Good morning, and welcome to the RE/MAX Holdings’ Third Quarter 2023 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, you may begin.

Thank you, operator. Good morning, everyone, and welcome to RE/MAX Holdings’ third quarter 2023 earnings conference call. Please visit the investor relations section of www.remaxholdings.com for all earnings related materials and to access the live webcast and the replay of the call today. If you're participating through the webcast, please note that you will need to advance the slide as we move through the presentation. Turning to slide two, 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 facility, dividends, share repurchases, litigation settlement, strategic and operational plans, and business models. Forward-looking statements represent management's current estimates. RE/MAX Holdings assumes no obligations to update any forward-looking statements in the future. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those projected in forward-looking statements. These are discussed in our third quarter 2023 financial results press release and other SEC filings. Also, we will refer to certain non-GAAP measures on today's call. Please see the definitions and reconciliations of non-GAAP measures contained in our most recent quarterly financial results press release, which is also available on our website. Joining me on our call today are Steve Joyce, our Chief Executive Officer; Karri Callahan, our Chief Financial Officer; and the Presidents and CEOs of our brands, Nick Bailey and Ward Morrison. With that, I'd like to turn the call over to RE/MAX Holdings’ CEO, Steve Joyce. Steve?

Thank you, Andy, and thanks to everyone for joining our call today. Looking at slide three, our financial and operational performance was once again in line with our expectations highlighting the resilience and stability of our attractive 100% franchise model. The majority of our global scale business is driven by recurring revenue providing dependable revenue streams. Together with low fixed costs, we tend to generate strong margins and healthy cash flows, even when the housing and mortgage market conditions are as they are today. Although we cannot control the macro environment that impacts our business, we made continued progress on our core strategic initiatives, which include aggressively pursuing agent growth opportunities in the U.S., increasing our Canadian and global agent counts, and growing our mortgage business. Ultimately, we believe we will successfully navigate these challenging times and grow significantly when industry conditions improve, a pattern we've seen repeatedly for 50 years. Our brands and networks are unmatched in many ways, and we believe our future is very bright. Even today, we see positive trends worth noting, like the momentum we have at both RE/MAX franchise sales and our conversions, acquisitions, and mergers initiative, as well as continued growth in our mortgage business. Some of our notable quarterly financial highlights include RE/MAX Holdings' total revenue was $81.2 million. We generated adjusted EBITDA of $26.7 million and an adjusted EBITDA margin of 32.9%, and adjusted diluted EPS was $0.40. During the third quarter, we made two difficult but necessary moves in the current environment. First, as previously announced in mid-August, we streamlined our operations and reduced our overall workforce by 7%. Second, in September, RE/MAX LLC agreed to settle costly litigation and protect the company and RE/MAX network from multiple industry-class action lawsuits. While it came at a significant financial cost, we believe it was absolutely the best decision for all our stakeholders, affiliates, employees, shareholders, and debt holders alike. Nick will elaborate further in a few moments. Subsequent to quarter-end, the Board of Directors decided to suspend our quarterly dividend. In light of the recent litigation settlement, which includes a $55 million payment and challenging housing and mortgage market conditions, the company believes this action to preserve its capital is prudent. Regarding our CEO search, I am pleased to report that we are nearing a conclusion and expect to announce our new leader within the next couple of weeks. With that, I'll turn it over to Nick.

