RE/MAX Holdings, Inc. Q4 FY2024 Earnings Call

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

Thank you, operator. Good morning, everyone, and welcome to the RE/MAX Holdings Fourth Quarter 2024 Earnings Conference Call. Please visit the Investor Relations section of www.remaxholdings.com for all earnings-related materials, including our standard earnings presentation and to access the live webcast and the replay of the call today. Our prepared remarks and answers to your questions on today's call may contain forward-looking statements. Forward-looking statements include those related to agent count, franchise sales and open offices, financial measures and outlook, brand expansion, competition, technology, housing and mortgage market conditions, capital allocation, credit facilities, dividends, share repurchases, litigation settlement, strategic and operational plans, and business models. Forward-looking statements represent management's current estimates. RE/MAX Holdings assumes no obligation to update any forward-looking statements in the future. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those projected in forward-looking statements. These are discussed in our fourth quarter 2024 financial results press release and other SEC filings. Also, we will refer to certain non-GAAP measures on today's call. Please see the definitions and reconciliations of our non-GAAP measures contained in our most recent quarterly financial results press release which is available on our website. Joining me on our call today are Erik Carlson, our Chief Executive Officer, and Karri Callahan, our Chief Financial Officer. Ward Morrison will join us for Q&A. With that, I'd like to turn the call over to RE/MAX Holdings CEO, Erik Carlson.

Thank you, Andy. Thanks to everyone for joining us this morning. There were many positives in our fourth quarter results, headlined by better-than-anticipated profit performance for the third consecutive quarter. Operational efficiency remains a focal point for our team, and that effort continues to contribute to our strong margin and bottom-line results. The housing macro environment remains in a state of transition. There are a lot of variables: inventory, interest rates, and moves by the current administration, to name a few. However, change and uncertainty bring opportunity, and our networks are built for times like these. They have proven they can succeed in almost any market. The resilience of our company, coupled with the confidence we have in our growth strategy alongside our proven ability to execute on operational efficiency, sets us up for future success. Although we still have more work to do, it's encouraging to see our efforts reflected in our financial performance. Regarding agent count, our international agent count accelerated during the fourth quarter, increasing almost 9% over last year's Q4. In fact, we've more than doubled international agent count since 2017, ending 2024 with over 70,000 agents outside the US and Canada for the first time. In Canada, where the RE/MAX brand and network is the industry leader, we had over 25,000 agents as of year-end. One important side note: in order to protect the company and RE/MAX network in Canada, we have substantially agreed on monetary terms and to make certain business practice changes to settle two industry class action lawsuits, including one on a nationwide basis. We still have some work to do on the final settlement agreement, and we believe this is absolutely the best decision for all of our stakeholders: affiliates, employees, shareholders, and debt holders alike. We very much appreciate our Canadian network and believe this is in the best interest and shows strong support for what they do on a day-in, day-out basis. Karri will provide some additional details in just a bit. Here in the US, we experienced some agent decline, which is typical at year-end. We remain laser-focused on enhancing our overall value proposition and delivering innovative new products and services designed to bend the trend and stabilize and grow agent count. Now, when we look back at this past quarter and 2024 overall, in addition to operational efficiency, we directed much of our effort on building or improving upon foundational elements universal to every successful business: culture, leadership, and systems. These critical areas will continue to be points of emphasis throughout 2025 and over the long term. Embedded in our culture is the focus on improving the customer experience at every opportunity. One key to that objective is our voice of the customer program, through which we solicit, measure, manage, and respond to customer feedback. Leaning into the power of our networks for insights and using that important information to shape our strategy and our operational plans. This methodology will aid our ongoing efforts to increase agent count. Our quest to improve the customer experience has also yielded incremental revenue opportunities. For example, our Maxtec concierge RE/MAX Media Network initiative came as a direct result of building out capabilities designed to enhance the customer experience. Last fall, we launched Lead Concierge in the US, and we're expecting to begin testing it in Canada very soon. The idea is to nurture high-intent leads from remax.com and remax.ca and transform them into action-ready buyers. It saves agent time, alleviates the frustration of chasing down leads that eventually hit a dead end, and materially improves the customer experience. Our RE/MAX Media Network program, essentially providing high-quality advertisements on our heavily trafficked websites, has compelling upside, and we believe it could eventually generate a seven-digit revenue figure annually. Both our Lead Concierge and RE/MAX Media Network efforts are just starting to contribute to our top line and should ramp up throughout this year and well beyond. As we move into 2025, we're starting from a position of strength. We have the most enviable set of competitive advantages in the business: the leading brand in real estate, an unmatched global footprint, a scaled business with attractive financial characteristics, and the most trusted, professional, and productive agents. RE/MAX agents are simply the best. Our strategy is straightforward: continue to strengthen and enhance our existing business, develop new products and services to help our networks, and evaluate other growth opportunities. These are exciting times at RE/MAX, and we're open for business. From a leadership perspective, we started the year off strong with two impactful additions to our team. Chris Lynn joined RE/MAX earlier this month as Executive Vice President and Chief Growth Officer. With over 22 years of experience in real estate, franchise development, brokerage operations, and strategic growth, Chris brings a wealth of expertise to the role. A seasoned real estate executive with a proven track record of leadership and innovation, he will help RE/MAX attract the industry's best talent, elevating the affiliate experience and, in turn, the home buyer and seller experience. Chris oversees the teams dedicated to supporting franchise growth and strengthening the US company-owned regions, ensuring franchises receive customized support that aligns with their needs and driving the company's objectives of increasing agent count and expanding market presence. Travis Saxon also recently joined the company as Executive Vice President of Strategy. Travis brings over two decades of expertise in residential real estate technology, digital marketing, and management consulting. Throughout his career, Travis has held executive positions and has helped elevate technology solutions and content strategies to improve business outcomes. Travis has worked closely with leading real estate brokerages across the US and Canada, including many of the RE/MAX network's largest and most successful affiliates, helping them refine, innovate, and leverage business systems for growth and efficiency. In his new role, Travis guides real estate strategy and innovation with a focus on integrating solutions to optimize operations and support affiliate growth. Chris, Travis, and the rest of our outstanding team will continue to work toward improving our value proposition so our network can win more listings, make more money, and save time while doing so, all while helping brokerages improve their profitability. Regarding our mortgage segment, we see positive developments amid the current industry conditions, which are impacting our overall performance. Motto continues to sell franchises, consistently adding capable entrepreneurs to our network. There's a steady interest in the opportunity, and that is reflected in the fact that despite the sluggish macro environment, Motto sales last year were roughly on par with 2023. Regarding wemlo, other industry players are taking notice of our growing market presence, and we're fielding more inquiries from third parties looking to explore partnership opportunities. For example, last month, a leader in the wholesale mortgage lending space announced wemlo as a process partner, an exclusive concierge service designed to enhance loan processing support for its customers. We continue to lean in, be curious, and challenge everything. We're striving to improve on the best we currently have to offer while simultaneously innovating and improving our value proposition and advancing our position as a leader in the industry. Beginning with R4, our annual agent convention next week, you should expect to see a steady stream of compelling announcements and initiatives to come out this year. We've got exciting opportunities involving referrals, artificial intelligence, marketing, branding, social networks, and more. 2025 is shaping up to be an important year for RE/MAX Holdings and its brands—a year of transition, continued building, innovation, and evolution. We look forward to sharing our progress with you. With that, I'll turn it over to Karri.

