Q3 2023 RE/MAX Holdings Inc Earnings Call
Good morning, and welcome to the Remax Holdings third quarter 2023 earnings conference call and webcast.
My name is Krista and I will be facilitating the audio portion of today's call.
This time I would like to turn the call over to Andy Schulz Senior Vice President of Investor Relations Mr. Shaw.
You may begin.
Thank you operator, good morning, everyone and welcome to <unk> Holdings third quarter 2023 earnings Conference call.
Please visit the Investor Relations section of Www Dot Remax holdings Dot com for all earnings related materials and to access the live webcast and replay of the call. Today. If you are participating through the webcast. Please note that you will need to advance the slides as we move through the presentation.
Turning to slide two our prepared remarks and answers to your questions on today's call may contain forward looking statements.
Looking statements include those related to agent count franchise sales people are in 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 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 are discussed in our third quarter 2023 financial results press release and other SEC filings also we will refer to certain non-GAAP measures on today.
His call. Please see the definitions and reconciliations of non-GAAP measures contained in our most recent quarterly financial results press release, which is also available on our website.
Joining me on our call today are Steve Joyce, our Chief Executive Officer, Kerry 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> Holdings CEO, Steve Joyce.
<unk>.
Thank you Andy and thanks to everyone for joining our call today looking at slide three our financial and operational performance was once again in line with our expectations, highlighting the resilience and stability of our attractive 100% franchise model.
Majority of our global scaled business is driven by recurring revenue, providing fairly dependable revenue streams together with low fixed costs, we tend to generate strong margins and healthy cash flow, even when the housing and mortgage market conditions are like they are today.
Though we cannot control the macro environment that impacts our business. We made continued progress on our core strategic initiatives, which include aggressively pursuing agent growth opportunities in the U S, increasing our Canadian and global agent counts and growing our mortgage business.
Ultimately, we believe we will successfully navigate these challenging times and grow significantly when industry conditions improve a pattern we've seen repeatedly for 50 years.
Our brands and networks are unmatched in many ways and we believe our future is very bright.
Even today, we see positive trends worth, noting like the momentum we have with both Remax franchise sales and our conversions acquisitions and mergers initiatives as well as continued growth in our mortgage business.
Some of our notable quarterly financial highlights include.
<unk> Holdings total revenue was $81 2 million, we generated adjusted EBITDA of $26 7 million or an adjusted EBITDA margin was 32, 9%.
And adjusted diluted EPS was <unk> 40.
During the third quarter, we made two difficult but necessary moves in the current environment first as previously announced in mid August we streamlined our operations and reduced our overall workforce by 7%.
Second during September Remax, LLC agreed to settle costly litigation and protect the company and Remax network from multiple industry class action lawsuits.
While it came at a significant financial cost we believed it was absolutely the best decision for all of our stakeholders affiliates employees shareholders and debt holders alike.
Nick will elaborate further in a few moments.
Subsequent to quarter, Ed the board of directors.
Sided to suspend our quarterly dividend.
In light of the recent litigation settlement, which includes a 55 billion payments and challenging housing and mortgage market conditions. The company believes this action to preserve its capital is prudent.
Regarding our CEO search I am pleased to report that we are nearing a conclusion and expect to announce our new leader within the next couple of weeks with that I will turn it over to Nick.
Thanks, Steve moving to slide four during the third quarter. We remained focused on advancing our growth initiatives designed to increase our U S agent count while current market conditions are somewhat overshadowed the desired outcomes. We continue to experience encouraging results in both our teams and conversions merge.
<unk> and acquisitions programs. For example, our teams pilot has added 25, new teams of six or more agents. Since it was launched in five states a year ago. In addition, <unk> teams in those pilot states have added over 700, new agents. During this time, similarly, our convergence mergers and acquisitions or <unk>.
Efforts continue to yield some great results in fiscal 2022, we completed nearly 30, CMA transactions, which added over 260 agents to remax through the first nine months of 2023, we've completed 36, CMA transactions and added more than 500 agents and the momentum continues to grow.
These are productive offices and agents, we are adding and in fact office conversions expansions and acquisitions completed in the past two months alone had upwards of $630 million in combined sales volume last year and included a notable conversion of unaffiliated brokerage with 165 agents.
It is terrific to see we're capitalizing on some bigger opportunities just as we had intended and we have several more that have not been announced as well as a robust growing pipeline.