Thanks, Steve. Moving to slide four, during the third quarter, we remained focused on advancing our growth initiatives designed to increase our U.S. agent count. While current market conditions are somewhat overshadowing the desired outcomes, we continue to experience encouraging results in both our teams and conversions mergers and acquisitions programs. For example, our teams pilot has added 25 new teams of six or more agents since it was launched in five states a year ago. In addition, RE/MAX teams in those pilot states have added over 700 new agents during this time. Similarly, our conversions, mergers, and acquisitions, or CMA efforts continue to yield some great results. In fiscal 2022, we completed nearly 30 CMA transactions, which added over 260 agents to RE/MAX. Through the first nine months of 2023, we've completed 36 CMA transactions and added more than 500 agents, and the momentum continues to grow. These are productive offices and agents we are adding, and in fact, office conversions, expansions, and acquisitions completed in the past two months alone had upwards of $630 million in combined sales volume last year and included a notable conversion of an unaffiliated brokerage with 165 agents. It is terrific to see that we're capitalizing on some bigger opportunities just as we intended, and we have several more that have not been announced, as well as a robust growing pipeline. In addition, we are pleased to announce we just signed a long-term renewal with our largest master franchise, RE/MAX Europe, which includes 49 countries. This is a significant renewal as it demonstrates the ongoing commitment to growth and expansion from a longstanding proven partner. RE/MAX is also experiencing strong franchise sales year-to-date. For example, our sales in U.S. owned regions are up 35% year-over-year through September 30th. RE/MAX recently secured the top spot for real estate franchises in the Franchise Times Top 400 list. This achievement marks the 15th consecutive year RE/MAX has been recognized as the top real estate franchise in this comprehensive list. RE/MAX is a top-tier brand, offering real estate entrepreneurs the opportunity to go into business for themselves, but not by themselves. The franchise sales growth throughout the U.S. underscores the value of building a brokerage business by providing a strong brand, best-in-class technology, and extensive education and experiences to agents and clients. Speaking of the best technology, we are very proud to announce that we have met and surpassed our internal goals set for the rollout of MAX/Tech powered by kvCORE ahead of schedule. During the third quarter, aggressive company goals regarding office onboarding and monthly active users and other metrics were met or exceeded. A major feature of the system, the new RE/MAX Design Center, recently launched, which enables our affiliates to expand their focus on state-of-the-art marketing efforts relating to all aspects of their business. Our goal for 2024 is to continue to drive the already successful adoption and usage and to continue delivering value throughout the platform, including the expansion of additional AI features scheduled for early 2024. Lastly, just a few additional comments on our recent settlement of multiple industry class-action lawsuits. It's important to note that the nationwide settlement, which requires court approval, would release RE/MAX LLC, our U.S. independent regions, and U.S. RE/MAX brokers and affiliates from any claims related to these lawsuits. It would also settle on a nationwide basis any similar future claims that could be brought. We continue to deny the allegations made in the complaint and in no way acknowledge any wrongdoing. We also continue to believe in buyer agency cooperative compensation, and the idea that consumers are best served when they are working with real estate professionals. At the same time, we believe that protecting the network from costly mitigation and the risk of further damages makes this settlement the right course of action. In the settlement, we agreed to certain business practice changes, many of which we already do. However, one change of note is RE/MAX LLC will no longer require our affiliates to join or be members of the National Association of Realtors or follow NAR's Code of Ethics or the MLS Handbook. They'll be free to determine whether NAR membership is best for them, their brokerage, and their agents, and we'll support their choice either way. Apart from payment of the settlement amount, we do not expect the terms of the proposed settlement to have a material impact on results of operations and cash flows. As industry leaders, RE/MAX affiliates understand the value of transparency, clarity, and fully informed buyers and sellers. These are key elements to the foundation of repeat and referral business, which is the basis of top-producing agents. With that, I will turn the call over to Ward.

Thanks, Nick. Turning to slide five. Impressively, our mortgage business continued to grow during the third quarter. Year-over-year, our Motto will open office count increased nearly 15%. Motto just celebrated our seventh anniversary, and we are approaching 250 open offices, a notable milestone, especially for such a relatively young franchise concept. While franchise sales have understandably slowed, they are still occurring, reflective of the industry-wide interest in the Motto opportunity. As mentioned last quarter, we just hired an inside sales team with a proven track record of success at another franchisor. Early results are encouraging, especially in this climate. We've already had one sale, which this team's source, and we believe we have many other promising prospects in the pipeline. The team's focus remains on real estate brokerages and team leaders as well as entrepreneurial loan originators. Our Motto growth and development team is also focused on helping our franchisees succeed by supplementing their recruiting efforts. Hiring a good loan originator is often a new franchisee's toughest initial challenge. We help assist our affiliates' recruiting efforts and accelerate their growth in the process. It is a true win-win dynamic. With our recruiting focus, we have helped offices recruit over 10 new loan originators in the last couple of months. We continue to experience positive results on the Wemlo front. Wemlo is changing the game for mortgage brokers by combining highly qualified customer-centric processing talent with easy-to-use technology. Since the company's acquisition in 2020, Wemlo has helped 100 brokers across the United States increase productivity, manage bigger pipelines, and grow their businesses beyond what they thought they were capable of. Operational success and improvement are key focal points. We see Wemlo improve on many of our most important operating metrics, like the time it takes for loans to progress from application to clear to close. Wemlo’s excellence has caught the attention of the industry. Recently, Wemlo was once again named a Service Partner of the Year for processing by the National Association of Mortgage Brokers in its 2023 Recognition Awards program. Wemlo has also been named a 2023 Most Loved Mortgage Employer by National Mortgage Professional. The brand earned a gold ranking in the service providers category based on results from an employee satisfaction survey, which focused on key factors, including company culture, benefits, community involvement, diversity, inclusion, and more. As a young brand and a growth state, we believe that employee satisfaction and retention is key to providing the best customer experience, and the best way to keep your employees happy and engaged is to invest in their growth. We provide ongoing personalized training for our processors and consistent opportunities for them to share insights in the field, so they can witness firsthand how that feedback directly impacts organizational change and growth. With that, I'd like to turn the call over to Karri.

