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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 important progress in worldwide markets and stable franchise renewals signaling confidence within the firm’s enterprise mannequin. The corporate is targeted on price 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 atmosphere and a decline in agent rely within the US and Canada, the true property big stays optimistic about its future, specializing in price administration, working effectivity, and delivering the perfect 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 progress, significantly in India, Central and South America.RE/MAX launched MAX/Tech Lead Concierge to supply 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 progress 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 yr.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 funds, income decreased by 4.8% as a result of destructive natural progress and antagonistic forex actions.The loss from the mortgage section Motto elevated sequentially as a result 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 features within the US from Q1 to Q2.Strong progress 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 result of settlement phrases.
Q&A Highlights
RE/MAX has been making ready brokers for upcoming adjustments in purchaser agent agreements.Commissions are negotiable, and the corporate doesn’t present steerage on charges.The corporate is targeted on offering a clear and reliable expertise for purchasers.
In conclusion, whereas RE/MAX Holdings faces challenges within the North American market, its worldwide progress and strategic initiatives, such because the MAX/Tech Lead Concierge program and a give attention to enhancing dealer recruiting abilities, place the corporate for future success. With a dedication to price administration and bettering monetary metrics, RE/MAX is working diligently to navigate the present market and bolster its international presence.
InvestingPro Insights
RE/MAX Holdings, Inc. (NYSE: RMAX) has demonstrated resilience with its newest earnings report, showcasing the corporate’s capability 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 Knowledge metrics reveal that RE/MAX has a market capitalization of $295.28 million, indicating its dimension and significance within the sector. Regardless of current challenges, the corporate’s gross revenue margin stays sturdy at 74.03%, reflecting its capability to keep up profitability in core operations. The destructive income progress of -8.4% during the last 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 give attention to working effectivity and value administration talked about within the article. Moreover, analysts predict that RE/MAX will return to profitability this yr, which might sign a turnaround from the earlier twelve months the place the corporate was not worthwhile.
For readers interested by a deeper evaluation, InvestingPro provides extra suggestions, together with insights into RE/MAX’s valuation multiples and liquidity place. At present, there are 10 extra InvestingPro Suggestions accessible, which may present precious data for traders 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 might pave the way in which for improved efficiency. The corporate’s capability to exceed short-term obligations with liquid belongings and the anticipated internet revenue progress could possibly be key elements for traders to observe as RE/MAX navigates via 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 can be facilitating the audio portion of as we speak’s name. At the moment, I wish 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 customary earnings presentation and to entry the reside webcast and the replay of the decision as we speak. Our ready remarks and solutions to your questions on as we speak’s name might include 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, know-how, 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 might be topic to dangers and uncertainties which 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 consult with sure non-GAAP measures on as we speak’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 out there on our web site. Becoming a member of me on our name as we speak are, Erik Carlson, our Chief Govt 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 due to everybody for becoming a member of us as we speak. We had a very good quarter with stronger-than-expected monetary efficiency and several other noteworthy conversions of actual property brokerages and groups. It is more and more clear that our selections over the previous yr to right-size our operations, settle {industry} class motion lawsuits, strengthen our management group, replenish our money, and put together for the times forward have been prudent and impactful. The notable {industry} enterprise observe adjustments set to happen on August 17, we proceed to arrange our associates for the longer term. 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 properly. Training and outreach, two core strengths of RE/MAX, have been our high priorities following the NAR announcement. Extra broadly, we’re centered on our playbook, working our enterprise as effectively as doable, sustaining a progress mindset and delivering the best possible buyer expertise. In what continues to be an unsure time for housing and our {industry}, we stay centered on what we are able to management. We imagine our second quarter monetary outcomes are proof that our efforts are making a distinction. Karri will get into the main points shortly, however to preview a few of her feedback, collections are well timed they usually proceed to enhance. Our price administration efforts have additionally been efficient. We proceed to see constructive outcomes from our progress initiatives, though not but at a stage to offset antagonistic 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 impartial workplace