In addition, we're pleased to announce we just signed a long term renewal with our largest master franchise or Remax Europe, which includes 49 countries. This is a significant renewal as it demonstrates the ongoing commitment to growth and expansion from our long standing proven partner.
<unk> is also experiencing strong franchise sales year to date for example, our sales in U S owned regions are up 35% year over year through September 30.
Remax recently secured the top spot for real estate franchises in the franchise times top 400 list. This achievement marks the 15th consecutive year <unk> has been recognized as the top real estate franchise in this comprehensive list.
<unk> is a top tier brand operating real estate entrepreneur has the opportunity to go into business for themselves, but not by themselves. The franchise sales growth throughout the U S. Underscores the value of building a brokerage business by providing a strong brand best in class technology, and extensive education and experiences to agents.
And clients.
Looking at the best Technology, we are very proud to announce that we have met and surpassed our internal goals set for the rollout of Max Tech powered by Kv core ahead of schedule during the third quarter aggressive company goals regarding office Onboarding and monthly active users and other metrics were met or exceeded a major feature of the system the new <unk>.
<unk> design Center recently launched which enables our affiliates to expand their focus on the state of the art marketing efforts relating to all aspects of their business.
Our goal for 2020 for us to continue to drive the already successful adoption and usage and to continue delivering value throughout the platform, including the expansion of additional AI features scheduled for early 2024.
Last just a few additional comments on our recent settlement of multiple industry class action lawsuits. It's important to note that the nationwide settlement, which requires court approval would release Remax LLC, our U S independent regions and use <unk> brokers and affiliates from any claims related to these losses.
Also settle on a nationwide basis any similar future claims that could be brought.
We continue to deny the allegations made in the complaint and in no way acknowledge any wrongdoing. We also continue to believe in buyer agency cooperative compensation and the idea that consumers are best served when they are working with real estate professionals.
At the same time, we believe that protecting the network from costly litigation and the risk of further damages makes this settlement the right course of action.
In the settlement, we agreed to certain business practice changes many of which we already do however, one change of note is the Remax LLC will no longer require our affiliates to join or be members of the National Association of Realtors for following <unk> code of ethics for the MLS Handbook there'll be free to determine whether <unk> membership is best for them there.
<unk> and their agents and will support their choice either way.
From payment of the settlement amount, we do not expect the terms of the proposed settlement to have a material impact on results of operations and cash flows.
As industry leaders for next affiliates understand the value of transparency clarity and fully informed buyers and sellers. These are key elements to the foundation of repeat and referral business the basis of top producing agents with that I will turn the call over to ward.
Thanks, Nick turning to slide five impressively, our mortgage business continued to grow during the third quarter year over year, our model open office count increased nearly 15%.
We just celebrated our seventh anniversary and we are approaching 250 open offices, a notable milestone, especially for such a relatively young franchise concepts. While franchise sales have understandably slowed there is still occurring reflective of the industry wide interest in the Mato opportunity.
As mentioned last quarter, we just hired an inside sales team with a proven track record of success at another franchise or early results are encouraging, especially in this climate. We've already had one sale, which this team sourced and we believe we have many other promising prospects in the pipeline.
The team's focus remains on real estate brokerages and team leaders as well as entrepreneurial loan originators.
Our motto growth and development team is also focused on helping our franchisees succeed by supplementing their recruiting efforts.
We're in a good loan originator is often a new franchisee toughest initial challenge we help assist our affiliates recruiting efforts and accelerate their growth in the process. It is a true win win dynamic with our recruiting focus we have helped officers recruit over 10, new logos in the last couple of months we.
We continue to experience positive results and we low front <unk> is changing the game for mortgage brokers by combining highly qualified customer centric processing talent with easy to use technology since the company's acquisition in 2020, we Mo has helped hundreds of brokers across the United States increased productivity manage bigger pipe.
Wines and grow their business beyond what they thought they were cable box.
Operational success and improvement are key focal point, we see we will improve on many of our most important operating metrics like the time. It takes for loans to progress from application declared a close <unk> excellence has caught the attention of the industry.
Recently, we mow was once again named a service partner of the year for processing by the National Association of mortgage brokers and it's 2023 recognition Awards program.
<unk> has also been named a 2023, most loved mortgage employer by national mortgage professionals. The brand earn a gold ranking in the service Provider's category based on results from employee satisfaction survey, which focused on key factors, including company culture benefits community involvement diversity inclusion.
