Good morning, and welcome to the RE/MAX Holdings Fourth Quarter 2024 Earnings Conference Call and Webcast. My name is Krista, and I will be facilitating the audio portion of today's call. At this time, I would like to turn the call over to Andy Schulz, Senior Vice President of Investor Relations. Mr. Schulz,

Thank you, operator. Good morning, everyone, and welcome to the RE/MAX Holdings Fourth Quarter 2024 Earnings Conference Call. Please visit the Investor Relations section of www.remaxholdings.com for all earnings-related materials, including our standard earnings presentation and to access the live webcast, and the replay of the call today. Our prepared remarks and answers to your questions on today's call may contain forward-looking statements. Forward-looking statements include those related to agent count, franchise sales and open offices, financial measures and outlook, brand expansion, competition, technology, housing and mortgage market conditions, capital allocation, credit facilities, 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 fourth 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 our 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 Erik Carlson, our Chief Executive Officer, and Karri Callahan, our Chief Financial Officer. Ward Morrison will join us for Q&A. With that, I'd like to turn the call over to RE/MAX Holdings CEO, Erik Carlson.

Thank you, Andy. Thanks to everyone for joining us this morning. There were many positives in our fourth quarter results, headlined by better-than-anticipated profit performance for the third consecutive quarter. Operational efficiency remains a focal point for our team, and that effort continues to contribute to our strong margin and bottom-line results. The housing macro environment remains in a state of transition. There are a lot of variables: inventory, interest rates, and moves by the current administration, to name a few. However, change and uncertainty bring opportunity, and our networks are built for times like these. They have proven they can succeed in almost any market. The resilience of our company, coupled with the confidence we have in our growth strategy alongside our proven ability to execute on operational efficiency, sets us up for future success. Although we still have more work to do, it's encouraging to see our efforts reflected in our financial performance. Regarding agent count, our international agent count accelerated during the fourth quarter, increasing almost 9% over last year's Q4. In fact, we've more than doubled international agent count since 2017, ending 2024 with over 70,000 agents outside the US and Canada for the first time. In Canada, where the RE/MAX brand and network is the industry leader, we had over 25,000 agents as of year-end. One important side note, in order to protect the company and RE/MAX network in Canada, we have substantially agreed on monetary terms and to make certain business practice changes to settle two industry class action lawsuits, including one on a nationwide basis. We still have some work to do on the final settlement agreement, and we believe this is absolutely the best decision for all of our stakeholders: affiliates, employees, shareholders, and debt holders alike. We very much appreciate our…

Thank you, Erik. Good morning, everyone. We finished the year positively and delivered strong margin and profit performance, continuing a trend we started in the second quarter. Diligent expense management and strong collections were the primary drivers for the better-than-expected results across these metrics. Some of our notable quarterly financial highlights included total revenue of $72.5 million, adjusted EBITDA of $23.3 million, up almost 2% over Q4 of last year, adjusted EBITDA margin of 32.2%, an increase of 220 basis points over the fourth quarter of 2023, and adjusted diluted EPS of $0.30. Looking closer at revenue, excluding the marketing funds, revenue was $53.8 million, a decrease of 3.9% compared to the same period last year, driven by negative organic growth of 3.5% and adverse foreign currency movements of 0.4%. Negative organic growth was principally driven by US agent count and reduced revenue from previous acquisitions. Once again, margin performance improved thanks to strong cost management and encouraging collections. Throughout the year, we implemented process improvements and added additional resources, which contributed to improved collections activity. Fourth-quarter selling, operating, and administrative expenses decreased $3.4 million, or 8.6%, to $35.8 million. The cost reductions were primarily driven by a decrease in bad debt and investments in events, partially offset by certain higher personnel costs. Improved collections and enhanced operational efficiency drove strong cash flow generation in the quarter, as two-thirds of our adjusted EBITDA and nearly one-third of our revenue converted to adjusted free cash flow. As Erik mentioned, we have reached agreement on monetary terms to settle two industry class action lawsuits in Canada for approximately $5.5 million US dollars. Execution of the final settlement agreement is subject to the parties reaching an agreement on all terms. These cases are comparable to the ones that we have settled here in…

Thank you. We will now begin the question and answer session. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. Your first question comes from the line of Anthony Paolone with JPMorgan. Please go ahead.

Thanks, and good morning. First question is, you know, with regards to some of the personnel changes you've made and some of the initiatives you've talked about, like Lead Concierge and the media efforts, what are the sort of additional revenue opportunities that you see? Do any of them rise to, say, the size of a Motto? Just trying to understand the new revenue streams versus just the overall customer experience around what you have currently?

