Re/Max Holdings Inc (RMAX) 2022 Q2 法說會逐字稿

Good morning, and welcome to the RE/MAX Holdings Second Quarter 2022 Earnings Conference Call and Webcast. (Operator Instructions)

At this time, I would like to turn the call over to Andy Schulz, Senior Vice President of Investor Relations. Mr. Schulz?

Thank you, Operator. Good morning, everyone, and welcome to RE/MAX Holdings' Second Quarter 2022 Earnings Conference Call.

Please visit the Investor Relations section of www.remaxholdings.com for all earnings-related materials and to access the live webcast and the 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 2, our prepared remarks and answers to your questions on today's call may contain forward-looking statements. Forward-looking statements include those related to agent count, franchise sales, financial measures and outlook, brand expansion, competition, technology, housing and mortgage market conditions, capital allocation, dividends, share repurchases, strategic and operational plans and business models. Forward-looking statements represent management's current estimates. RE/MAX Holdings assumes no obligation to update any forward-looking statements in the future.

Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those projected in forward-looking statements. These are discussed in our second quarter 2022 financial results press release and other SEC filings.

Also, we will refer to certain non-GAAP measures on today's call. Please see the definitions and reconciliations of non-GAAP measures contained in our most recent quarterly financial results press release, which is available on our website.

Joining me on our call today are Steve Joyce, our Chief Executive Officer; Karri Callahan, our Chief Financial Officer; and the Presidents and CEOs of our brands, Nick Bailey and Ward Morrison.

With that, I'd like to turn the call over to RE/MAX Holdings CEO, Steve Joyce. Steve?

Thank you, Andy, and thanks to everyone for joining our call today.

Looking at Slide 3, our strong second quarter results demonstrates the strength and resilience of our 100% franchise model, particularly amid shifting housing market conditions. Our acquisition of RE/MAX INTEGRA's North America regions continues to perform well, again contributing meaningfully to both our top line and bottom line performance. We recently announced certain strategic growth initiatives which we believe will enhance our ability to grow profitably over the long term and should further mitigate the impact of additional market volatility.

Some of our notable quarterly highlights include: overall RE/MAX Holdings revenue was $92.2 million, up almost 20%, driven by last year's acquisition of INTEGRA, which comprised nearly 16% of our growth, as well as almost 2% organic growth. We generated adjusted EBITDA of $35.1 million, up 14.4%, and our adjusted EBITDA margin was a strong 38.1%. Adjusted EPS increased 6%, to $0.68.

Total RE/MAX agent count grew by almost 4,000 agents, to nearly 144,000 agents in total, a new record. And both Motto franchise sales and Motto open offices continue to grow, with the number of open offices hitting 200 during the second quarter. Ward and Nick will provide additional details on their respective business lines in a moment.

First, I'd like to spend a minute discussing our recently announced strategic growth initiatives. Our focus remains on increasing RE/MAX's U.S. agent count and continuing to fuel the growth of our expanding mortgage business. Our team has done a terrific job identifying and implementing those growth opportunities that we believe will yield the best results and contribute to near-term and long-term profitable growth.

These initiatives are closely aligned with our current strategy. We think we can make a measurable difference through smart strategic moves, essentially bolstering our growth prospects through institutional focus, accountability and proper allocation of resources. Our 100% franchise model demonstrates its strength and differentiation during times of change, which is borne out over the past 5 decades since our founding.

Today, we have 2 industry-leading brands, networks of experienced and productive real estate professionals, a strong balance sheet and a fantastic ability to generate cash flow, all of which will continue to serve us well in virtually any kind of market. We intend to leverage these strengths to actively seek the best opportunities that will support our future growth.

With that, I'll turn it over to Nick.

Thanks, Steve. Good morning, everyone. Moving to Slide 4, halfway through the peak summer buying season, signs of more balance in the market are becoming increasingly apparent according to the most recent RE/MAX National Housing Report. Although June posted the most home sales of any month thus far in 2022, topping May by 4.7%, they fell short of last June's total, down almost 18% across the 53 metros surveyed.

The period of the last few years has been one of the most competitive and challenging times ever for buyers, and we're finally seeing conditions ease up, highlighted by inventory gains and the slowing of price appreciation. For example, inventory grew in June for a third consecutive month, a 34.1% increase over May and 27.5% year-over-year. The median sales price of $428,000 for June, while 11% higher year-over-year, inched up less than 1% above May.

