RE/MAX Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 23, 2024

There are 12 speakers on the call.

Operator

Good morning, and welcome to the REMAX Holdings 4th Quarter and Full Year Earnings 2023 Earnings Conference Call and Webcast. My name is Christa, 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 Schultz, Senior Vice President of Investor Relations. Mr. Schultz, you may begin.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to REMAX Holdings' 4th quarter and full year 2023 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 facility, dividends, share repurchases, litigation settlement, strategic and operational plans and business models.

Speaker 1

Forward looking statements represent management's current estimates. REMAX 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 Q4 2023 financial results press release and other SEC filings. Also, we will refer to certain non GAAP measures on today's call.

Speaker 1

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 Eric Carlson, our Chief Executive Officer and Gary Callahan, our Chief Financial Officer. Our brand leaders, Ward Morrison and Amy Lessinger are here and will join us for Q and A. With that, I'd like to turn the call over to REMAX Holdings' CEO, Eric Carlson. Eric?

Speaker 2

Thank you, Andy, and thanks to everyone for joining our call today. I'm very excited to be with you on my first earnings call and to be leading the company during this pivotal time for our team and the broader housing market. Our industry leading brand, attractive financial model and unique competitive advantage create substantial opportunities in today's real estate landscape. As many of you know, I'm relatively new to this position, having joined the company in mid November and I continue to be bullish about our future. Today, I'm going to share some initial observations from my first 100 days.

Speaker 2

Then Cary is going to discuss our Q4 performance in more detail and give you our Q1 and full year 2024 outlook. And as Andy mentioned, Ward and Amy are also here for what we think will be an informative QA session. Since my arrival among my highest priorities is focusing on our people and our leadership team. Having the right people in the right position is absolutely vital to our future success. And that's why I'm delighted to announce the promotions of 3 of our senior leaders, Amy Lessinger, Addie Lee and Susie Winters.

Speaker 2

Amy is a passionate member of the REMAX organization for over 25 years as an agent, a team leader, a franchise owner and now a member of our executive leadership team. She's being promoted to President of REMAX LLP, where she will lead the REMAX brand and network. She succeeds Nick Bailey, who is leaving the company. Abby Lee is being promoted to Executive Vice President of Marketing, Communications and Events. She will continue to lead advertising, marketing, communications and public relations in addition to now managing the company's events team.

Speaker 2

And Susie Winders is being promoted to Executive Vice President, General Counsel, Chief Compliance Officer and Secretary. Amy, Abby and Susie will all report directly to me. Look, these are well deserved and positive changes that I believe will help us navigate the road ahead and realize our full potential. During my first one hundred days, I spent a considerable amount of time listening, learning and leading, meeting with hundreds of stakeholders. I met a lot of great people and heard a lot of innovative ideas, which I know we can leverage.

Speaker 2

It's been a bit of a drinking from a fire hose sort of experience, immersing myself into our business, covering everything from high level strategy to the details of various processes, systems and structures. During these conversations, I'm often asked, Terrence, what attracted you to the company? Why did you take this job? Well, initially, I was drawn by the company's purpose, helping people realize their dream of homeownership. For many of us, buying or selling a home is almost one of the most important decisions that we make and one of the most joyful days that we'll experience in our lifetime.

Speaker 2

Also, I was equally energized about joining the company because of what I knew about REMAX, an iconic brand that's number 1 worldwide in residential real estate side. REMAX has a brand people know, an unmatched global presence, a unique value proposition of services and competitive advantages and most importantly, the most dynamic, most productive and most trusted agents and brokers in the business. Known for being skilled, experienced and very good at what they do, REMAX agents have made REMAX the world's most productive real estate network. And in the U. S.

Speaker 2

And Canada, consumers have voted them the most trusted agent for several years straight. Look, REMAX agents are simply the gold standard. The original REMAX business model, which gives entrepreneurs the way to maximize their careers, is still thriving around the globe. Over 140,000 REMAX agents in more than 110 countries and territories deliver positive outcomes to buyers and sellers every single day. And we believe REMAX still has a lot of room to grow.

Speaker 2

I'm also enthusiastic about the mortgage side of our business. Both Motto and WeMo have unique product offerings that have shown great promise in the marketplace. With better end market conditions and a continued focus and effort, we have confidence that with time, our mortgage segment can grow into a meaningful revenue business. The bottom line, I'm here because I believe I can make a difference. While we're motivated by and confident in our competitive advantages and those in pricing potential growth opportunities, we are acutely aware of what we need to do to improve our performance.

