Q3 2024 RE/MAX Holdings Inc Earnings Call
Good morning, and welcome to the <unk> Mex Holdings third quarter 2024 earnings Conference call and webcast. My name is John and I'll be facilitating the audio portion of the skull at this time I would like to turn the call over to Andy Schulz Senior Vice President of Investor Relations. Mr shows.
Andy Schulz: Thank you operator, good morning, everyone and welcome to remark Holdings' third quarter 2024 earnings Conference call. Please visit the Investor Relations section of Www Dot Remax holdings Dot com for all earnings related materials, including our standard earnings presentation and to access the live webcast and the <unk>.
Andy Schulz: The call today.
Andy Schulz: Our prepared remarks and answers to your questions on today's call may contain forward looking statements forward looking.
Andy Schulz: Statements include those related to agent count franchise sales and open offices financial measures and outlook Hurricane related financial support brand expansion competition technology housing and mortgage market conditions capital allocation credit facility dividends share repurchases litigation.
Andy Schulz: <unk> strategic and operational plans and business models.
Andy Schulz: Forward looking statements represent managements current estimates Remax holdings assumes no obligation to update any forward looking statements in the future.
Andy Schulz: 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 2024 financial results press release and other SEC filings also we will refer to certain non-GAAP measures on today's call.
Andy Schulz: 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.
Andy Schulz: Joining me on our call today are Eric Carlson, our Chief Executive Officer, and Karri Callahan, Our Chief Financial Officer, Our brand leaders Ward Morrison and Amy lessened. Your are also here and will join us for Q&A with that I'd like to turn the call over to <unk> Holdings CEO Erik Karlsson, Erik Thank you, Andy and thanks to everyone for <unk>.
Andy Schulz: Joining us today before discussing our quarterly performance I wanted to start with a few comments regarding the recent hurricane activity. These were extraordinary storms and most of US probably know someone who was directly affected by them. Unfortunately, we tragically lost one of our brokers and their spouse and the thousands of affiliates were impacted.
Andy Schulz: Have now begun the task of rebuilding their lives.
Andy Schulz: We are proud of the way Remax and motto networks rally to support their affiliates and their communities our team from around the world is doing what they always do in times of crisis stepping up to help.
Andy Schulz: Given the magnitude of destruction from these historic storms, we plan to provide limited financial relief for those impacted based on individual facts and circumstances, we want to do what we can to help our networks rebuild enbridge the interruption to their respective businesses and lives Cary will provide more details in a few moments on the financial impact moving to earnings.
Andy Schulz: We generated better than forecasted financial performance for the second quarter in a row, our teams working on running our core business better each day and that effort has contributed to our strong margin over the past two quarters, which is an encouraging trend.
Andy Schulz: Both the real estate and mortgage industries were working their way through uncertain times. So we remain centered on what we can control and we believe our third quarter financial results are further proof proof that our actions are making a difference.
Andy Schulz: Kerry will get into financial details shortly but the strength of our business model was again evident during the quarter highlighted by strong cash flow generation driven by ongoing cost management efforts and strong remax collections alongside improvement and our total leverage ratio.
Andy Schulz: Past quarter was also notable for the real estate industry has it implemented business practice changes because of the <unk> settlement.
The lead up to August 17th brought heightened attention to the crucial role professional agents and brokers bring to their home buying or selling experience.
Andy Schulz: For market participants like Remax, we were confident that trusted professionals would rise to the occasion and adapt as they have done so many times before.
Andy Schulz: And then initially appears to be the case in the weeks immediately after the business practice changes were implemented we're proud of the way our team and our network handled this significant chapter in the history of real estate, we alongside our franchisees and many of our nearly 3200 offices across the U S. Leaned in we leaned in to focus on education.
Andy Schulz: And we spoke loudly about the value professional agent spring to homebuyers and sellers.
Andy Schulz: And what agents can and should be doing to thrive.
Andy Schulz: Having both the global and local presence along with a well established culture of professionalism and productivity are true competitive advantages skill is essential in this market and Remax is home to the highly skilled fulltime agent who are also the most trusted by consumers Remax agents are simply the gold.
Andy Schulz: Standard.
Andy Schulz: As anticipated additional items will pop up as we navigate the new landscape one thing Thats currently being debated in the industry is not as clear cooperation policy.
Andy Schulz: Our view on the matter of straightforward Remax is in favor of policies that help buyers and sellers achieve their homeownership dreams we.
Andy Schulz: We support full transparency and real estate transactions agency companies, who promote listings to the widest possible audience are serving the best interest of buyers and sellers alike and honoring their fiduciary responsibilities.