Thank you, Ward. Good morning, everyone. Moving to slide six, third quarter revenue declined 8.7% to $81.2 million. Excluding the marketing funds, revenue was $60.4 million, a decrease of 8.8% compared to the same period last year. This decrease was driven by negative organic growth of 8.2% and adverse foreign currency movements of 0.6%. Organic growth decreased principally due to lower broker fees, driven primarily by a reduction in transactions per agent, given the overall decline in existing home sales. Organic growth also decreased due to a reduction in U.S. agent count and a decline in other revenue, which was down as a result of the shift in our technology strategy announced last year, partially offset by higher mortgage segment revenue. Turning to slide seven, Q3 selling, operating, and administrative expenses decreased 13.3% to $43.1 million, primarily due to lower severance and reorganization charges, equity compensation expense, and legal fees. As Steve mentioned, during the third quarter, we announced a reduction in force and reorganization intended to streamline the company's operations and yield cost savings over the long-term. The reorganization, which was substantially complete by September 30th, reduced the company's overall workforce by approximately 7%, and total associated cash savings are expected to be approximately $6.5 million on an annual basis. We recorded a pretax cash charge for one-time termination benefits, which consists primarily of severance and related costs of $4.3 million. We have agreed to settle certain industry class-action lawsuits and pay a total of $55 million into a qualified settlement fund, in addition to the business practice changes that Nick has discussed earlier. We intend to use available cash to satisfy our liabilities, pursuant to the terms of the settlement. We paid 25% of the amount due just before the end of the third quarter. We expect to pay another 25% within 10 business days after preliminary court approval and the remaining 50% within 10 business days of final court approval, likely sometime next year. As Steve noted earlier, we believe settling these cases in the manner we did was the best decision for all our stakeholders, despite the financial costs. The settlement, alongside the weakening macro environment, has also impacted a few different provisions in our credit agreement, given the increase to our total leverage ratio. For purposes of calculating the total leverage ratio under our credit agreement, the $55 million settlement charge is not added back. Consequently, as of September 30th, 2023, our total leverage ratio was seven to one. However, we only anticipate this elevated level to persist for the next four quarters before moderating significantly. The provisions in our credit agreement that were impacted include restricted payments, excess cash flow principal repayments, and access to our revolver. These are discussed in detail in our Form 10-Q. I'm also happy to answer any related questions you might have, once we get to Q&A. Last, as Steve said earlier, our Board of Directors made the difficult, but prudent decision to suspend our quarterly dividend. This change in capital allocation was not entered into lightly. We always have and continue to strongly support returning capital to shareholders. However, given current circumstances and out of an abundance of caution, we believe this decision is optimal for shareholders as we determine how best to take advantage of those opportunities that we believe will yield the best long-term return. Moving to slide eight. Regarding our outlook, the company's fourth quarter and full year 2023 outlook assumes no further currency movements, acquisitions, or divestitures. For the fourth quarter of 2023, we expect agent count to increase 0.25% to 1.25% over fourth quarter 2022, revenue in a range of $74 million to $79 million including revenue from the marketing funds in a range of $20 million to $22 million, and adjusted EBITDA in a range of $20.5 million to $23.5 million. For the full year 2023, we are slightly increasing our agent count guidance and narrowing our revenue and adjusted EBITDA guidance ranges, and now expect agent count to increase 0.25% to 1.25% over full year 2022, revenue in a range of $323 million to $328 million, including revenue from the marketing funds in a range of $83 million to $85 million, and adjusted EBITDA in a range of $94 million to $97 million. Now, I'll turn the call over to Steve for closing comments.

