Q2 2022 Re/Max Holdings Inc Earnings Call
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.
Looking statements include those related to agent count franchise sales 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 managements current estimates.
<unk> 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.
These are discussed in our second quarter 2022 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, Nick Bailey and Ward Morrison with that I'd like to turn the call over to <unk> CEO , Steve Joyce teeth.
Andy and thanks to everyone for joining our call today.
Looking at slide three our strong second quarter results demonstrates the strength and resilience of our 100% franchise model, particularly amid shifting housing market conditions our.
Our acquisition of Remax Integra is North America regions continues to perform well again contributing meaningfully to both our topline and Bottomline performance.
We recently announced certain strategic growth initiatives, which we believe will enhance our ability to grow profitably over the long term and should further mitigate the impact of additional market volatility.
Some of our notable quarterly highlights include <unk>.
Overall Remax holdings revenue was $92 2 million up almost 20% driven by last year's acquisition of Integra.
Which comprise nearly 16% of our growth as well as almost 2% organic growth.
We generated adjusted EBITDA of $35 1 million up 14, 4% and our adjusted EBITDA margin was a strong 38, 1%.
Adjusted EPS increased 6% to 68.
Total <unk> agent count grew by almost 4000 agents to nearly 144000 agents in total a new record.
And both motto franchise sales model open offices continue to grow with a number of open offices hitting 200 during the second quarter.
Nick will provide additional details on their respective business slides in a moment.
First I'd like to spend a minute discussing our recently announced strategic growth initiatives.
Our focus remains on increasing Remax U S agent count and continuing to fuel the growth of our expanding mortgage business.
Our team has done a terrific job identifying and implementing those growth opportunities that we believe will yield the best results and contribute to near term and long term profitable growth.
These initiatives are closely aligned with our current strategy. We think we can make a measurable difference to smart strategic moves essentially bolstering our growth prospects through institutional focus accountability and proper allocation of resources.
100% franchise model demonstrates the strength and differentiation during times of change, which is borne out over the past five decades since our founding.
Today, we have two industry, leading brands networks of experienced and productive real estate professionals, a strong balance sheet anything tastic ability to generate cash flow all of which will continue to serve us well in virtually any kind of market.
We intend to leverage these strengths to actively seek the best opportunities that will support our future growth.
With that I'll turn it over to Nick.
Thanks, Steve Good morning, everyone moving to slide four halfway through the peak summer buying season signs of a more balanced in the market are becoming increasingly apparent. According to the most recent remax National housing report, although June posted the most home sales of any months, thus far in 2022 topping made by four 7% they fell short of <unk>.
Last June total down almost 18% across the 53 metro surveyed the period of the last few years has been one of the most competitive and challenging times ever for buyers and we're finally seeing conditions ease that highlighted by inventory gains and the slowing of price appreciation. For example inventory grew in June for a third consecutive month.
34, 1% increase over May and 27, 5% year over year. The median sales price of 428000 for June while 11% higher year over year inched up less than 1% above may.
Perhaps more notable is the increase in listings after several years of infant sales and low inventory markets like Nashville, and Phoenix saw an increase in new listings of over 20% in June bringing new options for buyers, who may have sideline themselves in the heated frenzy of last year.
The changing market conditions are being impacted by the rise in interest rates, but many buyers are still finding solutions and alternatives in arms FHA products and other financing regardless of the macro environment. The reality as homes are bought and sold every year and good agents and loan originators can make a difference in times like these.
Overall household formation remains strong and favorable demographics still exist with inventory rising prices seemingly topping out and competition decreasing there are reasons to be optimistic and most notably for buyers.
Moving to slide five last month, we announced the latest step in the evolution of <unk> technology unveiling, a new enterprise relationship with inside real estate developers a cave core.
In today's highly competitive market much of the agent facing technology like CRM websites et cetera has become table stakes partnering with a leading real estate software firm licensing side real estate, which has the size scale and expertise to develop world class agent Tech tools gives us more firepower to deliver value to our affiliates.
The focus of this tech is to drive leads and identify transaction ready consumers for our agents the use of AI and the power of data is likely going to have a big impact in the way in which agents market to consumers and we believe this initiative puts our agents at the forefront of the industry.
