Earnings Call Transcript - RMAX Q1 2023

Operator, Operator

Ladies and gentlemen, good morning, and welcome to the RE/MAX Holdings First Quarter 2023 Earnings Conference Call and Webcast. My name is Abby, and I will be facilitating the audio portion of today's call. At this time, I'd like to turn the call over to Andy Schulz, Senior Vice President of Investor Relations. Mr. Schulz?

Andy Schulz, Senior Vice President of Investor Relations

Thank you, operator. Good morning, everyone, and welcome to RE/MAX Holdings' first 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 are participating through the webcast, please note that you will need to advance the slides 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, dividends, share repurchases, 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 first 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 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, Ward Morrison and Nick Bailey. With that, I'd like to turn the call over to RE/MAX Holdings' CEO, Steve Joyce.

Steve Joyce, CEO

Thank you, Andy, and thanks to everyone for joining our call today. Looking at slide three, we performed largely as expected during the first quarter as the housing market continued to adjust to higher interest rates and existing macroeconomic conditions. Given these factors, we anticipated pressure on our US agent count growth to start the year. However, we saw some encouraging trends begin to emerge towards the end of the quarter, as the all-important spring selling season gets underway. The first quarter had several operational highlights, including agent count growth in Canada and the global regions, regain momentum in Motto franchise sales, and a continued ramp in Wemlo’s business. We remain squarely focused on growth, and we believe we're positioned for improved US agent count performance in the near term. We're executing on the strategic growth initiatives we put in place last year, and we remain confident in the upside that they can deliver in the long run. We are also continuing to invest in critical growth-related activities, such as our annual RE/MAX and Motto conventions, both of which had robust attendance demonstrating the value our affiliates continue to derive from coming together to share ideas. We are directing our capital opportunistically, so that we are best positioned to grow profitably as market conditions improve. Some of our notable quarterly and financial highlights included, RE/MAX Holdings total revenue was $85.4 million, down only 6.2% compared to last year. We generated adjusted EBITDA of $19.9 million, and our adjusted EBITDA margin was 23.3%. Karri will address what impacted margins during the quarter later on. Adjusted EPS was $0.26, and we continue to execute on our stock buyback program. Regarding the CEO transition, our Board has hired Egon Zehnder, a Global Leadership Advisory firm to aid in the selection of the company's next leader. Egon’s vendors' robust and comprehensive process will include an evaluation of both internal and external candidates and is expected to be completed this summer. With that, I'll turn it over to Ward.

Ward Morrison, CEO, RE/MAX Brand

Thanks, Steve. Turning to Slide 4. Our franchise sales regained momentum as Q1 unfolded, and we finished the quarter on a strong note. We sold 10 franchises in the first quarter. This first quarter sales pace is in line with prior years when we ended with 60 to 70 franchise sales. Though it's too early to say we're back at pace, we are encouraged by the solid start to 2023 and the interest we see in the marketplace. We noted last quarter that we witnessed a tight correlation between rising interest rates and a slowdown in our franchise sales since Q2 of last year. As a result, it's positive to see franchise sales accelerate as interest rates began to stabilize in the back half of the quarter. Our pipeline looks good, and we expect more encouraging results, especially if the macro environment continues to cooperate. We are continuing to support the growth of our mortgage business by investing in our sales resources. In terms of our progress, on the Motto side, we have hired additional highly qualified sales professionals, but we've also experienced some attrition. The good news is we are trending in the right direction, and we expect to be fully staffed later this summer. It's an even better story on the Wemlo side. We have successfully doubled the size of Wemlo’s sales force, and the results have been measurable. We saw Wemlo’s business increase month-over-month throughout the first quarter, as we met or exceeded our expectations in terms of both the monthly number of loans submitted and loans cleared to close. There are multiple reasons for Wemlo's increasing success, including a full sales team with a mature sales process and built-in accountability, increasing enthusiasm for Wemlo's services by both our modern network as well as the broader industry more Motto franchises using the Wemlo law brokering system that is integrated with Wemlo processing services and a larger Motto network. Recall that our long-term goal is to generate $100 million of annual mortgage-related revenue, with half of that coming from Motto and half from Wemlo. For Motto to achieve its $50 million annual revenue target we need to have between 900 and 1,000 franchises open and paying us the full $4,500 per month continuing franchise fee. We believe we are well on our way toward achieving that goal, and the expansion of our sales team should help us get there even faster. On the Wemlo side, the math is also fairly straightforward. If you assume roughly 6 million mortgages annually, with about 20% of those being completed by the broker channel, you arrive at 1.2 million loans, which is a reasonable proxy for Wemlo's current total available market opportunity. If Wemlo can capture and process just 60,000 of those loans, then Wemlo should hit its $50 million annual revenue target. We believe the growth, success, and long-term potential of our mortgage business is due to the unique and compelling value proposition model and Wemlo each offer. Ancillary services like mortgages provide real estate entrepreneurs with attractive opportunities to diversify their revenue and earnings, something that is very important during changing market conditions. Over 70% of Motto sales have been to real estate professionals who are close to real estate transactions, namely purchase originations, and that proximity is the key to success for many of our franchisees. With that, I'd like to turn the call over to Nick.