Thanks, Karri. Looking at slide nine, we remain focused on the long-term as we move through a challenging time within the housing industry. We continue to make good progress on our growth initiatives and have taken necessary steps to better position our company for growth when the industry rebounds. With that operator, let's open it up for questions.

Your first question comes from Soham Bhonsle from BTIG. Please go ahead.

Hey, good morning, everyone. Thanks for taking the questions.

Morning.

First one, Nick or Steve, I'm sure you're having a lot of conversations with your broker customers. Can you maybe just give us a sense for what those conversations are looking like today as they digest this all the headlines? Are there any conversations around changes that they may be thinking about making to their business? Right, would just love to get a sense for that first.

So, I think generally, they are very happy with the action we took, and they view that we did a significant set of sacrifices on our part to help protect them. So, I would say it's overwhelmingly a sense of gratitude for the position the company took to kind of put this behind them and us. And so, that's number one. Number two, our view is, and obviously, we'll have to see as the recent judgment plays out. Our view was we never really saw this change in our business significantly. A number of the practices that people were looking for, we had already adopted. So, there weren't really a lot of changes we expected. And as we've said before, where our agreement goes, provided it's approved, which we have a high degree of confidence it will be, that it's not going to affect our business from practice or profitability materially. And so, Nick, why don't you give a little more color around the calls that you've gotten from the brokers and the agents.

Sure. I echo Steve's position that many of our franchisees are, at this point, pleased with the action. But we also have to remember that it's not all buttoned up and complete at this point. Most of the brokers are really working hard to keep their agents focused on the business, which is there; still people out there buying and selling. At this point, focusing on helping consumers right now. As things progress, if there are additional changes that affect the manner in which they adjust and do business, then they'll make those changes. There are certainly a lot of discussions happening, but I know we are encouraging and our brokers are encouraging their agents to not get overly excited and stay focused on the business at hand, which is helping buyers and sellers with the rules that are in front of them right now.

Okay. And then I guess, if I think a few years out from now, in a scenario where there is some compression on the buy side, right? And let's just say there's fewer agents or brokers out there, and I think you've historically shown an appetite or willingness to maybe just help your customers out. So, I'm just curious how you think sort of that scenario can play out? Is this any different if we have sort of fewer agents and brokers in the long term?

Nick, why don't you comment on that?

Yes. I think we've seen history repeat itself a little bit that agent count does follow market conditions a bit. If we rewind, pre-great recession, there were 1.5 million realtors that dropped to sub 1 million. And then as the market came back over a 10-year period with over 130 months of consecutive increases in prices, we also saw agent count increase. And so, we're seeing that now as well, that as there's pressuring contraction in the overall real estate market, we see contraction in the number of agents that want to be in the business. The easier the market, if you will, the more agents there are. But I think this is where we come back to the foundation of our business, which is our agents have twice as much experience as the industry. They've been through changes before. They know how to adapt, whether it be to the market conditions. And, hey, we've had rule changes and changes to our business in the past. But bottom line is people are still going to buy and sell houses. They still want a trusted adviser. We still believe in buyer agency. I think one thing that's interesting to note is we're about a full generation away from how we got here with buyer agency and MLS's. Really, it was all put together to help consumers with the biggest financial decision of most people's lives. We still believe in absolutely consumers being represented by a trusted professional that's going to continue no matter what.

Okay. Just to add to that, I think Nick mentioned this because we have the most productive agents and because our model is very different than anything out there going around a fixed fee basis with the agents. It's a very different approach. So if you're highly productive, regardless of where the commissions go, you're going to still like our model, and you're going to still like being with us because it is the most enabling of the brands out there to sell more houses. So the more houses they sell, the more their margin of profitability grows concerning us because we're a fixed cost. And then on top of that, they're the ones that are going to survive the most. I think while there's certainly an opinion out there that could see changes, particularly on the buyer side, our view is, and Nick said this, that we have the most qualified agents that are the most experienced that sell the most houses by a factor of two to one. Therefore, they're going whether they sell off. Another way of looking at it is this could be a positive piece for us because when people are concerned about where things are going, they fly to quality. We think we stand at the top of the industry in terms of most agents' and brokers' views of the brands. So when there's uncertainty, it usually helps the people that are more of the blue-chip type, and that's where we sit.