Thank you, Erik. Good morning, everyone. We finished the year positively and delivered strong margin and profit performance, continuing a trend we started in the second quarter. Diligent expense management and strong collections were the primary drivers for the better-than-expected results across these metrics. Some of our notable quarterly financial highlights included total revenue of $72.5 million, adjusted EBITDA of $23.3 million, up almost 2% over Q4 of last year, adjusted EBITDA margin of 32.2%, an increase of 220 basis points over the fourth quarter of 2023, and adjusted diluted EPS of $0.30. Looking closer at revenue, excluding the marketing funds, revenue was $53.8 million, a decrease of 3.9% compared to the same period last year, driven by negative organic growth of 3.5% and adverse foreign currency movements of 0.4%. Negative organic growth was principally driven by US agent count and reduced revenue from previous acquisitions. Once again, margin performance improved thanks to strong cost management and encouraging collections. Throughout the year, we implemented process improvements and added additional resources, which contributed to improved collections activity. Fourth-quarter selling, operating, and administrative expenses decreased $3.4 million, or 8.6%, to $35.8 million. The cost reductions were primarily driven by a decrease in bad debt and investments in events, partially offset by certain higher personnel costs. Improved collections and enhanced operational efficiency drove strong cash flow generation in the quarter, as two-thirds of our adjusted EBITDA and nearly one-third of our revenue converted to adjusted free cash flow. As Erik mentioned, we have reached agreement on monetary terms to settle two industry class action lawsuits in Canada for approximately $5.5 million US dollars. Execution of the final settlement agreement is subject to the parties reaching an agreement on all terms. These cases are comparable to the ones that we have settled here in the US. Upon finalizing the formal settlement agreement, the company, its subsidiaries, and affiliates, and RE/MAX sub-franchisors, franchisees, and their sales associates in Canada would be released from all claims on a nationwide basis. Similar to the US, the final settlement agreement will require court approval. We continue to deny the allegations made in the complaint and in no way acknowledge any wrongdoing. We believe that protecting our Canadian network from the risk of potential damages and the uncertainty of litigation makes this decision the right course of action. 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, the basis of top-producing agents. As a result of the strategic decision to settle the Canadian litigation, our total leverage ratio ticked up slightly to 3.57 to 1 as of the end of the year. Given the cash-generative nature of our business, we believe our cash reserves will continue to grow, enabling us to delever as we move throughout 2025. We are prioritizing strategically reinvesting in the business and believe resuming a modest level of stock repurchases, given the current price, is attractive. However, as always, we remain judicious regarding capital allocation decisions. Our first quarter and full-year 2025 outlook assumes no further currency movements, acquisitions, or divestitures. For the first quarter of 2025, we expect agent count to increase 1% to 2% over the first quarter of 2024, revenue in a range of $71 million to $76 million, including revenue from the marketing funds in a range of $18 million to $20 million, and adjusted EBITDA in a range of $16 million to $18.5 million. And for the full year 2025, we expect agent count to change from negative 1% to positive 1% over the full year 2024, revenue in a range of $290 million to $310 million, including revenue from the marketing fund in a range of $71 million to $75 million, and adjusted EBITDA in a range of $91 million to $100 million. With that, operator, let's open it up for questions.

