Earnings Call Transcript - RMAX Q3 2025

Operator, Operator

Good morning, and welcome to the RE/MAX Holdings Third Quarter 2025 Earnings Conference Call and Webcast. My name is Colby, and I'll be facilitating the audio portion of today's call. At this time, I would like to turn the call over to Joe Schwartz, Senior Vice President of Finance and Investor Relations. Mr. Schwartz?

Joe Schwartz, Senior Vice President of Finance and Investor Relations

Thank you, operator. Good morning, everyone, and welcome to RE/MAX Holdings Third Quarter 2025 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 replay of the call today. Our prepared remarks and answers to your questions in 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 settlements, 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 third quarter 2025 financial results press release and other SEC filings. Also, we will refer to certain non-GAAP measures in 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 Erik Carlson, our Chief Executive Officer; and Karri Callahan, our Chief Financial Officer. With that, I'd like to turn the call over to them. Erik?

Erik Carlson, CEO

Thank you, Joe, and thanks to everyone for joining us this morning. We're pleased that the momentum we've built in the first half of the year continued into the third quarter. Our total RE/MAX agent count reached another all-time high, fueled by steady global growth and our best third quarter U.S. agent count performance in 3 years. Based on feedback from the membership, we believe our mix of new ideas and products, along with our reinvigorated recent network events are enhancing our value proposition and generating great energy. At the same time, our constant focus on operational excellence, again, drove profitability and margin performance that exceeded our expectations. And while existing home sales have yet to show sustained signs of recovery, our networks continue to perform resiliently. From a macro perspective, the trends we saw in our RE/MAX National Housing Report earlier in the year continued in September as inventory increased 20% over September 2024, marking the 21st consecutive month of year-over-year growth. Additionally, new listings, which have slowed some over the summer, rebounded in September, growing 4.5% over August. We believe these sustained increases are constructive for housing and will help support increased transaction activity. However, affordability remains a challenge, particularly at the lower price points. Further downward movement in mortgage rates would be welcome news. From an industry perspective, this year has seen consolidation activity on both the large and small scale. Given existing industry dynamics, we believe the current state of change creates exciting opportunities for our company and networks. We continue to have a robust franchise sales and conversion pipeline and are building on the momentum of recent additions, including RE/MAX Hawaii, which catapulted RE/MAX to a #2 market share position in the state. This momentum is bolstered by our innovations and ongoing enhancements to our value proposition, which has spurred a lot of excitement throughout our networks and the industry. I've never felt more positive about what lies ahead for our company, and we're going to continue to evaluate all opportunities to drive enhanced value for all of our stakeholders. As of September 30, our worldwide agent count of over 147,500 agents was another record high, and U.S. agent count had its best third quarter in 3 years. Although we're not where we want to be, the underlying agent fundamentals are encouraging. We said last quarter that May and June were the first 2 months of the year where our agent recruitment rate increased year-over-year. This positive momentum carried into Q3, where the recruitment rate for each month of the quarter was higher than last year. Producing agents continue to be drawn to RE/MAX and the quality of our network was reflected in the recently released 2025 REAL Trends Verified City rankings, where we had more agents represented than any other brand. Although Canadian agent count was down slightly year-over-year, we saw modest sequential growth despite a continued challenging housing backdrop. We appreciate that being a broker and an agent is difficult in this market. And historically, we know that the number of producing agents in the industry tends to correlate with the level of existing home sales. We're encouraged by the results in both the U.S. and Canada given the current state of the markets, and our international agent count continues to be a bright spot, surpassing 73,000 agents. Momentum in agent recruiting has been fueled by many of our ongoing initiatives. Our Aspire program continues to be a success with approximately 1,500 agents benefiting from the program. Although it's still early, Aspire is performing as intended with an uptick in the recruitment of newer agents and a higher retention rate. Building on the strong reception and