Speaker 2

2 of our top priorities in the playbook are clear. We need to stabilize and grow UAS agent count and expand the mortgage business. Posting gains in those two areas would build market share, increase revenue and earnings, each will create momentum for additional growth. That won't be easy, but we know how important those two objectives are in both the short and the long term. The better news from what we saw in 2023 is encouraging interest rate trends, improving customer sentiment and ongoing pent up demand bode well for progressively better housing market performance moving forward, one that should get incrementally better as the year goes on.

Speaker 2

As it relates to our business, our team continues to see plenty of opportunities. Throughout my career, I've been focused on continually improving the customer experience, delivering distinctive products and services that meet customers' needs, diversified financial performance and leveraging best in class capabilities that enable teams to win. So utilizing my sales, marketing, operations and leadership background, our playbook will concentrate on operating our business as effectively and efficiently as possible, having a growth mindset and focusing on delivering the absolute best customer service. We've got a great foundation to build on. Our team, our affiliates, they're passionate about our brand, about each other and about innovating, growing and simply getting better each and every day.

Speaker 2

Since mid November, we've spent time assessing what programs to accelerate, what programs to expand and which to discontinue. This allows us to be more effective and will enhance our ability to fast track programs that make a difference. And that's why we believe our current strategic growth initiatives provide us with the best opportunity for improved performance this year and build on the foundation for the long term. We continue to see measurable progress and positive results from our programs. Current market conditions have certainly overshadowed the desired results.

Speaker 2

However, we're eager to see how our initiatives perform in an improving market and we are optimistic that we can deliver better outcomes. When our growth programs were announced in mid-twenty 22, the team knew the conversions, mergers and acquisitions or CM and A and the team's efforts in particular would require some time to communicate, to gain traction and to build momentum and that's proven to be the case. Now when we look back at the original cohort of brokerages that joined us in 2022 via the CM and A program, our 1 year returns were in line with expectations and the number of completed transactions more than doubled year over year in 2023. On the team front, the original pilot program launched in 2022 was expanded last summer in a modified version and has continued to help broker owners bring more agents and teams into the network while incentivizing smaller teams to grow. As a result of the program's impact and our lessons learned, we're expanding the modified version of the program to encourage team recruitment and growth across much of the U.

Speaker 2

S. From our perspective, this is prudent. It's a prudent investment that will help franchises grow their offices, help team leaders build larger teams. And simultaneously, it sends a message across the industry that teams have yet another reason to affiliate with REMAX. Our full value proposition for teams is compelling and we have 3rd party validation that REMAX teams are more productive than the norm.

Speaker 2

In many respects, the investment illustrates our commitment, a commitment to growing U. S. Agent count and we believe growth initiatives like this over time will help us regain crucial upward momentum in that regard. Now on the mortgage side, we remain confident in our mortgage in a box product offering, growth prospects of our 2 brands and the investments we've made in the respective sales organizations over the past year. In 2023, during one of the most challenging end market conditions the mortgage industry has faced in recent history, we nonetheless grew our mortgage business, which when you think about it, it's a remarkable achievement and one that not too many other companies can claim.

Speaker 2

Now having said that, our growth was muted and our Motto churn rate did pick up. Even in a rebounding market like the one we expect to see in 2024, our overall OpenMotto office count will continue to face macro headwinds. And it's likely going to be flat to slightly up for the year. Now we expect to steadily improve our franchise sales as the market stabilizes and we rebuild our pipeline. Lastly, in September, REMAX LLC entered into a nationwide settlement associated with costly industry litigation.

Speaker 2

We did so to protect our U. S. Agents, franchisees and the company from multiple class action lawsuits. The proposed settlement is subject to final court approval slated for early May. And while the settlement came at a significant financial cost, we believe it was the right decision for all of our stakeholders, affiliates, employees, shareholders and debt holder alike.

Speaker 2

We view it as an investment in the brand, the network, the franchisees and most importantly, the agents. Many people have suggested the proposed settlements of differentiator could actually create a new competitive advantage. We certainly hope so and think it can be. With that, I'll turn it over to Carrie.