Yeah, Tony. This is Erik. Thanks for the question. You know, look, I've been here almost, I guess, fifteen months now, and really working on kind of turning over, you know, every stone and looking for not only opportunities to kind of improve the stabilize and improve the current business but also increase additional revenue streams for the existing business. So, like, we are optimistic. And I know that, you know, it's not totally reflected to the outside, but on the inside, you know, we're quite excited. And, you know, unfortunately, this call is just two days before our large agent event R4, which starts, you know, Sunday night, where we've got a number of initiatives that we'll be talking about with the network in order to help kind of improve the overall value proposition that we bring to agents and brokerages that are in the worldwide RE/MAX network. And so, you know, you're gonna have to kind of wait to see there. I made a promise to the network that I talk to the network first. So you'll have to look at the press releases there. But, you know, on a bit more serious note, I mean, Lead Concierge is not only good for consumers and agents, but it will drive the bottom line. Now, you know, as we are also optimistic about Motto growth, you know, I don't think that Lead Concierge in itself would ever kind of catch that from the top-line revenue perspective if Ward's doing his job. And you can ask Ward about that in a minute. But, you know, I think that we're already seeing thousands of agents opt into that program. We are moving through hundreds of leads. Customers are agents are closing conversions, and, like, it's not really about what's happening right…

Yeah. That's great. And we'll look out for the headlines, I guess. And then just my follow-up is really on broker commissions. Can you give us just your thoughts on what you're seeing in the system right now in terms of how buyers are approaching the new rules and any change in rates you're seeing?

I'm gonna let Karri take that one, Tony.

Hey. Good morning, Tony. So from a rate perspective, it's actually been remarkably consistent throughout 2024, especially, you know, kind of as the activity happens post North element. What we've seen internally is a very consistent trend from a rate perspective. I think when you think about just the RE/MAX network and the hallmarks of our competitive advantages around trust, professionalism, and productivity, our network has adapted very well. Obviously, continue to represent buyers and sellers in the highest quality manner just given the competitive advantages and what it stands to work for with a RE/MAX agent. And we haven't really seen much impact in terms of the overall economic. I think if anything, it has put us in a stronger position just given the two-to-one product and what the brand stands for from a trust perspective with consumers.

Okay. Thank you.

Thanks. Your next question comes from the line of Nick McAndrew with Zelman. Please go ahead.

Hey, guys. This is Sunay calling for Ryan. Thanks for taking my questions. Karri, maybe one for you just to start. Obviously, being very diligent on the cost side of things, wondering if you can just touch on some of the major buckets that you've been able to strip out cost from over the last year, but also how you're thinking about any incremental opportunity into 2025 for further savings.

Yeah. That's a great question, Nick. I think obviously, the entire team really pulled together as we went through 2024. A large focus area was just around our operational efficiency. So not taking anything for granted, not leaving any stone unturned, and making sure that we were very purposeful and thoughtful in terms of every dollar that was spent and making sure that we could maximize, you know, the returns on those investments. Obviously, if you just look at the overall cost structure, personnel continues to be, you know, a large piece of the picture. But if you look at kind of our Q4 2024 run rate, you know, you're looking at total SONA kind of around $36 million. Obviously, we always have a bump in Q1, Erik mentioned earlier our R4 annual agent conference, so our SOW and A always ticked up a little bit. Q1 of 2025 is looking kind of comparable to 2024. And then as we get into Q2, Q3, Q4 of this year, you know, looking at trying to maintain that SO and A run rate, so I think we've done a really nice job looking across the cost structure to really optimize where we can to be able to just offset any other inflationary pressures that might be happening. And so as we get into Q2, Q3, and Q4, kind of looking at a reasonable kind of Q4 2024 run rate in that kind of $36 to $37 million range as a run rate in the back half of the year.

Got it. That's helpful. Thank you. And then maybe switching gears for a follow-up. On the US agent side of things, are there any trends to call out kind of beneath the headline numbers, whether that's by geography or agent segments? Are you seeing any shift in the demographic of agents joining the network? Are they newer agents? Do they come over from teams or independent brokerages? Just any color to add there.

Yeah. Thanks, Nick. You know, I gotta ask, did Ryan take the day off?

He's around here somewhere.

Alright. Alright. I get where we stand now with you guys. Alright. So it's a joy to have you, Nick. Don't get me wrong. But I appreciate that. From an agent perspective, you know, it's a bit more of the same. Like, I mean, I think that there are new agents, and I'll talk just a little bit broadly. There are new agents coming into the business that are still struggling to find their way. We're not seeing kind of, you know, our highly tenured professional agents leave us, you know, at a high churn clip, that's been fairly stable. And I think that, you know, one of our ideas and goals is to actually be able to attract more of those. So when I talked earlier about improving our value proposition, part of that is to be able to bring all sorts of agents into the network and get them to that professional, productive, trusted level regardless of whether they come in in that manner or not. You know, so I think that, you know, we have a little bit more work still to do on helping brokers onboard agents and make them productive. And so, generally, that's where you're seeing most of the churn. Lower tenure. Lower productivity.