Nick Bailey, CEO, Motto Brand

Thank you, Ward. Moving to Slide 5. As many of you know, this is the time of year when several major industry rankings are released. Once again, these reports confirm the leading productivity of RE/MAX agents. It's a good reminder that RE/MAX agents are far more productive than their competitors in terms of closing sales, a cornerstone of our value proposition. According to the data in the 2023 RealTrends 500 survey, RE/MAX agents continue to outperform the competition in both transaction size and sales volume, on average when compared to the country's largest real estate brokerages. According to the rankings, this is the 13th straight year that RE/MAX agents outsold competitors by more than 2:1 in terms of transaction sides. RE/MAX agents averaged 13.6 transaction sides, whereas all other agents at participating brokerages averaged just 6.2 sides. RE/MAX agent sales volume averaged 67% more than our competitors. RE/MAX also led all brands and brokerages qualifying for the 2023 RealTrends nation's best list, a related ranking to the RealTrends 500. The performance of the RE/MAX brokerages on this prestigious list confirms what we know to be true: RE/MAX affiliates are a top choice for consumers who want to buy or sell a home, especially as the market rebalances. Turning to Slide 6. After 50 years in business and more than a decade of maintaining the 2:1 productivity advantage, we've seen a wide range of economic and housing cycles, and we know how to navigate them. While many others are currently cutting back, we're strategically investing in our network to better position us as the market regains momentum. We are directing investments to support future growth through our team's initiatives. Our focus on conversions, mergers and acquisitions, our ongoing technology launch, and the April launch of MAXRecruit, the most comprehensive growth program we believe we've ever developed. Because MAXRecruit is the most recently announced effort, let's talk about it first. MAXRecruit is a combination of education, coaching, accountability, and resources, with a prime focus on building the skills of local affiliates to grow their own brokerages or teams and then coaching them to take consistent action. We rolled it out to US affiliates, and the initial response confirmed a significant amount of interest all across the country in learning how to improve the growth of their RE/MAX brokerage team. For us, the takeaway is clear: RE/MAX broker owners, managers, and team leaders are eager to grow their offices and are willing to invest in the new skills, strategies, and systems to support them. Collectively, their agent count growth drives the network's agent count growth. By helping them build their business, we're building ours as well. A larger network with greater market presence benefits everyone involved. We're very excited about the potential impact MAXRecruit could have on our agent count numbers, both short and long term. In my remarks about MAXRecruit, you may have noticed I mentioned team leaders as well as broker owners. With teams playing such a huge role in the industry now, we absolutely view them as potential catalysts for growth, so MAXRecruit includes team leaders alongside our franchisees. It all fits together: larger teams, larger brokerages, larger network. Speaking of larger teams, the team's pilot program we launched last August is beginning to drive some additional desired outcomes in the five pilot states of California, Florida, Maryland, New Jersey, and Texas. We've added or grown larger teams at a higher rate than we had before. If you recall, the program includes a package of training, technology, and attractive economics for teams of six or more, whether it’s RE/MAX to ensure six members, larger teams joining the network or retaining existing teams at a higher rate, this initiative has compelling potential this spring and summer as the primary recruiting season progresses. Additionally, with respect to our program around brokerage conversions, mergers, and acquisitions, both the number of closings and the pipeline continues to grow. We successfully converted or helped some of our existing affiliates merge or acquire many smaller brokerages, and we have more sizable transactions whose announcements are imminent. In fact, one example, most recently would be a conversion we just announced yesterday of an independent 70-plus agent office in Long Beach, California. Very exciting news and more to come. We also believe once we announce and publicize additional larger additions, that proof of concept will help build our momentum, especially for the larger opportunities. The rollout of our new technology offering, MAX/Tech, powered by kvCORE, is continuing at a better-than-expected pace. We started in Canada late last year, and because of its success, we accelerated the US launch to the first week in January, which was two months earlier than anticipated. The US rollout is progressing nicely, and we continue to hear very positive feedback from our network. To date, more than 62,000 RE/MAX agents across the US and Canada have onboarded or are actively in the process of doing so, giving them access to the enhanced capabilities of this industry-leading technology. MAX/Tech, powered by kvCORE is being provided at no additional cost to affiliates, so it represents another major recruiting advantage to brokerages and teams alike. It also represents another RE/MAX resource that can help agents and teams to be even more productive than they are now. So it's an optimal fit with our network and results-oriented culture. One last noteworthy highlight is that we celebrated the 50th anniversary of RE/MAX at this year's R4 conference in February, with nearly 10,000 agents from 74 countries in attendance; it was the largest conference in 17 years, demonstrating the strong network engagement that exists currently. Feedback from attendees confirmed the investments in the strategic direction we're making are both welcomed and creating great excitement within the network. With that, I will turn it over to Karri.