in Utah. About the identical time, we’re additionally excited to announce {that a} distinguished unaffiliated brokerage in Ontario transformed to RE/MAX, bringing practically 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 power 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 have now accessible to them, however our strategic advertising strategy 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, enticing possibility. Mix that publicity with the upcoming enterprise observe adjustments, and we imagine 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 report 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 enticing prospects, and we goal to maintain that momentum up. Our group’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 in step with expectations, which is constructive within the present atmosphere. Now we have a progress mindset, and we’re working to get our high line transferring in the fitting route. Whereas higher outcomes from our progress 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 shopper expertise, a robust mixture. For instance, we just lately launched MAX/Tech Lead Concierge, an elective 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 primary points with on-line leads. First, our brokers will obtain high-quality, pre-streamed leads which might be price their time and a spotlight. Second, customers will get pleasure from a greater buyer expertise by getting a direct response from a reside individual. It is actually a win-win answer. The preliminary reception has been good, and we’re optimistic concerning the prospects, however we all know we have to execute. Enhancing agent rely is essential to a greater high line, so community stabilization and progress stay a significant aim, even when we face difficult cross currents in a macro atmosphere and {industry}. Now, on the constructive aspect, we noticed our worldwide agent rely rebound in Q2 after a little bit of a sluggish begin to the yr. Having a presence in over 110 international locations and territories means there are numerous places and takes in agent rely throughout any given quarter or a yr. To this point in 2024, international progress has come largely from India, Central and South America. Profitable recruiting and coaching packages, constructive adjustments in nation possession, and conversion exercise have helped create noteworthy momentum. In Canada, agent rely was flat via Q2, however Q3 began sturdy in July. The Canadian housing market, just like the US, is at the moment challenged, and that is mirrored in our outcomes. However happily for RE/MAX, we have now excellent management in Canada, on each the company aspect and inside our dealer proprietor base, alongside #1 market share and model consciousness. We imagine 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 large image at a time when some have forecasted important industry-wide attrition within the agent charges, maybe 10% or much more this yr alone, our outcomes are extra measured, however nonetheless beneath the place we would like them to be. With the implementation of enterprise observe adjustments later this month, we count on 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. Now we have an unequaled international presence, a definite worth proposition of providers, and most significantly, the perfect brokers and brokers within the enterprise. And as I stated earlier than, RE/MAX brokers are the gold customary. There’s loads of confusion and uncertainty within the market proper now. That occurs when issues change, and when issues change, individuals get uncomfortable. When you concentrate on an agent’s work, nearly each buyer or each home they cope with is barely totally different. So we should always be capable of thrive in a 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, they usually’re probably the most trusted brokers within the enterprise. They know easy methods to adapt to {the marketplace}. And we’re pushing the envelope with our training, leaning in, and talking loud about what brokers must be doing with a purpose to thrive. Plus, this is the place our unmatched geographic footprint can actually make a distinction. Now we have extra workplaces in additional elements of the US and Canada than anybody else. Not solely are we offering industry-leading training from HQ, however we even have training 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 aspect, 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 are able to management. Thus far, franchise gross sales are roughly 50% to RE/MAX associates, 20% to impartial or different competitor actual property brokerages and groups, 20% to traders, and 10% to mortgage originators. Additionally, whereas a few of our franchises are understandably struggling at the moment, many different workplaces are doing fairly properly. These franchises are grinding, advertising their enterprise, staying energetic of their communities, and in lots of instances, taking market share. Even on this market, barely greater than 4 million present houses can be bought this yr, and that is loads 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 greater and higher. In reality, 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 progress like this validates the advantages to mortgage brokers offering our third-party processing providers. It is also proof to Wemlo’s group of processors who function a seamless extension of their brokers’ groups, whereas offering an enhanced buyer expertise from submission to closing. Wemlo gives extremely certified, customer-centric processing expertise, easy-to-use know-how, 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 adjustments. Moreover, market situations stay blended at greatest, with stock and listings rising, whereas larger 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 out there and are very optimistic about our future. With that, I will flip it over to Karri.