Yes, that makes sense, and your 95% split is beneficial. Karri, I have one more question regarding the TLR. It currently stands at 7.0; can you discuss the possibility of needing to make an excess cash flow payment in the near term? Additionally, is there a chance of raising capital if access to the secured facility is not available?

Sure. Good morning. So, I did mention a couple of implications as a result of the increase in that total leverage ratio, do you expect it to persist for the next four quarters and then expect it to moderate significantly? With respect to, let me touch on three different points as it relates to it. With respect to the excess cash flow payment. We need to calculate that as of the end of the year; given the settlement payment, we don't expect to have an excess cash flow payment at this time. So, we know we have to go through the process. We don't expect it to be an issue or a use of cash at this time. There’s one other implication as a result of the increase in the TLR, and that is related to some of our restrictive covenants pursuant to the terms of our credit agreement. Prior to the settlement, when our TLR was below three and a half times, we had an unlimited basket where we could allocate capital to return of capital, both dividends and the buyback. Now, with it over that three and a half times level, we have a basket that we have to stay within that's $50 million. There are some restrictions from that perspective. As we look ahead to capital allocation and opportunities for capital, we are currently prevented from drawing on the revolver. A couple of things I would note from that perspective: in our 10-year history as a public company, we've never drawn on the revolver and didn't have plans to, and that's really driven by the overall strength of the business model. The scale franchise business, the operations over 50 years, the ability to have an asset-light business that can weather ups and downs from a macro perspective and generate earnings from an adjusted EBITDA basis and convert it to free cash flow. We still feel like the settlement, despite some of these restrictions on the credit agreement, was absolutely the right decision for all of our stakeholders and really feel like we've set the company up for growth in the future.

Great. Thank you. Thank you so much.

Your next question comes from the line of Anthony Paolone from JP Morgan. Please go ahead.

Thanks, and good morning. If you can, we'd just like to go back to some of your bigger picture thoughts on what comes out of the settlement and the industry lawsuits, just generally speaking. I mean, I understand the cyclicality of the business and the strength of the RE/MAX platform, but just what do you think the biggest implications for the industry will be over the next few years? Like, do you think it's the number of agents? Is it the commission rate? Is it who pays the commissions? Just kind of want to understand just how you're thinking about where this goes?

Nick, why don't you start?

Sure. We have the ability with our organization being a global company. There's a lot of comparisons to different markets and international markets. The one thing that we kind of see is the idea of what I mentioned earlier that we believe in buyer's agency. We believe in transparency. We believe that that's all going to continue. Many of the items that were listed in our settlement, we're mentioned, we were adopting and had embraced prior to. I think that that's going to be a big piece. When I look at commission rates, they have shown to follow supply and demand. We've shown that commission rates went down in the mid-2000s they came back up during the great recession, and they've come down, even sub 5%, since then. I think that we're going to see much of the same; this is going to be driven more by supply and demand. Our agents are top producers, and our whole model is based on the independence of an agent that they’re in business for themselves, not by themselves, with the freedom to always negotiate their commissions. Regardless of how the rules shake out, which none of us know at this point, on if it will change or unhinge on the listing agent sharing the commission with the buyer's agent, we'll see more to come. But I do know that at the end of the day, I think it's fair to say that both buyers and sellers are willing to pay for the service of an agent to have representation. I think that's going to continue to be at the forefront of the industry regardless, and those that are able to demonstrate their value will be able to negotiate the rate in which they think their value is worth. I think at that point, that's so important because whether it's next month, next year, or five years from now, I think that's going to be the same.

Yeah. I think Nick, I think that's right on. But the other piece, there are two fundamental things that have not changed. One is that sellers like more than one agent working on their sale because they think it increases their chances. And buyers want a trusted professional advising them. In our consumer research, I don't know, Nick, which it was six months ago, we're still seeing that, and we're still rated very highly on the trust factor. I think that's the top. If those two things haven't changed, you can see that obviously this could put some pressure on the fees, but the fundamental nature of it, people are still looking at this the same way in terms of all of the recent consumer looks that we've done.