And more as a young brand and a growth state, we believe that employee satisfaction and retention is key to providing the best customer experience and the best way to keep your employees happy and engaged is to invest in their growth.
We provide ongoing personalized training for our processors and consistent opportunities for them to share insights on the field. So they can witness firsthand how that feedback directly impacts organizational change and growth with that I'd like to turn the call over to Kerry.
Yes.
Thank you Mark good morning, everyone moving to slide six third quarter revenue declined eight 7% to $81 $2 million, excluding the marketing fund revenue was $60 4 million a decrease of eight eight.
8% compared to the same period last year.
Decrease was driven by negative eight 2% organic growth and adverse foreign currency movements of 6%.
Organic growth decreased principally due to lower broker fees, driven primarily by a reduction in transactions per agent given the overall decline in existing home sales organic growth also decreased due to a reduction in U S agent count and a decline in other revenue, which was down as a result of the shift in our technology strategy announced last year.
Partially offset by higher mortgage segment revenue.
Turning to slide seven Q3, selling operating and administrative expenses decreased 13, 3% to $43 1 million, primarily due to lower severance and reorganization charges equity compensation expense and legal fees.
As Steve mentioned during the third quarter, we announced a reduction in force and reorganization intended to streamline the company's operations and yield cost savings over the long term.
Reorganization, which was substantially complete by September 30th reduced the company's overall workforce by approximately 7% and total associated cash savings are expected to be approximately $6 5 million on an annual basis.
We recorded a pre tax cash charge for onetime termination benefits, which consist primarily of severance and related costs of <unk> 3 million.
We have agreed to settle certain industry class action lawsuits and pay a total of $55 million into a qualified settlement science. In addition to the business practice changes discussed earlier.
Tend to use available cash to satisfy our liabilities pursuant to the terms of the settlement, we paid 25% of that amount just before the end of the third quarter, we expect to pay another 25% within 10 business days after preliminary court approval and the remaining 50% within 10 business days a final court approve.
Likely sometime next year.
As Steve noted earlier, we believe settling these cases in the manner. We did was the best decision for all our stakeholders. Despite the financial cost is that it.
Alongside the weakening macro environment has also impacted a few different provisions in our credit agreement given the increase to our total leverage ratio.
For purposes of calculating the total leverage ratio under our credit agreement. The 55 million settlement charge is not added back Consequently as of September 30th 2023.
Total leverage ratio was 721, however, we only anticipate this elevated level to persist for the next four quarters before moderating significantly <unk>.
Provisions in our credit agreement that were impacted include restricted payments excess cash flow principal repayments and access to our revolver.
There are discussed in detail in our Form 10-Q.
Also happy to answer any related questions you might have once we get to Q&A.
As Steve said earlier, our board of directors made the difficult, but prudent decision to suspend our quarterly dividend.
This change in capital allocation was not entered into lightly.
We always have and continue to strongly support returning capital to shareholders. However, given current circumstances and out of an abundance of caution. We believe this decision is optimal for shareholders as we determine how best to take advantage of those opportunities that we believe will yield the best long term return.
Moving to slide eight regarding our outlook for the company's fourth quarter and full year 2023 outlook.
And with no further currency movements acquisitions or divestitures.
For the fourth quarter of 2023, we expect agent count to increase two 5% to one 5% over fourth quarter 2022.
Revenue in a range of 74 million to $79 million, including revenue from the marketing volumes in a range of 20 million to $22 million and adjusted EBITDA in a range of 25 million to $23 5 million.
For the full year 2023, we are slightly increasing our agent count guidance and narrowing our revenue and adjusted EBITDA guidance ranges and now expect agent.
Agent count to increase.
Two 5% to one 5% over full year 2022 revenue in a range of 323 million to $328 million, including revenue from the marketing funds in the range of 83 million to $85 million and adjusted EBITDA in a range of $94 million and 97.
Now I'll turn the call over to Steve for closing comments.
Thanks, Gary looking at slide nine we remain focused on the long term as we move through a challenging time within the housing industry.
Continue to make good progress on our growth initiatives and have taken necessary steps to better position our company for growth when the industry rebounds with.
With that operator, let's open it up for questions.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of so Ham Bansal from BPI G. Please go ahead.
Hey, good morning, everyone. Thanks for taking the questions.