Perhaps more notable is the increase in listings after several years of instant sales and low inventory. Markets like Nashville and Phoenix saw an increase in new listings of over 20% in June, bringing new options for buyers who may have sidelined themselves in the heated frenzy of last year.

The changing market conditions are being impacted by the rise in interest rates, but many buyers are still finding solutions and alternatives in ARMs, FHA products and other financing. Regardless of the macro environment, the reality is homes are bought and sold every year, and good agents and loan originators are making a difference in times like these.

Overall household formation remains strong, and favorable demographics still exist. With inventory rising, prices seemingly topping out and competition decreasing, there are reasons to be optimistic; and most notably, for buyers.

Moving to Slide 5, last month we announced the latest step in the evolution of RE/MAX technology, unveiling a new enterprise relationship with Inside Real Estate, the developers of kvCORE. In today's highly competitive market, much of the agent-facing technology, like CRM, websites, et cetera, has become table stakes. Partnering with a leading real estate software firm like Inside Real Estate which has the size, scale and expertise to develop world-class agent tech tools gives us more firepower to deliver value to our affiliates.

The focus of this tech is to drive leads and identify transaction-ready consumers for our agents. The use of AI and the power of data is likely going to have a big impact in the way in which agents market to consumers, and we believe this initiative puts our agents at the forefront of the industry.

Through a phased rollout beginning later in 2022 and continuing into next year, RE/MAX affiliates in company-owned regions across the U.S. and Canada will get no-cost access to the state-of-the-art kvCORE platform, along with several add-ons, including modules specifically for teams.

The kvCORE platform was chosen because RE/MAX affiliates deserve an industry-leading, complete technology solution. We believe that kvCORE's platform is that solution. And based on the feedback we have received from our affiliates, they agree.

With a RE/MAX-branded version of the platform, agents will have a seamless new way to automate virtually every aspect of their business, from contact management to digital marketing to data analysis and more. They'll have high-quality customizable IDX websites that attract traffic and drive transaction-ready leads, best-in-class market analysis and presentation tools to win listings and a marketing center designed to maximize exposure and connect more consumers directly to RE/MAX agents.

Eventually, the platform will integrate the key RE/MAX technology offerings like the First app, which is a first-of-its-kind tool within the industry. The combination of kvCORE and the best existing RE/MAX tools will give affiliates a premier technology solution, along with the #1 brand and most productive global network. There is nothing like it in the marketplace today.

Because of the powerful and comprehensive functionality of the kvCORE platform, some of the booj products developed in-house over the past few years are expected to sunset in mid-2023.

Bottom line, this partnership is about taking the best parts of our tech acquisitions completed in recent years and combining those strengths with an industry-leading vendor, and we believe this is the best of both worlds.

Looking at Slide 6, overall agent count increased almost 4,000 agents year-over-year and reached a new high of close to 144,000 agents, highlighted by nearly 8% growth in Canada and continued growth globally. In the U.S., we continue to see slightly depressed results, driven primarily by the uncertain housing market. That said, increasing our U.S. agent count remains a top company priority, and we expect our growth initiatives announced last month to make a difference.

For years, RE/MAX has been an industry leader and the preferred destination for many of the most productive teams in real estate. However, the data shows we have a sizable growth opportunity when it comes to teams of 6 agents or more. That's why I'm excited about the recent launch of our teams-focused initiative. We believe that our aggressive offering that combines education, technology and attractive economics can help mid- to large-sized teams optimize their productivity and maximize their earnings.

This growth initiative is a 5-state pilot program that modifies the fee structure for teams of 6 or more licensees. The pilot is designed to incentivize the growth of existing RE/MAX teams, strengthen retention and, especially, to help broker-owners recruit teams of that size.

The pilot is set to run for 1 year and is available for those brokers who opt in within the states of California, Florida, Maryland, New Jersey and Texas. These states were selected for the pilot because they have a relatively high number of teams, represent a significant growth opportunity and give the program an excellent chance of being successful enough to expand to other states.

We also recently launched an initiative to help interested brokerages convert to the RE/MAX network or combine forces with an existing RE/MAX franchise. With changing market conditions, many independent offices are interested in increasing their value proposition and are looking for competitive advantages like brand name awareness, technology, tools and support and, ultimately, higher per-agent productivity. All of these are crucial areas of focus needed to drive success in the market ahead.