Through a phased rollout beginning later in 2022 and continue into next year <unk> affiliates and company owned regions across the U S and Canada will get no cost access to the state of the art <unk> core platform, along with several add ons, including a module specifically for teams.
The cave core platform was chosen because <unk> affiliates deserve an industry, leading complete technology solution. We believe that <unk> platform is that solution and based on the feedback we've received from our affiliates they agree.
With a <unk> branded version of the platform agents will have a seamless new way to automate virtually every aspect of their business from contact management digital marketing to data analysis and more they'll have high quality customizable IDEXX web sites that attract traffic and drive transaction ready leads best in class market analysis and presentation.
Rules to win listings and a marketing center designed to maximize exposure and connect more consumers directly to Remax agents.
Eventually the platform will integrate the key Remax technology offerings like the first App, which is a first of its kind tool within the industry. The combination of <unk> and the best existing very next tools will give the affiliates a premier technology solution along with the number one brand in most productive global network. There is nothing like it in the marketplace today.
Hey.
Because of the powerful and comprehensive functionality of the <unk> core platform. Some of the boost products developed in house over the past few years are expected to sunset in mid 2023.
Bottom line. This partnership is about taking the best parts of our tech acquisitions completed in recent years and combining those strengths with an industry, leading vendor and we believe this is best of both worlds.
Looking at slide six overall agent count increased almost 4000 agents year over year and reached a new high of close to 144000 agents highlighted by nearly 8% growth in Canada and continued growth globally.
In the U S. We continue to see slightly depressed results driven primarily by the uncertain housing market that said, increasing our U S agent count remains a top company priority and we expect our growth initiatives announced last month to make a difference for years, where <unk> has been an industry leader and the preferred destination for many of the most productive teams in real estate.
The data shows we have a sizeable growth opportunity when it comes to teams of six agents or more that's why I'm excited about the recent launch of our teams focused initiative, we believe that our aggressive offering that combines the education technology and attractive economics can help mid to large sized teams optimize their productivity and maximize their earnings.
This growth initiative is a five state pilot program that modifies the fee structure for teams of six or more licenses. The pilot is designed to incentivize the growth of existing remax teams strengthen retention and especially help brokers recruit teams of that size.
The pilot is set to run for one year and is available for those brokers, who opt in within the states of California, Florida, Maryland, New Jersey, and Texas. These states were selected for the pilot because they have a relatively high number of teams represent a significant growth opportunity and give the program an excellent chance of being successful enough to expand to other.
States.
We also recently launched initiatives to help interested brokerages convert to the Remax network or combined forces with an existing remax franchise with changing market conditions. Many independent offices are interested in increasing their value proposition and are looking for competitive advantages like brand name awareness technology tools and support and ultimately.
Higher per agent productivity all of these are crucial areas of focus needed to drive success in the market ahead.
Our data shows that agents, who joined Remax and stick with us typically increase their sales over time. These figures address a cheap concerned about agent productivity that has held back many potential mergers or conversions in the past. This is an important message for us to continue to reiterate across the industry, especially now as the markets fluctuated, we see many.
Susan successful brokers looking to transition their business with that I will turn it over to award.
Thanks, Nick looking at Slide seven motto has sold over 300 franchises today and we now have more than 200 open offices. We believe we can eventually grow that number to more than 1000 open franchises motto has a unique and attractive value proposition and we would like to accelerate our timeline to this milestone.
Really we believe our low mortgage processing business has tremendous potential.
We recently announced that future motto franchisees will be required in most instances to use reload services, which should help accelerate we most growth. We also recently hired some of our larger motto owners former loan processors as these franchisees now utilized remote services.
View this as a win win scenario for Wingo, we gained proven processors and immediately add to our volume of business for motto owners. They retain access to desired loan processors and steady reliable loan processing services and a much more cost efficient manner.
We have been evaluating how to accelerate the growth of our mortgage business given our current momentum. We believe this is the right time to invest in additional sales resources for both model and we move each sales professionals on our team currently covers a large territory and we think more personnel will increase our ability to capitalize on incremental opportunities.
Currently we have just over 100 colleagues, who work within our mortgage segment, but by the end of the year, we expect to add another 15 to 20 team members.
We believe this investment can measurably accelerate our ability to reach our goal of $100 million.