First one Nick or Steve I am sure you are having a lot of conversations with your broker customers.
Can you maybe just give us a sense for what those conversations are looking like today as they digest all the headlines are there any conversations around <unk>.
<unk> is that they may be thinking about making to their business right would just love to get a sense for that first.
So I think generally.
They are very happy with the action we took.
As a view that we did significant.
<unk>.
Set of sacrifices on our part to help protect them and so I would say, it's overwhelmingly sense of gratitude.
The position of the company took to kind of put this behind them.
And so so that's number one number two.
Our view is.
Obviously, we will have to see as the.
Recent judgment plays out our view was we Didnt never we never really saw this change in our business <unk>.
Significantly the number of the practices.
That people were looking for we had already adopted.
So there wasn't really a lot of changes, we expected and as we've said before where our agreement goes.
It's approved which we have a high degree of confidence it will be.
That it's not going to affect our business from practice or profitability materially.
And so why don't you give a little more color around the calls that you've gotten from.
For the brokerage income the ages.
Sure I Echo Steve's position that many of our franchisees are at this point pleased with the action, but we also have to remember that.
It's not all buttoned up and complete at this point and so most of the brokers are really working hard to keep their agents focused on the business, which is there are still people out there buying and selling and at this point.
<unk> on helping consumers right now and as things progress. If there are additional changes that affect the manner in which they adjust and do business then they'll make those changes. So there are certainly a lot of discussions happening, but I know, we are encouraging and our brokers are encouraging their agents.
To not get overly excited and stay focused on the business at hand, which is helping buyers and sellers with with the rules that are in front of them right now.
Okay.
And then I guess, if I think a few years out from now.
In a scenario where there is some compression on the on the buy side right.
And let's just say there is fewer agents or brokers out there.
I think historically has shown an appetite or willingness to maybe just help your.
Your customers out and so I'm just curious how you think sort of vaccine Eric can play out is this any different right.
If we have sort of fewer agents and brokers in the long term.
Look why don't you talk a little bit.
Yes, I think we've seen the history repeat itself a little bit the agent count does follow market conditions, a bit if we rewind pre great recession, there were $1 5 million realtors that dropped to sub $1 million and then as the.
Market came back over a 10 year period with over 130 months of consecutive increases in prices.
Agent Count increase and so we're seeing that now as well that as there is pressure and contraction in the overall real estate market, we see contraction in the number of agents that want to be in the business and so the easier the market. If you will to more of the agents are there.
But I think this is where we come back to the foundation of our business, which is our agents have twice as much experience as the industry they've been through changes before they know how to adapt and thats kind of the nature of a true full time professional knows how to adjust whether it be the market conditions and hey, we've had.
Rule changes and changes to our business in the past.
But bottom line is people are still going to buy and sell houses.
They still want a trusted advisor.
We still believe in buyer agency and I think one thing that's interesting to note is we're about a full generation away from how we got here with buyer agency and MLS is.
And really it was all put together to help consumers.
With the biggest financial decision of most peoples lives and so we still believe in.
And absolutely consumers being represented by a trusted professional and that's going to continue no matter what.
Okay, Great and then just lastly, just to just.
To add to that I think Nick mentioned this because we have the most productive agents and because our model is very different than anything out there where we are on a fixed fee basis with the agents.
Very different approach, so if youre a highly productive.
Regardless of where the commissions go you're going to still like our model and youre going to still like being with us because <unk> got it is the most enabling them.
The brands out there to sell more houses and so the more houses they sell.
The more their margin or profitability grows concerning us because were a fixed cost and then on top of that.
<unk>.
They are the ones that are going to survive the most.
So I think while there is certainly.
Theres certainly a opinion out there that could see changes in particularly on the on the buyer side.
Our view is.
And Nick said this that we have the most qualified agents that are the most experienced that sell the most houses by a factor of two to law.
And therefore, they're going to whether whether it's <unk> and another way of looking at it is this could be a positive piece for us.
When people are concerned about where things are at on date fly to quality.
We think we stay at the top of the industry in terms of.
Most agents and brokers views of the brands. So when there is uncertainty.
Usually it helps the people that are that are more of the.
The Blue chip.
And that's where we sit.
Yes that makes sense on your 95% split helps too.
I guess, Gary just one more on the <unk>.
Seven point.
Currently a can you just maybe talk about.