Our data shows that agents who join RE/MAX and stick with us typically increase their sales over time. These figures address a chief concern about agent productivity that has held back many potential mergers or conversions in the past. This is an important message for us to continue to reiterate across the industry, especially now as the market is fluctuating and we see many seasoned successful brokers looking to transition their business.

With that, I will turn it over to Ward.

Thanks, Nick. Looking at Slide 7, Motto has sold over 300 franchises to date, and we now have more than 200 open offices. We believe we can eventually grow that number to more than 1,000 open franchises. Motto has a unique and attractive value proposition, and we would like to accelerate our timeline to this milestone.

Similarly, we believe our wemlo mortgage processing business has tremendous potential. We recently announced that future Motto franchisees will be required in most instances to use wemlo services, which should help accelerate wemlo's growth.

We also recently hired some of our larger Motto owners' former loan processors, as these franchisees now utilize wemlo services. We view this as a win-win scenario. For wemlo, we gain proven processors and immediately add to our volume of business. For Motto owners, they retain access to desired loan processors and steady, reliable loan processing services in a much more cost-efficient manner.

We have been evaluating how to accelerate the growth of our mortgage business. Given our current momentum, we believe this is the right time to invest in additional sales resources for both Motto and wemlo. Each sales professional on our team currently covers a large territory, and we think more personnel will increase our ability to capitalize on incremental opportunities.

Currently, we have just over 100 colleagues who work within our mortgage segment, but by the end of the year we expect to add another 15 to 20 team members. We believe this investment can measurably accelerate our ability to reach our goal of $100 million in annual mortgage-related revenue, perhaps achieving this milestone as early as 2028.

We sold just over 60 Motto franchises last year, and we are tracking to meet and hopefully exceed that number in 2022. We believe by doubling our sales force, we should be able to double our annual franchise sales total starting next year. We expect to provide official guidance next February when we usually introduce our outlook for the forthcoming year. However, at this point, we expect to sell at least 120 Motto franchises in 2023.

Our mortgage segment continues to expand, and we accelerated our franchise sales during the last downturn at the start of the pandemic. Slower times in real estate often cause brokers and team leaders to reflect on the importance of ancillary businesses when they have the time to invest in their futures. We are hopeful many will take this time to take advantage of what a terrific opportunity Motto presents.

With that, I'd like to turn the call over to Karri.

Thank you, Ward. Good morning, everyone. Moving to Slide 8, second quarter revenue grew almost 20%, to $92.2 million. Excluding the Marketing Funds, revenue was nearly $70 million, an increase of 17%. This increase was comprised of 15.9% acquisitive growth and 1.7% organic growth. FX decreased revenue by about 0.5 point.

All acquisitive growth came from last year's INTEGRA acquisition, which continues to perform well. We lapped the first anniversary of the INTEGRA acquisition in July. So it will start contributing to our organic growth beginning in the third quarter.

While our organic revenue growth, ex the Marketing Funds, fell short of our mid-single-digit expectations for the first time in over a year due to the shifting real estate market, we were still able to grow almost 2% organically. Motto continues to expand and was a notable contributor to our organic growth. With the recent change requiring most new Motto franchisees to use our wemlo processing services, we expect wemlo will also start to measurably contribute to our organic growth in the coming quarters.

Looking at Slide 9, our Q2 selling, operating and administrative expenses increased 5.1%, to $40.8 million. Second quarter 2022 SO&A expenses increased primarily due to estimated increases in the fair value of contingent consideration liabilities, higher travel and events expenses and increased investments in technology, partially offset by a reduction in professional fees due to lower costs associated with acquiring and integrating new companies.

Looking ahead, our recent decision to partner with kvCORE is expected to reduce our overall workforce by approximately 17% by the end of this year. This reduction does not include personnel that we expect to hire because of our additional planned investment in our mortgage segment discussed earlier.

As a result of this reduction, we expect to incur a pretax cash charge for onetime termination benefits, which consists of severance and related costs, between approximately $5.75 million and $6.75 million in the third quarter of 2022. This onetime charge will be added back to adjusted EBITDA.

Additionally, beginning in 2023, the reduction in force should reduce our annual operating expense run rate by approximately $13 million, roughly split 2/3 SO&A and 1/3 Marketing Fund expenses. Importantly, we anticipate most of this savings will be reinvested back into the business.