feedback from the network on Aspire and leveraging our voice of customer capabilities, we've introduced the Ascend and Appreciate programs in September. These optional economic models offer greater flexibility with respect to how and when a franchisee pays us, further supporting their ability to attract and retain quality agents. While these programs are new, the feedback from the network has been very positive. In addition to providing flexibility with respect to our economic models, we continue to lean heavily into innovation to deliver an elevated experience to all of our affiliates and the consumers they serve. Many of our new offerings like the recently launched RE/MAX Marketing as a Service platform leverage the strength of our scale to create new competitive advantages. The platform is a data-driven, AI-powered system that simplifies marketing for all of our affiliates. The offerings include automated listing packages, complementary and paid campaign options, real-time analytics and property videos created seamlessly with AI. We'll continue to add innovative products to the platform, all of which are designed to help agents save time, win more listings and grow their business. This marketing approach is a strategic shift as we're consolidating fragmented efforts into one seamless experience. Although we're just getting started, the initial click-through rates and engagement results are very promising. We're seeing both the number of orders and users increase each week, and the current weekly order value is indicative of a low 7-figure annual run rate. Notably, we are planning to expand the platform into some international geographies outside of the U.S. and Canada, marking a tangible step to capitalize on the scale of our worldwide footprint, enhance the value proposition globally and diversify our revenue streams. In addition, we continue to innovate on the exciting initiatives we launched last year, leveraging our digital assets. Our Lead Concierge program has been outperforming expectations this year, and we continue to evaluate and add new lead sources. The RE/MAX Media Network is on track with our revised expectations, and we anticipate it will have a 7-digit revenue contribution by the end of 2025. We remain optimistic about the long-term potential of these initiatives. Our story is being told loudly and proudly through the voices of our franchisees and agents, both online and offline. Whether agents are leveraging our MAXEngage platform or other mediums, our momentum continues to build. Throughout our many events over the past several months, excitement and a feeling that something is different about RE/MAX has emerged as a constant theme. And that excitement is carrying forward in our ability to recruit top industry talent to our executive team. We're thrilled to have Vic Lombardo on board as our new President of Mortgage Services. In his role, Vic will oversee the growth of our mortgage business, including Motto Mortgage, wemlo and future evolutions designed to grow our mortgage offerings. In Vic's first 2 months, he's rolled up his sleeves, dug into the operations, surfacing a number of innovative ideas to drive growth, add additional revenue streams and increase operational efficiency. We're already putting foundational pieces in place, and we look forward to sharing more details on our strategy in February. While the mortgage market remains challenging, we've seen a modest uptick in refi volumes in the last couple of months. Our franchisees and LOs continue to persevere, and we're optimistic about the growth potential for our mortgage business. In addition to Vic, Tom Flanagan, our new Chief Digital Information Officer, joined us at the end of September. Tom, a member of the 2025 Swanepoel Power 200 is a great cultural fit and his impressive track record includes 20 years as a real estate innovator and executive in leadership roles covering both technology and marketing. Tom is leading into the potential of AI both to improve the customer experience and to make us more efficient in our day-to-day operations. Not only is he an industry-leading technologist but his experience in ancillary businesses will also be a great asset as we continue to explore future growth strategies. As we look to the future, we continue to lead in our networks and build on our momentum. We're focused on the tremendous opportunities that lie ahead for us. And with a world-class leadership team now in place, we believe we're well positioned for growth in the current environment. We're focused on what matters, continuing to grow our RE/MAX agent count, especially in the U.S. and Canada, enhance and expand our value proposition, improve our customer experience, grow our mortgage business and concurrently diversify our top line drivers as we execute with excellence across our brands. As we move into the last couple of months of the year and prepare for 2026, I want to emphasize that we're in a new era defined by clarity, purpose, and action.