Karri Callahan: Thanks, Erik. Good morning, everybody. Continued price administration, amid a gentle housing market, highlighted our second quarter monetary efficiency. Among the notable quarterly monetary metrics included: complete income of $78.5 million; adjusted EBITDA of $28.1 million, up 5.4% over Q2 of final yr; 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. Wanting nearer at income, excluding the advertising funds, income was $58.4 million, a lower of 4.8% in comparison with the identical interval final yr, pushed by destructive natural progress of 4.5%, and antagonistic international forex actions of 0.3%. Unfavorable natural progress was principally pushed as a result of US agent rely and lowered income from earlier acquisitions, partially offset by larger dealer price income. Recall that earlier acquisitions like booj and Gadberry have both wound down or are within the means of winding down. The rise in dealer price income was primarily pushed by larger gross sales costs, greater than offsetting the affect from lowered agent rely. Importantly, second quarter promoting, working, and administrative bills decreased 13.3% to $34.9 million as a result of a number of elements, together with decrease personnel bills, improved collections, favorable property tax expense, and lowered authorized and IT-related bills. Lowered personnel bills have been largely a operate of a troublesome however essential determination we made one yr 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 strong, 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 imagine that is the prudent strategy, given {that a} second half of the yr actual property rally has but — not but materialized. Moreover, whereas we stay optimistic, our {industry} class motion settlement is at the moment being appealed. We proceed to give attention to replenishing our money reserves within the close to time period. We imagine we’re trending to get our complete leverage ratio, or TLR, beneath 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 yr stays a focus for our whole firm. As soon as our TLR returns to a desired stage, and we have now sufficiently replenished our money reserves, we count on 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 yr 2024 outlook assumes no additional forex actions, acquisitions, or divestitures. For the third quarter of 2024, we count on agent rely to alter destructive 1.5% to 0% over third quarter 2023, income in a spread of $75 million to $80 million, together with income from the advertising 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 yr 2024, we’re barely lowering our agent rely steerage and narrowing our income and adjusted EBITDA steerage ranges. We now count on agent rely to alter destructive 1% to constructive 1% over full yr 2023, income in a spread of $305 million to $315 million, together with income from the advertising 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 can 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 for those who guys have given any thought on involving your pricing mannequin to 1 the place that takes extra of the economics on the precise transaction slightly than simply the variety of brokers, proper? As a result of for those who’re, actually, 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 a substitute of simply agent rely the place the macro development could possibly be considerably destructive long run? Any ideas there could be nice.
Erik Carlson: Sure. I recognize it, Soham. And I will begin off after which perhaps Amy has a number of feedback round that. Clearly, she’s been fairly near the community as of late, particularly type of with the adjustments which might be developing. But it surely’s an ideal 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 have now an ideal model, we have now a extremely sturdy neighborhood of dealer homeowners and we have now excellent brokers who’re actually enthusiastic about what they do. And as we have talked about, I imply, we do — we’re ready the place we have now a bit extra full time skilled, extra productive brokers than others. So, in that perspective, and with agent rely decline, very, very doubtless sooner or later, we predict that we’re a bit bit extra mitigated than others. That does not imply that we’re fully remoted or protected, and we have now work to do. And Amy can be comfortable to speak about a few of that work that we’re doing to arrange of us. However we do really feel like we’re in a bit higher place than perhaps some others relative to the {industry}. With that being stated, our mannequin has been a robust mannequin for us over many, many many years. However we’re not naive sufficient to suppose that we would 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 points 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 have a look at the actual 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 distinct financial mannequin for them. I believe what’s necessary 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 out there. It may be how we have now instruments and tech to assist them be extra productive and have interaction with extra customers to realize extra listings and to point out extra transparency via the promoting course of. As a result of have a look at dwelling shopping for is such an unbelievable expertise, particularly for the American client and a dream, it is the biggest 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 as we speak, however now that we’re all the pieces that occurs all through the transaction, not solely with the customer 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 shopper expertise or