges.The corporate is targeted on offering a clear and reliable expertise for patrons.
In conclusion, whereas RE/MAX Holdings faces challenges within the North American market, its worldwide development and strategic initiatives, such because the MAX/Tech Lead Concierge program and a concentrate on enhancing dealer recruiting abilities, place the corporate for future success. With a dedication to value administration and bettering monetary metrics, RE/MAX is working diligently to navigate the present market and bolster its world presence.
InvestingPro Insights
RE/MAX Holdings, Inc. (NYSE: RMAX) has demonstrated resilience with its newest earnings report, showcasing the corporate’s means to adapt and innovate in a dynamic actual property market. To additional perceive RE/MAX’s monetary well being and strategic positioning, we delve into the info and insights supplied by InvestingPro.
InvestingPro Information metrics reveal that RE/MAX has a market capitalization of $295.28 million, indicating its dimension and significance within the sector. Regardless of latest challenges, the corporate’s gross revenue margin stays sturdy at 74.03%, reflecting its means to keep up profitability in core operations. The unfavorable income development of -8.4% over the past twelve months factors to the macroeconomic headwinds affecting the {industry}, but RE/MAX’s administration methods goal to mitigate these impacts.
From the InvestingPro Suggestions, we study that administration has been actively shopping for again shares, an indication of confidence within the firm’s worth and future prospects. This aligns with the corporate’s concentrate on working effectivity and value administration talked about within the article. Moreover, analysts predict that RE/MAX will return to profitability this 12 months, which may sign a turnaround from the earlier twelve months the place the corporate was not worthwhile.
For readers thinking about a deeper evaluation, InvestingPro provides extra suggestions, together with insights into RE/MAX’s valuation multiples and liquidity place. Presently, there are 10 extra InvestingPro Suggestions out there, which might present beneficial data for buyers contemplating RE/MAX’s inventory.
Total, the InvestingPro Insights counsel that whereas RE/MAX faces near-term challenges, its strategic initiatives and administration’s actions could pave the way in which for improved efficiency. The corporate’s means to exceed short-term obligations with liquid belongings and the anticipated web revenue development could possibly be key elements for buyers to look at as RE/MAX navigates by means of the present actual property panorama.
Full transcript – Re Max Holding (RMAX) Q2 2024:
Operator: Good morning and welcome to the RE/MAX Holdings Second Quarter 2024 Earnings Convention Name and Webcast. My title is Sarah and I shall be facilitating the audio portion of at the moment’s name. Right now, I want to flip the decision over to, Andy Schulz, Senior Vice President of Investor Relations. Mr. Schulz?
Andy Schulz: Thanks, operator. Good morning everybody and welcome to RE/MAX Holdings second quarter 2024 earnings convention name. Please go to the Investor Relations part of www.remaxholdings.com for all earnings-related supplies together with our normal earnings presentation and to entry the stay webcast and the replay of the decision at the moment. Our ready remarks and solutions to your questions on at the moment’s name could comprise forward-looking statements. Ahead-looking statements embrace these associated to agent rely, franchise gross sales and open workplaces, monetary measures and outlook, model growth, competitors, expertise, housing and mortgage market situations, capital allocation, credit score facility, dividends, share repurchases, litigation settlement, strategic and operational plans and enterprise fashions. Ahead-looking statements signify administration’s present estimates. RE/MAX Holdings assumes no obligation to replace any forward-looking statements sooner or later. Ahead-looking statements deal with issues which can be topic to dangers and uncertainties that will trigger precise outcomes to vary materially from these projected in forward-looking statements. These are mentioned in our first quarter 2024 monetary outcomes press launch and different SEC filings. Additionally, we are going to discuss with sure non-GAAP measures on at the moment’s name. Please see the definitions and reconciliations of non-GAAP measures contained in our most up-to-date quarterly monetary outcomes press launch, which is on the market on our web site. Becoming a member of me on our name at the moment are, Erik Carlson, our Chief Government Officer; and Karri Callahan, our Chief Monetary Officer; our model leaders, Ward Morrison and Amy Lessinger are additionally right here and can be a part of us for Q&A. With that, I would like to show the decision over to RE/MAX Holdings CEO, Erik Carlson. Eric?