Andy Schulz: Buyers deserve equal access to available properties and sellers deserve the broadest possible exposure for their homes.
Andy Schulz: We stand for trust transparency and professionalism, we believe in prioritizing consumer interest over practices that benefit a few at the expense of many.
Andy Schulz: As the industry moves forward, we will continue to be discussions around industry practices that may result in further change we consistently remind our affiliates to stay focused focused on articulating their value as trusted professionals and providing their buyers and sellers the best customer experience each and every day.
Andy Schulz: Another significant event at the macro level. This past quarter was last months 50 basis point cut by the Federal Reserve look this was welcomed by many in the industry. It appears that some negative housing trends may be bottoming out.
Andy Schulz: October's rise in mortgage rates May result in softer demand trends in the near term. Despite all of that overall there is growing optimism for 2025, we share that.
Andy Schulz: We are optimistic the moves we're making to drive efficiency and growth at pointed us in the right direction.
Andy Schulz: Granted there's much more work still to be done, especially when it comes to agent count, but it is rewarding to see our results beginning to show up in our financial performance improving.
Andy Schulz: Improving agent count is essential to a better topline so agent stabilization and growth remains a major objective on the positive side, we saw our international agent Count continued to rise in the third quarter, increasing nearly 6% over last year's Q3 in fact, our September 30, a total of over 67000 agents outside the <unk>.
Andy Schulz: And Canada was a record so far in 2024 notable performers include Brazil and Argentina.
Andy Schulz: Successful recruiting training and retention programs have added and their progress in Canada. We totaled almost 25400 agents as of September 30th also a record.
Andy Schulz: In this extremely competitive market Remax continues to be the place more professional agents choose to operate their business than any other brand.
Andy Schulz: Now here in the U S significant industry wide agent attrition is widely being reported and is a real factor, but we know we need to improve upon what we can control to advance our performance one way, we aimed to stem and ultimately reverse this trend by focusing on providing the best customer experience we can.
Andy Schulz: For example, at our annual broker owner conference in August we announced an expansion of our Max Tech powered by Bold Trail partnership.
Andy Schulz: In addition to increasing agent focused process and tools the expansion AIDS brokerage functionality, creating a front office back office alignment that is hitting both remax agents and brokers. This platform features a state of the art user interface, AI, driven workflow tools and actionable business insights aiming to augment recruiting activities enhanced.
Agent productivity streamline operations facilitate connectivity between the agent and consumer and in general helped deliver a superior customer experience. We've got a growth mindset and we are working to get our top line moving in the right direction, while better results from our growth initiatives will certainly help we're also exploring other ways to innovate.
Andy Schulz: To that end, we've identified additional opportunities to enhance the customer experience, which can also drive revenue that's a powerful combination.
Andy Schulz: For example, we mentioned last quarter the launch of Max Tech lead times here, it's an optional program, which delivers vetted conversation ready home buying and selling leads from Remax dot com and remix dossier.
Andy Schulz: With this program real people real people contact leads within minutes other inquiry, a speed that aligns with evolving consumer expectation and AIDS in maintaining that consumer trust in the Remax brand.
Research suggests that the chances of connecting with a lead or 100 times greater if contact is made within five minutes rather than 30.
Andy Schulz: It makes a difference it's still very early but the majority of <unk> Dot Com lead center costs year had turned into qualified conversation ready referrals.
Andy Schulz: <unk> of Remax agents have opted into the program and we're seeing the initial leads convert it's exciting to see this capability take hold and show signs of success. So early on we're also interested in optimizing assets across the portfolio one set of underappreciated assets as our websites <unk> dot com and Remax dossier, we have.
Andy Schulz: Making purposeful investments in our web sites over the past year to improve the functionality.
Andy Schulz: And customer experience these investments not only enabled litas gear, but also supported a new capability that allows display ads to appear on dot com and they will soon appear on dossier.
Given our iconic brand the strong market share we have in franchise, our leading websites. We view the monetization of our digital assets as an innovative and relatively low risk high reward opportunity now.
Andy Schulz: Now looking at our mortgage business. Our recent results show that rates do matter September was the best month of motto franchise sales since March of 2023. Similarly during September we low enjoyed its best month of the year, so far and loan submissions. Despite this recent bright spot continued elevated mortgage rates have made it a tough time to be in the mortgage business we're feeling.
Andy Schulz: FX is a number of open model offices is declining slightly for the first time ever as franchise sales has slowed and a few existing franchises have terminated due to their financial position lack of transaction activity or not being connected to the real estate transaction. While motto is seeing some of those terminations increased during the past year as the macro economy changes.
Andy Schulz: We do believe we will be able to start drawing that open office count again soon.