Speaker 3

Thank you, Eric. Good morning, everyone. Better than expected margins from expected expense management highlighted our 4th quarter performance, driven by deliberate moves we made last summer to right size our cost structure amidst a very challenging housing market. Some of the notable quarterly financial highlights included total revenue of $76,600,000 adjusted EBITDA of $23,000,000 with an adjusted EBITDA margin of 30% and adjusted diluted EPS of $0.30 Looking closer at revenue, excluding the marketing funds, revenue was $56,000,000 a decrease of 5.8% compared to the same period last year. This decrease was driven by negative 5.6 percent organic growth and adverse foreign currency movements of 0.2%.

Speaker 3

Organic growth decreased principally due to a reduction in U. S. Agent count and lower broker fees, partially offset by higher mortgage segment revenue. Notably, while our organic growth rate remained negative, the pace of the decline did slow since Q3 as we started to lap the tougher comparable quarters. Q4 selling, operating and administrative expenses increased 9.6 percent to $39,100,000 primarily due to changes in the fair value of contingent consideration liabilities.

Speaker 3

During the Q4, given the continued macroeconomic pressures which caused mortgage rates to reach multi decade highs, we revised the mortgage segment's near term franchise sales forecast for the next 3 years. This, along with fewer than expected franchise sales in 2023 caused a decline in our mortgage segment projected future cash flows. The reduction in our near term franchise sales outlook was the principal driver of the non cash goodwill impairment charge of $18,600,000 Despite the current headwinds, we remain bullish on our mortgage opportunity and believe we can meaningfully accelerate our franchise sales pace over the medium and long term given the compelling value proposition offered by both Motto and Wing Lo. From a capital allocation perspective, our priorities are unchanged since last quarter. While we are pleased to have been granted preliminary approval of our settlement and are seeing some reasons for optimism from a macro perspective, uncertainty with respect to 2024 remains.

Speaker 3

As a result, we continue to be responsible stewards of capital and think it's best to focus on replenishing our cash in the near term. That said, we believe we still have the financial flexibility to pursue those growth opportunities where we see the greatest potential. Before I get to our outlook, I wanted to mention a few items impacting year over year comparisons. 1st, last year was the REMAX 50th anniversary celebration and our annual agent convention had the highest attendance in more than 15 years. We do expect a smaller crowd this year, resulting in a reduction to other revenue in Q1 of between $3,000,000 $3,500,000 In addition, given the wind down of our booj, 1st and Gadbury operation, we expect a year over year decline of approximately $3,000,000 in revenue and $1,000,000 in adjusted EBITDA in FY 2024.

Speaker 3

Of this amount, we expect the Q1 impact to be a year over year of approximately $1,000,000 in revenue $500,000 in earnings. Last, as a follow-up to what Eric mentioned related to Teams, the modified and expanded Teams program offers an alternative fee structure that is designed to support and encourage the growth of medium to large sized teams. To activate the program's financial incentives, which include reduced recurring fees and a broker fee cap, a brokerage in an eligible state must first add any combination of 6 new team leaders or members from outside of the network. As a result of this growth requirement, we expect to incur less than $1,000,000 of foregone revenue in 2024 related to the expansion of this program. We included additional details about the initiative in our Form 10 ks and are happy to answer any questions you might have regarding the program.

Speaker 3

Our Q1 and full year 2024 outlook assumes no further currency movements, acquisitions or divestitures. For the Q1 of 2024, we expect agent count to change from a negative 0.5 percent to a positive 0.5 percent over Q1 2023 revenue in a range of $75,000,000 to $80,000,000 including revenue from the marketing funds in a range of $19,000,000 to $21,000,000 and adjusted EBITDA in a range of $16,500,000 to 19,500,000 dollars For the full year 2024, we expect agent count to change from a negative 0.5 percent to a positive 1.5 percent over full year 2023, revenue in a range of $300,000,000 to $320,000,000 including revenue from the marketing funds in a range of $78,000,000 to $82,000,000 and adjusted EBITDA in a range of $90,000,000 to 100,000,000 dollars With that operator, let's open it up for questions.

Operator

Thank you. Your first question comes from the line of Soham Bansal from BTIG. Please go ahead.

Speaker 4

Hey, everyone. Good morning. Hope you're doing well.

Operator

Good morning.

Speaker 4

Eric, welcome to the fold. I guess you've had some time to sit back and assess the whole situation and sounds like what you're saying is the current programs that you have in place are sort of where you want to go going forward. So just want to hone in that hone into that for a little bit and maybe just provide us some quantification around what benefits you're seeing from these programs versus folks that are not in this program just to give us confidence around agent count growth and of that sort?