The potential to have to make sort of an excess cash flow payment here in the near term and then any potential for raising capital.
You don't have access to the secured facility.
Sure. Good morning, So Jim mentioned, a couple of implications as a result of the increase in that total leverage ratio do you expect it to persist for the next four quarters and then expect it to moderate significantly with respect to let me touch on three different points as it relates to it with respect to the excess cash flow payment we need to calculate.
That as of the end of the year given the settlement payment. We don't expect to have an excess cash flow payment at this time, we have no. We have to go through the process don't expect it to be.
An issue or a use of cash.
At this time.
One other implication as a result of the increase in the CLR and that is related to some of our restrictive covenants pursuant to the terms of our credit agreement.
Prior to the settlement when our CLR was below three five times, we had an unlimited basket, where we could allocate capital to return of capital So both dividends and the buyback now with it over that three five times level.
We have a basket that we have to stay within that $50 million.
So there is some restriction from that perspective, and then as we look ahead to capital allocation and allocation opportunities of capital.
We are currently.
Prevented from drawing on the revolver a couple of things I would note from that perspective, and our 10 year history as a public company, we have never drawn on the revolver and didn't have plans to and Thats really driven by the overall strength of the business model. The scale franchise business. The operations over 50 years, the ability to have an asset light business.
That can weather ups.
Ups and downs from a macro perspective and generate earnings from an adjusted EBITDA basis and convert it to free cash flow and so we still feel like the settlement and despite some of these restrictions on the credit agreement was absolutely in the right decisions of all of our stakeholders and really feel like we've got.
We've set the company up for growth in the future.
Great. Thank you. Thank you so much.
Your next question comes from the line of Anthony <unk> from Jpmorgan. Please go ahead.
Thanks, and good morning.
If we can we'd just like to go back to some of your bigger picture thoughts on on what comes out of the settlement and the industry lawsuits just generally speaking I.
I mean, I understand the cyclicality of the business and the strength of the <unk> platform, but just.
What do you think the biggest implications to the industry will be over the next few years do you think it's the number of agents is at the commission rate because it who pays the commissions just kind of want to understand just how youre thinking about where this goes.
I think once we start.
Sure.
We have the ability with our organization being a global company. There is a lot of comparisons to different markets and international markets and I think the one thing that we kind of see is the idea of what I mentioned earlier that.
We believe in buyers agency, we believe in transparency, we believe that that's all going to continue and many of the items that were listed in our settlement as we mentioned we were adopting.
And had embraced prior too and so I think that thats going to be a big piece when I look at commission rates. So we look at history Commission.
Commission rates have shown to follow a supply and demand and we've shown that their commission.
Commission rates went down in the mid two thousands they came back up during the great recession, and they've come down even sub 5%.
Since then and so I think that we're going to see much of the same.
This is going to be driven more by supply and demand.
I think at the end of the day our agents.
Top producers in our whole model has been based on the independents have an agent that they are in business for themselves not by themselves with the freedom to always negotiate their commissions as they see fit and regardless of how the rules shake out which none of US know at this point on if it will change or if it will hinge on and on the listing agents sharing that.
Commission with the buyer's agent, we will see more to come but I do know that at the end of the day I think it's fair to say that both buyers and sellers are willing to pay for the service of an agent to have representation and Ics.
That's going to continue to be at the forefront of the industry, regardless and those that are able to demonstrate their value.
We will be able to negotiate the rate in which they think their value is worth.
So I think that that point is so important because whether it's next month next year or five years from now I think that's going to be the same.
Yes, I think Nick.
I think thats right, but the other piece there are two fundamental things that have not changed.
One is that sellers like more than one agent working on their or their sales because they think it increases their chances as buyers want a trusted professional advising them.
In our consumer research is reasonable I don't know if it with whatever six months ago.
We're still seeing that and we're still we're still rated very highly on the trust factor.
At the top and so so those two things haven't changed.
Can see.
Obviously <unk>.
Supply and demand and this could put some pressure on what the fees are but that's the fundamental nature of it people are still looking at this the same way as in terms of all of the recent consumer.
Look what we've done.
Okay.
And then just on bad debts.
Number that's up a decent amount year over year like any comments on whether you think you have seen the worst of that or were on the front end of seeing that escalating up.
Sure.
Yes, good morning, Tony So I guess I would kind of bifurcate that across the two across the two brands from a from a remax perspective 50 years of history.