Speaker Change: I put my comments by pointing out that we continue to make steady progress at running our business as efficiently and as effectively as possible, having that growth mindset and most importantly, delivering the absolute best customer experience possible setting aside the onetime impact associated with supporting our networks affected by the Hurricanes, We believe we're well positioned well positioned to.
Speaker Change: And the year with momentum with increasing optimism about the trajectory of our future interest rates of a growing global agent count and about our new initiatives, including providing innovative enhanced technology products to our networks improving the agent customer experience through our lead cost share program and starting to monetize our digital assets. We believe we are headed in the right.
Speaker Change: Action, but we're very optimistic about the future.
Speaker Change: With that I'll turn it over to Gary.
Gary: Thank you Eric Good morning, everyone. We had another solid quarter highlighted by effective cost management, and strong collection, which generated robust free cash flow alongside expanding margin.
Gary: Some of our notable quarterly financial metrics included total revenue of $78 5 million adjusted EBITDA of $27 3 million up 2% over Q3 of last year.
Gary: Adjusted EBITDA margin of 34, 8% an increase of 190 basis points over the third quarter of 2023, and adjusted diluted EPS of <unk> 38 cents.
Gary: Looking closer at revenue, excluding the marketing funds revenue was $58 4 million a decrease of just three 3% compared to the same period last year, driven by negative organic growth of 3% and adverse foreign currency movements of <unk>, 3%.
Negative organic growth was principally due to lower U S agent count and reduced revenues from previous acquisition.
Gary: Partially offset by higher broker fee revenue the.
Gary: The increase in broker fee revenue was primarily driven by higher sales prices and to a lesser extent slightly increased productivity in the U S, which collectively more than offset the impact from this agent count.
I've taken U S agent productivity with great to see and highlighted the strength of our network in the current environment. Despite the recent industry practice changes.
Importantly, third quarter, selling operating and administrative expenses decreased $7 2 million or 16, 6% to $35 9 million the cost reductions were broad based in nature and evidenced across most of our cost structure and highlighted by lower personnel costs a decrease in bad debt.
Gary: Legal and other technology expenses like last quarter decreased personnel expenses on a year over year basis, we're principally a function of the restructuring announced in Q3 of 2023 and remarks collections also continued to improve which is an encouraging positive trend lower legal expenses and miscellaneous.
Gary: Reductions eliminations and efficiencies elsewhere across the company all contributed to this quarter's solid results.
Gary: From a capital allocation perspective, we remain patient.
Gary: Good news is our total leverage ratio our CLR is now under four and a half to one as expected.
Gary: Importantly, we now have access to our revolving credit facility should we need it. Although we currently have no plans to tap it.
Gary: Further reducing our CLR by the end of the year remains a focal point for our entire company.
Gary: Since our CLR returns to a desired level, we will evaluate our capital allocation opportunities and priorities, including debt repayment stock buybacks and strategically reinvesting in our business among others. The cash generative nature of our business is perhaps our most attractive financial characteristic.
Speaker Change: Where I get to our outlook and as Eric alluded to earlier several of our affiliates were severely impacted given the magnitude of the recent hurricanes.
Speaker Change: We currently estimate that our fourth quarter financial performance will be lower than previously expected as limited financial support is extended to affected affiliates as a result, we reduced our fourth quarter and full year revenue guidance by approximately one to $1 5 million.
Speaker Change: In addition to the impact from the Hurricanes, our fourth quarter and full year 2024 outlook assumes no further currency movements acquisitions or divestitures for the fourth quarter of 2024, we expect agent count to change zero to 1% over fourth quarter 2023 revenue in a range of 71.
Speaker Change: To $76 million, including revenue from the marketing funds in a range of 18 in the half to $25 million and adjusted EBITDA in a range of 20, and a half to 23 and a half million and for the full year 2024, we now expect agent count to change zero to 1% over full year.
Speaker Change: 2023 revenue in a range of $306 million to $311 million, including revenue from the marketing funds in a range of 78 and a half.
Speaker Change: To $85 million and adjusted EBITDA in a range of $95 million to $98 million with that operator, let's open it up for questions.
Speaker Change: Thank you we will now begin our question and answer session.
Speaker Change: <unk> dialed in and would like to ask a question. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question simply press Star. One again, if you are called upon to ask your question and our listening via loud speakers on your device. Please speak up your handset and ensure that your phone is not on mute when asking the question. Thank you. Our first question comes from the.
Speaker Change: Line of Ryan Mckenna with Zelman and Associates. Please go ahead.
Ryan Mckenna: Hey, good morning, Thank you for taking the questions.
