Executive Summary

Q3 results were resilient but pressured by industry headwinds: revenue fell 8.7% YoY to $81.2M; Adjusted EBITDA was $26.7M (32.9% margin); Adjusted EPS was $0.40 .
GAAP loss of $59.5M ($3.28 per share) driven by a $55M class‑action settlement charge; operating expenses rose on settlement and impairment, partly offset by a $24.9M gain on reduction in tax receivable agreement liability .
Capital allocation pivot: quarterly dividend suspended; leverage ratio under credit agreement rose to ~7.0x, temporarily restricting revolver access and tightening return‑of‑capital covenants; management expects leverage to normalize over the next four quarters .
Outlook: Q4 revenue $74–$79M and Adjusted EBITDA $20.5–$23.5M; FY23 agent count guidance nudged up, revenue/EBITDA ranges narrowed; catalysts include settlement approvals and visibility on 2024 macro/credit terms .

What Went Well and What Went Wrong

What Went Well

Recurring-fee franchise model supported margins and cash generation; management emphasized the stability of high-recurring revenue and low fixed costs enabling strong margins even in a downturn .
Mortgage segment growth continued; Motto open offices up ~15% YoY; wemlo improved key processing metrics and won industry recognition .
Strategic initiatives gained traction: team pilot added 25 teams (6+ agents) in pilot states and >700 agents; conversions/M&A delivered 36 transactions and >500 agents YTD; long-term renewal signed with RE/MAX Europe (49 countries) .

What Went Wrong

U.S./Canada agent count contracted YoY (-3.9% to 81,782) despite total global agents rising 0.7% to 145,309; broker fee revenue declined with lower transactions per agent .
Operating expenses surged due to the $55M settlement; GAAP earnings turned to a loss; higher interest expense and macro housing softness pressured results .
Credit agreement constraints: total leverage ratio rose to ~7.0x, restricting revolver access and tightening baskets for dividends/buybacks; Board suspended dividend to preserve capital .

Financial Results

Summary P&L and Non-GAAP

Metric	Q1 2023	Q2 2023	Q3 2023
Revenue ($M)	$85.4	$82.4	$81.2
Adjusted EBITDA ($M)	$19.9	$26.6	$26.7
Adjusted EBITDA Margin (%)	23.3%	32.3%	32.9%
Adjusted Diluted EPS ($)	$0.26	$0.40	$0.40

Q3 2023 YoY and GAAP View

Metric	Q3 2022	Q3 2023
Revenue ($M)	$88.9	$81.2
Net Income (Loss) Attrib. to RMAX ($M)	$0.1	$(59.5)
GAAP Diluted EPS ($)	$0.01	$(3.28)
Adjusted EBITDA ($M)	$31.5	$26.7
Adjusted EPS ($)	$0.56	$0.40

Revenue Mix (Q3 2023 vs Q3 2022)

Revenue Component ($000s)	Q3 2022	Q3 2023
Continuing franchise fees	33,310	31,834
Annual dues	8,911	8,456
Broker fees	16,596	14,255
Franchise sales & other	7,390	5,825
Marketing Funds fees	22,736	20,853
Total revenue	88,943	81,223
Revenue ex Marketing Funds	66,207	60,370

Notes: Organic decline ex‑Marketing Funds was 8.2% (FX -0.6%), driven by lower broker fee revenue and U.S. agent count, partly offset by Mortgage growth; recurring revenue (continuing franchise fees + annual dues) fell 4.6% YoY and comprised 66.7% of revenue ex‑Marketing Funds .

KPIs (Agent Count)

KPI	Q1 2023	Q2 2023	Q3 2023
U.S. agents	57,450	56,987	56,494
Canada agents	25,071	25,218	25,288
U.S. + Canada	82,521	82,205	81,782
Outside U.S. & Canada	61,002	62,305	63,527
Total agents	143,523	144,510	145,309

Balance Sheet Highlights

Cash & equivalents: $89.8M; Total debt (net of discount/fees): $445.5M, slightly down from $448.3M at YE22 .
Share repurchases: none in Q3; $62.5M remaining authorization at 9/30/23 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Agent count (YoY)	FY 2023	0.0% to 1.0%	0.25% to 1.25%	Raised
Revenue ($M)	FY 2023	320 to 332 (MF: 82.5–86.5)	323 to 328 (MF: 83–85)	Narrowed/Refined
Adjusted EBITDA ($M)	FY 2023	92 to 98	94 to 97	Narrowed/Refined
Agent count (YoY)	Q4 2023	N/A	+0.25% to +1.25%	New
Revenue ($M)	Q4 2023	N/A	74 to 79 (MF: 20–22)	New
Adjusted EBITDA ($M)	Q4 2023	N/A	20.5 to 23.5	New
Dividend per share	Ongoing	$0.23 last declared; consistent quarterly prior	Suspended	Suspended

MF = Marketing Funds revenue.