I think we've seen the playbook before.
We're starting to while it has gone up and it went up kind of in.
Q2, and Q3, it's kind of moderated between between the quarters on the mortgage side.
It's tougher right now obviously mortgage rates are at a 20 plus year high and the motto franchise base is relatively young in comparison in terms of navigating through the cyclicality that we're seeing right now.
It honestly is a little bit tougher right now so we have seen that go up a little bit we're watching that we're at and the team are working very closely with our franchisees and it doesn't change anything with regard to as we look.
Over a significant long period of time, but near term is definitely a little bit more.
I think a little bit more headwind that we're facing on the motto on the mortgage side.
Okay. Thank you.
Your next question comes from the line of Ryan Mckenna from Zelman <unk> Associates. Please go ahead.
Hey, good morning, Thank you for all the detail.
I wanted to dig in I think with Nick on the U S agent count side. So.
It sounds like some some good traction on the initiatives that you discussed but on an overall basis. Obviously the USA is you can count is still kind of ticking lower so I guess I wanted to see if you could shed any light on kind of where the attrition is happening.
Any sense of just is it competitive dynamics of agents moving to other brokerages is it things like retirement is it the macro dynamic of just.
Volume is so low that some are choosing to leave the industry and I guess similarly, just in terms of the tenure of agents is there any distinction between.
Attrition between let's say agents, who have been with.
With you were in the industry quite a long time versus those who might be might be newer to the business.
Thanks.
Sorry, Steve go ahead.
No no no.
Got it.
Yeah I Love your question, Ryan because you answered it exactly how I would have it's really a combination of all those things that you mentioned.
We wish we could point and say, it's one thing if it was just competitive threat or if it was just retirement or if it was just new agents there might be a singular response to each and every one of those but.
It is definitely a combination of all of the above.
Do have recruiting that happens between all of our companies Theres not one singular organization or competitor.
We're all.
Aggressive recruiters in this business and that's just part of it but.
But the other part of it I think it goes to your main question is where does whereas the attrition coming from.
We see some on the retirement.
We see some that needed one more good market.
That maybe would've retired 10 years ago and stayed in the business a little longer than they would have I think we've seen that in the average age and also there were a lot of new licensees that came into the business in the last few years and.
Some of them where team members and when there's contraction just not the volume out there to support as many agents. What we find is that's where we're unique we're not all things to all people.
And our very top producers, even though we lose one here and there are generally up excuse me our most loyal.
And the base that is the foundation of our organization and so I think as we see the overall number of agents in the industry reduce we're just not immune to it what we are trying to do though is look at what are the other growth initiatives like we mentioned with teams with CNA with some of our recruiting initiatives that do take time.
But they are showing some very positive momentum and that's what we're going to continue on to try to counteract any level of attrition of the overall industry.
Got it thanks, Nick that's helpful.
And one for carry on.
The reduction in force.
I might have missed this did you say, what we should expect in terms of.
Cost savings going forward either per quarter annually or are you able to frame that for us.
Sure. So we did say on the scripted remarks that if we look ahead kind of the annual cash savings from that is around $6 5 million I think keep in mind as we go ahead, obviously into 2024, we will have a lot more to say on the 2024 outlook in February but we're also managing other <unk>.
Relation area pressures on the business as well.
So just kind of keep that in mind as we had head into internet share.
Okay perfect. Thank you.
Your next question comes from the line of Stephen Sheldon from William Blair. Please go ahead.
Hey, good morning. Thanks.
First on the dividend it seems to make sense to suspend it in the current environment and with the recent settlement, but what would you and the board want to see in order to think about reinstating that down the road.
Yes. Good question, because we obviously talked a lot about that so.
So look our.
Our number one measurement for our performance as total shareholder return.
<unk> used means that our top priority is returning capital to shareholders and obviously this is not contributing to that and so.
So that is our top priority the most urgent thing for us is to get our.
Our settlement approved so that we don't take all of the things that others are going to face going forward and so once we do that once we see the <unk>.
Relatives.
Conditions in the marketplace around all these risks saddling you should see us returning to looking at reinstating the dividend and looking at.
Other ways to return capital including share repurchase.
We have just been on on sort of the cautious side recently because of the potential threats, which turned out to be pretty Korea.