Speaker 2

Yes, sure. I mean, I think I'll let maybe Amy talk a little bit about some of the benefits that she's hearing specifically from the network. But look, I mean, I'm just over 3 months now. I appreciate the welcome. I am, as I stated earlier, drinking a little bit from a fire hose and I've been on a bit of a tour of duty.

Speaker 2

And I think from a high level perspective, there's definitely opportunities. I mean, I'm not trying to hide the fact that 2023 was definitely a rough year for the industry and for the team. But I think what the team has done a good job of and we'll continue to build on this because the foundation is there is to continue to focus on some things that are working and discontinue some things that may not be as effective. And so as we pointed out not only in the 10 ks, but in the opening remarks, there are opportunities still with franchise sales. TM and A is a good program for us.

Speaker 2

And the team's initiative, although my personal feeling is it was in pilot way too long, is we have to get that out and we have to get that out in a prudent investment type manner, right? So, but we are hearing good feedback from the channel. I'll let Amy maybe dip into that a little bit more to provide you some color. And then I'm happy to take a follow-up on that, Soham.

Speaker 5

Sure. Good morning. It's important our initiatives are really driving the desired behaviors and outcome. That's evident from the CM and A results given that they doubled. So we intend to put our foot on the gas there and continue forward.

Speaker 5

An example is we added hundreds of agents in Q4 as a result of that. In addition with teams expanding, we've seen great results and we've now launched it to our additional U. S. Core states. And so we anticipate good results from that.

Speaker 3

Hey, Sojama, it's Kerry. Just a couple of things that I would know more from a financial perspective, because I agree with what Eric and Amy have commented on. 1, as it relates to CM and A, we have done some look back analyses and the returns on those are really consistent with what our expectations are. So we're really doing everything we can to meet our customers in the marketplace with different innovative solutions and bringing those to REMAX given the strength of the brand. And then from a team's perspective, also just wanted to highlight some of differences there in terms of the rollout.

Speaker 3

When we announced, the modification, there's a different component there. And it's really some lessons learned as we've iterated and gone through this program, where we have to we're requiring our franchisees to actually bring on new agents to be eligible for the fee concessions. So they have to bring in 6 additional agents into their brokerage before they're eligible to participate in the program. And so as I mentioned in the scripted remarks, it's about a $1,000,000 investment that we expect currently this year, which is a lot less than the investment was when we launched in the initial 5 states in the summer of 2022.

Speaker 4

Okay, great. Thanks a lot for the color. And then, Carey, on the revenue guide, it's coming a little lighter than we were expecting. But then if I sort of marry that with just where you are sort of forecasting agent count to be, it looks like expecting some sort of lift in the back half. And so should we take that to mean that the lower revenue really the biggest piece here is the Motto piece and then everything else is sort of smaller, just any sort of level of impact would be helpful.

Speaker 3

Sure. Yes. So I guess I would highlight kind of 3 things there. One, keep in mind and I mentioned this in the scripted remarks that in Q1 we are expecting headwinds of $3,000,000 to 3 point 5 $1,000,000 to 3 point 5,000,000 because of our annual agent conference. Last year, the 50th anniversary, just had the highest attendance we've seen in about 15 years and we do expect lower attendance this year.

Speaker 3

We also have some year over year headwinds just with the wind down of our legacy tech business. So on a full year basis, that's another call it roughly $3,000,000 and then the $1,000,000 that I mentioned on the Teams initiative. And then we've got, puts and takes throughout the course of the rest of the business. On the mortgage side, we were pleased to see, obviously, in a very, very difficult end market. We did, eke out a little bit of organic growth in 2023.

Speaker 3

As we look ahead to 2024, still think that there's a lot of optimism around that business, but the growth rate looks probably comparable, if not just a little stronger.

Speaker 4

Okay, great. And then just Carrie quickly on the TLR, if there's an update there that would be helpful too?

Speaker 3

Sure. So we disclosed a lot of information with respect to that in our 10 ks. Based on how we look at the TLR calculation in accordance with the credit agreement, as of the end of the year, we're looking at a ratio of 7.8. One of the things that's really important there though that I wanted to stress is that we do anticipate being below that 4.5 times by the end of the Q3. And I think the thing that we always just have to keep in mind is the overall strength of the model, right?