making them extra productive, we’ll positively give attention to. So, I do suppose that we’re laser-focused in on monetizing not solely the agent itself, by offering providers and different instruments and tech, issues like that, but in addition the transaction. So, I assume extra to come back on that, nothing as we speak. And I believe actually, Soham, we have now to have a look at 8/17 goes to trigger some disruption, proper? I imply, I believe we have achieved loads of work. I believe we’re in a extremely good place. However the reality of the matter is, there’s going to be loads of noise within the system. And so as we speak is an efficient time to love, regularly, like overturn these rocks, construct a basis. We will get via this era of transition and put ourselves ready the place we predict rates of interest can be higher, stock can 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 type of pure company — purchaser company has been part of the {industry} for the reason that ’90s. And apparently sufficient, 90% of consumers used an agent final yr. And so, I believe we’re actually comfortable concerning the highlight coming into purchaser company, as a result of I believe it is good for skilled 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 making ready all the way in which main as much as the announcement of the NAR settlement with training, instruments, help on this entrance to be sure that although our brokers are skilled that they’re completely prepared and capable of 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 seems such as you’re forecasting an analogous stage of income quarter-over-quarter, however the EBITDA is stepping down a bit. Is there some funding coming via or one thing else occurring there?
Karri Callahan: Soham, that is an ideal query. As we stated within the scripted remarks, we had a extremely sturdy quarter within the second quarter. We did profit from a few various things. One, simply type 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 type of flowing via 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 yr if collections actually proceed on an analogous tempo as Q2.
Soham Bhonsle: Okay. After which simply the choice to type of decrease the agent rely information for the yr, are you able to simply speak concerning the greatest 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 via July, type of comparable developments that Erik touched on by way of the headwinds within the US given the macro atmosphere, type of flattish efficiency in Canada. However importantly, exterior of the US and Canada, we’re seeing some good progress resume, had some giant conversion exercise truly in Central and South America, and we’re persevering with to see some pockets of agent rely progress 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 perhaps how a lot of the strain on growing old rely to date has been on account of the pending adjustments which might be going to enter impact versus, say, simply the housing market extra broadly? And simply making an attempt to grasp, like for those who suppose maybe within the subsequent 3 to six months, we’ll truly begin to see some fallout, or do you suppose that these adjustments have been fairly properly digested by of us?
Erik Carlson: Sure. Tony, that is Erik. I do not — I believe, just like the macro atmosphere is clearly impacting growing old rely, I believe that new purchaser illustration is impacting growing old rely. I do suppose that the adjustments related on 8/17 will proceed to place strain. I believe the macro atmosphere is unquestionably taking part in an enormous position proper now. As I stated, in my opening feedback, however then within the final query, I do really feel like we’re a bit bit extra protected as a result of the actual fact of the matter is, we have now extra productive brokers. So, once I take into consideration that, it is simply extra — it is extra swings of the bat, proper? And so, over a time frame, with 10-year expertise productiveness, our group 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 shocked anymore, however once I got here in, what I actually cherished about this group on this enterprise is simply the fervour of our brokers across the model and what they do for consumers and sellers and the power of our dealer homeowners. So, we’re not simply reliant actually on type of Amy and her group and HQ deploying some coaching on adjustments which might be going to happen throughout the market or easy methods to cope with macro results or easy methods to go and get extra listings or easy methods to discuss your worth. I imply, we have this excellent community of dealer homeowners which might be offering coaching on a day-in and day-out foundation, and reviewing whether or not or not they’ve any person who’s battling a selected a part of the shopper journey and offering these sources at a neighborhood stage. So, not solely with extra intel on what’s truly taking place boots on the bottom, however they’re there to have a head to head contact level, which I believe is without doubt one of the strengths of our community. So, do I believe that that agent rely will proceed to be beneath strain from an {industry} perspective? Completely. Do I believe it’s going to hit half time tougher than full time? 100%. Are we topic to continued agent rely decline? Sure, however I believe we’re beginning to bend the development a bit bit and perceive who’s leaving, why they’re leaving and what we are able to do to course right there. So, we’re truly type 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 decide up a few of that market share. Hopefully that helps.