Erik Carlson: Thanks, Andy, and because of everybody for becoming a member of us at the moment. We had an excellent quarter with stronger-than-expected monetary efficiency and a number of other noteworthy conversions of actual property brokerages and groups. It is more and more clear that our selections over the previous 12 months to right-size our operations, settle {industry} class motion lawsuits, strengthen our management workforce, replenish our money, and put together for the times forward have been prudent and impactful. The notable {industry} enterprise follow modifications set to happen on August 17, we proceed to organize our associates for the long run. With 51 years of historical past, we have had loads of expertise with many shifts which have occurred in our {industry}, and the related knowledge that we have gained continues to function effectively. Schooling and outreach, two core strengths of RE/MAX, have been our prime priorities following the NAR announcement. Extra broadly, we’re targeted on our playbook, working our enterprise as effectively as doable, sustaining a development mindset and delivering the best possible buyer expertise. In what continues to be an unsure time for housing and our {industry}, we stay targeted on what we will management. We consider our second quarter monetary outcomes are proof that our efforts are making a distinction. Karri will get into the small print shortly, however to preview a few of her feedback, collections are well timed and so they proceed to enhance. Our value administration efforts have additionally been efficient. We proceed to see constructive outcomes from our development initiatives, though not but at a stage to offset adversarial industry-wide and macroeconomic forces. Our conversions, mergers and acquisitions or CM&A program continues so as to add brokerages and brokers to the RE/MAX community. In late June, we added a 60-agent unbiased workplace in Utah. About the identical time, we’re additionally excited to announce {that a} outstanding unaffiliated brokerage in Ontario transformed to RE/MAX, bringing almost 130 brokers. Only a week later, one other Canadian brokerage, previously related to a competitor, additionally transformed, including over 200 brokers. That achieve of 400 brokers is a testomony to the energy of our model, what it represents and our worth proposition. It additionally reinforces the worth of our CM&A program. From a begin, we seen this system as a long-term initiative. It is taking time to teach brokerage homeowners on the alternatives we’ve out there to them, however our strategic advertising and marketing method is paying off and gaining momentum. And if extra conversions happen, much more brokerage homeowners who’re contemplating a change ought to see RE/MAX as a viable, engaging possibility. Mix that publicity with the upcoming enterprise follow modifications, and we consider the approaching months and years will supply a novel window of alternative, each for these brokers trying to make a change and for us. With our half-century monitor file of success, RE/MAX is a fascinating possibility, significantly in a time of uncertainty. Change brings alternative, however we have positioned ourselves to capitalize on that. Each within the US and Canada, our CM&A pipelines have many engaging prospects, and we goal to maintain that momentum up. Our workforce’s initiative has additionally had success. We added a number of groups in the course of the quarter, and we’re seeing extra of our dealer homeowners make the most of this system. It is good to see bigger alternatives changing. Yr-to-date, our outcomes are consistent with expectations, which is constructive within the present surroundings. We’ve a development mindset, and we’re working to get our prime line transferring in the best path. Whereas higher outcomes from our development initiatives will assist, we’re additionally exploring different methods to innovate. To that finish, we have recognized extra alternatives that may drive income, whereas additionally enhancing the client expertise, a robust mixture. For instance, we just lately launched MAX/Tech Lead Concierge, an non-obligatory program which delivers vetted, conversion-ready leads from remax.com to our brokers. We all know that high quality leads will imply extra alternatives and extra potential closings for our associates. MAX/Tech Lead Concierge solves two most important points with on-line leads. First, our brokers will obtain high-quality, pre-streamed leads which can be value their time and a focus. Second, shoppers will take pleasure in a greater buyer expertise by getting a direct response from a stay individual. It is really a win-win resolution. The preliminary reception has been good, and we’re optimistic concerning the prospects, however we all know we have to execute. Bettering agent rely is vital to a greater prime line, so community stabilization and development stay a significant objective, even when we face difficult cross currents in a macro surroundings and {industry}. Now, on the constructive facet, we noticed our worldwide agent rely rebound in Q2 after a little bit of a sluggish begin to the 12 months. Having a presence in over 110 nations and territories means there are a lot of places and takes in agent rely throughout any given quarter or a 12 months. Thus far in 2024, world development has come largely from India, Central and South America. Profitable recruiting and coaching packages, constructive modifications in nation possession, and conversion exercise have helped create noteworthy momentum. In Canada, agent rely was flat by means of Q2, however Q3 began sturdy in July. The Canadian housing market, just like the US, is presently challenged, and that is mirrored in our outcomes. However thankfully for RE/MAX, we’ve excellent management in Canada, on each the company facet and inside our dealer proprietor base, alongside #1 market share and model consciousness. We consider the composition of our Canadian community continues to strengthen as decrease producers go away the model and changed by extra productive brokers. Within the US, our agent rely has not but stabilized, given the massive image at a time when some have forecasted vital industry-wide attrition within the agent charges, maybe 10% or much more this 12 months alone, our outcomes are extra measured, however nonetheless under the place we would like them to be. With the implementation of enterprise follow modifications later this month, we anticipate part-time brokers to have a more durable time than full-time brokers. That dynamic performs into a number of RE/MAX benefits. Our highly effective model, mixed with probably the most trusted, skilled, and productive community, create a bonus for franchisees, brokers, and groups. Our iconic model is the primary title in actual property. We’ve an unequaled world presence, a definite worth proposition of companies, and most significantly, the very best brokers and brokers within the enterprise. And as I stated earlier than, RE/MAX brokers are the gold normal. There’s a variety of confusion and uncertainty within the market proper now. That occurs when issues change, and when issues change, folks get uncomfortable. When you consider an agent’s work, virtually each buyer or each home they take care of is barely totally different. So we must always have the ability to thrive in a little bit little bit of uncertainty. And I believe that is the wonderful thing about RE/MAX brokers. They’re full-time skilled professionals. They’re productive, and so they’re probably the most trusted brokers within the enterprise. They know learn how to adapt to {the marketplace}. And we’re pushing the envelope with our schooling, leaning in, and talking loud about what brokers ought to be doing so as to thrive. Plus, here is the place our unmatched geographic footprint can actually make a distinction. We’ve extra workplaces in additional elements of the US and Canada than anybody else. Not solely are we offering industry-leading schooling from HQ, however we even have schooling and in-person collaboration happening at over 3,200 RE/MAX workplaces within the US and greater than 900 workplaces in Canada. Native presence and a well-established tradition of professionalism and productiveness are true aggressive benefits. Ability is crucial on this market, and RE/MAX is the place for expert brokers. On the mortgage facet, Motto continues to promote and open franchises. We’re nearing our four-hundredth sale lifetime to-date and just lately opened a franchise in our forty fifth state, New Hampshire. We proceed to develop year-over-year regardless of a few of the most difficult finish market situations the mortgage {industry} has ever confronted. Right here too, we have zeroed in on what we will management. So far, franchise gross sales are roughly 50% to RE/MAX associates, 20% to unbiased or different competitor actual property brokerages and groups, 20% to buyers, and 10% to mortgage originators. Additionally, whereas a few of our franchises are understandably struggling presently, many different workplaces are doing fairly effectively. These franchises are grinding, advertising and marketing their enterprise, staying energetic of their communities, and in lots of instances, taking market share. Even on this market, barely greater than 4 million current houses shall be bought this 12 months, and that is a variety of related loans being originated, along with any refi exercise. We would like greater than our fair proportion of them at Motto. Equally, Wemlo continues to get larger and higher. In truth, it just lately processed its 6,000th mortgage to clear to shut, or C2C standing. Reaching this milestone is thrilling for the Wemlo model as a result of development like this validates the advantages to mortgage brokers offering our third-party processing companies. It is also proof to Wemlo’s workforce of processors who function a seamless extension of their brokers’ groups, whereas offering an enhanced buyer expertise from submission to closing. Wemlo offers extremely certified, customer-centric processing expertise, easy-to-use expertise, and entry to an intensive listing of supported lenders and mortgage merchandise to assist our enterprise prospects get quick, efficient outcomes. In closing, it is an unprecedented time for our {industry}, given the pending modifications. Moreover, market situations stay combined at finest, with stock and listings rising, whereas increased rates of interest and ensuing affordability challenges linger, however alternative abounds. With our main manufacturers and the best and reliable professionals within the enterprise, we like our place available in the market and are very optimistic about our future. With that, I am going to flip it over to Karri.