Karri Callahan, CFO

Thank you, Erik. Good morning, everyone. As Erik mentioned, we are pleased with our third quarter operational results and overall financial performance. Our third quarter profit came in at the high end of our expectations and our top line results were solid despite a housing market that continues to be slower than anticipated, highlighting the resilience of our financial model. Some of our notable quarterly financial highlights included total revenue of $73.3 million, adjusted EBITDA of $25.8 million, an adjusted EBITDA margin of 35.2%, an increase of 40 basis points over the third quarter of 2024, and adjusted diluted EPS of $0.37. Looking closer at revenue, excluding the marketing funds, revenue was $55.1 million, a decrease of 5.6% compared to the same period last year, driven by a decline in organic revenue of 5.4% and adverse foreign currency movements of 0.2%. The decline in organic growth was principally due to lower U.S. agent count and, to a lesser degree, certain incentives related to modifications to the company's standard fee models, including our Aspire program. This decrease was partially offset by contributions from our marketing services, including our Lead Concierge and RE/MAX Media Network initiatives. As mentioned, margin performance improved thanks to our focus on ongoing operational efficiencies. Third quarter selling, operating and administrative expenses decreased $3.5 million or 9.7% to $32.5 million. This reduction was primarily due to certain lower personnel and event expenses, partially offset by higher investments in technology in our flagship website and increased bad debt and legal fees. Despite the challenging broader macro and housing environment, our ongoing evaluation of every aspect of our business is paying off. The cash-generative nature of our business converted approximately 60% of adjusted EBITDA to adjusted free cash flow this quarter, and our total leverage ratio decreased to 3.41x as of September 30. Importantly, our total leverage ratio is now below the 3.5x level, at which we are afforded greater flexibility from a capital allocation perspective. And we expect to remain below the 3.5x level at the end of the year. From a capital allocation perspective, our priorities remain unchanged. We are strategically reinvesting in the business, and we'll continue to build our cash reserves. We also believe that we can now evaluate returning capital to shareholders because, at the current price, repurchasing our shares is an attractive use of capital. Now on to our guidance. We are pleased with our Q3 financial performance and are encouraged by the growing excitement from our network and early returns from our initiatives. However, we remain pragmatic about the realities of the current housing market and continued uncertainties in the broader macro environment. As a result, we are tightening the top end of our full year revenue and adjusted EBITDA ranges. Our fourth quarter and full year 2025 outlook assumes no further currency movements, acquisitions or divestitures. For the fourth quarter of 2025, we expect agent count to increase 0% to 1.5% over fourth quarter 2024, revenue in a range of $69.5 million to $73.5 million, including revenue from the marketing funds in a range of $17 million to $19 million and adjusted EBITDA in a range of $19 million to $23 million. And for the full year 2025, we now expect agent count to increase 0% to 1.5% over full year 2024, revenue in a range of $290 million to $294 million, including revenue from the marketing funds in a range of $72 million to $74 million, a change from $290 million to $296 million, and adjusted EBITDA in a range of $90 million to $94 million, a change from $90 million to $95 million.

Operator, Operator

We will now begin the question-and-answer session. Your first question comes from the line of Anthony Paolone with JPMorgan.

Anthony Paolone, Analyst

Just, Erik, I think you mentioned there were 2 programs. You talked about 7-figure contributions potentially. I think it was marketing and maybe it was Aspire. But I was wondering if maybe you can give a little bit more color around can we expect to see that level of incremental revenue in 2026? And maybe what would the margin perhaps look like? Or just a bit more detail on what that trajectory might be.

Erik Carlson, CEO

Yes, thank you, Tony, for joining today. Over the past few quarters, we've focused on adding value to our network, helping them secure more business efficiently while improving profitability for brokerages and increasing agents' earnings. A key part of this strategy involves our marketing initiatives, which we launched around 8 to 10 weeks ago. We're pleased to see strong engagement on our Marketing as a Service platform, which continues to develop as a significant revenue opportunity. We're getting excellent responses, and what's most important is that it’s proving effective. Customers are visiting our site more and engaging with properties, which translates into a greater interest in connecting with agents, all of which helps our team secure listings. This spending is happening in the market, albeit in a fragmented manner. We’ve created a platform with process technology and AI to make this spending more affordable and effective for agents. We believe this presents a substantial opportunity, not just in the U.S. and Canada, where we currently operate, but also internationally, with plans for a rollout in several markets in the fourth quarter to capitalize on that potential you've highlighted before. Additionally, our RE/MAX Media network is generating traffic for our website. We're establishing solid infrastructure, and by the end of the year, we'll introduce a fresh approach for our dot-com and dot-ca sites. Advertisers are responding positively, and while we still have work ahead, they're experiencing good engagement with their ads. We're laying the groundwork for this program, which we project will achieve a 7-digit figure in revenue by 2025 and continue to grow in 2026 and beyond.

Karri Callahan, CFO

Yes, Tony, one thing that I would add in addition to everything that Erik said from a strategic perspective because we are really excited about the engagement that we're seeing from a Marketing as a Service perspective. The margin profile from just a financial standpoint, it does look a little bit different than our core business. So kind of looking in that kind of high single-digit, low double-digit margin contribution perspective. But with all of that said, we just think there's tremendous opportunity in terms of driving the top line from that perspective, just given the engagement we've seen from the network and the overall performance with consumers who have interacted with the product over the last couple of months.

Erik Carlson, CEO

Tony, on the RMN side, the margin profile will be different too. It will be higher than our normal margin profile.

Anthony Paolone, Analyst

Okay. Can you share your thoughts on M&A in the sector and whether it has any impact on your recruitment rate, particularly if you're noticing any movement among people as a result of M&A activity?