Ryan Mckenna: So first one on the next tech lead concierge.
Speaker Change: Really interesting to think through the potential there.
Ryan Mckenna: I know, it's early days, but I guess anything you could share about how we should think about the potential economics of those deals.
Ryan Mckenna: How does that get split up between kind.
Ryan Mckenna: The agents franchise owners and corporate.
Ryan Mckenna: Similarly on the cost side and kind of the infrastructure needed to convert those leads is that.
Ryan Mckenna: Done via your partnerships is that done internally.
Ryan Mckenna: Just thoughts around kind of investment needed or costs that may or may not be needed to to kind of get this rolled out and scaled. Thank you.
Speaker Change: Yeah, Hey, Ryan.
Eric: Eric I'll start off.
Eric: And if my answer needs any cleaning up the team will help me here.
Eric: And look thanks to everyone for joining us.
Speaker Change: Good morning after Halloween.
Speaker Change: So hopefully everyone got treats and no tricks.
Speaker Change: But look at the Max check program, it's really kind of the lead cost share program.
Speaker Change: Capability.
Speaker Change: That we've been building.
Speaker Change: For over the course of the year when you think about it we get some we get decent traffic organic traffic off of dotcom and dossier I'll focus a little bit on the U S. Youre Ryan just for purposes of the example, and.
Speaker Change: It's really about improving the customer experience first and foremost right, making sure that those leads.
Speaker Change: We're responding to them in a very timely manner.
Speaker Change: Folks that show interest, obviously, we want to get back to and convert in order to improve that experience and then also it's about the agent experience really right.
Speaker Change: Leads are obviously filtered out.
Speaker Change: Two.
A lot of brokers in today's world, whether it's in real estate or other industries not qualified and at least in real estate. The agent has to do a lot of work in order to qualify that lead so.
Speaker Change: What I would do is lead costs here initially is.
Speaker Change: And testing the capabilities is taking traffic off of dot com.
Speaker Change: Folks did show an interest warming those leads through a relationship that we have so its a low investment from our perspective there.
Speaker Change: And making sure that they're ready.
And qualified from a sales qualified perspective before we give them to an opt in agent right. So you can think about the actors in the play.
Speaker Change: All of them.
Speaker Change: Someone to take action or they are ready to take action. So I think it's a win win kind of on the customer side.
Speaker Change: It's a win win for the agents because they are opted in.
Speaker Change: On the economics, we are taking.
Speaker Change: A bit of a piece in order to help support the program part of that shared with our partner Thats doing some of the the warming or the qualifying and lead.
Speaker Change: Some of that comes back to us some of that comes to the broker and obviously the agents to use the majority of that that deal. So when you think about it it's really a low investment from our perspective.
Speaker Change: On this initial program, but for US it's really about building this capability off the dotcom initially and then we can see kind of where we can take it.
Speaker Change: I might add to that just a little bit.
Speaker Change: And.
Speaker Change: This is Amy and the fact that we're trying to drive productivity and our agents and we're trying to help enable them to do more in less time, and so I think that the overwhelming response from the network as it really shown that they see this as a big value as well.
Speaker Change: Yes.
Speaker Change: Yes, that's great. That's very helpful. Thank you for that color.
Speaker Change: And Eric Carrie maybe on the on the cost side of things. So within the release I think it's pretty obvious you mentioned.
Speaker Change: <unk> operational efficiency business optimization, and just financially I think at least for the last couple of quarters. The <unk> expense has been better than we've expected at least so.
Speaker Change: Maybe you could talk a little about the focused on the on the cost side of things driving efficiencies like is the low hanging fruit already taken care of.
Speaker Change: How do you think about the cost structure moving forward and into.
Speaker Change: 25 through this lens is still having a growth mindset, but is there also.
Speaker Change: Further progress you can make on that on the efficiencies and.
Speaker Change: Kind of keeping costs contained thank you.
Speaker Change: Yes, good morning, Ryan I think it's been really great to see two quarters in a row just in terms of a trend we really have taken a prudent approach just in terms of returning over kind of every every rock and making sure that every dollar that we spend is being spent in the most judicious manner and really focused on we're spending our dollars.
Speaker Change: The right way to do the top line so investing in some foundational things that Eric and Amy talked about on some new capabilities to new things in the pipeline and really making sure that we're just being being smart about that I think we've also made through various mark decision over.
Speaker Change: Over the last 12 months or so just looking holistically across the organization.
From a personnel perspective.
Speaker Change: What we've done from a legal perspective, etcetera, and then I think if you look also at the quarter.
Speaker Change: We're seeing some continued favorability.