Karri Callahan: Thanks, Erik. Good morning, everybody. Continued value administration, amid a mushy housing market, highlighted our second quarter monetary efficiency. Among the notable quarterly monetary metrics included: whole income of $78.5 million; adjusted EBITDA of $28.1 million, up 5.4% over Q2 of final 12 months; adjusted EBITDA margin of 35.8%, a rise of 350 foundation factors over the second quarter of 2023; and adjusted diluted EPS of $0.41. Trying nearer at income, excluding the advertising and marketing funds, income was $58.4 million, a lower of 4.8% in comparison with the identical interval final 12 months, pushed by unfavorable natural development of 4.5%, and adversarial overseas foreign money actions of 0.3%. Adverse natural development was principally pushed as a consequence of US agent rely and diminished income from earlier acquisitions, partially offset by increased dealer price income. Recall that earlier acquisitions like booj and Gadberry have both wound down or are within the strategy of winding down. The rise in dealer price income was primarily pushed by increased gross sales costs, greater than offsetting the impression from diminished agent rely. Importantly, second quarter promoting, working, and administrative bills decreased 13.3% to $34.9 million as a consequence of a number of elements, together with decrease personnel bills, improved collections, favorable property tax expense, and diminished authorized and IT-related bills. Lowered personnel bills have been largely a operate of a tough however crucial choice we made one 12 months in the past to streamline our operations, which additionally contributed to the discount in IT-related prices. RE/MAX collections proceed to enhance this quarter and have been comparatively sturdy, regardless of the challenges of the present housing market. That is an encouraging signal when assessing the general well being of our franchisees. Favorable property tax expense of about $0.5 million was a onetime occasion. Decrease authorized bills and miscellaneous reductions, eliminations, and efficiencies elsewhere throughout the enterprise, all contributed to this quarter’s sturdy outcomes. From a capital allocation perspective, we stay pragmatic. We consider that is the prudent method, given {that a} second half of the 12 months actual property rally has but — not but materialized. Moreover, whereas we stay optimistic, our {industry} class motion settlement is presently being appealed. We proceed to concentrate on replenishing our money reserves within the close to time period. We consider we’re trending to get our whole leverage ratio, or TLR, underneath 4.5:1 by the top of the third quarter, which, importantly, will allow us to regain entry to our revolving credit score facility. Additional lowering our TLR by the top of this 12 months stays a focus for our whole firm. As soon as our TLR returns to a desired stage, and we’ve sufficiently replenished our money reserves, we anticipate to have many interesting capital allocation alternatives, together with debt compensation, inventory buyback, additional money replenishment, and strategically reinvesting in our enterprise, amongst others. The money generative nature of our 100% franchise enterprise is probably our most tasty monetary attribute. Our third quarter and full 12 months 2024 outlook assumes no additional foreign money actions, acquisitions, or divestitures. For the third quarter of 2024, we anticipate agent rely to alter unfavorable 1.5% to 0% over third quarter 2023, income in a spread of $75 million to $80 million, together with income from the advertising and marketing funds in a spread of $19 million to $21 million, and adjusted EBITDA in a spread of $24.5 million to $27.5 million. For the total 12 months 2024, we’re barely lowering our agent rely steering and narrowing our income and adjusted EBITDA steering ranges. We now anticipate agent rely to alter unfavorable 1% to constructive 1% over full 12 months 2023, income in a spread of $305 million to $315 million, together with income from the advertising and marketing funds in a spread of $78 million to $82 million, and adjusted EBITDA in a spread of $93 million to $98 million. With that, operator, let’s open it up for questions.
Operator: [Operator Instructions] Your first query comes from the road of Soham Bhonsle with BTIG. Your line is open.