Okay. And then just on bad debts, it's the number that's up a decent amount year-over-year. Like any comments on whether you think you've seen the worst of that, or we're on the front end of seeing that escalating up?

Karri?

Sure. Yeah. Good morning, Tony. So, I guess I would kind of bifurcate that across the two brands. From a RE/MAX perspective, 50 years of history. I think we've seen this playbook before, and we're starting to, while it has gone up and it went up kind of in Q2 and Q3 that it's kind of moderated between the quarters. On the mortgage side, it's tougher right now. Obviously, mortgage rates are at a 20 plus year high. The Motto franchise base is relatively young in comparison and in terms of navigating through the cyclicality that we're seeing right now, it honestly is a little bit tougher right now. We've seen that go up a little bit. We're watching that. Ward and the team are working very closely with our franchisees, and it doesn't change anything regarding as we look over a significant long period of time, but near term is definitely a little bit more. I think there are a little bit more headwinds that we're facing on the Motto on the mortgage side.

Okay. Thank you.

Your next question comes from the line of Ryan McKeveny from Zelman and Associates. Please go ahead.

Hey. Good morning. Thank you for all the detail. Wanted to dig in, I think, with Nick on the US agent count side. So it sounds like some good traction on the initiatives that you discussed, but on an overall basis obviously, the US agent count is still kind of ticking lower. So I guess wanted to see if you could shed any light on kind of where the attrition is happening. Any sense of just, is it competitive dynamics of agents moving to other brokerages? Is it things like retirements? Is it, you know, the macro dynamic of just you know, volume is so low that some are choosing to leave the industry? And I guess similarly, just in terms of the tenure of agents, is there any distinction between attrition between, let's say agents who have been with you or in the industry quite a long time versus those who might be newer to the business?

Nick?

No, sorry, Steve. Go ahead.

No. Go ahead please.

Yeah. I love your question, Ryan, because you answered it exactly how I would have it. It's really a combination of all those things that you mentioned. We wish we could point and say it's one thing. If it was just competitive threat or if it was just retirement, or if it was just new agents, there might be a singular response to each and every one of those, but it is definitely a combination of all of the above. We do have recruiting that happens between all of our companies. There's not one singular organization or competitor. We're all aggressive recruiters in this business, and that's just part of it. The other part of it, I think that goes to your main question is where is the attrition coming from? We see some on the retirement. We see some that needed one more good market that maybe would have retired 10 years ago and stayed in the business a little longer than they would have. I think we've seen that in the average age. There were also a lot of new licensees that came into the business in the last few years. Some of them were team members, and when there's contraction, there are just not the volume out there to support as many agents. What we find is that's where we're unique. We're not all things to all people, and our very top producers, even though we lose one here and there, are generally our most loyal and the base that is the foundation of our organization. As we see the overall number of agents in the industry reduce, we're just not immune to it. What we are trying to do, though, is look at what are the other growth initiatives like we mentioned with teams, with CMA, with some of our recruiting initiatives that do take time, but they are showing some very positive momentum. That's what we're going to continue on and try to counteract any level of attrition in the overall industry.

Got it. Thanks, Nick. That's helpful. And one for Karri, on the reduction in force, I might have missed this. Did you say what we should expect in terms of cost savings going forward either per quarter annually, or are you able to frame that for us?

Sure. So we did say in the scripted remarks that if we look ahead, kind of the annual cash savings from that is around $6.5 million. I think keep in mind as we go ahead, obviously into 2024, we'll have a lot more to say on the 2024 outlook in February. But we're also managing other inflationary pressures on the business as well. Just kind of keep that in mind as we head into next year.

Okay, perfect. Thank you.

Your next question comes from the line of Stephen Sheldon from William Blair. Please go ahead.

Hey. Good morning. Thanks. First on the dividend seems to make sense to suspend it in the current environment with the recent settlement. But what would you and the board want to see in order to think about reinstating that down the road?