So we're happy that we that we that we've been careful with our cash that we have the money to make the subtle, but and we want to get through that piece of it and then you'll see us immediately turn to looking at Howard.
What is the best way to work out.
Got it thanks.
And then just as we as we start to think about 2024, adjusted EBITDA I know theres still a lot of moving pieces on the top line, but just on some of the expense items can you help us think through things like legal expenses, which seem like they may have been elevated this year and any rough impact on the cost savings initiatives, although I. Thank you.
You noted some inflationary pressures in response to the last question just anything to call out as we think about bridging 2023, EBIT guidance to what it could potentially look like in 2024.
Sure.
Yes. Thanks, Thanks, Stephen Good question.
You're right I mentioned, a little bit before kind of wear.
What the impacts were from the reduction enforced and some inflationary pressures.
From a legal expense perspective.
See that tick down a little bit there is obviously some other litigation that's ongoing.
We've just got to make sure.
That we're calibrated appropriately one other thing I'd mention as we think ahead to 2024 and I noted it with regards to some of the topline variability this year as in our other income so our all of our other revenue sorry.
Obviously the shift in the technology strategy that we announced last year has seen some runoff of some of those legacy businesses, which we don't expect to really be meaningfully contributing to the top line next year. So.
And first and continuing kind of run off of the Gadberry business do you expect some attrition on the top line from that perspective, as we head into next year. As you noted there is a lot of uncertainty still.
But we're not expecting significant.
Deviation probably.
Outside of kind of where we're looking at ending 2023 as we go into next year.
But we'll have more to say in February.
Alright, thank you.
Our next question comes from the line of Matthew <unk> from Jones trading. Please go ahead.
Good morning, guys. Thanks for taking the question.
And this is kind of an industry as a whole question based on the settlements that are going on do you think more agents are out there.
Talking to other firms or companies.
Just kind of reconsidering their business and where they're at.
Yeah, Let me I'm going to ask Nick to cover all of that fully but I think.
What is pretty recent but clearly it's going to cause people to start.
We're reviewing.
Who's in what position.
And where they want to be long term.
So I do think.
There's going to be a fair amount of conversation and a fair amount of thinking about what is the longer term impact of all of these issues.
What does it mean brand by brand company by company, and therefore, and then where do they want to be so Nick do you want to give more on that.
Well, certainly the lawsuits and the settlement or the headlines which people look to but I think it's bigger than that when agents really look at their career, where they want to be.
It's more so they're looking at the overall market and when you get into fourth quarter people are reevaluating what are their goals for the next year, what's the value prop with the culture. What's the company that's going to help me achieve my goals and so I think even over the past year, yes, a lot of agents have been.
Really looking to say what company, what culture, what value to I need do I need.
I'll point to one example, we announced our Max Tech powered by <unk>, We had agents that were outspending on the retail market thousands of dollars a month in which we were able to offer something that create a great savings for them as they were right sizing your business and so that helps us look more attractive and so I think the market conditions and the changes.
Our overriding in an agent's decision on where they want to be just happens to be it's kind of the flavor of the week with the big news.
I do think that that secondary to how agents make a decision on that.
Yes.
Yes, that's helpful. And then following up on the team's initiative I believe is still in the states that you originally piloted in but have you guys had any talks of expanding it it seems like it's going well and then are there any other teams from outside of those states that have kind of hit you guys up what can you get involved with this.
Nick.
Okay.
Yes, so we did start with a five five.
Five states on the initial pilot from last year, we did add a sixth state Arizona just.
A few months ago and so what we're what we're looking at is.
Adding that additional state to examine what our timing is and how and if we expand it further so that's not determined.
At this point, we will likely determine that in the months of the quarter ahead.
But to answer your question, yes, there are other states that are saying.
When can we get this too which is a good thing because the results are showing in the pilot stage and so it's a good indicator at this point, but no decisions exactly on how that will expand our win.
That's helpful. Thank you.
Your next question comes from the line of Ronald Camden from Morgan Stanley. Please go ahead.
Hey, just a couple quick ones, so going back to the.
The revolver restrictions I guess the question really is how should we think about the liquidity over the next four quarters right. So is that is that the $90 million of cash on the balance sheet, plus whatever free cash flow you generate plus $50 million or I guess I'm just trying to figure out like how do we think about liquidity for the.
Next four quarters.
With this restriction.
Sure.