Soham Bhonsle: Hey, good morning, everybody. Erik, I believe, as you famous, there’s some consensus on the market that there shall be fewer brokers within the {industry} long-term, proper, as we see this type of professionalization after these settlements. So let’s simply assume that type of performs out. I am curious should you guys have given any thought on involving your pricing mannequin to at least one the place that takes extra of the economics on the precise transaction relatively than simply the variety of brokers, proper? As a result of should you’re, in truth, offering all this worth to your agent and making them extra productive, then the thought is, why not take part in a few of that upside as an alternative of simply agent rely the place the macro development could possibly be considerably unfavorable long run? Any ideas there can be nice.
Erik Carlson: Sure. I admire it, Soham. And I am going to begin off after which possibly Amy has a number of feedback round that. Clearly, she’s been fairly near the community as of late, particularly sort of with the modifications which can be developing. However it’s an amazing query. I believe, as I have been speaking about for my eight, 9 months that I have been right here now’s, look that there is — we’ve an amazing model, we’ve a very sturdy group of dealer homeowners and we’ve excellent brokers who’re actually captivated with what they do. And as we have talked about, I imply, we do — we’re ready the place we’ve a bit extra full time skilled, extra productive brokers than others. So, in that perspective, and with agent rely decline, very, very probably sooner or later, we predict that we’re a little bit bit extra mitigated than others. That does not imply that we’re utterly remoted or protected, and we’ve work to do. And Amy shall be completely happy to speak about a few of that work that we’re doing to organize people. However we do really feel like we’re in a bit higher place than possibly some others relative to the {industry}. With that being stated, our mannequin has been a powerful mannequin for us over many, many many years. However we’re not naive sufficient to suppose that we’d not have to alter. And so, the way in which I phrased it, Soham, is look, we’re making an attempt to not go away any stone unturned. We’re all elements of the enterprise. And whether or not that is like a wholesale change to the mannequin or whether or not that is a hybrid sooner or later, I do suppose there’s alternatives as a result of take a look at the very fact of the matter is that brokers are altering and it is a dynamic workforce. And so, whilst you get newer brokers within the enterprise, they need various things. And that may drive in direction of a special financial mannequin for them. I believe what’s essential to consider actually is how we’re supporting brokers. And that may be from financial phrases, that may be from how our brokers present up available in the market. It may be how we’ve instruments and tech to assist them be extra productive and interact with extra shoppers to realize extra listings and to indicate extra transparency by means of the promoting course of. As a result of take a look at house shopping for is such an unbelievable expertise, particularly for the American shopper and a dream, it is the most important buy they’ve. So we are going to proceed to lean in to assist our dealer homeowners be extra worthwhile and extra productive along with brokers. So, I am not going to announce any new fashions at the moment, however now that we’re the whole lot that occurs all through the transaction, not solely with the client or vendor or with an agent’s life cycle and issues that we predict can add worth or materially change the result of bettering the client expertise or making them extra productive, we’ll undoubtedly concentrate on. So, I do suppose that we’re laser-focused in on monetizing not solely the agent itself, by offering companies and different instruments and tech, issues like that, but additionally the transaction. So, I assume extra to come back on that, nothing at the moment. And I believe actually, Soham, we’ve to take a look at 8/17 goes to trigger some disruption, proper? I imply, I believe we have executed a variety of work. I believe we’re in a very good place. However the truth of the matter is, there’s going to be a variety of noise within the system. And so at the moment is an effective time to love, frequently, like overturn these rocks, construct a basis. We’ll get by means of this era of transition and put ourselves ready the place we predict rates of interest shall be higher, stock shall be higher, and we’ll be simpler at scaling the enterprise in 2025.
Amy Lessinger: Sure. And I believe I would add that since you simply talked about sort of pure company — purchaser company has been part of the {industry} for the reason that ’90s. And curiously sufficient, 90% of consumers used an agent final 12 months. And so, I believe we’re actually completely happy concerning the highlight coming into purchaser company, as a result of I believe it is good for knowledgeable brokers, which is a big portion of our inhabitants. And as we have talked about beforehand, our settlement got here again in October, we have been getting ready all the way in which main as much as the announcement of the NAR settlement with schooling, instruments, help on this entrance to guarantee that although our brokers are skilled that they’re completely prepared and in a position to clearly articulate their worth, clearly have a clear dialog about how they’re paid and actually outlined to a purchaser the advantages of being represented.
Soham Bhonsle: Sure. Nice. After which, the second, Karri, on the EBITDA information for the third quarter, it appears to be like such as you’re forecasting the same stage of income quarter-over-quarter, however the EBITDA is stepping down a little bit. Is there some funding coming by means of or one thing else occurring there?
Karri Callahan: Soham, that is an amazing query. As we stated within the scripted remarks, we had a very sturdy quarter within the second quarter. We did profit from a few various things. One, simply sort of ongoing efficiencies and actually managing the enterprise as effectively and successfully as doable. However we additionally did have some onetime objects that benefited the second quarter that we do not anticipate sort of flowing by means of into Q3. I discussed property taxes particularly within the scripted remarks. After which, as I famous, regardless of the macro, our dangerous debt expense and collections have been very, very favorable. And so, whereas we have taken down — we have assumed within the third quarter some good progress there, not fairly as sturdy as Q2. So there could possibly be some upside to the again half of the 12 months if collections actually proceed on the same tempo as Q2.
Soham Bhonsle: Okay. After which simply the choice to type of decrease the agent rely information for the 12 months, are you able to simply discuss concerning the largest drivers there?