Speaker 3

The 100% franchise business, the asset light model. As Eric mentioned in the scripted remarks, we think the settlement is an investment that is having an adverse, obviously impact on the TLR right now. But we'll get past that here in 2024 and move forward with the operational and financial strength and characteristics of the business.

Speaker 4

Okay, great. Thanks a lot for the color.

Operator

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

Speaker 6

Great. Thanks. Welcome, Eric, and congratulations, Amy. My first question is maybe can you maybe step back because it sounds like maybe you learned some lessons with the Teams rollout and the broker rollout and just refresh us on just what exactly the value proposition and what REMAX is offering for teams to come over? And just want to try to bridge sort of that financial impact and kind of what that what exactly the incentives are?

Speaker 3

Hey, good morning, Tony. It's Carrie. I'll go ahead and start and then, if there's anything that I've missed, the team can jump in. So I think when we look at the overall Teams offering, we're looking at it, kind of across 3 different verticals. One is from kind of an education perspective.

Speaker 3

We've got a lot of initiatives with various partners in terms of how do we help our brokerages and our team leaders not only build and scale their businesses at a brokerage level or at a team level. The second piece is around technology. So the launch of the kvCORE platform, was instrumental in terms of providing a team specific instance to help teams more effectively and efficiently manage their business. Because at REMAX whether you're an individual or a team productivity is key to us and everything we do to enable our network from a technology perspective is important. And then lastly, looking at how can we really be competitive in the marketplace from an economics perspective.

Speaker 3

And so I think those first two pillars are things over the course of the last 18 months as the pilot has been in place that we've really focused on. From an economics perspective, the changes that we've made is in the initial 5 state rollout. We had there was not a growth component. And so it was basically entirely foregone revenue. When we announced that program back in 2022, we said it was going to be an annualized impact of kind of $3,000,000 to $4,000,000 just for those 5 states.

Speaker 3

Now what we've learned is we really want to partner with the network and that's important from a growth perspective and make sure that they've got some skin in the game. And so now there is the growth requirement where offices, franchisees have to recruit 6 new team members or team leaders into their office. And at that point, they'll be eligible for the competitive fee program. And that's why the financial impact is a little bit less for the rest of the rollout.

Speaker 6

Okay. So then just to understand though, there's some financial impact with this, but if you all deem it successful and it's working and it gets fully rolled out, like should we expect just continued financial headwind until the whole thing is, I guess, kind of dialed into the system? Like is that a couple of years process or trying to play that out?

Speaker 3

No. I mean, it might because we're rolling it out effective for 1, there could be a little bit of a trickle into Q1 of 2025. But it probably is a 12 month investment and then we should have tailwinds after that.

Speaker 6

Okay. And then just my follow-up is just a bit more bigger picture on just U. S. Agent count. Do you think there's a lot more to go in terms of agents leaving the industry given just the muted level of activity now for a decent amount of time?

Speaker 6

Like is there a lag there? And I understand the REMAX agents are more productive and likely push through all this. But just trying to get your view on kind of where we are in terms of just the overall industry and how much more there might need to be in terms of shrinking agents?

Speaker 5

I think a couple of thoughts there. First of all, this time of year, we always see a purging of nonproductive agents just across the industry as a whole. But given our agents are more professional and more productive, we tend to be a little bit more insulated from that. So and in addition, I think we anticipate more transactions this year than last year. So actually that should be to our favor given our model and our structure.

Speaker 6

Okay. Thank you.

Operator

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

Speaker 7

Hey, good morning guys. Thanks for taking my questions and welcome to everyone new on the call here. I want to see if we could dig into a little bit on the agent count guidance that you guys did provide just for the total agent count. If we were able to kind of break it down by geography, maybe at least directionally, that'd be helpful. So relative to last year, we saw the U.

Speaker 7

S. Down 6% and Canada flat and then international up 7%. Just directionally relative to those figures, do you envision acceleration or deceleration of those last year's trends in each of those regions?

Speaker 3

Hey, good morning, Tommy. It's Carrie. So I think the trends are going to be, I think, similar, but hopefully some improvement. So still expecting, kind of relatively flat performance in Canada. Obviously, it's been a tough end market there.

Speaker 3

But I think it really does highlight the strength of the brand up in Canada. Still expecting to see growth in international. Again, hallmark of the REMAX brand is just the global footprint. And then in the U. S, still expecting to see some pressure, but hopefully a little bit less of a decline than what we saw in 2023.