And annual mortgage related revenue, perhaps achieving this milestone as early as 2028.
We sold just over 60 motto franchises last year, and we were tracking to meet and hopefully exceed that number in 2022, we believe by doubling our sales force, we should be able to double our annual franchise sales total starting next year.
We expect to provide official guidance next February when we usually introduced our outlook for the forthcoming year.
At this point, we expect to sell at least 120 motto franchises in 2023.
Our mortgage segment continues to expand and we accelerated our franchise sales during the last downturn at the start of the pandemic.
Over time as a real estate often cause brokers and team leaders reflect on the importance of ancillary businesses. When they have the time to invest in their futures. We are hopeful many will take this time to take advantage of what a terrific opportunity model presents with that I'd like to turn the call over to Kerry.
Thank you Lori good morning, everyone.
Slide eight second quarter revenue grew almost 20% to $92 2 million.
Excluding the marketing fund revenue was nearly $70 million an increase of 17%.
This increase was comprised of 15, 9% acquisitive growth.
And one 7% organic growth FX.
FX decreased revenue by about a half a plane all acquisitive growth came from last year, the Integra acquisition, which continues to perform well we lapped the first anniversary of the Integra acquisition in July so it will start contributing to our organic growth beginning in the third quarter.
While our organic revenue growth extra marketing partnership fell short of our mid single digit expectations for the first time in over a year due to the shifting real estate market, we were still able to grow almost 2% organically.
Motto continues to expand and with a notable contributor to our organic growth.
With the recent changes requiring most new motto franchisees are Meanwhile processing services.
I expect that we will also start to measurably contribute to our organic growth in the coming quarters.
Looking at slide nine our Q2, selling operating and administrative expenses increased five 1% to $40 million second quarter 2022, <unk> expenses increased primarily due to estimated increases in the fair value of contingent consideration liabilities higher travel and events expense.
Says and increased investments in technology, partially offset by a reduction in professional fees due to lower costs associated with acquiring and integrating new company.
Looking ahead, our recent decision to partner with <unk> is expected to reduce our overall workforce by approximately 17% by the end of this year.
This reduction does not include personnel and we expect to hire because of our additional planned investment in our mortgage segment discussed earlier.
As a result of this reduction we expect to incur a pretax cash charges for one time termination benefits, which consist of severance and related costs.
Between approximately $5 75 million and $75 million in the third quarter of 2022.
This onetime charge will be added back to adjusted EBITDA.
<unk> beginning in 2023, a reduction in force should reduce our annual operating expense run rate by approximately $13 million roughly split two thirds and one third marketing fund expenses importantly, we anticipate most of the savings will be reinvested back into the business.
Moving to slide 10, before I get to our outlook. There are a couple of items I wanted to briefly mention first regarding our $100 million share repurchase program announced in January we significantly ramped up our buyback activity during the second quarter.
We opportunistically utilized approximately 6 million to acquire just over 250000 shares ethanol block, we hope to capitalize on similar opportunities in the future.
We continue to believe that repurchasing our stock at its current valuation is an excellent allocation of capital and shareholder value creation mechanism.
Curious June 30th we have allocated almost $12 million to repurchase nearly 500000 shares.
Second it is important to note the impact of increasing interest rate environment has on our earnings.
Specifically, we expect rising interest rate will decrease our adjusted EPS by 10 to 11.
Over the last two quarters of this year.
Lastly, our strategic growth initiatives announced last month.
I think that the ramp up in the back half of this year and start to benefit our results in 2023.
Now onto our updated guidance, the company's third quarter and full year 2022 outlook.
There is no further currency movements acquisitions or divestitures for.
For the third quarter of 2022.
We expect agent count to increase one 5% to 5% over third quarter 2021.
Revenue in a range of 87 million to $91 million, including revenue from the marketing funds in the range of 22 million to 24 million and.
And adjusted EBITDA in a range of 35 million to $33 million.
For the full year 2022, we are reducing our guidance to reflect current housing market conditions and other related macroeconomic trends.
We now expect agent count to increase 1% to two 5% over full year 2021 down from 2% to 4%.
Revenue in a range of 354 million to $364 million, including revenue from the marketing funds in a range of 90 million to $93 million.