Karri Callahan: Certain. So, I believe, we proceed to stay optimistic about a few of the issues that we’re doing right here from an agent rely perspective. Clearly, Erik talked concerning the momentum on CM&A each within the US and particularly some exercise that we have had in Canada. And so, from an adjustment to the information perspective, I believe it is actually simply been knowledgeable by the precise efficiency by means of July, sort of related tendencies that Erik touched on by way of the headwinds within the US given the macro surroundings, sort of flattish efficiency in Canada. However importantly, exterior of the US and Canada, we’re seeing some good development resume, had some massive conversion exercise really in Central and South America, and we’re persevering with to see some pockets of agent rely development exterior of the US and Canada.
Operator: Your subsequent query comes from the road of Anthony Paolone with JPMorgan. Your line is open
Anthony Paolone: Nice. Thanks.Good morning. The primary query is, do you might have a way or view as to possibly how a lot of the stress on growing old rely up to now has been on account of the pending modifications which can be going to enter impact versus, say, simply the housing market extra broadly? And simply making an attempt to know, like should you suppose maybe within the subsequent 3 to six months, we’ll really begin to see some fallout, or do you suppose that these modifications have been fairly effectively digested by people?
Erik Carlson: Sure. Tony, that is Erik. I do not — I believe, just like the macro surroundings is clearly impacting growing old rely, I believe that new purchaser illustration is impacting growing old rely. I do suppose that the modifications related on 8/17 will proceed to place stress. I believe the macro surroundings is unquestionably taking part in a giant position proper now. As I stated, in my opening feedback, however then within the final query, I do really feel like we’re a little bit bit extra protected as a result of the very fact of the matter is, we’ve extra productive brokers. So, after I take into consideration that, it is simply extra — it is extra swings of the bat, proper? And so, over a time period, with 10-year expertise productiveness, our workforce over generalizing is that they’re simply — they’re extra skilled at negotiating and coping with prospects and explaining their worth. And I believe what I have been — I am not stunned anymore, however after I got here in, what I actually liked about this workforce on this enterprise is simply the eagerness of our brokers across the model and what they do for consumers and sellers and the energy of our dealer homeowners. So, we’re not simply reliant actually on sort of Amy and her workforce and HQ deploying some coaching on modifications which can be going to happen inside the market or learn how to take care of macro results or learn how to go and get extra listings or learn how to speak about your worth. I imply, we have got this excellent community of dealer homeowners which can be offering coaching on a day-in and day-out foundation, and reviewing whether or not or not they’ve any person who’s fighting a selected a part of the client journey and offering these sources at a neighborhood stage. So, not solely with extra intel on what’s really occurring boots on the bottom, however they’re there to have a head to head contact level, which I believe is likely one of the strengths of our community. So, do I believe that that agent rely will proceed to be underneath stress from an {industry} perspective? Completely. Do I believe it will hit half time more durable than full time? 100%. Are we topic to continued agent rely decline? Sure, however I believe we’re beginning to bend the development a little bit bit and perceive who’s leaving, why they’re leaving and what we will do to course right there. So, we’re really sort of excited that there is likely to be extra at bat for extra productive full time brokers right here sooner or later. And we’re excited that RE/MAX can choose up a few of that market share. Hopefully that helps.
Anthony Paolone: Sure. I do not know if that is possibly for Amy, however are you able to give us some specifics or any anecdotes or information on sort of what your messaging to the brokers by way of purchase facet fee charges, learn how to counsel negotiating this or simply what the sector practices are proper now or what you anticipate them to be within the subsequent month or so?
Amy Lessinger: Certain. We at all times emphasize the worth of the service that an skilled agent offers within the transaction. And we have been getting ready our brokers and bolstering their already intensive expertise in schooling on this entrance, actually earlier than the announcement of the NAR settlement. So, we proceed shut monitoring of purchaser dealer fee tendencies. I am out within the community on a regular basis, and our brokers will not be noting any notable modifications. And that is very according to our inside evaluation. So, we’re undoubtedly optimistic that RE/MAX brokers are going to be much less impacted as a consequence of their expertise of their productiveness.
Anthony Paolone: Okay. So there is not any — however has there been any type of suggestions on fee or method to method learn how to set a purchase facet fee at this level?
Amy Lessinger: Commissions are at all times negotiable, and so we do not present steering on that entrance. And I believe I would like so as to add to that these modifications, though new to some markets, they’ve already been established in 20 markets throughout the nation. And purchaser businesses have been round for the reason that ’90s, purchaser company and illustration agreements have at all times been out there within the majority of markets. They only merely weren’t necessary. So, our brokers, given their expertise stage and the quantity of instances that they transact, they’re simply extra seasoned in navigating these discussions.
Operator: Your subsequent query comes from the road of Tommy McJoynt with KBW. Your line is open.
Tommy Mcjoynt-Griffith: Hey, good morning, guys. Thanks for taking our questions right here. Any early learnings, maybe by means of trial and error, simply of the implementation of purchaser agent agreements with out including an excessive amount of friction into the method which may in any other case result in a better fallout of the autumn by means of, I assume, of shoppers selecting to not have interaction with an agent?
Amy Lessinger: Sure, for certain. Thanks for the query. Purchaser businesses have been round for the reason that ’90s. These agreements have been round for many years within the majority of states on the market. And 20 of the 50 states, it has been a requirement already previous to the settlement. So, the remaining 30, it is not that they have not had these agreements in place, it is merely that they weren’t necessary. And so, I believe that in terms of the highlight on purchaser company, I believe it is wholesome for shoppers to essentially now absolutely, absolutely perceive what it means to be represented by knowledgeable agent. And so, given the tenure and the quantity of instances that our brokers transact, they’re simply extra productive. Plainly consumers on the market now actually have an appreciation and a necessity and a drive for an skilled skilled to allow them to belief.