Karri Callahan, CFO

Thank you, Nick. Good morning, everyone. Moving to slide seven. First quarter revenue declined approximately 6% to $85.4 million. Excluding the marketing funds, revenue was just over $64 million, a decrease of approximately 6% compared to the same period last year. This decrease was driven by negative 5% organic growth and adverse foreign currency movements of 1%. Organic growth decreased primarily due to lower broker fees and, to a lesser extent, a reduction in US agent count, partially offset by higher revenue from the annual RE/MAX agent convention. Higher interest rates continued to adversely impact housing affordability and weakened housing demand, resulting in fewer transactions and, by extension, lower broker fee revenue. The good news is that overall transaction volume appears to be trending a little bit better than many expected, and there are reasons for cautious optimism for the spring selling season. Turning to slide eight. Q1 selling, operating, and administrative expenses increased 2.7% to $49.1 million, due primarily to an increase in expenses associated with our annual RE/MAX agent convention and bad debt expense, partially offset by lower personnel expenses and lower professional fees. A fantastic attendance at both our RE/MAX and Motto conventions during the first quarter reinforced the importance of in-person education and networking opportunities to our affiliates. However, given the robust participation, related expenses ran a little higher than expected. Additionally, while we believe the overall health of both our RE/MAX and Motto franchisees remains strong, we have seen a modest decline in collection activity, which negatively impacted bad debt expense during the quarter. This is not surprising, given the rebalancing housing market and is consistent with what we have experienced during other periods of macroeconomic uncertainty throughout our 50-year history. We recognize that some small business owners might require a bit of temporary assistance to help them bridge through a rough patch, and that's what we are experiencing right now. Moving to slide nine. Before I get to our outlook, there are a couple of items I want to briefly mention. Returning capital to shareholders remains a top priority for us in 2023. While we have slowed the pace of our buyback for the time being as we carefully monitor our performance and cash flow, we plan to be more active as conditions warrant. We still believe our buyback is an excellent allocation of capital given our current valuation. Turning to guidance. Last quarter, I noted this may be the most challenging environment in which to forecast future results that I have seen in my seven years as CFO, and I still feel that way today. While there are reasons to be more optimistic about the housing market for the balance of 2023, there is still a fair amount of uncertainty, and we remain guarded from a forecasting standpoint. We believe we are currently trending under the midpoint of our full-year adjusted EBITDA guidance range. The company's second quarter and full year 2023 outlook assumes no further currency movements, acquisitions, or divestitures. For the second quarter of 2023, we expect agent count to change negative 0.5% to 0.5% over second quarter 2022, revenue in a range of $79 million to $84 million, including revenue from the marketing funds in the range of $20 million to $22 million and adjusted EBITDA in a range of $24.5 million to $27.5 million. For the full year 2023, we expect agent count to change negative 1% to 1% over full year 2022, revenue in the range of $315 million to $335 million including revenue from the marketing funds in the range of $83.5 million to $87.5 million and adjusted EBITDA in the range of $95 million to $105 million. Now I'll turn the call over to Steve for closing comments.