Down from 366 million to 376 million and adjusted EBITDA in a range of 123 million to $128 million down from $130 million to 135 million now I'll turn the call over to Steve for closing comments.
Thanks, Gary looking at Slide 11 of our franchise model is built to succeed in virtually every market conditions with our strong brands healthy balance sheet and proven ability to generate robust cash flow, we intend to leverage these strengths to actively seek the best opportunities that will support our future growth we believe.
We are well positioned to grow profitably over the long term.
Let's give it up for questions.
To ask a question simply press Star then the number one on your telephone keypad.
Our first question is from the line of Anthony <unk> with JP Morgan. Please go ahead.
Thank you and good morning.
My first question.
Thanks, Mike.
My first question relates to motto and you outlined the path to about 1000 officers I was wondering if you could just go into.
How you get to that number or like what kind of hit rate that would mean for your existing franchisees and just any costs you can outline to kind of get there.
Yes, so the.
The environment in which we're selling obviously the our franchisees are the number one target, but we're also looking at.
Selling amount of two other brokerage firms independents and other branded if they're if they're interested.
The market, we view as pretty broad we view the opportunity in part of the reason we are doubling down now we view the opportunity going forward, particularly in the rate environment. We're in which is obviously curtailing refinancing for the time being but because we are primarily purchase.
Mortgage effort that puts us I think in a good position and in addition, it's a great ancillary revenue for brokerage firms, which are more than likely as this downturn continues you're going to struggle with some margin issues. So we think the timing is good for the effort where do you want to talk.
A little bit more about hit rate and sort of how youre seeing that but all environment.
Sure.
Jump in there we always thought about a third of the Remax franchise in the U S where our cohort.
So that's an easy 1000, there technically that we would go after but like Steve said, we will be attacking and we have been attacking still about 20% of our sales are in outside the brand, but it's still real estate.
So we will continue to grow that our goal is to grow our sales force basically doubling it from about eight.
About 16 around that area.
Why because we feel like we.
We have almost two larger territory for our franchise salespeople to fully focus on those areas and we think we're missing the incremental opportunities. So by growing that sales force on the motto side. We think we can double our sales by doubling the sales force. So if we look in 2023 to hit sort of like that 120 number was our goal.
We'll have more guidance as we get closer to 23, but.
The key there would be growing that and within five years, adding another five 600 franchises out there.
So getting closer to that overall number as quick as we can so we think theres a plenty of upside we think teams is.
Untapped market that we can grow so it's not like we're adding a tremendous amount of cost really adding salespeople.
Paying them on the basis of commission plus base, but we feel like that Salesforce can grow the number of sales that we have and we can get towards that thousand open franchises.
Got it okay. Thank you for that and then my follow up I guess, we're just tie in to some of the cross carrier comments.
It sounded like some of the costs coming out of the system, you'll replace with these initiatives just talked about but it seemed like on net you could be going into 2023 with a lower opex run rate was that did I catch that right or just trying to tie that together.
Carrie you want to cover that.
Sure. Thanks, Toni so as we look at kind of at least Opex run rate for the rest of the year.
This quarter SG&A ex any kind of acquisition cost or stock comp.
Or any other add backs was kind of in that $36 million range. If you exclude the add back associated with the reduction in force itself looking like the run rate for Q3 and Q4 of this year is going to come down a couple of million dollars, but again, that's going to be reinvested back into the business at the earnings level as we allocate capital.
All initiatives both teams conversion some of the investments on the mortgage side that where it was just talking about as well and so that we've got to look at it on a balanced basis and in terms of.
Just holistically at the earnings level looking to reinvest it back into the business for the rest of this year, we'll obviously have more to say as we look further ahead in 2023 later down the line, but right now we are really committed to just reinvesting back into the business.
Okay, but if I'm.
Just to make sure I'm getting this right, though it sounds like we'll see some of the costs that are coming out in the next couple of quarters, but then there might be some lag until you get that fully reinvested into the business is that fair.
I don't think so not at the earnings level. So I think on the cost side, we'll see some of that coming out.
In the subsequent quarter, but at the earnings level looking to really reinvest a lot back into that.
Okay.
Okay. Thank you.
Your next question is from the line of Ryan <unk> with Zelman and Associates. Please go ahead.