Erik Carlson: Tommy, that is Erik. Let me say, let me add a little bit context to me, as a result of I believe that, look, there are modifications which can be going to occur available in the market, proper? And so, look, we have been actually persevering with to push schooling and having our brokers push schooling about being as clear as doable. Serving to the client sort of weed by means of a posh transaction, which may be very emotional and crucial to a household. And so, I believe it has been good for us to proceed to remind our dealer homeowners and the brokers what we have sort of stood for, for 50 years. With all that being stated, at any time when there’s change in course of, there’s going to be some noise and there will be a little bit of a studying curve. I believe that due to our expertise and our at-bats, we’re a bit higher off, however we’re additionally speaking to our people about rising above the noise and ensuring that they’re creating a better normal for the client transaction, as a result of with any change, there are good and dangerous actors. And I believe that this offers the chance for some people that both have intent or haven’t got intent. So, no intent, half time, not sufficient expertise, do not perceive the modifications, and there will be friction with that buyer expertise. And hopefully we will choose up these referrals after prospects are dissatisfied. After which there will be some that shall be making an attempt to finish workarounds, et cetera. And so, I believe from an general {industry} perspective, there shall be some noise within the system. And right here at RE/MAX, we will attempt to rise above and create a typical the place, look, we’re probably the most trusted model. Clients need belief once they have interaction with an actual property agent. And we’re actually pushing that for our brokers and brokers to proceed to offer a clear, reliable expertise.
Tommy Mcjoynt-Griffith: Obtained it. Does RE/MAX present templates for purchaser agent agreements to the franchises? And are there various kinds of templates on the market which have totally different ranges of companies embedded in them?
Amy Lessinger: Sure, good query. So, as a franchisor, we don’t present types. They’re derived from the native governing our bodies. And we have been intently listening to our community and monitoring that. And largely we’re discovering that the governing our bodies are producing what they want by way of compliance types that they will use to implement the modifications on the 17.
Tommy Mcjoynt-Griffith: Okay. After which, simply final one actual fast, belief to attempt to monitor your prepped market share in actual time, or a minimum of on a quarter-to-quarter foundation. Is it a good train to take a look at your variable dealer price revenues and take a look at the tendencies relative to what {industry} transaction volumes are doing?
Karri Callahan: Tommy, it is Karri. So I believe that is going to be tough. There’s a variety of totally different elements by way of places and takes that impression dealer price that we disclose extra absolutely in our SEC submitting. However clearly there’s some variations within the US and Canada. After which there’s additionally just a few variations simply by way of the tenure of our brokers. So I believe that is a little bit bit tough. Clearly, within the quarter we have been very completely happy to see the dealer price efficiency that we did have regardless of some contraction in agent rely within the US, dealer price was nonetheless up. So we did see some productiveness positive factors. We did see some profit from house worth appreciation. And once we take a look at it on a sequential foundation within the US, we did have some modest market share positive factors between Q1 and Q2.
Operator: Your subsequent query comes from the road of Stephen Sheldon with William Blair. Your line is open.
Stephen Sheldon: Hey, good morning. Thanks for taking my questions. Needed to return to the worldwide agent development, and may you simply unpack the places and takes there? It slowed a little bit bit extra within the second quarter, however looks as if you are off to an amazing begin in July. Appears prefer it’s up virtually 1,300 sequentially exterior of the US and Canada. I believe right here you might have known as out agent development in areas like Central America, however are you able to simply give some general element on the place you are seeing development versus contraction or deceleration in a few of your key markets exterior of the US and Canada?
Amy Lessinger: Certain. I can take that one. That is Amy. So, we have got some stable scorching spots that embrace Asia Pacific, China and Australia. After which, in Europe, foundationally it is Germany and Portugal and Sweden, South America, in Colombia and Chile. After which that features Africa and the Center East and Kenya, Nigeria and Dubai. And I believe that we’re seeing some rising tendencies, numerous technological integration, together with proptech, AI, blockchain. And I believe that there is a excessive affect on business actual property with respect to distant work. So, we have got sturdy management, additionally in Canada now, sturdy management and market presence there. And there’s an anticipation of a rebound in housing exercise later within the 12 months. And I believe our stable pipeline of M&A alternatives are actually thrilling to us. So, couple that with our expectation that rates of interest are going to say no there. I believe that we have got alternative that’s nonetheless to come back for the rest of the 12 months.
Stephen Sheldon: Obtained it. I admire that. After which, simply as a comply with up, it appeared just like the loss from Motto was a little bit increased this quarter sequentially, even with the slight uptick in income. Something to name on the market on what would drive the larger sequential loss? And I am simply curious if there’s any incremental investing occurring there forward of a probably extra favorable mortgage market?
Erik Carlson: Nice query. Clearly, with this market altering, the macro financial system is a little bit powerful within the mortgage section for the final 12 months. So we had some improve in phrases. We do choose up some cash once they do terminate. In order that does type of have a put and take, nevertheless it continues to be the truth that gross sales are down a little bit bit, however we see some tendencies altering in that and the constructive mild. So we hope we will change a few of that within the close to future.
Operator: Your subsequent query comes from the road of Matthew Erdner with Jones Buying and selling. Your line is open.
Matthew Erdner: Hey, good morning, guys. Thanks for taking the query. I sort of have a comply with as much as that final one with regard to Motto. Franchise gross sales have continued to extend, however the variety of workplaces open continues to sort of stay round that 240 quantity. Do you suppose that is extra market dynamics or can I get a little bit extra perception as to what you are seeing there?