Speaker Change: In terms of the operations of our franchisees. So bad debt continues to perform well as well so as we look ahead into into the fourth quarter.
Speaker Change: Now that <unk> run rate, maybe picking up a little bit.
Speaker Change: What we saw in Q2 Q3, but not significantly and then as we get into next year. We're in that process right now continuing to be very strategic about how we invest our dollars and really being smart about how we're investing in those capabilities to ultimately drive the topline.
Speaker Change: That's great. Thank you so much.
Speaker Change: The next question comes from the line of John Campbell from Stephens. Please go ahead.
John Campbell: Hey, guys good morning.
Speaker Change: Hey, good.
John Campbell: I wanted to start on just the pace of Remax franchise cells, whether you guys feel like there is an inflection point back to growth at some point on the horizon and that just kind of related to that just some broad color on how impactful the franchise growth been just overall agent count growth in prior years.
Speaker Change: Yes sure John.
Speaker Change: Thanks for the question.
Speaker Change: Okay.
Speaker Change: As we've talked about a bit before and I'll, let I'll, let anyway and maybe on a few specifics on kind of what she's hearing.
Speaker Change: From the field not only regarding kind of agent count growth or maybe existing brokers, but also a bit on kind of a franchise in the pipeline.
Speaker Change: We're in a bit of a.
Speaker Change: I call it like a wait and see type market, obviously, we've been going through a transition.
Speaker Change: Yes.
Speaker Change: And I'm talking a little bit broader than just remax, obviously, our remarks, we're going through a bit of a transition also however, when you think about the.
Speaker Change: What's been happening kind of what the overhang on whether it be lawsuits low inventory, if the policy and practice change.
At the higher interest rates.
Obviously, you guys know better than I do probably.
Speaker Change: The number of transactions is that.
Speaker Change: At a historic low and so.
Speaker Change: That's why I come out to say like look at I mean from a broker perspective.
Speaker Change: Whether you are interested in moving to the power of the Remax brand will not.
Speaker Change: Or whether you're a current.
Speaker Change: Supporter of Remax and working your local community. There is there is a bit of a wait and see type attitude and there is still like I don't want to I don't want to.
Say that there's a ton of noise, but theres still a lot of focus.
Speaker Change: On practice changes and doing the right thing by customers. So we.
Speaker Change: We at Remax remain the most trusted the most productive place.
Speaker Change: Place to be and so you see in the field.
Our brokers and owners and agent spending a lot of time on really focusing on more craft, making sure they're winning the right listings in some cases actually unfortunately reeducating agents on the other side of the table on what the practice changes mean.
Speaker Change: For the for the transaction. So we're spending some time there with all that said I will say that there is interest right I do think independents are struggling I think agents are finding necessarily the coaching to mentor ship the education, whether it be from.
A brand at headquarters like Remax, and the great work that Amy and the team do or whether it's really happening at the local level, which is kind of the power of our our position because we have both a corporate and a community based approach and the education with trading that that brokerage is doing so we are seeing.
Speaker Change: Some decent kind of inbound activity, however that activity I don't think is necessarily.
Speaker Change: I wouldn't look for that to be converting.
Speaker Change: Necessarily in the near term, but we're laying the foundation to help improve some of those conversions going into 2025, just because of some of the overhang that's happening within the industry that will get rid of one of the overhangs next week, hopefully on Tuesday, and may take a little bit longer, but just think about the level of noise John for a second.
Speaker Change: I think that people are cautious but optimistic.
Speaker Change: And working really to improve the business as usual business that they're running so.
Speaker Change: I mean <unk> has been in the field a bit lately and so I'll, let her way in on a couple of specifics John.
Speaker Change: Yes, I think you know.
Speaker Change: John I think many independents.
Speaker Change: We're hearing is that they are really distracted and pretty focused on trying to navigate a lot of the industry is on their own.
Speaker Change: And.
Speaker Change: They have some frustration concern and I think small to midsize brokerage is it's very difficult for them to keep our technologically with education with total services and support and so our interest level is high given everything that we have that can help our broker support agent productivity.
Speaker Change: <unk> and education.
Speaker Change: I think that.
Speaker Change: That Randy is going to continue.
Speaker Change: Without a doubt and we will continue to keep our cost there and make sure that we are at the forefront of capitalizing on those opportunities I just think it's a fantastic opportunity for us to beat our solution and help lead them through change and drive succession planning and growth plans.
Within the industry and John Let me just say one more thing I mean look the remax value propositions right. I mean, it's great brand. It stands I mean, it's got tons of awareness. It stands for trust productivity and we're only enhanced today with kind of some of the productivity tools and the platform that we're putting in place and some of the programs likely cuts there. So.