Hey, Thank you and nice job on the quarter.
This one is probably for Nick.
On the team's initiatives.
It seems like just the concept of teams has been a pretty notable trend in the industry and I think it makes a lot of sense for you guys to somewhat stake your claim and competing against others with.
Team based offerings, so so Nick.
Recognizing theres a lot of different approaches to recruitment and retention, whether it's individual agents or teams.
You can maybe dig in a little on on what you view are the most differentiated aspects of the approach you guys are taking are the teams offering that you guys have.
Versus what others in the market are doing thank you.
Yes, you bet.
We look at it the teams come in kind of a three pronged area. One of them is education and others. The economics and the third is the technology and so with the announcement of the technology moves that includes the team platform.
That sales out of the kv system for around $500, a month that we're including a no charge for any teams of two or more that in addition to what we announced earlier our forward convention about education on how to build out a team teams are really kind of a small business. So we think that putting the three components together, which we've been able to do.
Over the last few months is where where it's all going to come together of a really strong offering that may be somewhat different from how our competitors approach it.
Got it that's helpful and I guess in terms of this being a <unk>.
A pilot and some of the bigger markets.
Versus a broader rollout is is the thought process. There that the pilot allows you to assuming we optimize that offering kind of figure out what aspects are made.
<unk> may be working what others can be tweaked or just any thoughts on kind of why why start with a pilot as opposed to something just more widespread out of out of the gate. Thank you.
Yeah.
First of all we spent a lot of time, putting this together and what we think is the best form to go to market, but we also realize that the way that we've structured the economics with six plus.
Allows us the biggest opportunity to grow in agent count.
And there may be some tweaks to it.
And so we want to make sure that we're taking the states that one have the largest opportunity for growth, but to also have the biggest tam of teams of six or more.
And that those items combined together give us the opportunity to test the market and.
Make some adjustments before it rolls out to other states.
Perfect. Okay. Thank you very much.
Your next question is from the line of Tommy majority with <unk>. Please go ahead.
Hi, Thanks, good morning.
Just wanted to ask about again about the team's pilot program I don't want to get a sense of how much of the market and this applies to what percentage of agents are part of.
Those kind of six plus <unk> and if you could speak to that for either remarks, specifically or just for the industry more broadly.
Nick.
Sure.
Have a number that just applies universally across the U S. It differs greatly by state.
And so you see in your major Msas and your coastline states those are going to be higher percentages when you get more to the Midwest. It gets much much slower so.
The spread on it is so different state by state I don't know the number across the.
Entire country.
We look more market by market.
Okay.
Okay.
And it does seem like there are some pretty.
At this time for agents in this pilot program, especially for the some of the higher producing agents.
Have you done an estimate to see what the impact on the revenue per agent.
Those reduced fees would be for some of those agents on the pilot program.
So yes.
We've obviously done the analysis.
Net net while it is.
A different pricing program designed to attract folks and one of them one of the things I was going to add to Nick's point was.
Well it varies across the country. The significant portion of the growth recently and agents has come through teams.
So so that's why you see us targeting this and so while while we are.
Providing.
A different pricing program, which.
Since the formation of teams with.
Potentially a lower overall cost as they grow.
The relative number of new teams, we need to add we think we can easily achieve which was then offset any price increases and so our net debt view of this is that it will be.
Positive program.
But partly why we're piloting and.
So.
The overall.
Reception. So far has been strong Nick do you want to talk a little bit more about sort of our expectations about when that starts kicking in.
Yes, we actually.
Set it up to go live August 1st is when the brokers can start to take advantage of it and so we plan that this will ramp up through Q3 and Q4. So it will take some time to ramp on it but it officially goes live August one when we look at each one of the markets in the five states.
It accounts for thousands and thousands of agents associated with teams of six plus so we think the market segment is fairly sizable and will continue to be as teams are not going anywhere and especially the large ones become more and more efficient and they are exponential in their growth on volume and transaction count.
And hence the reason that it's such a large focus.
Thanks, Matt.
Your next question is from the line of John Campbell with Stephens. Please go ahead.
Hey, guys good morning.
Thanks.
David It looks like U S. Canada, maybe that was down modestly as month to month.
Can you unpack that and maybe talk to what you're seeing across each market to us.