Yeah. So I think a couple of things to note primarily the cash generative nature of the business. It is truly a hallmark of the business. So as we think about the next four quarters.
It is the cash on the balance sheet. It is cash flow from operations that we can that we can generate and then outside of the revolver for a minute. We do have the ability and pursuant to the terms of our credit agreement to actually upsize. The facility. If we were to need to do that.
And then.
I'll get back into a place where if we needed to access the revolver. We could like I said previously we've never had to or ever really wanted to access that revolver. We've always just had it.
And any interest that we needed to.
Got it that's helpful and.
And then sort of my my second question was going to be.
Im looking at the release it looks like the franchise offices in October.
Went down by three it is am I reading that correctly. The motto mortgage franchise is $2 39 in October which is down three since the end of the quarter or is that is that right and what happened there.
Yes, I can answer that.
This award.
We always have terminations going on.
Officers do close from time to time and because of the sales have been a little bit tougher this year they.
They arent offsetting some of that typically we're growing at a faster pace and sometimes terminations. This quarter. It was just a tough quarter with the changing market.
We believe sales will ramp up.
However, it continues to be sort of lumpy moving forward.
And we will offset that.
Particular number and continue to grow towards getting closer to that 250.
Great and then just if I could sneak in a quick one what's the update on the CEO search and when when does this timing. Thanks so much.
The search is coming to a close.
Obviously longer than we thought but you should see an announcement next couple of weeks.
Thanks, so much.
Your next question comes from the line of Tom You Mick joined from K B W. Please go ahead.
Hi, good morning.
Siemens Remax has a.
Global footprint I think it's fair to ask.
What is your impression of the comparison of the U S system, where there was close to 90% buyer agent utilization.
So the comparison to other countries, where buyer agent representation is a fraction of that do you agree with that comparison.
And then along the same lines just higher level.
Do the advances in technology that are available to repeat buyers and not just the search portals, but also prequalification verification and automated scheduling automated comps generation neighborhood, scoring everything does.
Does all of that technology allow for a transaction, where one listing agent can handle coordinating the transaction and the buyer has enough tools available to them to say two 5% to the extent that that commitment eventually comes directly out of their pocket upfront.
Once you take that.
Sure. So first on the international front the thing to note internationally as the rules are very very different by country. We have some countries that don't even have license law and so when I when I make a comparison I look at the U S and Canada are just far ahead of more sophisticated in the organization of the business.
But in some of those countries, where we operate where theres not by our agency.
It can be very difficult for buyers and difficult for consumers as a whole and some of them. It's just a buyer beware mentality that the seller has referenced representation in the buyer does not.
And that's why we feel strongly that when you look at the progress that we've made within the United States.
By our agency representation, why we stand behind it and think that it serves consumers very very well.
Your question as far as are there enough online tools for buyers to kind of do their own work and avoid paying a commission.
That was a question I know that came up in my experience about a dozen years ago. When <unk> really started to take a center seat not just on home search, but a lot of the data that became available too.
Potential homebuyers that it hadn't been in the past and what we found and the data shows chose us as consumers are using agents at a higher rate today.
Than they ever have been for even the millennial generation, which many forecasted would just use online tools and do their own business.
Or do for sale by owners, but the reality comes down to this that on average consumers use real estate services, two or three times, maybe in their lifetime and it's their biggest transaction.
Want a trusted advisor.
To make sure they're making the right decision now are consumers doing more research on their own.
More than they ever have before absolutely, but when it gets right down to it they want that expert to come in and say now we are ready to transact and I want that.
That person on my side.
So if we just look at the last 10 years is kind of a litmus test.
More transparency more tools available the more things that a buyer can do they are still turning to an agent and we absolutely think that that will continue to be the trend.
Got it I appreciate the thoughts there.
And then my second question is.
Are you aware of anything.
That might be bringing in Canada that is similar to the class action litigation that was happening here in the U S is that a risk that we should be thinking about.
Nick.
Sure.
There was one suite that came up that has.
The large brokerages and franchise orders have since been dismissed.
So at this point, we don't we're not aware of anything else.
That's pending.
So it was just just the one that we believe is no longer part of.
Part of the landscape.
Got it thank you.
We have no further questions in the queue at this time I will turn the call back over to Andy Schulz for closing remarks.
Thank you operator, thanks to everyone for joining our call. Today. This concludes the session have a great weekend.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
Please wait the conference will begin shortly.
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