Speaker Change: You can start seeing.
Speaker Change: Some of the fruits of the work that we've done kind of in the first half of the year come to fruition by rolling out programs, whether it's technology, which which has processed to go along with it or programs lately Ley Cal Sierra which can help.
Speaker Change: Agents be more productive in concert.
Speaker Change: Converting consumer ready sales qualified leads at a higher rate. So look it's early days still but I'm optimistic about some of the things we put in place in some of the investments we've made either with time or money and <unk>.
Speaker Change: Setting yourself up to to win in 2025.
Speaker Change: Okay, that's great color and just as an add on to that the independent conversions is that is that does that land in the actual remax franchise itself.
Speaker Change: Okay.
Speaker Change: I think can I add to that just really quick.
Speaker Change: <unk> is.
Speaker Change: We also are being a concept called the rollout where they may not opt to have footprint, but they'll roll into an existing brokerage. So in that instance that is it's not a full franchise that is counted in those numbers, but we are seeing an uptick in that as well.
Speaker Change: Okay.
Speaker Change: Yes, yes.
Speaker Change: Yes, and John They do show up in in those accounts. So those independent ones. They do show up in those accounts and we have continued to see good momentum, especially in the kind of smaller cohorts of independents that are that are coming into the network and as we do do franchise sales just from an agent count perspective, I think the thing.
Speaker Change: That's very exciting from that perspective is it we do see uptick in terms of agent count and coming into the top end of the funnel when we're selling new franchises and when we have those conversion activities and Thats why theres been so much focus on it and why from a as Eric and Amy mentioned from a foundational perspective with some of the additional value proposition.
Speaker Change: <unk> that we have why these initiatives are so important so we're continuing to continuing to see momentum there and they are included in those franchise sales counts.
Speaker Change: Got it thanks, and then just one more on back to your focus on elite Concierge, and then obviously dot com and then kind of how that relates to your stance on CCP it seems like.
Speaker Change: Your other kind of scale and competitors have been a lot more vocal in the market and they've been taking obviously the other side of the CCP debate I think like you guys.
I would think that would probably benefit from elimination of CCP I just wanted to revisit your stance how convicted you are and maybe why.
Speaker Change: More color on why you wouldn't lineup with your scale competitors on this one.
Speaker Change: We will look at I mean, John I mean, we're really focused on ultimately providing a great buyer and seller experience and at our core we believe just that transparency is better for not only <unk>.
Speaker Change: Professionalism and trust with agents, but also getting a better buyer and seller outcome I think.
John Campbell: Youre right in pointing out because of the strength of the brand and the strength of the network and our numbers.
I guess to take a hypothetical if CCP was eliminated we probably.
John Campbell: Would benefit from that at least in the short term right, but I think we're long term players here and 51 years in business.
John Campbell: Thinking about Dave.
John Campbell: Dave and Gail and their legacy and what they built and like the foundational aspects of what has been built on.
John Campbell: Ultimately I think you win long term by not trying to manipulate.
Buyers and sellers, but provide them the greatest distribution and transparency of what's available in the market.
John Campbell: Either for sale or available and so ultimately we're going to we're going to side with the consumer and we're going to side with the consumer and we're going to side with the agents and the professionalism and the trust that we think our agents provide.
And so.
John Campbell: I mean ultimately.
John Campbell: CCP changes look we'll be ready for it.
John Campbell: And were having internal discussions on what that could mean.
John Campbell: I mean, we are definitely going to be focused on that buyer and seller experience because ultimately that's going to help our brand and our team of agents and brokers.
John Campbell: To have the greatest benefit over the long term.
Speaker Change: That's very helpful. Thank you guys.
Speaker Change: Your next question comes from the line of Anthony Powell loan from Jpmorgan. Please go ahead.
Anthony Powell: Great. Thanks, good morning.
Anthony Powell: Maybe for Amy since it sounds like.
Youre out in the field.
Anthony Powell: Can you give us any early data on what's been happening to buy side commissions and also a sense as to what reman.
Speaker Change: <unk> is doing top of the house down to the agents to kind of help them with that initial relationship and agreement.
Speaker Change: Yes for sure.
Speaker Change: Our agents are continuing to navigate change and they lean in and they're out there articulating their value I do think that not enough time has passed.
For us to draw any large conclusions.
Speaker Change: From it that said the difference in average rates was very negligible, so far and I just think that our agents are having more discussions with buyers.
Speaker Change: And they are welcoming the opportunity to discuss the value of our professional trusted agent.