Steve Joyce, CEO

Thanks, Karri. Looking at Slide 10, we remain focused on our long-term strategic objectives, and we are continuing to invest in our ability to grow profitably in the future. Our priorities are to reinvigorate our US agent count growth and accelerate the expansion of our promising mortgage business. We are executing on our strategic initiatives announced last year. We believe each of our initiatives has the prospect of boosting our organic growth rate and driving meaningful value over the longer term. Though the macroeconomic climate has dampened their near-term impact, we believe our initiatives will pay increasing dividends when the housing industry resumes growing again. With that, operator, let's open it up for questions.

Operator, Operator

Thank you. We will take our first question from Anthony Paolone with JPMorgan. Your line is open.

Anthony Paolone, Analyst

Okay. Thanks and good morning. Just Karri, on the bad debt matter. Can you talk about just maybe historically how long it takes for this stuff to play out? Because you mentioned it shouldn't be a big surprise given what's happening in the market. I'm wondering if you can maybe dimensionalize, like historically, what you're reserving for dollar-wise or what's on the watch list or just how you approach it?

Karri Callahan, CFO

Sure. So good morning, Tony, thanks for the question. When we look at that debt expense, and we have looked at it on a historical basis, I think there's a couple of things to keep in mind. First, when you look at it year-over-year, and if you look at the last couple of years since the pandemic, we've really had very strong collections and really kind of abnormally positive consistent with our historical trends. If we go back and look at kind of pre-pandemic first quarter of 2019, bad debt expense levels were very comparable to where they are now on a smaller base because that was prior to the acquisition of Integra. So we're kind of getting back to business as usual, given what's happening in the current market with a little bit of volatility. But we have seen actually even some encouraging trends and collections in April activity as well. So it wasn't something that really caught us by surprise. We know that obviously, the market is a little bit challenging, but we are encouraged with some of the activity that we've even seen from a collection perspective in April.

Anthony Paolone, Analyst

So the anticipation is that this level is not expected to deteriorate further and that you are where you would normally be in this environment?

Karri Callahan, CFO

Yes. So we think based on where we were in Q1 and based on a little bit of what we've seen in April, we expect actually Q2 and the rest of the year to come down just a little bit from what we saw in the first quarter. I'm kind of getting down to that maybe that $0.75 million run rate basis on a quarterly basis for the rest of the year.

Anthony Paolone, Analyst

Do you have an opinion on what rates might need to reach in order to see an increase in existing home sales? Given your extensive data and experience, what do you believe would be a rate that would lead to a significant rise in existing home sales?