Anthony Paolone: Sure. I do not know if that is perhaps for Amy, however are you able to give us some specifics or any anecdotes or knowledge on type of what your messaging to the brokers by way of purchase aspect fee charges, easy methods to counsel negotiating this or simply what the sphere practices are proper now or what you count on 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 gives within the transaction. And we have been making ready our brokers and bolstering their already intensive expertise in training on this entrance, truthfully earlier than the announcement of the NAR settlement. So, we proceed shut monitoring of purchaser dealer fee developments. I am out within the community on a regular basis, and our brokers aren’t noting any notable adjustments. And that is very in keeping with our inner evaluation. So, we’re positively optimistic that RE/MAX brokers are going to be much less impacted as a result 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 strategy to strategy easy methods to set a purchase aspect fee at this level?
Amy Lessinger: Commissions are at all times negotiable, and so we do not present steerage on that entrance. And I believe I would like so as to add to that these adjustments, 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 accessible within the majority of markets. They simply merely weren’t necessary. So, our brokers, given their expertise stage and the quantity of occasions 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 via trial and error, simply of the implementation of purchaser agent agreements with out including an excessive amount of friction into the method that may in any other case result in the next fallout of the autumn via, I assume, of shoppers selecting to not interact with an agent?
Amy Lessinger: Sure, for positive. 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 relation to the highlight on purchaser company, I believe it is wholesome for customers to actually now totally, totally perceive what it means to be represented by knowledgeable agent. And so, given the tenure and the quantity of occasions that our brokers transact, they’re simply extra productive. Evidently 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 bit context to me, as a result of I believe that, look, there are adjustments which might be going to occur out there, proper? And so, look, we have been actually persevering with to push training and having our brokers push training about being as clear as doable. Serving to the shopper type of weed via a posh transaction, which could be very emotional and essential 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 type of stood for, for 50 years. With all that being stated, at any time when there’s change in course of, there may be 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 of us about rising above the noise and ensuring that they’re creating the next customary for the shopper transaction, as a result of with any change, there are good and dangerous actors. And I believe that this offers the chance for some of us that both have intent or haven’t got intent. So, no intent, half time, not sufficient expertise, do not perceive the adjustments, and there will be friction with that buyer expertise. And hopefully we are able to decide up these referrals after prospects are dissatisfied. After which there will be some that can be making an attempt to finish workarounds, et cetera. And so, I believe from an total {industry} perspective, there can be some noise within the system. And right here at RE/MAX, we’ll attempt to rise above and create an ordinary the place, look, we’re probably the most trusted model. Prospects need belief after they interact with an actual property agent. And we’re actually pushing that for our brokers and brokers to proceed to supply a clear, reliable expertise.
Tommy Mcjoynt-Griffith: Acquired 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 providers 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’ll use to implement the adjustments 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 not less than on a quarter-to-quarter foundation. Is it a good train to have a look at your variable dealer price revenues and have a look at the developments relative to what {industry} transaction volumes are doing?
Karri Callahan: Tommy, it is Karri. So I believe that is going to be troublesome. There’s loads of totally different elements by way of places and takes that affect dealer price that we disclose extra totally 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 bit bit troublesome. Clearly, within the quarter we have been very comfortable 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 features. We did see some profit from dwelling worth appreciation. And once we have a look at it on a sequential foundation within the US, we did have some modest market share features 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 progress, and may you simply unpack the places and takes there? It slowed a bit bit extra within the second quarter, however looks as if you are off to an ideal begin in July. Appears to be like prefer it’s up nearly 1,300 sequentially exterior of the US and Canada. I believe right here you might have referred to as out agent progress in areas like Central America, however are you able to simply give some total element on the place you are seeing progress 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 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 developments, a number of 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 sturdy management, additionally in Canada now, sturdy management and market presence there. And there may be an anticipation of a rebound in housing exercise later within the yr. 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 yr.