Earnings Call Themes & Trends

Topic	Q1 2023 (Q‑2)	Q2 2023 (Q‑1)	Q3 2023 (Current)	Trend
Franchise model resilience	Emphasis on recurring fees and stability; margins pressured by events/bad debt	Largely in line; recurring-fee model offset macro	“Resilient 100% franchise model,” strong margins and cash flow	Stable-positive
Agent growth initiatives (Teams, CMA)	Team pilot and MAX/Recruit launched; early traction	Expansion to AZ; 60+ CMA transactions inception-to-date	25 new large teams; 36 CM&A YTD; >500 agents added	Building momentum
Technology/AI	MAX/Tech powered by kvCORE rollout accelerated; >62k onboarded	Adoption above industry averages	Exceeded onboarding goals; AI features slated early 2024	Improving; AI adds
Mortgage (Motto/wemlo)	Sales regained momentum; long-term $100M target reiterated	Growing despite headwinds; added inside sales team; revenue ~ $1M haircut FY	Open offices +~15% YoY; wemlo metrics improving, industry awards	Positive but lumpy
Litigation/regulatory	Ongoing fees baked into guidance	Legal expense uncertain; potential timing swing	$55M settlement; minimal ongoing operational impact expected, pending court approval	De‑risking through settlement
Capital allocation/credit	Buyback prioritized opportunistically	–	Dividend suspended; TLR ~7.0x; revolver access restricted; expect moderation over next 4 quarters	Near‑term constrained
Macro housing	Cautious; stability in rates spurs activity	Demand weak; Canada/global strength	Transaction softness; buyers/sellers still value representation	Mixed

Management Commentary

“Our financial and operational performance was once again in line with our expectations, highlighting the resilience and stability of our attractive 100% franchise model.” – CEO Steve Joyce .
“We streamlined our operations and our cost structure… [and] entered into a settlement to end costly litigation and protect the Company and RE/MAX network…” – CEO Steve Joyce .
“The nationwide settlement… would release RE/MAX LLC… from any claims related to these lawsuits… we do not expect the terms… to have a material impact on results of operations and cash flows.” – RE/MAX President Nick Bailey .
“Our mortgage business continued to grow… we are approaching 250 open offices… wemlo… has helped hundreds of brokers… improve operating metrics.” – Motto/wemlo President Ward Morrison .
“As of September 30, 2023, our total leverage ratio was 7:1… we only anticipate this elevated level to persist for the next 4 quarters before moderating significantly… we are currently prevented from drawing on the revolver.” – CFO Karri Callahan .

Q&A Highlights

Legal/settlement impact: Management expects minimal change to business practices/profitability post‑approval; many practice changes already adopted; focus is protecting network and reducing uncertainty .
Leverage/liquidity: TLR ~7.0x temporarily elevates; no excess cash flow payment expected; revolver access restricted but company historically has not used it; ability to upsize facility exists if needed .
Dividend path: Reinstatement considered after settlement approval and risk normalization; TSR remains priority including potential buybacks .
Agent dynamics: Attrition a mix of retirements, competitive moves, macro exit of newer agents; initiatives (teams/CMA/MAX‑Recruit) aimed at offsetting; productivity and brand strength expected to support retention .
Mortgage: Motto office count can be lumpy with terminations; sales pipeline expected to offset over time; wemlo scaling and recognized for processing excellence .

Estimates Context

S&P Global consensus for Q3 2023 EPS and revenue was unavailable via the SPGI data interface at the time of analysis (daily request limit exceeded), so we cannot present numeric comparisons to Street estimates. Management guided Q4 and narrowed FY23 ranges as shown; estimate revisions likely pivot on final court approvals, dividend policy cadence, U.S. agent count stabilization, and 4Q broker fee sensitivity to existing home sales .

Key Takeaways for Investors

Franchise durability in a tough tape: Recurring revenue mix and asset‑light model supported ~~33% Adjusted EBITDA margins despite broker‑fee pressure; focus on cost actions and restructuring benefits (~~$6.5M annual savings) underpin resilience into 2024 .
Litigation overhang addressed: $55M settlement meaningfully de‑risks legal tail, with minimal expected operating impact post approval; reduces uncertainty discount on the equity, subject to court timing .
Near‑term capital return constrained: Dividend suspension and credit‑agreement restrictions limit buybacks until leverage moderates; watch TLR trajectory and free cash flow conversion to gauge timing of reinstatement .
Growth levers intact: Teams, conversions/M&A, and MAX/Tech adoption (with AI features in early 2024) should aid recruiting/retention as volumes normalize; long‑standing European master renewal reinforces international durability .
Mortgage optionality: Motto/wemlo growing through cycle, but lumpy; a rate stabilization/downshift could accelerate franchise sales and processing volumes, improving segment profitability .
Watch items into Q4/2024: U.S. agent count stabilization, broker fee trajectory tied to existing home sales, settlement approvals/cash timing, and credit covenants/leverage normalization path .

Additional Details

Cash/debt and authorization: $89.8M cash; $445.5M debt (net); $62.5M remaining buyback authorization; no Q3 repurchases .
Q4 guide: Revenue $74–$79M; Adjusted EBITDA $20.5–$23.5M; agent count +0.25% to +1.25% YoY .
FY23 guide: Agent count raised to +0.25%–+1.25%; revenue narrowed to $323–$328M (MF $83–$85M); Adjusted EBITDA narrowed to $94–$97M .

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RE/MAX Holdings, Inc. (RMAX)·Q3 2023 Earnings Summary