Erik Carlson: Sure. I’d completely concur on market dynamics. Clearly, as the amount of loans decreased inside the market because of the macro financial system, it is more durable for workplaces to get a few of these. They must go on the market and scrap every day to attempt to get Refi’s available in the market, attempt to get purchases available in the market. We felt although we offered some and proceed to promote and improve that rely, we do have terminations. And people terminations are for a lot of various factors. One is, wherewithal the dealer proprietor, monetary place, lack of offers, possibly not related to actual property, so there are a variety of elements that will shut any person. So we have seen a few of these terminations improve throughout this previous 12 months, however really feel like when the macro financial system modifications, we’ll have the ability to begin re-growing that open workplace rely and proceed on the development that we’ve previous to the macro.
Matthew Erdner: Proper. That is useful. After which, sort of as that macro image, have you ever seen the pipeline increase sort of forward of the speed cuts or are you guys ramping up a little bit extra marketing-wise there to attempt to get in entrance of it given the estimated 12 months to get that workplace open?
Erik Carlson: Sure. Clearly we have seen some refinance exercise improve throughout our franchisees. The good factor is, most of them are related. 75% are related to actual property. So that they see the development lengthy earlier than generally even a conventional mortgage dealer would see it, as a result of they’re seeing that the householders are available, purchase extra houses. So we’re persevering with to attempt to keep forward of that curve, whether or not it is Wemlo making an attempt to do the processing, whether or not it is our Mottos making an attempt to get the deal, however we firmly know that refinances are growing as charges go down and really feel like the remainder of the 12 months we will have an excellent alternative and the Fed cooperates.
Operator: Your subsequent query comes from the road of Ryan McKeveny with Zelman & Associates. Your line is open.
Ryan McKeveny: Hey, guys. Thanks very a lot. Karri, on the associated fee administration facet, it is a fairly good step down, I believe, throughout the classes inside SO&A bills. Possibly you’ll be able to unpack that a little bit bit by way of the drivers this quarter after which simply occupied with whether or not any of that was extra non permanent in nature or extra everlasting in nature can be useful.
Karri Callahan: Sure. Nice query, Ryan. So I believe, as we stated within the scripted remarks, we have actually been targeted holistically round managing the enterprise actually as effectively and successfully as we will. From a personnel perspective, we’re actually beginning to see now a few 12 months after the tough choice we made final 12 months to right-size the enterprise from a personnel perspective, sort of the total impression of that. And so, once we take a look at our personnel expense for this quarter and sort of what the run fee appears to be like like for the remainder of the 12 months, it is most likely a reasonably good run fee. I did point out that from our sort of services and our hire prices, we did have a onetime profit within the quarter that hit that line merchandise. In order that was undoubtedly favorable for this quarter. Additionally known as out that once we checked out our skilled charges on a year-over-year foundation, we have had some profit because of the prudent choice that we made final 12 months with respect to the litigation. And in order that’s most likely a reasonably respectable run fee. After which in our different bucket, that is the place we actually had some favorability this quarter. So once more, I discussed the actually sturdy collections that we had there, great focus by the workforce there because it pertains to collections. In order that undoubtedly might be a little bit bit low. However like I stated, we may have some upside within the again half of the 12 months from that perspective. We additionally, in that line merchandise, had a number of issues from only a regular funding perspective that we sort of had initially deliberate for Q2 that we anticipate to push out into the again half of the 12 months. And so, sort of should you’re SO&A run fee for the again half of the 12 months, sort of wanting in that prime $30 million vary for the run fee, simply given the main focus that we have had on optimizing the associated fee construction to the very best of our skills.
Operator: Your subsequent query comes from the road of Ronald Kamdem with Morgan Stanley. Your line is open.
Ronald Kamdem: Hey, good morning. Simply two fast ones for me. So one simply beginning with the type of the litigation updates. I do know the settlement is within the appeals course of and there have been type of different stuff within the 10-Ok that we have been going by means of. However simply by way of timing, do you might have a way of when the following time we’ll get updates or hear something? Is it you might have a sure timing in your thoughts or is it type of simply wait and see?
Karri Callahan: Sure. It is an amazing query, Ron. I believe a few issues. The primary is, we proceed to be very completely happy that we made the choice that we did to settle these within the curiosity of all of our stakeholders. We’re completely happy that the district court docket granted remaining approval of the settlement. And I believe importantly to notice goes by means of the usual appeals course of proper now. I want that let’s imagine precisely what that timeline appeared like, whether or not it’s sort of in direction of the latter a part of this 12 months or into subsequent, however it’s on that normal timeline. We proceed to — we will proceed to vigorously defend ourselves and the settlement throughout that appeals course of and proceed to consider that the settlement is honest and cheap and that the district court docket’s order ought to be upheld.
Ronald Kamdem: Nice. After which my fast comply with up is, simply how does the dividend — bringing again the dividend type of issue into that? Is it one thing that is concurrent otherwise you type of wait to see the whole lot clear by means of?
Karri Callahan: Sure, it is an amazing query. And I believe, as we take into consideration simply the general efficiency this quarter, I believe one of many issues that it highlighted is simply the energy of the franchise model and the franchise mannequin that we’ve and the money technology capabilities. As I stated within the scripted remarks, our largest focus proper now’s persevering with to replenish the money stability till we get by means of a few of the litigation specializing in getting our leverage ratios down. We’ve not made any selections because it pertains to capital allocation past that time. However I believe we’re wanting ahead to attending to a spot the place we’ve a variety of optionality and specializing in all capital allocation alternatives, together with people who I discussed within the scripted remarks.