Stephen Sheldon: Acquired it. I recognize that. After which, simply as a comply with up, it seemed just like the loss from Motto was a bit larger 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 doubtlessly extra favorable mortgage market?
Erik Carlson: Nice query. Clearly, with this market altering, the macro economic system is a bit robust within the mortgage section for the final yr. So we had some improve in phrases. We do decide up some cash after they do terminate. In order that does type of have a put and take, however it continues to be the truth that gross sales are down a bit bit, however we see some developments altering in that and the constructive mild. So we hope we are able to 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 type 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 type of stay round that 240 quantity. Do you suppose that is extra market dynamics or can I get a 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 throughout the market as a result of macro economic system, it is more durable for workplaces to get a few of these. They should go on the market and scrap every day to try to get Refi’s out there, try to get purchases out there. We felt although we bought 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, perhaps not related to actual property, so there are loads of elements which will shut any person. So we have seen a few of these terminations improve throughout this previous yr, however really feel like when the macro economic system adjustments, we’ll be capable of begin re-growing that open workplace rely and proceed on the development that we have now previous to the macro.
Matthew Erdner: Proper. That is useful. After which, type of as that macro image, have you ever seen the pipeline develop type of forward of the speed cuts or are you guys ramping up a bit extra marketing-wise there to try 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. In order that they see the development lengthy earlier than generally even a standard mortgage dealer would see it, as a result of they’re seeing that the owners are available in, purchase extra houses. So we’re persevering with to try 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 yr we’ll have a very good 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 price administration aspect, it is a fairly good step down, I believe, throughout the classes inside SO&A bills. Perhaps you possibly can unpack that a bit bit by way of the drivers this quarter after which simply desirous about whether or not any of that was extra momentary in nature or extra everlasting in nature could be useful.
Karri Callahan: Sure. Nice query, Ryan. So I believe, as we stated within the scripted remarks, we have actually been centered holistically round managing the enterprise actually as effectively and successfully as we are able to. From a personnel perspective, we’re actually beginning to see now a few yr after the troublesome determination we made final yr to right-size the enterprise from a personnel perspective, type of the total affect of that. And so, once we have a look at our personnel expense for this quarter and type of what the run fee seems like for the remainder of the yr, it is most likely a fairly good run fee. I did point out that from our type of services and our lease prices, we did have a onetime profit within the quarter that hit that line merchandise. In order that was positively favorable for this quarter. Additionally referred to as out that once we checked out our skilled charges on a year-over-year foundation, we have had some profit as a result of prudent determination that we made final yr with respect to the litigation. And in order that’s most likely a fairly 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, super focus by the group there because it pertains to collections. In order that positively might be a bit bit low. However like I stated, we might have some upside within the again half of the yr from that perspective. We additionally, in that line merchandise, had a number of issues from only a regular funding perspective that we type of had initially deliberate for Q2 that we count on to push out into the again half of the yr. And so, type of for those who’re SO&A run fee for the again half of the yr, type of wanting in that prime $30 million vary for the run fee, simply given the main focus that we have had on optimizing the price construction to the perfect of our talents.
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-Okay that we have been going via. However simply by way of timing, do you might have a way of when the subsequent 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 ideal query, Ron. I believe a few issues. The primary is, we proceed to be very comfortable that we made the choice that we did to settle these within the curiosity of all of our stakeholders. We’re comfortable that the district court docket granted remaining approval of the settlement. And I believe importantly to notice goes via the usual appeals course of proper now. I want that lets say precisely what that timeline seemed like, whether or not it’s type of in direction of the latter a part of this yr or into subsequent, however it’s on that customary timeline. We proceed to — we’ll proceed to vigorously defend ourselves and the settlement throughout that appeals course of and proceed to imagine that the settlement is truthful and affordable and that the district court docket’s order must 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 all the pieces clear via?