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

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

Tony, thanks for the question. I've been here almost fifteen months now, and I've been turning over every stone looking for opportunities to not only stabilize and improve the current business but also increase additional revenue streams. We are optimistic. It's not fully reflected externally yet, but internally we're excited. Our large agent event R4 starts Sunday night, where we will present a number of initiatives to the network designed to improve the value proposition we bring to agents and brokerages worldwide. I promised the network I'd speak to them first, so you'll see press releases next week. On Lead Concierge: it's good for consumers and agents, and it will drive the bottom line. Lead Concierge is early, but we already have thousands of agents opting into the program, processing hundreds of leads, and seeing agent responses and conversions. Importantly, we have the plumbing in place: we're contacting customers within a few minutes and cycling leads to opted-in agents who respond quickly, which allows us to analyze spend and close the loop on marketing. Our websites generate high-intent, largely unpaid traffic because of the brand; we are not in the portal business, but we are optimizing that asset. Regarding the RE/MAX Media Network, we launched it in Q4 and it's ramping nicely. We are seeing good quality advertisers that improve the consumer experience on the site and generate top-line revenue. We'll have more to report likely in Q2. We're still in the early phases, but we believe it can create a seven-digit revenue opportunity, with ramp primarily in the back half of the year. Our biggest opportunity remains stabilizing US agent count and continuing to generate revenue from fees, which requires improving our value proposition. I'm excited about the things we'll announce next week to reintroduce our brand to the network and improve that value proposition. We're providing more support to the network and expect to help agents and brokers win listings, make more money, and save time. I hope that helps, Tony.

That's great. We'll look out for the headlines. My follow-up is on broker commissions. Can you give us your thoughts on what you're seeing in the system right now in terms of how buyers are approaching the new rules and any change in rates you're seeing?

I'll let Karri take that one, Tony.

Good morning, Tony. From a rate perspective, it's been remarkably consistent throughout 2024, particularly post the regulatory changes. Internally we've seen a very consistent trend on rates. Our network's competitive advantages around trust, professionalism, and productivity have allowed it to adapt well. RE/MAX agents continue to represent buyers and sellers at high quality, and we haven't seen much negative impact on the overall economics. If anything, the network's trust position has strengthened given the product and the brand.

Okay. Thank you.

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

Hi, thanks. Karri, maybe one for you to start. Obviously being diligent on the cost side, can you touch on some of the major buckets you've been able to remove cost from over the last year, and how you're thinking about incremental opportunity in 2025 for further savings?

Great question, Nick. The entire team pulled together in 2024 with a major focus on operational efficiency—being purposeful and thoughtful about every dollar spent and maximizing returns. Personnel remains a large component of the cost structure, but our Q4 2024 run rate for total selling, operating, and administrative expenses was around $36 million. We always see a seasonal bump in Q1 because of events like R4, so Q1 2025 looks comparable to 2024. For Q2, Q3, and Q4 of this year, we're aiming to maintain that SO&A run rate and expect a reasonable Q4 2024 run rate in the back half of the year in the $36 to $37 million range.

Got it. That's helpful. Then on the US agent side, are there any trends beneath the headline numbers—by geography or agent segments? Are you seeing a shift in the demographic of agents joining the network? Are they newer agents? Do they come over from teams or independent brokerages? Any color would help.

From an agent perspective, it's more of the same: new agents continue to enter the business and some struggle to find their way. We are not seeing high churn among our highly tenured professional agents; that has been fairly stable. Our goal is to attract more high-performing, tenured agents. Improving the value proposition includes helping brokers onboard and make agents productive. Most of the churn is among lower-tenure, lower-productivity agents, and that's where we need to focus our efforts to improve onboarding and support.