I'm, having a hard time.
Can you can you repeat that question there was some background noise.
Yes, just curious about your July .
We can update it looks like you guys are kind of the combined was down a little bit versus last month.
If you could maybe break out the trends by region.
Terry you want to cover that.
Sure Hey, John Sorry, It was a little hard to hear but just making sure youre looking at July agent count and kind of unpacking that a little bit between the us and Canada.
That's right.
Okay.
I'll start this and then that definitely jump and so as we look at that we've seen continued strength in Canada, we highlighted the.
Strong continued strong performance of the Integra acquisition, which should definitely not be overlook the importance of Canadian agents and their contributions to both the topline and the Bottomline continued in Q into July that was offset as the macro just got a little bit shaky are I think a little bit sooner and maybe a little bit more.
Probably in the U S. It's only a couple of hundred agents, we continue to get very positive feedback on some of the other initiatives that we have the teams. The pilot program that we were just talking about as well as the momentum on some of the other initiatives around the merger and conversion. So we are excited about that.
Positions us well to be a little bit more aggressive and excited in the back half of the year, but did have a little bit of weakness in the U S. In July .
Okay. That's helpful. And then maybe two more kind of follow up questions. I know you guys do have a lot of questions on the.
<unk> team incentive and the growth plans, but.
I want to better understand I guess on the team's approach.
You guys talked to the three pillars, mainly I'm interested in kind of understanding what that one year program looks like and maybe specifically what that incentive looks like I guess monetary wise.
Sure.
Okay.
Sure.
In terms of the team structure.
Have set us up to where our <unk>.
Our fee structures two parts one the reoccurring revenue and of course, then the broker fee being variable and it is structured in a manner that the team leader continues with there.
Full continuing or reoccurring revenue.
As is today and with each team leader or team member.
For those team six plus there's a 50% reduction on the monthly reoccurring revenue and then there is a cap on the broker fee revenue.
Up to $100000 in GCI.
That runs for each each team member and it's an aggregate of the team total.
I don't know I mean.
It sounds like you guys, obviously carefully crafted to neutral.
At a time and pilots and whatnot, but.
I'm curious is it is it that you are trying to align when it's all said and done for them.
Agency net take because I think we can see across the industry. There is lots of different kind of ways to skin. The cat I guess, if you will.
Are you trying to get down to a certain number or was it based on your conversations and kind of feedback you're hearing of what they thought it might be a little bit more attractive.
It's a little bit of both when we look at the analysis of say our per agent Rev.
<unk> that we stated in the past because of the level of productivity that some of these large teams have some of the contribution to us is somewhat of a hockey stick when their production level gets to a certain.
To a certain spot in volume and so we just looked at.
The services that we're providing for teams the education for teams and where did it feel.
In the right way to maximize their earnings ours, as well, but make sure that we didn't.
Have that hockey stick.
Type of.
The revenue impact to the teams at a certain production level.
Well last one for me and this obviously it might be a better question for inside real estate, but any sense for how penetrated kidney core is just broadly like Steve mentioned, there is obviously a real month expense incurred by the team. So you guys, providing that new cards, it's got to be a pretty nice incentives.
Nick.
Yes inside real estate the number that they have most recently stated is that currently support over 300000 agents and so while we will be their largest enterprise clients. They do have a fairly significant footprint all across the USA and Canada.
Yeah.
Okay, and I guess, just given the ongoing kind of development teams and trend towards clean.
Fair to say.
Out of the 300000, there's probably a large chunk of those kind of chapter nine teams.
They do if they do have a significant number of teams and that was part of the reasoning that they came to the top of our choice on who to partner with because of.
Not only the platform the add ons with the different modules that were including.
But also their focus on their team product.
Whether its teams of 2% or 200, it's a unique offering that is extremely competitive in the market.
Okay. Thanks for taking my questions I appreciate it.
You bet.
Your next question is from the line of Ronald Camden with Morgan Stanley . Please go ahead.
Hey, just a couple quick ones starting back with sort of the motto mortgage and sort of the expansion there.
Maybe can you talk about.
As youre thinking of getting to sort of a 1000 offices and so forth.
How youre strategizing by market.
By region, and so forth just trying to get a sense of like what's the what's the adoption curve look like and where is the highest opportunities.