Ronald Kamdem: Nice. After which my final one is, simply you guys did a pleasant job appears to be like like on bills, however simply going again to the agent rely change, possibly simply double-clicking on that a little bit bit, are you able to speak about simply what’s modified and what’s totally different by way of what’s occurring on the bottom with the brokers? Is that possibly a few of the rulings? Is it simply the macro? Simply possibly some colour on what kind of change, what drove the steering change and what’s occurring on the bottom?
Karri Callahan: For certain. I believe, little question. I believe Erik lined it earlier that there’s particular stress simply industry-wide. And we really feel optimistic that we could have a little bit extra insulation from that, given the tenure and expertise of our brokers. However we clearly perceive that driving that prime line by means of agent rely development is essential. And we focus primarily on our initiatives and offering deep help to bend that development surely. And that features our strategic initiatives that we have talked about our CMA program, the workforce’s program, after which, after all, working actually intently with our brokers to boost their recruiting abilities. After which clearly, as soon as we add an agent, the massive objective is to make that agent extra productive as soon as they’re added. And I believe that is actually evident in our numbers that our brokers have extraordinarily excessive productiveness. So, we are going to proceed to offer that intensive help, that schooling and supply instruments to assist them win it doesn’t matter what the market situations are. However clearly, our deep focus is discovering different alternatives to develop and drive that prime line.
Operator: Your subsequent query comes from the road of John Campbell with Stephens Inc.
John Campbell: Hey. Nice job within the quarter. I imply, it appears to be like such as you introduced income up year-over-year for the primary time in, I believe, 7 quarters from continued income decline. Congrats on getting the associated fee order in place. I wished to examine on the franchise renewals. It sounds such as you’re seeing some success of late, however on the renewals, simply curious should you can provide an replace on how that is held up up to now. Clearly, rather a lot’s altering available in the market. So, simply inquisitive about cancellation charges after which on the profitable renewals you have seen should you’re simply sort of in a position to maintain the previous phrases and such.
Karri Callahan: Sure, for certain. Really our renewals have been sturdy, and it displays, I believe, the arrogance within the enterprise mannequin and the help that we offer. And clearly, we are going to proceed to guage market situations. However up to now, we’re seeing consistency on that entrance.
John Campbell: Okay. After which, I believe I’ll cue you as much as sort of assist the productiveness of your brokers. However should you take a look at the US housing market, a minimum of, it appears to be like prefer it was anyplace from down modestly to possibly up modestly. So, your dealer price income, it appears to be like like that rose about 1% year-over-year. So, most likely in line-ish with the market. However should you take a look at the US and Canada whole agent rely, that declined 4% year-over-year. So, you are taking part in from behind a little bit bit. That was an excellent outcome. I am simply inquisitive about sort of what drove the outpacing of the market simply on a — a minimum of on a per agent foundation.
Karri Callahan: Sure, it is an amazing query, John, and also you’re proper. And I alluded to this a little bit bit earlier. So we did profit a little bit bit from worth appreciation in each the US and Canada. From a productiveness perspective, we benefited a little bit bit in each geographies as effectively. And so, these most likely two issues have been the largest drivers from a dealer price perspective.
John Campbell: Okay. After which final one for me. From a strategic standpoint, clearly, once more, rather a lot modified within the industries so far as the MLS means to speak and to place the dealer price into the MLS. Clearly, there’s going to be a little bit little bit of a void of knowledge available in the market. So I am curious the way you’re viewing the significance of the RE/MAX web site. Do you are feeling like that is going to offer you a bonus anyway? Simply inquisitive about your ideas there.
Karri Callahan: Apparently sufficient, provides of compensation are nonetheless allowed to be displayed on the dealer web site. That being stated, we won’t be displaying them on remax.com given our information price is essentially derived from the MLS, which that may be a violation of the settlement time period. And so, we proceed to watch channels and we proceed to listen to about how our brokers are navigating this, given their freedom to show provides of compensation on their very own web sites. And foundationally, they’re speaking with each other of their markets and ensuring that they perceive if the vendor is keen to supply compensation, it is sort of a humorous factor, the phone. It is working very well proper now. However clearly that may evolve.
Erik Carlson: Look, John, that is Erik. I imply, possibly I am going to inform you about productiveness right here. I imply, the factor is that I do suppose due to the expertise or the tenure, the professionalism, the extra it provides, a big inhabitants of our brokers are simply, they’re higher at negotiating and speaking, proper? And so, we’re actually pushing for transparency. We have been pushing that by means of schooling. I believe our native dealer homeowners are going to be a major asset on this transition for us and, by the way in which, simply actual property, the actual property {industry} generally. So, I do suppose there’s going to be noise. And people people that simply relied on objects within the MLS or on a web site so as to get by means of their day, that is altering a bit. So, I like our place from that perspective.
Karri Callahan: And the one factor else that I’d add there too, John, with respect to remax.com is, I believe as we glance throughout simply the innate belongings that we’ve by way of the trusted skilled, the productiveness of our brokers, the energy of our community from a footprint and a geography perspective, our digital belongings are belongings that we predict we will actually leverage into the long run. And we see it is underneath Erik’s management and he is introduced some distinctive insights right here from his prior expertise, some alternatives to essentially leverage that sooner or later.
Operator: This concludes the question-and-answer session. I am going to flip the decision to Andy Schulz for closing remarks.
Andy Schulz: Thanks, operator, and thanks to everybody for becoming a member of our name at the moment. Have an amazing weekend.
Operator: This concludes at the moment’s convention name. We thanks for becoming a member of. You might now disconnect.
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