Speaker 7

Okay, got it. Thank you. And then the next question, you mentioned the revenue headwinds related to the convention and then the legacy tech revenue headwinds. What's the impact on earnings or EBITDA from those two items?

Speaker 3

So, yes, the impact to the convention is kind of $500,000 to $1,000,000 in Q1. And then on the others, it's about $1,000,000 for the full year.

Speaker 7

Perfect. Got it. Okay. And then just my last question, with REMAX agents obviously representing such a broad base of the market, naturally you kind of see lots of data on how your agents are transacting. With all the headlines use of buyer agent agreements or more buyers paying their buyer agents directly or any new commission models that have gained traction like flat fee models or just kind of what are you seeing in the past few months now that some of these headlines have become more pronounced?

Speaker 2

Hey, Tommy, it's Eric. I'm going to comment on that and let Amy kind of dig into some of the details. But I think one of the things from the investment there in a differentiated basis is we're getting a lot of positive feedback from the network, right? And feedback about that for 50 years really we've cared about agents and agents feel like with us leading with anywhere on the settlement, they appreciate that leadership position and they appreciate us making an investment in helping them through a very tough time. On the agreement side, I'll let Amy comment on a few more details that she's hearing specifically from the network.

Speaker 5

Yes. I think, first of all, I think that this shows that we care about our agents. And without a doubt, the sentiment is terrific. One of our big things is education. And for example, we in REMAX University, we offer something called the accredited buyer representative designation, which gives our agents education on exactly how to articulate their value proposition, etcetera.

Speaker 5

So we anticipate that there will be more demand for that as we move through. But as far as varied models, etcetera, that are out there, I think it's too soon to really highlight those.

Speaker 8

And Tommy, I would add in there on the mortgage side of the house, they're continuing to be ahead of the curve as well. So they're talking to different groups, talking to the Fannie, Freddie, FHA, VA to understand can we potentially put the buyer's agency commission into the transaction in some form or fashion. So even the mortgage side of the house is trying to figure out if changes happen in the industry, how can we support those changes.

Speaker 7

Yes, I agree. Thank you. It'll be interesting to watch how that develops. Thanks for the responses.

Operator

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

Speaker 9

Hey, good morning. Welcome to Eric and Amy. A bit of a high level question for Amy. So I think pretty ingrained and visible and respected obviously across the network for a long time. So I guess anything you can share on maybe what your strategic approach will be?

Speaker 9

What should franchise owners and agents think about that's maybe going to be the same or different than the Nick in that seat? And just kind of big picture opportunities you see to kind of move the needle going forward would be great. Thank you very much.

Speaker 2

Hey, Ryan, it's Eric. I mean, it's just day 1 right off the bat, what is the overall strategy. So I appreciate the pressure. And Amy has, she's got a good response for that.

Speaker 5

Yes. Having been in the business for a very long time as an agent, a team leader, a broker, I do see things from an entrepreneurial standpoint, from their standpoint. And I've used that experience the almost the last 4 years that I've been on this side to help drive the initiatives forward to provide our network with what they need to excel. And so, of course, I echo Eric's sentiments with respect to we've got to stabilize agent count and grow count in the U. S.

Speaker 5

That will be the 1st and foremost priority that I have.

Speaker 2

And look, Ryan, I think we do that a bit by obviously leaning in. There's it's been a tough year like I stated. But the great thing and one of the reasons that I stated on why I love this network is just the passion, not only the passion from the people here at HQ or the folks in the field that are supporting REMAX brokers and agents. But the network itself has an unbelievable passion for the brand, for what they do on a daily basis, for being curious about how they can get better, about innovating. And so from a corporate perspective or franchisor perspective, there's opportunities for us to lean in and to educate in a different way to use technology to help enable effectiveness and efficiency.

Speaker 2

Don't be confused. I mean, we are people focused, technology enabled and we'll lean into that. But there's areas of opportunity for us and what you'll see us do here over the course of 2024 is to continue to lean into the details and start to bend the trend. So some of our efforts whether it's DMNA or Teams are showing positive results. But we also have a few agents that are leaving the network that might want to stay.

Speaker 2

And you can understand this. I mean, people don't necessarily leave a brand or a company, they leave a manager. And so the same holds true for agents. And you'll see us continue with differentiated programs over the course of 2024 to help agents find a home where they can be productive and feel welcomed and continue due to the great work that they do with consumers every single day.