Steve Joyce, CEO

Nick, why don't you take that?

Nick Bailey, CEO, Motto Brand

Sure. Well, I think what we're seeing as part of the rebalance with rates overall is, we're seeing a little bit better consumer confidence as we come into the spring market with rates stabilizing a bit. Even though we believe this year that we'll see them bounce around somewhat, we're still when you look at the overall, say, average over the last 10 years, rates are not that high. They're just still in comparison to what they were two years ago. So what we've seen historically over the past just short term, a quarter or two, is even when rates are dropping 25, 50 basis points, we see a rush of activity to the market. We see showings increase, and pending start to go up. So I don't think it's a very big number that's going to drive additional activity.

Anthony Paolone, Analyst

Okay. Great. Thank you.

Steve Joyce, CEO

Nick, or any additional thoughts?

Nick Bailey, CEO, Motto Brand

No, I think just the stabilization is the key so far this year by getting sort of at a stable range that the consumer really is having to decide is not the right time. I think they are. I think they're starting to move off that sense. I think the spring selling season is starting to go, and I think some of that's tied to the interest rate stability in the market today.

Operator, Operator

We'll take our next question from John Campbell with Stephens. Your line is open.

John Campbell, Analyst

Hey, guys. Good morning.

Karri Callahan, CFO

Good morning.

John Campbell, Analyst

Maybe just one – hey, good morning. Maybe it's for Nick, but I'm hoping you guys can provide an update on the competitive landscape, kind of what you're seeing and hearing also from agents. The surveys we run tell us that agents are increasingly willing to stay with where they're at. I'm curious if your retention levels or rate of attrition is nearing that. And then additionally, if you could speak to any changes you might be seeing in the market from a competitive standpoint?

Steve Joyce, CEO

Well, John, we're watching your reports, just so we're clear here. But Nick, why don't you take a shot at it?

Nick Bailey, CEO, Motto Brand

Sure. In terms of the competitive landscape, I think we're seeing a couple of things. First and foremost, we're not seeing competitors write large checks as signing prices to agents. There are several competitors that use that as their sole recruiting tool. And so that seems to have slowed considerably and almost become nonexistent. The other thing that we're seeing is when you see contraction in the market, just like the total agent count numbers of NAR, you're starting to see the contraction, especially after the first of the year after licenses renew. You do see agents based on their 24-month to 36-month renewal cycle. If they are in a company that allows them to just hang your license regardless of productivity, those agents typically stay put. Where you look at just differences with our organization is we are not known for a place where just to park a license if you're not productive. And so those companies that may appear to be stable are actually seeing people stay. But where we're seeing the most movement is we've moved from, say, two years ago, agents trying to maybe save $100 a month to now agents are saying, 'I need another closing.' This is where our productivity comes in and is maintained. We've maintained the course even last year despite the changes of the 2:1 that I mentioned in the scripted remarks on productivity. But that's where we're seeing the most activity in our recruiting numbers right now is agents need more deals. This is where our competitive advantages, we believe that will shine this year.

John Campbell, Analyst

Okay. That's helpful. And Steve, thanks for reading our report. I know anybody actually read those, kidding. But Karri, on the guidance, if I ran the math of the 1Q actuals and then what you implied for kind of a 2Q midpoint, and work that off your annual guidance, you're assuming a 5% lower back half revenue, but an 18% lift in EBITDA. So pretty meaningful step-up in margin. You spoke to the lower-margin R4 revenue. You also talked to some of the challenges with the collections. I'm thinking that explains a good portion of the lift from the front half. But if I look at your implied back half guidance versus last year, you're assuming that EBITDA drops at basically the same rate as revenues, that would be would think that would be a very good outcome for you guys, just given how heavily your cost base weighs towards fixed costs. So is there a looming cost action that will help offset that revenue decline, or am I missing something else that's worth going out?