Erik Carlson, CEO

Yes, that’s a great question. Last time, we discussed building momentum within our network while focusing on our strategy and value proposition. We are currently seeing a lot of enthusiasm from the network. In my opening remarks, I mentioned that many of the events in the last five or six occurrences have been considered the best ever by the network, which is very encouraging. This indicates that our tools, services, and engagement efforts are resonating well. Additionally, our programs, including Marketing as a Service and our new economic models like Aspire, Ascend, and Appreciate, are also receiving positive feedback. We are experiencing strong engagement and good recruitment rates through the Aspire program. However, it's important to note that there will continue to be consolidation in the market. Since our last discussion, there was a significant announcement that we believe presents additional opportunities and could help accelerate our strategy. We are seeing numerous inbound inquiries, with many people curious about what is happening at RE/MAX and wanting to learn more. Some may have contracts expiring or feel pressure as independents. The increase in inbound activity is very encouraging for our franchise sales and positions us well to capitalize on current market conditions as well as the opportunities presented by the momentum we are building in the market.

Nick McAndrew, Analyst

Erik, maybe one for you to start. I think just with Aspire, Ascend and Appreciate now live, could you maybe just walk through what type of agent you're trying to attract with kind of each of those models? And maybe just how franchisees are thinking about those optional models in practice? I mean, are most rolling them out selectively for recruiting and for the existing agent base they already have? Or maybe if you could just add any color there, that would be helpful.

Erik Carlson, CEO

Yes, thanks for the question, Nick. A few points to highlight. First, the models and the concept of choice are resonating with the network. Brokerages and agents must consider what's best for them. In our last call, we mentioned that about two-thirds of participants have joined Aspire. It’s still somewhat new, but we’re seeing positive signs; Aspire hasn’t diminished our existing organic recruitment efforts for experienced agents. Generally, Aspire has been viewed as an additional benefit. We're also observing higher retention rates with Aspire compared to previous figures. Our combination of education and structured learning technology to support agents in becoming productive professionals is contributing to improved retention. We anticipate that productivity will increase over the next two quarters. Our collaboration with the Buffini Group on their 100-day program should yield even more productive agents within a year. Regarding Appreciate, it focuses on retirement for real estate agents, ensuring they can maintain an affordable presence while leveraging their business. However, they may not be as productive as they were earlier in their careers. Adoption rates for Appreciate are growing, although it takes time for those looking to transition. On Ascend, we’re seeing strong adoption from agents interested in a model with lower fixed fees and higher variable rates. It's crucial for us to demonstrate our commitment to helping agents succeed, whether through leads generated from our website or other means. We’re showing the network that we’re in this together; we’ll share some financial risk and assist agents in growing their businesses. This approach has resonated well with the network, reflecting our philosophy of actively supporting their success.

Nick McAndrew, Analyst

Got it. Yes, that makes a lot of sense. And I guess just a follow-up. I think just given all of the investment in digital tools and marketing capabilities this year, whether it's Lead Concierge or the new Marketing as a Service platform, do you have any sense for just whether you're seeing any tangible uptick in productivity of agents or offices that are more actively engaged with these platforms versus those that aren't?

Erik Carlson, CEO

Look, I think it's a long sales cycle. Some days, you wish you were kind of like a consumer goods company and just selling a bar of soap, but that's not the case. So what I said before, Nick, and I think is helpful is like we're seeing additional engagement on listings, right? And so when you see that type of activity, that will lend itself to, I think, our team winning more business, and that will help improve productivity. So when you roll out programs like these, like increased marketing or Lead Concierge, with our sales cycle, it takes a while to actually see the results. But when you set out and you say, hey, these are a few things that I'd like to see initially to make sure that the program has kicked off in the right way. We're seeing all those green shoots, and we're seeing it actually exceed our expectations. So we're really optimistic about the work that we've done, which is very purposeful investments. One, not only to help our agents and our brokers but also to start to tell a different story about revenue diversification for our enterprise. And so we're really happy with the progress we've made, and we're excited about the reaction from the network and the usage of the tools.

Matthew Erdner, Analyst

I'd like to kind of shift gears and talk about Motto a little bit. You guys touched on some of the initiatives that you're doing there. But I'd kind of like to get your guys' sense a little more in depth of kind of the changes you're making there and get an idea of the profitability. And if it's not profitable, kind of that outlook towards profitability?