Moving to Slide 10. Before I get to our outlook, there are a couple of items I want to briefly mention. First, regarding our $100 million share repurchase program announced in January, we significantly ramped up our buyback activity during the second quarter. We opportunistically utilized approximately $6 million to acquire just over 250,000 shares in a single block. We hope to capitalize on similar opportunities in the future.

We continue to believe that repurchasing our stock at its current valuation is an excellent allocation of capital and shareholder value creation mechanism. Through June 30, we have allocated almost $12 million to repurchase nearly 500,000 shares.

Second, it is important to note the impact that today's increasing interest rate environment has on our earnings. Specifically, we expect rising interest rates will decrease our adjusted EPS by $0.10 to $0.11 over the last 2 quarters of this year.

Lastly, our strategic growth initiatives announced last month are expected to ramp up in the back half of this year and start to benefit our results in 2023 and beyond.

Now on to our updated guidance. The company's third quarter and full year 2022 outlook assumes no further currency movements, acquisitions or divestitures. For the third quarter of 2022, we expect agent count to increase 1.5% to 2.5% over third quarter 2021; revenue in a range of $87 million to $91 million, including revenue from the Marketing Funds in a range of $22 million to $24 million; and adjusted EBITDA in a range of $30.5 million to $33 million.

For the full year 2022, we are reducing our guidance to reflect current housing market conditions and other related macroeconomic trends. We now expect agent count to increase 1% to 2.5% over full year 2021, down from 2% to 4%; revenue in a range of $354 million to $364 million, including revenue from the Marketing Funds in a range of $90 million to $93 million, down from $366 million to $376 million; and adjusted EBITDA in a range of $123 million to $128 million, down from $130 million to $135 million.

Now I'll turn the call over to Steve for closing comments.

Thanks, Karri. Looking at Slide 11, our franchise model is built to succeed in virtually every market condition. With our strong brands, healthy balance sheet and proven ability to generate robust cash flow, we intend to leverage these strengths to actively seek the best opportunities that will support our future growth. We believe we are well positioned to grow profitably over the long term.

With that, let's give it up for questions.

(Operator Instructions) Your first question is from the line of Anthony Paolone, with JPMorgan.

My first question relates to Motto. And you outlined the path to about 1,000 offices. So I was wondering if you could just go into how you get to that number. Like, what kind of hit rate that would mean for your existing, I guess, franchisees and just any costs you can outline to kind of get there.

So the environment in which we're selling, obviously, our franchisees are the #1 target. But we're also looking at selling Motto to other brokerage firms, independents and other branded if they're interested. So the market, we view as pretty broad.

We view the opportunity, and part of the reason we're doubling down now, we view the opportunity, going forward, particularly in the rate environment we're in, which is obviously curtailing refinancing for the time being, but because we are a primarily purchase mortgage effort, that puts us, I think, in a good position.

And in addition, it's a great ancillary revenue for brokerage firms, which more than likely as this downturn continues are going to struggle with some margin issues.

So we think the timing is good for the effort.

Ward, do you want to talk a little bit more about hit rate and sort of how you're seeing that whole environment?

Sure. I would jump in there, we always thought about 1/3 of the RE/MAX franchisees in the U.S. were our cohort. So that's an easy 1,000 there technically that we would go after. But like Steve said, we will be attacking and we have been attacking. Still about 20% of our sales have been outside the brand, but still real estate. So we'll continue to grow that.

Our goal is to grow our sales force, basically doubling it from about 8 to about 16, around that area. Why? Because we feel like we have almost too large a territory for our franchise salespeople to fully focus in those areas, and we think we're missing the incremental opportunities. So by growing that sales force on the Motto side, we think we can double our sales by doubling the sales force.

So we look in 2023 to hit sort of like that 120 number, was our goal. We'll have more guidance as we get closer to '23. But the key there would be growing that and within 5 years adding another 500, 600 franchises out there. So getting closer to that overall 1,000 number as quick as we can.

So we think there's plenty of upside. We think teams is an untapped market that we can grow. So it's not like we're adding a tremendous amount of costs. Really, adding salespeople, sort of paying them on the basis of commission plus base, but we feel like that sales force can grow the number of sales that we have and we can get towards that 1,000 open franchises.

Got it. Okay. And then my follow-up, I guess, would just tie in to some of the costs in, Karri, your comments. It sounded like some of the costs coming out of the system you'll replace with these initiatives you just talked about. But it seemed like, on net, you could be going into 2023 with a lower OpEx run rate? Was that -- did I catch that right? Just trying to tie that together.