Speaker Change: Prior to prior to the announcement of the settlement we were preparing for broad education on these topics and so we've done nothing but lean into that for since we announced our settlement months ago and so we wanted our agents to be fully prepared and what we're hearing is.
Speaker Change: Is that.
Buyers are appreciating those conversations they value being represented by a professional and trusted agents and and so thats where things stand in the field at this point and Tony Let me, maybe just add one thing.
Speaker Change: I haven't been in the field as much as Amy, but I've been spending some time with agents and brokers and look at the great thing about the model and our community as you know I think that one as we can.
Speaker Change: We can create and then distribute trading at kind of a a nationwide level.
Speaker Change: Amy is kind of a rockstar.
Speaker Change: Within the agent and broker community.
Speaker Change: <unk> a remax professional for.
Over 25 years now and so.
You can see us and this is whats happened is creating these creating the contest deploying it in a variety of ways.
Speaker Change: Having kind of live events, where Amy will be in the studio here and talking about the different rule changes in education on how to prepare and Youll see watch parties happening kind of around the nation, where agents will gather kind of in the local brokerage.
Speaker Change: This is what is really super cool.
Speaker Change: <unk>, you've got actually agents that are invited from other brands to come in they may not be seeing that training.
Speaker Change: And so that happens kind of at a headquarter level, where anything to deploy that type of training on a nationwide level, but then youre also seeing brokers pick up and say hey.
Speaker Change: I'm going to have my own watch party for my folks and maybe invite some others from the community that may be working for.
Speaker Change: A different brand.
Speaker Change: And helping agents that are in need by having specific tradings four items that they have to get over right and so it's really when you think about the kind of the power of the brand in the community. It's not only can we covered it in HQ level.
Whether it's over video or at events et cetera, but then we have the.
Speaker Change: The broker community out there, which lives and breathes. This every single day.
Speaker Change: And their community builders and they know exactly what has to happen with their specific forms in their community with their association with agents need help in their face to face on the frontline every day so.
We've had good success in preparing for the rule changes in August and we're seeing good success. After the rule changes in August so not only help our team, but also show the power of the brand to maybe some other folks that.
Speaker Change: I want to be a part of the team at some point.
Speaker Change: Hopefully thats helpful.
Speaker Change: Yep got it.
Speaker Change: And then maybe for Cary can can you talk about just what's happening with franchisee credit.
Speaker Change: Seem to be okay in the quarter, but just kind of where that stands and also as it relates I think tomatoe because it seem idea opens went down a little bit again.
Sure so we.
Speaker Change: We're seeing continued strength in terms of what our exposure is from a bad debt perspective, So I think as we've said before our franchisees our experienced business people they've been through ups and down from a market perspective before and they appropriately make decisions at the local level in terms of.
Speaker Change: They're <unk> their businesses as efficiently and effectively as possible and I think we've seen that translate.
Speaker Change: Into our performance from a collection perspective, the team has really done an outstanding job, which was a big contributor to the strength of our cash flow in the third quarter, obviously from a cash flow perspective, we convert at about a third of our revenue into free cash flow and about two thirds of our earnings on an adjusted EBITDA into free cash flow during the <unk>.
Speaker Change: And so that was really good to see again driven by some of the strength from the collections on the Remax side on the mortgage side I'll I'll kind of build on that for a second and then I'll jump in here, obviously, it's been a little bit tougher, obviously mortgage there's a lot of headwinds.
Speaker Change: Outsize, even compared to the real estate real estate side on the mortgage side I think the thing that's really exciting is we're still seeing interest. Obviously September was the strongest month that we've had from a franchise sales perspective going back about 18 months and so while there are still a little bit about NR visits from a collections perspective on the on the mortgage side financially I think operate.
Speaker Change: <unk> there is some cautious optimism that we're that we're moving.
Speaker Change: In the right direction and I would add on there we continue to try and work.
Speaker Change: Junction with our broker owners much like the <unk> side, we're trying to educate we're trying to support we're trying to help them in recruiting and retention, we're trying to help them to other businesses. So even though they are having some issues right now.
Speaker Change: And one of the toughest mortgage markets ever.
Speaker Change: We continue to provide that support that education and the tools that they need to be successful and we're just trying to develop just like the other side adoption.
Speaker Change: And really some coaching to try and get them through this.
Speaker Change: Unusual market.
Speaker Change: Okay. Thanks for that.
Speaker Change: Your next question comes from the line of <unk> from TV W. Please go ahead.
Speaker Change: Good morning, guys. Thanks for taking my question.
Just wanted to clarify on the expense side carrier was there anything sort of temporary or one time.
Speaker Change: In this quarter that lowered the expenses.