Karri Callahan: Sure, it is an ideal 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 power of the franchise model and the franchise mannequin that we have now and the money era capabilities. As I stated within the scripted remarks, our greatest focus proper now’s persevering with to replenish the money stability till we get via 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 have now loads of optionality and specializing in all capital allocation alternatives, together with those who I discussed within the scripted remarks.
Ronald Kamdem: Nice. After which my final one is, simply you guys did a pleasant job seems like on bills, however simply going again to the agent rely change, perhaps simply double-clicking on that a bit bit, are you able to discuss simply what’s modified and what’s totally different by way of what’s taking place on the bottom with the brokers? Is that perhaps a few of the rulings? Is it simply the macro? Simply perhaps some colour on what kind of change, what drove the steerage change and what’s taking place on the bottom?
Karri Callahan: For positive. I believe, little question. I believe Erik lined it earlier that there’s particular strain simply industry-wide. And we really feel optimistic that we might have a bit extra insulation from that, given the tenure and expertise of our brokers. However we clearly perceive that driving that high line via agent rely progress is necessary. And we focus primarily on our initiatives and offering deep help to bend that development no doubt. And that features our strategic initiatives that we have talked about our CMA program, the group’s program, after which, in fact, working actually intently with our brokers to boost their recruiting abilities. After which clearly, as soon as we add an agent, the large aim 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 supply that intensive help, that training 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 high 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 seems 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 price order in place. I needed to examine on the franchise renewals. It sounds such as you’re seeing some success of late, however on the renewals, simply curious for those who may give an replace on how that is held up up to now. Clearly, loads’s altering out there. So, simply interested by cancellation charges after which on the profitable renewals you have seen for those who’re simply type of capable of maintain the previous phrases and such.
Karri Callahan: Sure, for positive. 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 type of assist the productiveness of your brokers. However for those who have a look at the US housing market, not less than, it seems prefer it was wherever from down modestly to perhaps up modestly. So, your dealer price income, it seems like that rose about 1% year-over-year. So, most likely in line-ish with the market. However for those who have a look at the US and Canada complete agent rely, that declined 4% year-over-year. So, you are taking part in from behind a bit bit. That was a very good outcome. I am simply interested by type of what drove the outpacing of the market simply on a — not less than on a per agent foundation.
Karri Callahan: Sure, it is an ideal query, John, and also you’re proper. And I alluded to this a bit bit earlier. So we did profit a bit bit from worth appreciation in each the US and Canada. From a productiveness perspective, we benefited a bit bit in each geographies as properly. And so, these most likely two issues have been the most important drivers from a dealer price perspective.
John Campbell: Okay. After which final one for me. From a strategic standpoint, clearly, once more, loads modified within the industries so far as the MLS capability to speak and to place the dealer price into the MLS. Clearly, there’s going to be a bit little bit of a void of knowledge out there. 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 present you a bonus anyway? Simply interested by your ideas there.
Karri Callahan: Curiously 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 knowledge price is basically derived from the MLS, which that will 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 type of a humorous factor, the phone. It is working very well proper now. However clearly that can evolve.
Erik Carlson: Look, John, that is Erik. I imply, perhaps I will let you know 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 via training. 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 true property {industry} on the whole. So, I do suppose there’s going to be noise. And people of us that simply trusted objects within the MLS or on an internet site with a purpose to get via 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 have now by way of the trusted skilled, the productiveness of our brokers, the power of our community from a footprint and a geography perspective, our digital belongings are belongings that we predict we are able to actually leverage into the longer term. And we see it is beneath Erik’s management and he is introduced some distinctive insights right here from his prior expertise, some alternatives to actually leverage that sooner or later.
Operator: This concludes the question-and-answer session. I will flip the decision to Andy Schulz for closing remarks.
Andy Schulz: Thanks, operator, and thanks to everybody for becoming a member of our name as we speak. Have an ideal weekend.
Operator: This concludes as we speak’s convention name. We thanks for becoming a member of. Chances are you’ll now disconnect.
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