Speaker 9

Yes. Thanks so much. That's really helpful commentary from both of you. Carrie, just one final on the international agent count. Obviously, it's been a big growth component of things.

Speaker 9

If we just look at the January 2024 operating stats against 4Q, looks like at least through January, there's a bit of a step lower internationally. I guess I'm curious if there's anything to call out there. I know you already made comment that big picture you think that will remain a growth driver, but anything going on near term to call out there? Yes.

Speaker 3

I mean, you're right. We did see a little bit of pressure in January. A lot of times our global regions kind of evaluate quotas, non performing agents and offices throughout the year. And we have some volatility just in terms of how that is reported. And that just happened to be reported in January.

Speaker 3

The thing I would note is what we're seeing in February so far is that the international agent count is off to a solid start. And as I mentioned earlier, we expect to kind of see that healthy growth rate continue as we progress through 2024.

Speaker 9

Okay, perfect. Thank you so much.

Operator

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

Speaker 10

Great. Hey, welcome Eric and congrats everyone. Just a couple of quick ones. Just looking at the 10 ks regarding sort of the settlement agreement, I think you mentioned that sort of May 9 is the final approval hearing. But I guess I was surprised to see that there was some additional disclosures.

Speaker 10

So on February 15, it looks like the DOJ filed a statement here denying approval of another settlement. It looks like there were some additional litigation claims that were also disclosed this quarter versus last. So I guess the question is, are those additional disclosures, are we supposed to

Speaker 11

how are

Speaker 10

we supposed to think about those? Are they completely irrelevant, not related to the May 9 situation? Do they have an impact? And sort of bigger picture, as you sort of take a step back, how does that impact just how long this litigation settlement could be an overhang for the company? Thanks.

Speaker 3

Hey, good morning, Ron. It's Carrie. So I think a couple of things that I want to stress about the settlement. 1st and foremost, we as Eric mentioned are extremely happy with the decisions that we made to settle the cases. On behalf of our network, our franchisees, our agents and really all of our stakeholders.

Speaker 3

As it relates to a lot of the additional disclosures, those relate to some copycat cases that have subsequently been filed after the October 31 verdict. Importantly to note, our settlement does cover and releases us on all claims for home sellers on a nationwide basis. So once May 9th, gets here, we are cautiously optimistic about final approval. And we expect those copycat cases would go away and be subsumed. We obviously just had to disclose the fact that they did exist as it relates to the company.

Speaker 10

Got it.

Operator

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

Speaker 6

Hey, guys. Good morning. Good morning.

Speaker 2

Good morning, John.

Speaker 11

I wanted to zoom out and maybe talk overall strategy. It sounds like you guys are remaining laser focused on the better domestic growth. You've rolled out a ton of new initiatives that some of those appear pretty promising on our end. You've pivoted away in the past, you had a philosophy around kind of owning the technology. Obviously, you've outsourced that and kind of partnered.

Speaker 11

So that was a pretty big pivot. But, I'm curious about whether you're considering if all things are on the table. Like I'm thinking more about like the legacy items, maybe the foundation of the business. So think of things like the continuing franchise fees and then annual dues and then also the minimum agent count. I know that's here and there has caused a little bit of strife with some owners.

Speaker 11

So I'm wondering if you're considering changing some of those items and maybe if you could talk to those.

Speaker 2

Hey, John, it's Eric. How are you doing?

Speaker 11

Good. Good.

Speaker 2

Look, I

Speaker 11

think that

Speaker 2

we've got a great foundation in place. And so a few things here. One is, in my opening remarks, I hinted towards it. But just from a baseline perspective, we're not going to throw necessarily the baby out with

Speaker 1

the bathwater, right? So you've

Speaker 2

got a good foundation in place. We're going to operate as effectively and as efficiently as we can, right? So that may be a bit more sales rigor, that may be disciplined around a few other items. But I come from obviously an operations background and I'll bring a little bit of that obviously to REMAX. And to help also franchisees in their local communities run better businesses and be more effective and efficient.

Speaker 2

On your technology front, I said it earlier, but I'll reinforce it. I mean, we are a people focused business, right? So I still I feel like the transaction is about the agent and they can provide more success. Consumers want that. And so that doesn't mean we ignore technology, but we enable effectiveness and customer experience with technology.