Okay.
Yeah.
Sure I can jump in there obviously.
Our business development consultants, who are out there selling the franchise offering.
Are in different segments, we basically want to get to the size, where each is having basically two major metros. So.
It's still in the major metros, where we tend to focus.
But are are when we look at potential opportunities, whether it's a brokerage if they have 2025 more agents. They are a target for us. If you look at the team. If they are doing about $40 million of production, they probably feel that fit our model as well. So when we look at it it's broadly across the United States we're heavily.
Concentrated right now in Texas, and Florida. However.
We believe the opportunity exists everywhere I mean, we're in.
We've sold in 44 states were opening 39, so we still have a few more to get but we're trying to have broad coverage across the nation and feel like those 33 metros will be our main emphasis.
Great and then just sticking on model I think you've talked about sort of the synergies with the sort of the real estate brokerage businesses.
200 offices and is there a way to sort of quantify that whether it's.
Profitability or.
Recruitment or anything is there is there a way to put some numbers around sort of the synergies that youre seeing.
Yes from our perspective, we know for a fact, if somebody is doing.
Million in mortgage production.
We can.
Gathering what theyre, making in profitability right, which is something they didn't have before if they had modeled so right away anybody who has a motto and is doing any type of volume. We know typically they are probably netting about 1%. This part where I have to say all franchises are created equal.
That's typically what we see out there in the marketplace so with that.
We know that they are adding additional incremental revenue.
They didn't typically have before they didn't have a mortgage entity. So from that perspective, we are very excited that they pick up the ancillary revenue aren't able to.
Benefit from the mortgage slash real estate relationship that they have particularly in a market like this where purchases the emphasis.
73% of our sales of real estate companies. They still have purchase so yes, refi is going away I heard a little bit, but not as much as it does to the broader mortgage market.
Okay.
Great and then my last one was just on the.
The guidance.
The agent count growth.
She said it already but can you just sort of clarify what that assumes for the U S and how youre thinking about that thanks.
Karen.
Sure. So in terms of how that unpack, we are assuming kind of flat to slightly down for the for the U S. And then that's being offset by strength in Canada and continued growth globally.
Great many thanks.
Okay.
Your next question is from the line of Jason Stewart with Jones trading. Please go ahead.
Hey, guys. This is matthew filling in for Jason.
So how many independent agents do you guys expect to convert to company owned and I guess, what are the initiatives around that to try and get them to convert over.
Net.
Yes the.
Market itself with the number of independent agencies is quite large there are well over 80000 brokerages. When you look at the number that are 20 agents or less that's literally in the tens of thousands you get into the 50 to 100, which we believe is somewhat of a sweet spot.
Where we will focus on those.
We're also in the thousands but when you when we talk to the brokers that are involved in not only the valuations, but actually brokering these deals between agencies.
One of them had indicated recently on a panel that we had him on that in his 40 plus years of doing this he has never seen.
The demand is high and so I think given the macro of what's happening in the market combined with with the Tam that's out there and the demand.
The focus of this is going to yield great results for US. We've already had we started this first of the year and we've already had a number of successes with this but we believe that the more we do we will get better at it and especially with the larger ones can increase that philosophy between now and year end.
Awesome and then following up on that given the I guess slow down somewhat in the market in terms of prices do you guys look at this as an opportunity to gain more market share in terms of motto and agents.
Sure I can jump into our model.
Yes from the motto side, we hope to continue to grow our base and grow the open footprint.
So far this year with the mortgage market being down a tremendous amount motto is only down about 3% of volume so compared to the industry. We are doing fantastic right now.
With refis dropping off as much as we have so we still think there's continued opportunity for gaining market share growing the number of open offices growing the number of sales and growing motto in general so very very positive about model for this year.
And on the <unk> side, this is where we do get.
Pretty excited about the fact that productivity becomes the number one value proposition in the marketplace and thats something that as we produce our next closest competitor on a per agent productivity.
Productivity two to one.
When you take someone that does on average 16, 17, 18 sales a year if the market contracts.
Bert by a couple of sales those people are still in the real estate business year over year. If you are in the single digits mid single digits and your business contracts by a couple of transactions. That's the difference of whether you can stay in this business or not and so we do believe that this is a time to gain market share.