Karri, do you want to cover that?

Sure. Thanks, Tony. So as we look at kind of the at least OpEx run rate for the rest of the year, this quarter SG&A ex any kind of acquisition cost or stock comp or any other add-backs was kind of in that $36 million range. If you exclude the add-back associated with the reduction in force itself, looking like the run rate for Q3 and Q4 of this year is going to come down a couple of million dollars.

But again, that's going to be reinvested back into the business at the earnings level as we allocate capital to all initiatives, both teams conversions, some of the investments on the mortgage side that Ward was just talking about as well. And so that's -- we've got to look at it on a balanced basis. And in terms of just holistically at the earnings level, looking to reinvest it back into the business for the rest of this year.

And we'll obviously have more to say as we look further ahead in 2023 later down the line. But right now we're really committed to just reinvesting back into the business.

Okay. But if I'm -- just to make sure I'm getting this right, though, it sounds like we'll see some of the costs that are coming out in the next couple of quarters, but then there might be some lag until you get that fully reinvested into the business. Is that fair?

I don't think so, not at the earnings level. So I think on the cost side we'll see some of that coming out in the subsequent quarters, but at the earnings level looking to really reinvest a lot back into the business.

Your next question is from the line of Ryan McKeveny, with Zelman & Associates.

This one is probably for Nick. So on the teams initiative, it seems like just the concept of teams has been a pretty notable trend in the industry, and I think it makes a lot of sense for you guys to somewhat stake your claim in competing against others with team-based offerings. So Nick, recognizing there's a lot of different approaches to recruitment and retention, whether it's individual agents or teams, was hoping you can maybe dig in a little on what you view are the most differentiated aspects of the approach you guys are taking or the teams offering that you guys have versus what others in the market are doing.

You bet. We look at it that teams come in kind of a 3-pronged area: one of them is education, another is the economics and the third is the technology. And so with the announcement of the technology moves, that includes a team platform that retails out of the kv system for around $1,500 a month that we're including at no charge for any teams of 2 or more. That, in addition to what we announced earlier [at our Florida] convention about education on how to build out a team. Teams are really kind of a small business.

So we think that putting the 3 components together, which we've been able to do over the last few months, is where it's all going to come together of a really strong offering that may be somewhat different from how our competitors approach it.

Got it. That's helpful. And I guess in terms of this being initially a pilot in some of the bigger markets versus a broader rollout, is the thought process there that the pilot allows you to assumingly optimize that offering, kind of figure out what aspects may be working, what others can be tweaked? Or just any thoughts on kind of why start with a pilot as opposed to something just more widespread out of the gate.

First of all, we spent a lot of time putting this together in what we think is the best form to go to market, but we also realized that the way that we've structured the economics with 6-plus allows us the biggest opportunity to grow in agent count. And there may be some tweaks to it. And so we want to make sure that we're taking the states that, one, have the largest opportunity for growth, but 2, also have the biggest TAM of teams of 6 or more. And those items combined together give us the opportunity to test the market and make some adjustments before it rolls out to other states.

Your next question is from the line of Tommy McJoynt, with KBW.

I just want to ask again about the teams pilot program and I want to get a sense of how much of the market this applied to. Do you know what percentage of agents are part of those kind of 6-plus member teams? And if you could speak to that for either RE/MAX specifically or just for the industry, more broadly.

Nick?

Sure. Don't have a number that just applies universally across the U.S. It differs greatly by state. And so you see in your major MSAs and your coastline states, those are going to be higher percentages. When you get more to the Midwest, it gets much, much lower. So the spread on it is so different state by state. I don't know the number across the entire country. We look more market by market.

Okay. And it does seem like there are some pretty solid discounts for agents in this pilot program, especially for some of the higher-producing agents. Have you done an estimate to see what the impact on the revenue per agent from those reduced fees would be for some of those agents in the pilot program?

Yes, we've obviously done the analysis. But the net-net, while it is a different pricing program designed to attract folks -- and one of the things I was going to add to Nick's point was, while it varies across the country, a significant portion of the growth recently in agents has come through teams. So that's why you see us targeting this.

And so while we are providing a different pricing program which incents the formation of teams with potentially a lower overall cost as they grow, the relative number of new teams we need to add, we think we can easily achieve, which would then offset any price increases.