Great. Thanks, Erik.

Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Please go ahead.

Hey. Just two quick ones. One is just on the both on the US agent count and the outside of the US agent count. Just curious if you could provide us a little bit more color on sort of what's driving the attrition? Is there anything new versus the past twelve months that's driving some of the downside on the US and actually upside on the international? And is there sort of a different tact or strategy that you guys have taken or plan to take to continue to trend outside of the US and sort of improve the trends in the US? If that makes sense.

I think so, Ron. I mean, I'll just talk in general about US agent count through the different kind of geographies. I mean, Canada is still strong, over 25,000 agents. We put down just a couple, a hundred or so off of Q4, which is an all-time high for us. I do think that, you know, there is, you know, in Canada, obviously, we've got premier market presence. Right? I mean, we've got 30%, like, 28% market share. You know, the market leader, great brand, different market up there. As we noted in our, you know, remarks on the front of the call. I mean, obviously, we felt it was important strategically to settle the Canadian law case lawsuits in order to provide, you know, some additional error cover and remove some variables from Canada. So I think it's a little bit more maybe top of the funnel there. On the international side, look, I mean, 70,000 is an all-time high for us. So up, you know, just under 10% year over year. Seeing good, you know, the brand is strong internationally. Right? Over 110 countries, we've got just awesome entrepreneurs that are running regions. And brokerages that are hungry. There's just huge opportunity internationally. Not only to grow our agent base but to monetize that. And so, you know, we've got strategies against that. Although, I'll come back to US agent count. That's probably, you know, that's the primary focus for us today. And I do think I talked a little bit about churn with Nick. I think that, you know, it's a top of the funnel issue, and I think it's a top of the funnel issue for not only the industry but also for us. And, you know, I believe in the items that we're gonna roll out next week and improving the value proposition, building a good foundation, focusing on the customer experience, the agent experience, and the broker experience. And if we do those things and stay true to who we have been and who we wanna be, we'll be in a good position. And I'm very optimistic about our ability to lean in, support the network, and return us to US agent stability. Growth, and we'll have monetization opportunities along the way.

Great. And then just another quick update on, I think there was a Canadian substantial agreement in Canada. Is the company still waiting on the appeals process for the $55 million settlement? Just curious, after sort of those two, does that address sort of all the litigation that's sort of low mentioning the 10-K, or are there other sort of stuff that we're waiting on? Thanks.

Yeah. Good morning, Ron. I think, you know, as you noted, we're really happy with where we are. Just with respect to the work that's been done from both a US perspective as well as a Canadian perspective. It, you know, it removes a lot of uncertainty, and we absolutely think that it's in the best interest of all of our stakeholders. And, you know, with respect to any of the other litigation, we did file the 10-K last night, and everything else is outlined in those disclosures.

Great. That's it for me. Thanks so much.

Your next question comes from the line of John Kim Campbell with Stephens. Please go ahead.

Hey, guys. Good morning. Good morning. So Erik, maybe just to start with R4. I know you've got that around the corner. You've got to hold the line a little bit on the commentary around some upcoming changes. Sounds like you guys have some stuff up the sleeve there, but, you know, it sounds like you kind of hit it at remax.com and maybe envisioning a different way to maybe present that to consumers. But, you know, just kind of tying this back to CCP, that's obviously the big battleground topic these days. One of your public competitors is kind of the leading public figure, you know, on the anti-CCP side of things. They've gotten, obviously, investors on board with their strategy. You know, they've kind of gotten people on board with the view that they can compete with Zillow and real.com and whatnot and kind of be a portal. Stock looks like it's doubled over the last month. I'm hoping you can maybe refresh us on RE/MAX's latest stance on CCP and then to what extent we can maybe talk about how you're envisioning that kind of direct consumer access over time?

Well, John, thanks for the question. I was waiting for it from you. I appreciate you being patient about our R4 network announcements because I know that you sell also. So you know what it means to tell our dear customers what's on the table for them first. So we're excited about next week, and it's just, you know, not great timing for you guys today. But look, I don't think our position on CCP has changed. That message last quarter. I do think that there is kind of, like, an anti and a pro fight happening. And I, you know, I think that there is a lot of middle ground there to explore. You know, look, we are in a great position with our brand, with our market share, with our global presence. Any agent count. I mean, like, nobody in the world sells more real estate than RE/MAX. And so, you know, I think that we're prepared either way. So let me talk about that first. So, like, if that other public competitor got their wishes, I mean, we would be ready to compete, meaning that, you know, we've thought about our business practices and our technology and how we would go to market potentially in a different way. Now, would it exactly be what that anti-approach is? Probably not. I mean, generally, we believe in, like, transparency, you know, and what's in the best interest of the customer. So as you know, there are obviously pockets of customers that, you know, feel that they get a better price, you know, from being kind of off a listing and doing things in a private way. And in some cases, that may work for certain, you know, unique individuals. I think overall, though, what the data shows is that,…

Okay. That's a great response. And sorry to position that with R4 around the corner. I know it's kind of difficult to answer. But okay. So, Karri, let's talk about the appetite for buybacks. You know, you mentioned the stock dislocation. Hoping we can revisit that commentary. Guess just first, what are your limitations from a covenant standpoint? And then how much capacity do you have? Like, how exactly can a buyback be for you guys?