That's a good question because we obviously talked a lot about that. Our number one measurement for our performance is total shareholder return. That means that our top priority is returning capital to shareholders. Obviously, this is not contributing to that. That is our top priority. The most urgent thing for us is to get our settlement approved so that we don't face all of the things that others are going to face going forward. Once we do that and once we see the relative conditions in the marketplace around all these risks settling, you should see us then returning to looking at reinstating the dividend and looking at other ways to return capital, including share repurchase. We've just been on sort of the cautious side recently because of potential threats, which turned out to be pretty frail. We're happy that we've been careful with our cash and that we have the money to make the settlement, and we want to get through that piece of it. Then you'll see us immediately turn to looking at how and when and what is the best way to return capital.

Got it. Thanks. And then just as we start to think about 2024 adjusted EBITDA, I know there's still a lot of moving pieces on the top line. Just on some of the expense items, can you help us think through things like legal expenses, which seem like they may have been elevated this year? And any rough impact on the cost-saving initiatives, although I think you noted some inflationary pressures in response to the last question. Just anything to call out as we think about bridging 2023 EBITDA guidance to what it could potentially look like in 2024?

Karri?

Thanks, Stephen. That's a good question. As I mentioned earlier, we’ve seen some impacts from the reduction in force and inflationary pressures. We might see legal expenses decrease slightly, although we still have ongoing litigation to manage. Looking ahead to 2024, we’re aware that there’s been variability in our other income this year. The shift in our technology strategy announced last year has led to a decline in some legacy businesses that we don't expect to significantly contribute to our revenue next year. Both Booj and First are continuing to wind down from the Gadberry business, so we anticipate some loss in revenue from that as we move into the next year. While there is still a lot of uncertainty, we don’t expect any major changes from our projections for the end of 2023. We’ll provide more updates in February.

Alright. Thank you.

Your next question comes from the line of Matthew Erdner from JonesTrading. Please go ahead.

Good morning, guys. Thanks for taking the question. This is kind of an industry as a whole question based on the settlements that are going on. Do you think more agents are out there kind of talking to other firms or companies and just kind of reconsidering their business and where they're at?

Yeah. I'm going to ask Nick to comment on that fully, but I think, one, it's pretty recent, but clearly, it's going to cause people to start reviewing who's in what position and where they want to be long-term. I do think there's going to be a fair amount of conversation and a fair amount of thinking about what is the longer term impact of all of these issues and what does it mean brand by brand company by company, and therefore, and then where do they want to be. So, Nick, you want to give more on that?

Well certainly the lawsuits and the settlement are the headlines which people look to, but I think it's bigger than that. When agents really look at their careers and where they want to be, I think it's more so they're looking at the overall market. When you get into the fourth quarter, people are reevaluating what are their goals for the next year? What's the value prop look like? What's the culture, what's the company that's going to help me achieve my goals? Even over the past year, yes, a lot of agents have been really looking to say what company, what culture, what value do I need? I'll point to one example. We announced our MAX/Tech powered by kvCORE. We had agents that were outspending on the retail market thousands of dollars a month in which we were able to offer something that created great savings for them as they were rightsizing their business. That helps us look more attractive. The market conditions and the changes are overriding in an agent's decision on where they want to be. It just happens to be it's kind of the flavor of the week with the big news. But I do think that that's secondary to how agents make decisions on where they want to be.

Yeah. That's helpful. And then following up on the team's initiative, I believe it's still in the states that you originally piloted in. Have you guys had any talks of expanding it? It seems like it's going well. Are there any other teams from outside of those states that have kind of hit you guys up? What can you get involved with this?

Nick.

Yes. So we did start with the five states on the initial pilot from last year. We did add a sixth state, Arizona, just a few months ago. What we're looking at is adding that additional state to examine what our timing is and how and if we expand it further. That's not determined at this point. We'll likely determine that in the months or the quarter ahead. To answer your question, yes, there are other states that are saying, when can we get this too? It’s a good thing because the results are showing in the pilot states. It's a good indicator at this point, but no decisions exactly on how that'll expand or when.

That's helpful. Thank you.

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

Hey. Just a couple quick ones. So going back to the revolver restrictions, I guess the question really is how should we think about the liquidity over the next four quarters? So is it the $90 million of cash on the balance sheet plus whatever free cash flow you generate plus $50 million, or I guess I'm just trying to figure out how do we think about liquidity for the next four quarters with these restrictions?