Karri Callahan, CFO

No. I think you're correct about the first half of the year, John. Margins in the first quarter were impacted by rising costs related to conventions and increased bad debt expense. Looking at the bad debt expense for the second half of the year, we expect it to decrease slightly, but it will still be up a bit compared to last year. A good way to consider this is on a SO&A run-rate basis; we're looking at around $40 million for the rest of the year, which breaks down to about $40 million per quarter. I hope this helps clarify what you're looking for.

John Campbell, Analyst

Okay. Will take a look at that. Thank you so much.

Operator, Operator

And we'll take our next question from Tommy McJoynt with KBW. Your line is open.

Tommy McJoynt, Analyst

Hi. Good morning, guys. Thanks for taking questions. Could you give a little more details on the team's initiatives, and perhaps just start off just rehashing kind of how long it's been live in each geography? If you can give any more numbers kind of on the pickup like how company teams you've seen? Whether it's just smaller RE/MAX teams forming up to be larger teams or it's actually recruitment of teams from other brokerages? Ultimately, what would you say has been sort of net revenue and earnings or margin impact from the formation of those teams?

Steve Joyce, CEO

Yes. So the results are sort of now starting to build, which is what's been really encouraging. Nick, why don't you go through that, sort of, what we've experienced and then what we're hearing and looking at for the next couple of months?

Nick Bailey, CEO, Motto Brand

Sure. Thanks, Steve. So we started and announced the pilot in August of last year, and it was intended to be a 12-month pilot, which we're still looking at. We're measuring the results in three categories. Although we're not prepared to share specific numbers, it was do we have current teams expanding to six plus and growing larger? Are we recruiting teams at a higher rate of six-plus? Are we retaining our teams of six-plus? Those are the three categories we’re using to benchmark. We can just say at this point that we're still just over midway in the pilot, so there will be more to report later this year. I mentioned the five states that it includes currently. We're going to continue to watch those results over the next quarter or two and determine what our final course of action is for teams across the entire US. But I can tell you that we're seeing in all three of the categories that we're measuring, an uptick and positive signs in all three, so more to come.

Steve Joyce, CEO

Yes. From our perspective, we emphasized this during the launch: we needed a significant strategy to reduce the loss of our larger teams. We introduced a strong program that has been positively received, and the feedback has been encouraging. In the three categories Nick mentioned, especially retention, we are beginning to see the results we anticipated. Although it's still early, we believe our efforts have positively influenced the situation. The key question for us is how much we've changed the dynamics. Part of our approach was to prevent further losses from our existing teams, but we also made a notable effort to attract competitive teams. That seems to be effective, so we'll monitor the results.

Tommy McJoynt, Analyst

Got it. Thanks. And then on a different topic, does the guidance contemplate any increased costs around potential litigation that might be slated for later in the year, whether it’d be legal fees or actual settlement costs? Just is there any kind of numbers kind of baked into the guidance?

Steve Joyce, CEO

Karri?

Karri Callahan, CFO

Yes. So with respect to the guidance from that perspective, it does include our ongoing professional fees to defend the company with regards to any litigation matters that are outstanding, but that is all that is included at the time.

Tommy McJoynt, Analyst

Got it. Thanks, Karri.

Operator, Operator

And we will take our next question from Ronald Kamdem with Morgan Stanley. Your line is open.

Ronald Kamdem, Analyst

Hey. Good morning. Just a couple of quick ones from me. Just starting with the guidance on the adjusted EBITDA. I think you talked about maybe trending a little bit below sort of the midpoint, if I heard that correctly. Maybe can you talk about what are some of the moving pieces? Is it agent count? Is it margin? Is it some of the bad debt? Just maybe can you talk a little bit about what the moving pieces there?