Speaker 2

So people focus, technology enabled definitely. There's no doubt here there's a curiosity, especially in the channel and with our network and our agents, our brokers and folks here. So we will explore a growth mindset and that's about curiosity, that's about innovation, that's about leaning in right to the model and discovering new things where we can help. And we will be laser focused on improving the customer experience and being the absolute best there. I'm very passionate about that.

Speaker 2

But at the same time, it is a clean sheet of paper. I'm coming in brand new. I'm here just over 3 months. So, I like to wake up every day and think about whether it's the Bezos example of day 0 or day 1. You can think a clean sheet or a blank whiteboard.

Speaker 2

And so we will be open minded. We'll also be opportunistic. I know you'd love to hear exactly what our strategy is going to be. We're not going to lay that out quite yet, but we are working on it and so more to come there. But there's nothing really closed off I guess I'd say John.

Speaker 2

And so if it's a different way to think about helping brokers and owners be successful in the market or helping agents that could be fees, that could be tools, that could be programs like Teams, all those things are on the table. So a long answer with no answer for you.

Speaker 11

No, that's helpful. That's helpful. I think you said enough there. Terry, I was a little surprised to hear about the Motto impairment charge. It seems like you guys have obviously performed well there.

Speaker 11

I mean, obviously, the mortgage market is very difficult, housing is difficult, but then you've got the refi impact on mortgage that has added another layer of complexity. But I'm curious if that impairment, if that's more of a markdown from a maybe like an ultra bullish outlook and just kind of taking that down a bit? Or is there something structural where the maybe the current basis at risk? I know you guys have mentioned the word churn, which you haven't really mentioned much about Motto in the past. I'm curious about whether that's again, taking that down from a very bullish long term forecast versus something systemic?

Speaker 3

Yes. Hey, it's a great and it's a valid question, John. I think as I said in the scripted remarks, we continue to be very, very bullish on Both the Motto business from a franchise sales perspective, obviously sales are down, But we're still selling franchises in the mortgage space in a historically difficult mortgage environment. And then on the wean low side, continue to see strong growth there. And given how the service there is included and mandated in the franchise agreement, still continue to be very bullish on the opportunity there.

Speaker 3

Unfortunately, really tied up kind of in the accounting rules, we really had to just really put our best foot forward in terms of what the projected near term cash flows were related to that business. And it's really because of the macro environment and that reduction in near term cash flow that caused the impairment, but nothing structural or how we see the long term opportunity associated with that business.

Speaker 2

And John, maybe Ward can comment on churn. That also might be a legacy term that I've used from my old pay TV days. So but I'll let Ward comment on that.

Speaker 8

I mean obviously, 'twenty three was a tough year in the mortgage industry. So we did have some terminations that stepped up a little bit. We feel like with any kind of change in interest rates, we can improve that. Additionally, we started to really focus on recruiting LOs to try and benefit our owners, get them more LOs into the office or loan originators so that they can do more business and make sure that they can weather the storm because all that matters in mortgage is volume. And so really just trying to drive that volume in those locations so that those offices remain strong and sound in the near future.

Speaker 11

Okay, that's helpful. And then maybe if I could squeeze in one more here and it's related to Motto. But I mean, it's clear to see the decline in the franchise the signed franchises over the last couple of years. I think you're doing maybe a little bit less than half of what you did probably 2 or 3 years ago. As you took this impairment charge, you're having to forecast out what you're assuming for franchise sales here.

Speaker 11

I don't know if you can provide a little bit of color there. Any kind of indication of what that might look like this year? Do you expect that to bounce back as the overall mortgage market bounces back? Just kind of any kind of direction on that.

Speaker 3

Sure. So I think as we look at that forecast that's embedded kind of in that cash flow analysis, we're kind of ramping from tens of sales up to 100 in the outer years. Near term, as we look at 2024, looking to have some growth. Last year, we did 27, kind of looking maybe in that 40 to 50 ish range. This year, that's obviously dependent on what happens from a macro perspective and what happens with rates.

Speaker 3

But as I said, Ward and the team have really done a great job, still even selling a mortgage product, in a really difficult end market.

Speaker 11

Okay. That's perfect. That's what I was looking for. Thank you, guys.

Operator

And that does conclude our question and answer session. I will now turn the conference over to Andy Schultz for closing remarks.

Speaker 1

Thank you, operator, and thanks to everyone for joining our call today. If you have any additional questions, please reach out to Investor Relations. Otherwise, have a terrific weekend.

Operator

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

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Earnings Conference Call
RE/MAX Q4 2023
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