Karri?

Yeah. So I think a couple things to know. Primarily, the cash-generative nature of the business is truly a hallmark of the business. As we think about the next four quarters, you notice the cash on the balance sheet. It is cash flow from operations that we can generate. Outside of the revolver for a minute, we do have the ability, pursuant to the terms of our credit agreement, to actually upsize the facility if we were to need to do that. We can get back into a place where, if we needed to access the revolver, we could. But like I said previously, we've never had to or wanted to access that revolver. We've always just had it in the instance that we needed to.

Got it. That's helpful. And then sort of my second question was going to be if I'm looking at the release, it looks like the franchise offices in October went down by 3. Am I reading that correctly? The model mortgage franchises are 2.39 in October, which is down 3 since the end of the quarter. Is that right? What happened there?

Yeah. I can answer that. This is Ward. Obviously, we always have terminations going on. Offices do close from time to time. Because the sales have been a little bit tougher this year, they are offsetting some of that. Typically, we're growing at a faster pace. Sometimes, terminations this quarter, it was just a tough quarter with the changing market. We believe sales will ramp up. However, it continues to be sort of lumpy moving forward. We'll offset that particular number and continue to grow towards getting closer to that 2.50.

Great. And then just if I could dig in a quick one, what's the update on the CEO search and when is this timing? Thanks so much.

Yeah. The search is coming to a close. Obviously, a little longer than we thought, but you should see an announcement in the next couple of weeks.

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

Hi. Good morning. Seeing RE/MAX has a global footprint. I think it's fair to ask, what is your impression of the comparison of the US system when they were close to 90% buyer agent utilization compared to other countries where buyer agent representation is a fraction of that? Do you agree with that comparison? Along the same lines, just higher level, do the advances in technology that are available to repeat buyers and not just the search portals, but also pre-qualification verification and automated scheduling, automated comps generation, neighborhood scoring, everything. Does all of that technology allow for a transaction where one listing agent can handle coordinating the transaction and the buyer has enough tools available to them to save 2.5% to the extent that that commission eventually comes directly out of their pocket upfront?

Nick, why don't you take that?

Sure. So first on the international front, the thing to know is that the rules are very, very different by country. We have some countries that don't even have license law. When I make a comparison, I look at the US and Canada, which are just far ahead and more sophisticated in the organization of the business. In some of those countries where we operate where there's not buyer agency, it can be very difficult for buyers and difficult for consumers as a whole. In some of them, it's just a buyer beware mentality that the seller has representation, and the buyer does not. That's why we feel strongly that when we look at the progress that we've made within the United States on buyer agency and representation, why we stand behind it and think that it serves consumers very, very well. Your question is whether there are enough online tools for buyers to kind of do their own work and avoid paying a commission? That was a question that came up in my experience about a dozen years ago when techs really started to take the center seat, not just on home search, but a lot of the data that became available to potential homebuyers that hadn't been in the past. What we found in the data shows us is consumers are using agents at a higher rate today than they ever have before, even the millennial generation, which many forecasted would just use online tools and do their own business or do for sale by owners. The reality is that consumers on average use real estate services two or three times maybe in their lifetime, and it's their biggest transaction. They want a trusted adviser to make sure they're making the right decision. Our consumers are doing more research on their own, more than they ever have before, absolutely. But when it gets right down to it, they want that expert to come in and say, now we're ready to transact, and I want that person on my side. If we just look at the last 10 years as kind of a litmus test, the more transparency, the more tools available, the more things that a buyer can do, they are still turning to an agent, and we absolutely think that that'll continue to be the trend.

Got it. I appreciate the thoughts there. And then my second question is, are you aware of anything that might be brewing in Canada that is similar to the class action litigation that is happening here in the US? Is that a risk that we should be thinking about?

Nick?

Sure. There was one suit that came up that had the large brokerages and franchisors, which has since been dismissed. At this point, we're not aware of anything else that's pending. So it was just the one that we believe is no longer part of the landscape.

We have no further questions in the queue at this time. I will turn the call back over to Andy Schulz for closing remarks.

Thank you, operator. Thanks to everyone for joining our call today. This concludes the session. Have a great weekend.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.