And so our net-net view of this is that it will be a positive program, but partly why we're piloting. And so the overall reception so far has been strong.

Nick, do you want to talk a little bit more about sort of our expectations about when it starts kicking in?

Yes. We actually set it up to go live August 1, is when the brokers can start to take advantage of it. And so we planned that this will ramp up through Q3 and Q4. So it will take some time to ramp on it. But it officially goes live August 1.

When we look at each one of the markets in the 5 states, it accounts for thousands and thousands of agents associated with teams of 6-plus. So we think the market segment is fairly sizable and will continue to be, as teams are not going anywhere and especially the large ones become more and more efficient and they are exponential in their growth on volume and transaction count; and hence, the reason that it's such a large focus.

Your next question is from the line of John Campbell, with Stephens.

Since the (inaudible) updated, it looks like U.S. and Canada maybe (inaudible) down modestly month-to-month. Just can you unpack that and maybe talk to what you're seeing across each market through July?

I'm having a hard time. Can you repeat that question? There was some background noise.

I'm just curious about your July agent count update. It looks like U.S. and Canada combined was down a little bit (inaudible) month. (inaudible) if you could maybe break out the trends by region?

Karri, do you want to cover that?

Sure. John, so it was a little hard to hear, but just making sure. You're looking at July agent count and kind of unpacking that a little bit between the U.S. and Canada?

That's right.

I'll start this and then, Nick, definitely jump in. So as we look at that, we've seen continued strength in Canada. We highlighted the strong, continued strong performance of the INTEGRA acquisition, which should definitely not be overlooked. The importance of Canadian agents and their contributions to both the top line and the bottom line continued into July. That was offset as the macro just got a little bit shakier I think a little bit sooner and maybe a little bit more abruptly in the U.S. It's only a couple of hundred agents. We continue to get very positive feedback on some of the other initiatives that we have, the teams pilot program that we were just talking about as well as some momentum on some of the other initiatives around the mergers and conversion. So we are excited that that positions us well to be a little bit more aggressive, as Nick said, in the back half of the year, but did have a little bit of weakness in the U.S. in July.

Okay. That's helpful. And then maybe 2 more kind of follow-up questions. I know you guys are getting a lot of questions on the team incentive in the growth plans. But I want to better understand, I guess, from the teams approach, you guys talked to the 3 pillars. Maybe I missed it, and kind of a better understanding of what that 1-year program looks like and maybe, specifically, what that incentive looks like, I guess, monetarily-wise.

Nick?

Sure. So in terms of the team structure, we have set this up to where our fee structure is 2 parts: one, the reoccurring revenue, and of course then the broker fee being variable. And it is structured in a manner that the team leader continues with their full continuing or reoccurring revenue as is today. And with each team member for those teams 6-plus, there's a 50% reduction on the monthly reoccurring revenue and then there is a cap on the broker fee revenue, up to $100,000 in GCI. And that runs for each team member, and it's in aggregate of the team total.

I don't know. I mean, it sounds like you guys obviously carefully kind of crafted (inaudible) time and pilots and whatnot. But I'm curious, is it that you're trying to align when it's all said and done so that an agency net take -- because I think what we can see across the industry, there's lots of different kind of ways to skin the cat, I guess, if you will. Are you trying to get down to a certain number? Or was this based on maybe conversations and kind of feedback you're hearing of what they thought might be a little bit more attractive?

It's a little bit of both. When we look at the analysis of, say, our per-agent revenue that we've stated in the past, because of the level of productivity that some of these large teams have, some of the contribution to us is somewhat of a hockey stick when their production level gets to a certain spot in volume. And so we just looked at the services that we're providing for teams, the education for teams and where did it feel in the right way to maximize their earnings, ours as well, but make sure that we didn't have that hockey stick type of revenue impact to the teams at a certain production level.

The last one for me, and this obviously might be a better question for Inside Real Estate, but any sense for how penetrated kvCORE is, just broadly? Like Steve mentioned, there's obviously a real monthly expense incurred by those teams. So you guys providing that (inaudible) has got to be a pretty nice incentive.

Nick?

Inside Real Estate, the number that they have most recently stated is that they currently support over 300,000 agents. And so while we'll be their largest enterprise client, they do have a fairly significant footprint all across the U.S. and Canada.

Okay. And I guess just given the ongoing kind of development of teams and trends towards teams, probably fair to say out of the 300,000, there's probably a large chunk of those kind of captured in teams?