Karri Callahan, CFO

Sure. So we're very happy with obviously how the company is performing in the light of things. It's still a difficult time to forecast on, obviously, on the full year. As I mentioned earlier, bad debt expense and some of the headwinds that we had in the first quarter is part of that. And then, we're just kind of being pragmatic in terms of where we are on the top line as well. So it's a little bit of a combination in terms of the ongoing investments in the business, bad debt expense, and a little bit of volatility on the top line.

Steve Joyce, CEO

Yes. As we began the quarter, we were uncertain about our projections, anticipating performance similar to the end of the previous year, which unfolded during the quarter. However, there were positive signs in March, particularly with Motto showing improvement, suggesting that this upward trend might persist after a turbulent end to the previous year and beginning of this year. We're optimistic about this development. On the M&A front, we are making significant strides, with Nick's team engaging with a strong group of companies, and many of those deals are starting to materialize. We've also discussed the initiatives taken by the team. Looking ahead, we'll monitor the macroeconomic conditions. We have considerable potential for growth since we haven't factored any increase into our forecasts. Any uptick, especially in mortgage fees, would be highly beneficial for us and could enhance our margins. Our approach remains focused on our commitment to investing in the business while returning capital to shareholders through dividends. We are also considering the possibility of an improving market environment, which is not reflected in our current numbers. We are noticing some encouraging trends and will see if they persist throughout the year.

Ronald Kamdem, Analyst

Great. That's helpful. And just switching gears to the cash flow statement. I see $3 million of operating cash flow in the quarter, which seems like a pretty low conversion versus the adjusted EBITDA. Maybe can you talk about are there any timing or one-timers? How do we think about that EBITDA conversion to cash flow for the full year? Thanks.

Steve Joyce, CEO

Karri?

Karri Callahan, CFO

Sure. So the first quarter is always seasonally low for us as we look at earnings to free cash flow conversion. Our four convention this year was a little bit spendier, given the 50th anniversary celebration, and that was also contributing to some of the pressure that we saw in the first quarter from a margin perspective that's also flowing through to the full year. So expect the seasonality of the industry and as business picks up. As we look at it on a full-year basis, looking at earnings to free cash flow on an adjusted EBITDA basis, in that 50% to 55% range. So getting back to be really a hallmark of the business.

Ronald Kamdem, Analyst

Great. And my last one, I think I had in my note on the management search, CEO search transition. I think that could be stale, but is there any update on that on how that's going? How you guys are thinking about that, or do I have that wrong?

Steve Joyce, CEO

No, no, no. We update it. We've hired ZURK, and they're a well-known recruiting firm, particularly as it relates to CEO searches. Part of the reason we hired them is they have a very thorough and analytical approach to vetting candidates. We're vetting candidates both internally and externally. What we said was that based on the current program and progress, we would fully expect to be bringing in a permanent leader CEO sometime this summer.

Ronald Kamdem, Analyst

Okay. And that's still the target?

Steve Joyce, CEO

Yes.

Ronald Kamdem, Analyst

Okay. Excellent. Thanks so much. Helpful.

Operator, Operator

And we will take our next question from Stephen Sheldon with William Blair. Your line is open.

Stephen Sheldon, Analyst

Hey, good morning. First, one here on US agent count trends. It's ticked down sequentially here for three quarters. But I think you also noted some more positive trends there later in the first quarter. Can you provide some more detail on what you're seeing there? What specifically drove the more positive trends later in the quarter? Just generally, how you're thinking about US agent count over the rest of the year?

Steve Joyce, CEO

Nick, you want to take that?

Nick Bailey, CEO, Motto Brand

Sure. Starting in Q1, when we look at January, what we believe that we see and have seen there typically in January is our brokers kind of doing a roster-cleanup. Based on our model, I mentioned earlier, we're not known for a place to hang licenses for non-productive agents. After the first of the year, we do see that. I think that also combines with the fact that there was seasonality, roster-cleanup, and rebalancing of the market kind of all took place simultaneously through the end of Q4 and the beginning of Q1. But as we finished through or went through Q1, we saw improvements in agent count overall and we're walking into Q2, which is kind of that prime recruiting season. That combined with the initiatives and MAX recruits that we mentioned, we are optimistic about how that will continue to reverse the trend of the first of the year for many reasons, but also continue to hopefully drive growth throughout the rest of the year.