Yeah. So I think, John, as we said in the scripted remarks, the franchise nature of our business is fantastic. And, obviously, you know, we had strong free cash flow generation this year. On the quarter, about two-thirds of our earnings generated turned into free cash flow, and on the year, a little more than a half. So as we move into 2025, the first priority right now is just maintaining, you know, getting our leverage down a little bit. It did tick up a little bit with the settlement of the Canadian lawsuit, which, as I said earlier, was absolutely, you know, we think the right thing to do and to remove some uncertainty and put it behind us. But with the dislocation in the stock, you know, if we can get that under the three and a half times, which we're close to right now, we're looking at about 3.57 as of the end of the year. You know, looking at things from a buyback perspective, we would have, you know, we would remove all restrictions from a credit agreement perspective. So really focus on, as Erik said, you know, the value proposition, reinvesting back into the business, allocating capital to drive the top line, and then with the dislocation from a stock price perspective, you know, think that buying back the shares is a very good, we get a very good return on that. And, you know, look to do that here in 2025 as we continue to delever.

Okay. That's helpful. And then maybe just to pack this on, so priorities right now, reinvestments in the business, buyback, and then eventually potentially the dividend.

I think, John, with everything, you know, we're always looking and having conversations from that perspective as it relates to return of capital, looking at, you know, from a strategic perspective, and as Erik said in his scripted remarks, you know, looking at, you know, our strategy is pretty simple right now in terms of, you know, enhancing what we have from a current perspective, developing new products, and then looking at other opportunities. And then those other opportunities could relate to return of capital as well.

Okay. Thank you.

Your next question comes from the line of Tommy McJoynt with KBW. Please go ahead.

Good morning, guys. Thanks for taking my questions. Just a couple questions around the guidance. So first off, looking at the revenue, excluding the marketing funds, like the guidance points to anywhere from down 4% to up 3%. Could you help us maybe, you know, think about what's contemplated in there for the more volume-sensitive brokerage fees versus the recurring revenues in that guidance number?

Sure. Good morning, Tommy. So as we think about just kind of agent counts and what's kind of implied from an agent perspective that would be more driven, you know, which would be more impactful as it relates to kind of the more recurring fees and, like, breaking that out by geography. From a global perspective, obviously, in 2024, we had outside performance and we were up about 9%, but we're looking at that to be a little bit more muted for next year, kind of mid-single-digit growth. From a Canadian perspective, we were flat in 2024, just given some of the uncertainty from a housing perspective up there. Looking for kind of similar trends just given the overall strength of the network and the brand and the market share that we have up in Canada. And then from a US perspective, we're really excited about the path and the trajectory that we're on right now. You know, still seeing some pressure and a little bit of a decline, but do expect to see some improvement. So some improvement from a US agent account perspective next year. But still a little bit negative. And then from a broker fee perspective, you know, obviously, it's early in the year. A lot of golf left to be played across all geographies. But looking at broker fees up kind of low single digits on a percentage basis year over year right now.

Great. Appreciate that. And then separately, are there any one-off costs or margin headwinds that are associated with some of these new product and program build-outs that we should keep in mind that are contemplated in the 2025 EBITDA number?

So, Tommy, it's a great question. And I think one of the things that we're focused on from a revenue diversification perspective is really looking at those opportunities where we think we can really move the needle in terms of creating value for our network but not taking a lot of risk from a financial perspective. So not, you know, significant kind of one-time items that we haven't been able to otherwise cover. Because as we said, we've really tried to lay the foundation, and I think the fourth quarter is a testament to that because it is the third quarter in a row where we've seen some overperformance from a profit perspective just given the focus and how judiciously we've been on the cost structure side. And so I think that that's, you know, that's something of consequence. The other thing I think that we just think about from an industry trends perspective is just around consolidation. One of the initiatives that we've talked about over the course of the last couple of years is our conversions, mergers, and acquisitions initiative. And so that's another area just as we think about it's not necessarily a one-time cost, but as we think about just allocating capital to growth initiatives in the future, that's something else that we're focused on. Just given the overall industry trends.

Makes sense. Thanks.

Ladies and gentlemen, that does conclude our question and answer session. And I will now turn the conference back over to Andy Schulz for closing comments.

Thank you, operator, and thanks to everyone for joining our call today. This concludes the event. Have a great weekend.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.