They do. They do have a significant number of teams, and that was part of the reasoning that they came to the top of our choice on who to partner with, because of not only the platform, the add-ons with the different modules that we're including, but also their focus on their team product. Whether it's teams of 2 or 200, it's a unique offering that is extremely competitive in the market.

Your next question is from the line of Ronald Kamdem with Morgan Stanley.

Just a couple of quick ones. Starting back with sort of the Motto mortgage and sort of the expansion there, maybe can you talk about, as you're thinking of getting to sort of 1,000 offices and so forth, how you're strategizing by market, by region and so forth? Just trying to get a sense of, like, what's the adoption curve look like and where is the highest opportunities.

Ward?

Sure. I can jump in there. Obviously, our business development consultants who are out there selling the franchise offering are in different segments. We basically want to get to the size where each is having basically 2 major metros. So it's still in the major metros where we tend to focus. But our -- when we look at potential opportunities, whether it's a brokerage, if they have 20, 25, more agents, they are a target for us. If you look at a team, if they're doing about $40 million of production, they probably fit our model as well.

So when we look at it, it's broadly across the United States. We're heavily concentrated right now in Texas and Florida. However, we believe the opportunity exists everywhere. I mean, we're in -- we've sold in 44 states. We're open in 39. So we still have a few more to get. But we're trying to have broad coverage across the nation and feel like those 33 metros will be our main emphasis.

Great. And then just sticking on Motto, I think you talked about sort of the synergies with sort of the real estate brokerage businesses. 200 offices in, is there a way to sort of quantify that, whether it's profitability or recruitment or anything? Is there a way to put some numbers around sort of the synergies that you're seeing?

Yes. From the perspective, we know for a fact if somebody is doing $100 million in mortgage production, we can gather what they're making in profitability, right, which is something they didn't have before they had Motto. So right away, anybody who has a Motto and is doing any type of volume, we know typically they're probably netting about 1%. This is the part of where I have to say, all franchises are not created equal. But that's typically what we see out there in the marketplace. So with that, we know that they're adding additional incremental revenue that they didn't typically have before if they didn't have a mortgage entity.

So from that perspective, we are very excited that they pick up this ancillary revenue and are able to benefit from the mortgage/real estate relationship that they have, particularly in a market like this where purchase is the emphasis. With 73% of our sales to real estate companies, they still have purchase. So yes, refis going away hurt a little bit, but not as much as it does to the broader mortgage market.

Great. And then my last one was just on the guidance, the agent count growth. Apologies if you said it already, but can you just sort of clarify what that assumes for the U.S. and how you're thinking about that?

Karri?

Sure. So in terms of how that unpacks, we are assuming kind of flat to slightly down for the U.S., and then that's being offset by strength in Canada and continued growth globally.

Your next question is from the line of Jason Stewart, with JonesTrading.

This is Matthew filling in for Jason. So how many independent agents do you guys expect to convert to company-owned? And I guess, what are the initiatives around that to try and get them to convert over?

Nick?

The market itself with the number of independent agencies is quite large. There are well over 80,000 brokerages. When you look at the number that are 20 agents or less, that's literally in the tens of thousands. You get into the 50 to 100, which we believe is somewhat of the sweet spot where we'll focus, those are also in the thousands.

But when we talk to the brokers that are involved in not only the valuations, but actually brokering these deals between agencies, one of them had indicated recently on a panel that we had him on that in his 40-plus years of doing this he's never seen the demand as high.

And so I think given the macro of what's happening in the market, combined with the TAM that's out there and the demand, that the focus of this is going to yield great results for us. We've already had -- we started this first of the year, and we've already had a number of successes with this. But we believe the more we do, we'll get better at it and, especially with the larger ones, can increase that velocity between now and year-end.

Awesome. And then following up on that, given the, I guess, slowdown somewhat in the market in terms of prices, do you guys look at this as an opportunity to gain more market share in terms of Motto and agents?

(inaudible)

Sure, I can jump in. For the Motto side, we hope to continue to grow our base and grow the open footprint. So far this year, with the mortgage market being down a tremendous amount, Motto is only down about 3% in volume. So compared to the industry, we're doing fantastic right now with the refis dropping off as much as we have.

So we still think there's continued opportunity for gaining market share, growing the number of open offices, growing the number of sales and growing Motto, in general. So very, very positive about Motto for this year.