Stephen Sheldon, Analyst

Got it. That's helpful. For Ward, regarding the increase in Motto franchise sales, can you share any insights on who is opening new franchises? Are these new franchisees coming from existing RE/MAX franchisees or from those not previously affiliated with RE/MAX? It seems that sales productivity has been strong despite higher attrition. Have you made any adjustments to reach full sales capacity this summer? Any details you can provide would be appreciated.

Ward Morrison, CEO, RE/MAX Brand

Sure. I think the biggest thing is we continue to sell a majority, over 70%, to real estate companies and real estate teams. There has been an uptick, I would say, in independent real estate companies and real estate teams recently. I think that comes from when rates have changed, when things have slowed down in the real estate industry, they realize they need to get into ancillary services. Therefore, we are the right connection to get into that, particularly in the mortgage segment. So, I think that's where we've seen the most interest is from real estate companies who saw a little bit of a slowdown in the real estate side, saying, 'Hey, we need to make sure we're going across the transaction, mortgage, title, insurance, etc.' I think the model has been in good shape. As our salespeople have gone out, they really are concentrated on those real estate companies that have purchase originations, and that's where we're seeing the most impact right now. So we're feeling positive about it for the rest of the year. We'll see what the macro dictates, but as that rate stabilizes, it really did bring the pipeline back up.

Stephen Sheldon, Analyst

Okay. Thank you.

Operator, Operator

And we'll take our last question from Ryan McKeveny with Zelman & Associates. Your line is open.

Ryan McKeveny, Analyst

Hey. Good morning. Thank you for taking my question. Just one on Canada. I guess, I'm hoping maybe you can give us just an update generally on macro, how things are trending directionally, maybe relative to the US housing market. Then on the agent count side of things, obviously, Canada has seen very strong growth over the last couple of years. Good year-over-year numbers. On a sequential basis, there was a little tick down. I think that's the first time we've seen that in maybe 10 quarters. I'm curious, is that a function of broader macro dynamics within Canada, or is that maybe a function of just having that really strong growth over the last couple of years on top of really good penetration that you already have in Canada? Any thoughts there would be helpful.

Steve Joyce, CEO

Yes. I'll have Nick provide more details on this. Generally speaking, it's still a positive indication. The Canadian market has weakened, although not as much as the US market, and this is partially influencing some of the results. However, we view the growth in Ascot as a very strong positive, which makes the acquisition we made 1.5 years ago even more advantageous for us. Nick, would you like to discuss the broader market and our performance?

Nick Bailey, CEO, Motto Brand

Sure. In Canada, we saw some parallels with the U.S. regarding interest rate changes and market adjustments. Canada's situation was slightly different due to the announcement of their three-year immigration plan, which aimed to address the demand for new construction and housing labor. This plan coincided with a temporary restriction on international buyers. We've observed similar situations in Canada before, and such announcements typically trigger market reactions, which we noted over approximately 90 days. The encouraging aspect of the Canadian market is that our market share is substantial. In many regions, we hold the top market share, often exceeding 30% and even higher in certain areas. Maintaining this level of market share across the country is a key factor in promoting ongoing growth. While we did notice a slight decline in Canada since the start of the year, the rebound has been quicker than what we have seen in the U.S. As we progress through 2023, we continue to see very promising signs in Canada.

Ryan McKeveny, Analyst

Great. Very helpful. Thank you.

Operator, Operator

And with no further questions, I will now turn the call back to Andy Schulz for closing remarks.

Andy Schulz, Senior Vice President of Investor Relations

Thank you, operator. That concludes today's call. Thank you to everyone for joining us. Have a great weekend.

Operator, Operator

And ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.