# RE/MAX Holdings, Inc. (RMAX) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from RE/MAX Holdings, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1581091/000155837023002369/rmax-20221231x10k.htm
Accession: 0001558370-23-002369
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/RMAX/
All MD&A years: /company/RMAX/mda/
Previous year: /company/RMAX/mda/fy2021/ (FY 2021)
Next year: /company/RMAX/mda/fy2023/ (FY 2023)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes thereto (“financial statements”) included elsewhere in this Annual Report on Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Forward-Looking Statements” and “Item 1A.—Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements.

The historical results of operations discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are those of RE/MAX Holdings, Inc. (“Holdings”) and its consolidated subsidiaries (collectively, the “Company,” “we,” “our” or “us”).

Executive Summary

Business Overview

We are one of the world’s leading franchisors in the real estate industry. We franchise real estate brokerages globally under the RE/MAX brand and mortgage brokerages in the U.S. under the Motto Mortgage brand. We also sell ancillary products and services to our franchise networks, including loan processing services to our Motto network through our wemlo brand. RE/MAX and Motto are 100% franchised—we do not own any of the brokerages that operate under these brands. We focus on enabling our networks’ success by providing powerful technology, quality education, and valuable marketing to build the strength of the RE/MAX and Motto brands. We support our franchisees in growing their brokerages, although they fund the associated cost of development. As a result, we maintain a relatively low fixed-cost structure which, combined with our primarily recurring fee-based models, enables us to capitalize on the economic benefits of the franchising model, yielding high margins and significant cash flow.

To best serve our customers, we are organized into the following segments based on the services we provide:

[[GREPCENT_TABLE]]
[["","\u25cf","Real Estate, which includes our RE/MAX brand along with corporate-wide shared services expenses;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Mortgage, which includes our Motto Mortgage and wemlo brands; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Marketing Funds, which includes our collective franchise marketing funds, which operate at no profit."]]
[[/GREPCENT_TABLE]]

Acquisition

On July 21, 2021, we acquired the operating companies of the North American regions of RE/MAX INTEGRA (“INTEGRA”) for cash consideration of approximately $235 million. INTEGRA’s regions include five Canadian provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island) and nine U.S. states (Connecticut, Indiana, Maine, Massachusetts, Minnesota, New Hampshire, Rhode Island, Vermont and Wisconsin). The acquisition converted these formerly Independent Regions into Company-Owned Regions, allowing us to scale, enhance our ability to deliver value to our affiliates and recapture the value differential of more than 19,000 agents (approximately 12,000 in Canada and 7,000 in the U.S.).

Financial and Operational Highlights

During 2022, we focused our efforts on increasing RE/MAX agent count; expanding our Motto brand through additional franchise sales and increased office openings and developing and integrating our wemlo offerings. Contributions from our INTEGRA acquisition resulted in incremental growth through July 2022, however, an increasingly difficult housing market impacted our second-half 2022 results. Rising interest rates reduced affordability and weakened housing demand, which contributed to the lowest fourth quarter of U.S. existing home sales in more than a decade, resulting in fewer transactions and, by extension, lower Broker fees. Consequently, revenue and Adjusted EBITDA declined in the fourth quarter of 2022 by 8.9% and 14.6%, respectively, compared to the same period of the prior year.

According to the Mortgage Bankers Association's Weekly Mortgage Applications Survey, mortgage applications trended down during the third and fourth quarters of 2022 as 30-year fixed mortgage rates surpassed six percent starting in the month of September, double what it was one year earlier, and remained above six percent as of year-end. According to the National Association of Realtors ("NAR"), U.S. existing-home sales declined for the eleventh straight month in

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December 2022 and December's sales of existing homes declined 34.0% year over year. In January 2023, as affordability challenges remain elevated, the Fannie Mae Economic and Strategic Research Group lowered its forecast for existing home sales in 2023 to 4.0 million, which would represent an annual decline of 22.4%. As a result of the expected contraction in existing home sales due to elevated interest rates, we expect our U.S. agent count, Motto franchise sales, Broker fee revenue, and results from operations to be adversely impacted. Additionally, near the end of 2022 and into the beginning of 2023, we granted an increasing number of fee concessions due to the historic slowdown in housing, reducing the average revenue per RE/MAX agent and Motto office. We have offered similar concessions during previous economic downturns and may have to increase concessions in the future. Reductions in revenue generally reduce our Operating income and Adjusted EBITDA on an almost dollar-for-dollar basis, negatively affecting our margins, earnings, and cash flow.