Speaker Change: Yes, there wasn't really anything in particular in Q3, that's impacting us I mean, obviously in the in the release and in our scripted remarks.
We did call out the <unk>.
Speaker Change: One time item that we expect in Q4 with respect to just providing that limited our assistance to our affiliates that were impacted.
Speaker Change: By by the Hurricanes, but I think the thing that's good about that is given the strong cost contained that we saw in the effective cost management in Q3 that we're expecting to head into Q4, I mean absent that the raise from an earnings perspective in Q4 would've been possibly even a little bit higher.
Speaker Change: Okay got it and then the second question can you remind me of the typical seasonality that you expect with the U S and Canada agent counts. This over the next couple of quarters.
Speaker Change: Remind me like into the spring selling season, what usually happens when those agent counts.
Speaker Change: Sure so really focusing primarily on the U S and Canada, I would say that from a seasonality perspective, it kind of tends to existing home sales.
So you'd say.
Speaker Change: Okay, just a follow up kind of existing home sales.
Speaker Change: So Q4 and Q1 tend to be.
Speaker Change: The more sluggish and then it ramps up in Q2 and into Q3.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Ronald Camden with Morgan Stanley. Please go ahead.
Ronald Camden: Hey, just a couple a couple of quick ones.
Ronald Camden: So I noticed I don't think I saw the October operating statistics that you usually provide I don't know if that was intentional or if there's sort of any app any sort of update or data you can share.
Ronald Camden: On the agent count.
Ronald Camden: Motto franchises for October.
Speaker Change: Yeah, Hey, Ron So we usually do provide that information if we are sending that release out after the end of the quarter. That's one this quarter just happened to be our I'm sorry. After the end of the month.
Speaker Change: With a month being complete so obviously with the earliest going out yesterday. It was simply a timing issue with a month not having been complete but I would say that as we look at things.
Speaker Change: Ah seasonality perspective, and given our guidance everything was pretty much in line. So I would say the trends that we saw through September 30th across kind of all of the key.
Speaker Change: Geographies from an agent count perspective in the U S.
We're pretty consistent as we looked at the October results.
Speaker Change: Okay, Great and then my second one was just on the agent Count obviously very strong international.
Speaker Change: Continues to be a little sort of.
Speaker Change: <unk> in the U S and Canada.
Speaker Change: Would just love a little bit if we could just double click on that when you're thinking about sort of the U S and Canada is there any sort of obvious trends in terms of the agents that are leaving us at all just individuals' is it like very unproductive and do you have a sense of how much more of that to go and then the other side of that coin is what's driving the international.
Speaker Change: Is it is it market share gains is it.
Speaker Change: Just a lot of traction on that as well thanks.
Speaker Change: Sure. So I'll go ahead and start there from a from a numbers perspective I think the first thing is from a Canadian perspective, we did we saw record high so even with the very significant market share that we have there it's hard to grow and you have 30 close to 30% market share, but we continue to do that and do that well and it was a record.
Speaker Change: Hi, I'm still seeing a lot of momentum there we saw a couple of large conversions one at the end of Q2 and then one at the beginning of Q3 and so that's really good to see momentum not only from an individual agent count perspective, but also in terms of large companies looking to join the brand up there.
Speaker Change: From an international perspective also a record high so 67000 agents outside Eric highlighted a couple of areas primarily in South America that are really driving that and I think it just really highlights the strength of the entrepreneurial network.
Speaker Change: The fact that we have really good operators.
Speaker Change: A host of the 110 countries and territories that we operate in globally.
Speaker Change: In a couple of those markets, Brazil in particular also a very large conversion that we saw in <unk> in the third quarter and so some of that is market share gains as we look to convert.
Speaker Change: Larger scale Swags of agents from from other brands to Remax, given the size scale and the power of the brand from.
Speaker Change: From a U S perspective, I think one thing that's important to note is that we did see some productivity gains with our agents. This quarter. So that was very good to see so obviously still pressured a little bit from our U S agent count perspective, but because we're seeing some of those productivity gains in terms of the per agent productivity.
Speaker Change: The some of the losses are really more in that cohort of lower productivity agents and so that's why we continue to really push from an operational perspective on the tools the services the capabilities and the foundation to really help our agents that are with <unk> today and that we hope will be with remarks tomorrow.
Speaker Change: In terms of really driving their productivity.
Speaker Change: Great. That's it for me thanks, so much.
Speaker Change: As there are no further questions at this time I would like to turn the call over back to Mr. <unk> for closing remarks.
Speaker Change: Well. Thank you operator, thanks to everyone for joining our call today have a great weekend.
Speaker Change: That concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Sure.
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Speaker Change: Thanks.
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