And on the RE/MAX side, this is where we do get pretty excited about the fact that productivity becomes the #1 value proposition in the marketplace. And that's something that as we outproduce our next closest competitor on a per-agent productivity 2-to-one, when you take someone that does, on average, 16, 17, 18 sales a year, if the market contracts by a couple of sales, those people are still in the real estate business year-over-year. If you are in the single digits, mid-single digits and your business contracts by a couple of transactions, that's the difference of whether you can stay in this business or not.

And so we do believe that this is a time to gain market share because the most productive agents, and we average 15 years of experience, where the National Association of REALTORS is right about half of that, most of our agents have seen market changes in the past. And so they're not afraid of them, and they know how to adjust. And so this is where we lean into these market changes and use our production to grow share.

From an overall standpoint, I think the idea is and partly why you have seen us do what we do is we think this environment creates an opportunity for us to take share on both sides of the business. Because in the case where we've got both the brokerages coming under pressure from a margin standpoint, they're going to be looking for ancillary revenues. So that's where the Motto/wemlo piece comes into play. And then on the RE/MAX side, people that feel uncomfortable or uncertain about the coming environment are going to look for what they view as the most productive brand out there, and that's where we think we shot.

So from an overall perspective, the reason that you see us making the investments we're making is we think this environment will provide us incremental market share in a significant growth opportunity.

Awesome. That's helpful. And I've got one more. Is there a certain price point in the market where you guys are seeing the most stress or falling prices in terms of demand, just that kind of situation?

Nick?

I don't believe we've seen any major fall in prices. We did believe that most of the price appreciation based on the demand in short inventory was going to be in the first half of the year. So we continue to believe that that is the case. And we're seeing with increases in inventory, prices are flattening.

But the major pressure still sits in the first-time homebuyer price range. The demand is extremely high and will continue to be, just with the population and household formation over the next few years, and that inventory is the lowest.

Surprisingly, usually the very high end starts to kind of dip first, but we're not quite seeing that yet. But still, most of the pressure at the entry-level pricing.

Your next question is from the line of Stephen Sheldon, with William Blair.

This is actually Matt Filek on for Stephen. Was wondering if you could talk some about the capabilities of the kvCORE platform from the agent's perspective. Seems to be a very robust platform with a variety of capabilities. So the insights on those capabilities and then how they compare to what booj offered would be great.

Nick?

So it is a pretty robust platform. And what's great about it is we've got some proven results from it. We have thousands of our agents and brokers in Canada and the U.S. that have had this product for a number of years. And so we have been able to lean on those brokers and agents for what their results look like.

And the product is designed not only from the base platform with CRM and IDX agent website similar to the booj platform, but there are some differences in terms of AI, how it's connected to their digital marketing center. And we were relying on the use of a number of APIs with our different systems between booj and Megaphone and some of our other offerings to work together.

Where I think the power of this platform is all designed around lead generation, conversion and automation. And so there are pieces that overlap the booj product. And there are other pieces like the AI on the buyer side that we didn't have. We have AI on the seller side with our First app that we'll be looking to integrate. And so there were just some nuances throughout the product that were a little different.

But certainly, the ecosystem, if you will, of being a single platform with the different components of their CORE Present product, which we've included, plus the team product, plus the design center, all of that working in one ecosystem, I believe, brings the strength of their platform at the forefront of the market versus having somewhat disparate systems like we had before that stitched together. And I think that's the biggest advantage in the difference.

That's great to hear. And then switching gears a little bit here, just curious on what agent reception has been like to the recent shift in strategic priorities.

Nick?

Well, I can give you a real one. I was at an industry event yesterday, and this, I think, encapsulates the positive response from our network. We had a broker come up and said that the network is just abuzz, that the competition is nervous, but asked if he could give me a hug based on our direction.

So kind of a silly example, but it's been overwhelmingly positive. I believe that it sets us up to go in the right direction. And according to many of our brokers said these are some of the most ambitious moves headed to where the market -- where we're matching where the market is going.

And we have our Broker Owner Conference coming up in just about a week, and we believe we're on target to hit record attendance and people are excited about it. So we're thrilled.

And at this time, there are no further questions. I will turn the call over to Mr. Schulz for any closing remarks.

Thank you, Operator, and thanks to everyone for joining the call today. This concludes the call. Please have a great weekend.

Ladies and gentlemen, thank you for joining today's call. You may now disconnect.