Great. Thanks, Erik.

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

Two quick ones. On US and outside US agent count: what's driving the attrition? Is there anything new versus the past twelve months driving the US downside and the international upside? Do you have a different tactic or strategy for international growth versus improving US trends?

Canada remains strong with over 25,000 agents and slightly down a couple hundred from Q4, which was an all-time high for us. We have a premier market presence in Canada with about 28% market share. Strategically, we felt it important to settle the Canadian lawsuits to remove uncertainty. Internationally, hitting over 70,000 agents is an all-time high and represents nearly 10% year-over-year growth. The brand is strong in over 110 countries with entrepreneurs and brokerages hungry to grow, so there's huge opportunity internationally both to grow agent base and to monetize it. Our primary focus remains US agent count; churn is largely a top-of-funnel issue for us and the industry. We expect the initiatives we're rolling out next week to improve the value proposition, bolster the customer and agent experience, and support brokers. If we execute on those, I am optimistic we can return to US agent stability and growth while monetizing along the way.

On the Canadian settlement: is the company still waiting on the appeals process for the $55 million settlement? After these settlements, does that address all litigation mentioned in the 10-K, or are there other items pending?

Good morning, Ron. We're pleased with the progress made in both the US and Canada as it removes a lot of uncertainty, and we believe it is in the best interest of our stakeholders. For other litigation matters, we filed the 10-K last night and all disclosures are outlined there.

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

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

Good morning. Erik, regarding R4 and potential upcoming changes, are you envisioning a different way to present remax.com to consumers? Also, tied to the CCP debate, one public competitor is taking an anti-CCP stance and gaining investor support with a portal-like strategy. Can you refresh RE/MAX's stance on CCP and how you think about direct consumer access over time?

John, thanks. I appreciate your patience regarding R4 announcements; we prioritize speaking to our network first. Our position on CCP hasn't changed. There is a debate happening, and I believe much of the opportunity lies in the middle ground. We are in a strong position with our brand, market share, and global presence, and we are prepared to compete under different approaches. We have considered how we would go to market if industry dynamics change. We generally believe in transparency and what is best for the customer. While there may be niche cases where off-market or private approaches work, the data generally shows that greater transparency and broader exposure lead to better pricing outcomes. Our focus is on what is best for buyers and sellers and delivering a great customer experience. We are long-term players with 52 years of history and expect to be here for many more years. We will lean into supporting our network with improved tools and a better value proposition so agents can win more listings, earn more, and save time. I would characterize our stance as focused on transparency and customer experience rather than strictly anti- or pro-CCP rhetoric.

Karri, on buybacks: you mentioned stock dislocation. What are your covenant limitations, and how much capacity do you have for buybacks?

John, the franchise nature of our business is a strength and we generated strong free cash flow this year. On the quarter, about two-thirds of adjusted EBITDA converted to free cash flow; for the year, a little more than half. As we move into 2025, our first priority is delevering a bit; leverage ticked up slightly due to the Canadian settlement and was 3.57x at year-end. If we can get leverage under 3.5x, we would remove all restrictions from a credit agreement perspective. Our focus is on reinvesting in the business and allocating capital to drive top-line growth, but given the dislocation in our stock price, we believe buybacks can offer an attractive return. We plan to pursue modest buybacks in 2025 as we continue to delever, while being judicious about capital allocation.

So priorities are reinvestment, buybacks, and eventually dividend?

Yes, John. We're always evaluating return of capital and strategic options. Our strategy is to enhance the core business, develop new products, and consider other opportunities, which could include return of capital depending on circumstances.

Okay. Thank you.

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

Good morning. A couple questions on guidance. First, looking at revenue excluding marketing funds, the guidance implies anywhere from down 4% to up 3%. Can you help us think about what's contemplated there for volume-sensitive brokerage fees versus recurring revenues in that guidance?

Good morning, Tommy. From an agent count perspective, globally we had strong outside performance in 2024 of about 9%, but we expect that to be more muted next year—mid-single-digit growth internationally. In Canada we were flat in 2024 given housing market uncertainty and expect similar trends in 2025 given the network strength and market share. In the US we expect improvement in trajectory but still a little negative for the year. From a broker fee perspective, at this early point we're modeling broker fees up low single digits year over year.

Thank you. Separately, are there any one-off costs or margin headwinds associated with new product and program build-outs that are contemplated in the 2025 EBITDA number?

Tommy, we are focused on revenue diversification opportunities that create value for the network without taking significant financial risk. We don't expect large unanticipated one-time items. Our fourth-quarter performance reflects the foundation we laid and careful cost management. We are also focused on conversions, mergers, and acquisitions as another avenue for growth; that's not necessarily a one-time cost but will factor into how we allocate capital for growth.

Makes sense. Thanks.

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

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

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