Because the most productive agents in <unk>.
Average 15 years of experience, where the National Association of Realtors is.
Right about half of that most of our agents have seen market changes in the past and so they're not afraid of them and they know how to adjust and so this is where we lean into these market changes and use our production to grow share.
Yes.
From an overall standpoint, I think I think the ideas and partly why you have seen us do what we do is we think this environment creates an opportunity for us to take share.
On both sides of the business because in the case, where.
We've got both.
Both.
Brokerage is coming under pressure from a margin standpoint, they're going to be looking for ancillary revenues. So that's where the model. We more piece comes into play and then on the Remax side people feel uncomfortable uncertain about the coming environment are going to look for what they view as the most productive brand out there and that's where we think we.
Sure. So from an overall perspective, the reason that you see us making the investments we're making as we think this environment.
We will provide us incremental market share.
And a significant growth opportunity.
Awesome. That's helpful. Thanks, and I got one more is there a certain price point in the market, where you guys are seeing the most stress or falling prices in terms of demand in the.
Is that kind of situation.
Yeah.
Nick.
I don't believe we've seen any major fall in prices. We did believe that most of the price appreciation based on the demand and short inventory was going to be in the first half of the year. So.
We continue to believe that that is the case and we are seeing with increases in inventory prices are flattening.
The major pressure still sits in the first time homebuyer price range.
The demand is extremely high and will continue to be just with the population and household formation over the next few years and that inventory is the lowest.
Surprisingly, usually the very high end starts to kind of dip first but we're not quite seeing that yet.
But still most of the pressure at the entry level price.
Awesome. Thank you.
Okay.
Your next question is from the line of Stephen Sheldon with William Blair. Please go ahead.
Hey, good morning, everyone. This is actually Matt <unk> on for Stephen. Thank you for taking my questions was wondering if you could talk some about the capabilities of the cave core platform from the agent's perspective seems to be a very robust platform with a variety of capabilities. So on the insights.
On those capabilities and then how they compare to what booz offered would be great.
Okay.
So it is a pretty robust platform and what's great about it is we've got some proven results from it we have thousands of our agents and brokers in the in Canada and the U S that have had this product for a number of years and so we have been able to.
Lean on those brokers and agents for what their results.
Looked like in the product is designed not only from the base platform with <unk>.
CRM and IDEXX agent websites similar to the boost platform.
But there are some differences in terms of AI, how it's connected to their digital marketing center.
And we were relying on the use of a number of Apis with our different systems between food and megaphone and some of our other offerings to work together, where you think the power of this platform is all designed around lead generation conversion and automation and so there are pieces that overlap.
<unk> product in.
There are other pieces like the AI on the buyer side that we didn't have we have AI on the seller side with our first app.
We'll be looking to integrate and so there were just some nuances throughout the product that were a little different.
But certainly the ecosystem, if you will of being a.
Single platform with the different components of their core present products, which we've included plus the team product plus the design center all of that working in one ecosystem I believe brings the strength of their platform.
At the forefront of the market.
Versus having somewhat disparate systems.
Like we had before that.
Fits together.
I think that's the biggest advantage of the difference.
That's great to hear and thank you for that color and then switching gears a little bit here just curious on what agent reception has been like to the recent shift in strategic priorities.
Okay.
Nick.
Well I can give you a real one I was at an industry event yesterday and this I think encapsulates the positive response from our network.
We had a broker come up and say that the network is just a buzz that the competition is nervous but asked if you could give me a hug based on our direction. So kind of a silly example, but it's been overwhelmingly positive believes that it sets us up to go in the right direction.
According to many of our brokers that these are some of the most ambitious.
Moves headed to where the market, where we're matching where the market is going and we have a broker in a conference coming up in just about a week.
And we believe we're on target to hit record attendance in people or people are excited about it. So we're thrilled.
Awesome, great to hear the feedback positive that's it for me. Thank you.
Okay.
And at this time there are no further questions I will turn the call over to Mr. <unk> for any closing remarks.
Thank you operator, and thanks to everyone for joining the call today.
This concludes the call please have a great weekend.
Ladies and gentlemen, thank you for joining today's call you may now disconnect.
Okay.
[music].
Yeah.