Erik Carlson, CEO

Yes, that's a great question. I think my initial comments may have indicated that we would discuss this further in February, but let me share some insights now. Over the last six to ten weeks since Vic joined us, we have taken a fresh perspective on the mortgage opportunity. This involves not just Motto and our processing group; we see potential to revamp the model to be less fixed and more variable, similar to what we’ve done in real estate. We need to enable our network and loan officers to find and capitalize on business opportunities, which will enhance their profitability and the value of owning a Motto franchise, as well as our overall value proposition. It's still a bit early for specifics, but I can tell you that we have a renewed focus not only on the franchise business but also on seizing the mortgage opportunity as it relates to transaction volumes and connections with consumers, agents, and brokers across our footprint in the U.S., Canada, and beyond. We are truly excited about the initiatives we are currently developing, but it's too early to outline the strategy in detail.

Matthew Erdner, Analyst

Got it. Yes. I appreciate that. And then kind of as a follow-up to that. How do you guys plan on leveraging that agent network that you guys do have, given that you guys are up there pretty much every year in terms of transaction size so the opportunity there is pretty large.

Erik Carlson, CEO

Yes. I mean, I think you're seeing us lean in, in a variety of different places. So whether that's providing services like the Marketing as a Service platform, which not only improves agent execution on marketing at a lower price point, but also helps us to obviously improve the monetization event through either the agent or the consumer. The RE/MAX Media Network is a perfect example, Lead Concierge as an example. And obviously, some of the high-level hints that I provided to you on mortgage are also examples. So you're just seeing us lean into our business and really think about what else can happen through the agent or the consumer transaction. And I think that the other item we're really working on is what happens post-close. I come from a place where we were dead set focused on the consumer experience. And we are focused here on the customer experience for brokers, agents and that end buyer seller to improve that, not only before the transaction and when they're shopping or researching a particular property or an agent or a brokerage but also during the transaction to make it as easy as possible to do business with us and our network and then also to make sure that we're nurturing those folks post-close in a value-added way. So not just an email once a month, but making sure that it's meaningful to help them with their home buying and home ownership experience.

Thomas Mcjoynt-Griffith, Analyst

The first question is about the organic revenue impact related to the changes in the standard fee model. Can you provide some context on the size of that impact? Should we think of that as a regular trend, or does it change after a year? How should we approach that?

Karri Callahan, CFO

So great question. I think, as Erik said, we're really excited about the Aspire program. It's really driving the benefits that we had hoped for in terms of increased recruitment rates for newer agents. And also, we're seeing churn decline in that cohort as well. And we knew kind of from the very beginning that there would be a little bit of an upfront investment as those agents came on board, got trained up and then started to produce transactions. And so we do think it is a little bit of a short-term investment cycle because as those agents continue to get ingrained in our tools and services, start leveraging Marketing as a Service, really lean into our education and become the trusted professional that is the hallmark of the RE/MAX brand, we think that will dissipate over time. It was just a little bit of a near-term headwind as they're onboarded. So Erik mentioned it's about 1,500 agents. And so that's kind of the quantification, but we think it is near term in nature, and we absolutely think it was a prudent choice because, as Erik said, we're really trying to partner with our franchisees, help them build their businesses and help us really kind of create that flywheel for agents to participate in the other tools and services that we're offering holistically from a brand perspective.

Thomas Mcjoynt-Griffith, Analyst

Okay. And then in the sort of capital allocation priorities, returning capital through buybacks has been on the list but for the lower end for a while now. I guess, is anything different now that would make you guys more interested in buying back shares now? Should we expect to see some buybacks by year-end? Any more commentary around that?

Karri Callahan, CFO

Yes, that's an important question. From our perspective, what stands out this quarter is that we've effectively reduced our leverage. Our total leverage ratio is below 3.5 times, which gives us more flexibility. In terms of capital allocation, we are actively exploring options to direct our capital towards areas that offer the best returns. There are numerous strategic initiatives currently in motion that aim to create additional value and services. While we'd like to decrease our leverage even further, being below 3.5 times allows us to see returning capital as a beneficial use, and more updates will follow.

Operator, Operator

Thank you. So with no further questions in queue, I'd like to turn the conference back over to Joe Schwartz for any closing comments.

Joe Schwartz, Senior Vice President of Finance and Investor Relations

Thank you, operator. That concludes today's call. Thank you all for joining us today.

Operator, Operator

This concludes today's conference call. You may now disconnect.