In July 2022, we announced a series of strategic growth opportunities designed to increase U.S. agent count and accelerate the expansion of our growing Mortgage business. We entered into an agreement with InsideRE, developers of the kvCORE platform, to provide technology to RE/MAX affiliates, replacing certain functionality provided by the booj platform. In connection with these initiatives, we began to reduce our overall workforce by an expected 120 employees, approximately 17% of our total headcount. This reduction, which was substantially complete as of December 31, 2022, does not include personnel we expect to hire as a result of the strategic investments in our Mortgage business. As a result of this reduction, during the second half of 2022 we incurred a pretax cash charge for one-time termination benefits of severance and related costs of $7.6 million and accelerated equity-based compensation expense of $2.2 million. Contemporaneously, we wrote off $1.2 million of capitalized software development costs related to the aforementioned shift in our technology strategy. In conjunction with this strategic shift, we plan to wind down the Gadberry Group. The decision to wind down the Gadberry Group resulted in a non-cash goodwill impairment charge of $7.1 million in the fourth quarter. We believe these initiatives better position us for long-term profitable growth and may help mitigate adverse impacts of housing or broader economic downturns.

These factors contributed to the following results for the year ended December 31, 2022:

(Compared to the year ended December 31, 2021, unless otherwise noted)

[[GREPCENT_TABLE]]
[["","\u25cf","Total revenue of $353.4 million, an increase of 7.2%."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Revenue excluding the Marketing Funds (a), increased 6.4%, or $15.8 million, which was driven by 7.8% growth from acquisitions, partially offset by negative organic growth of 0.8% and adverse foreign currency movements of 0.6%."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Net income (loss) attributable to RE/MAX Holdings, Inc. of $6.1 million."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Adjusted EBITDA (a) of $121.6 million and Adjusted EBITDA margin (a) of 34.4% compared to Adjusted EBITDA (a) of $119.6 million and Adjusted EBITDA margin (a) of 36.3% from the prior year."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Total agent count increased by 1.4% to 144,014 agents."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","U.S. and Canada combined agent count decreased 1.9% to 83,839 agents with a 4.3% decline in U.S. agent count, partially offset by 4.0% Canadian agent growth."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Total open Motto Mortgage offices increased 23.5% to 231 offices."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","See \u201c\u2014Non-GAAP Financial Measures\u201d for further discussion of Adjusted EBITDA and Adjusted EBITDA margin and a reconciliation of the differences between Adjusted EBITDA and net income (loss), which is the most comparable U.S. GAAP measure for operating performance. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of Total revenue). Revenue excluding the Marketing Funds is a non-GAAP measure of financial performance that differs from the U.S. Generally Accepted Accounting Principles. Revenue excluding the Marketing Funds is calculated directly from our consolidated financial statements as Total revenue less Marketing Funds fees."]]
[[/GREPCENT_TABLE]]

The Financial and Operational Highlights, Results of Operations and Sources and Uses of Cash, for the years ended December 31, 2021 and 2020 and as compared to the years ended December 31, 2020 and 2019, respectively, has been previously disclosed in Item 7 of our 2021 Annual Report on Form 10-K and in Item 7 of our 2020 Amendment No. 1 to Annual Report on Form 10-K/A, and are incorporated herein by reference.

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Key Performance Indicators

Operating Performance Indicators

We believe that agent count (particularly in the U.S. and Canada) and open Motto offices, and to a lesser extent, RE/MAX and Motto franchise sales, are key operating measures of our success.

Financial Performance Indicators

We believe that revenue growth excluding the Marketing Funds and Adjusted EBITDA (both in dollars and margin) are key financial measures of our success.

Revenue Growth. The Marketing Funds operate at no profit; accordingly, there is no impact to overall profitability of the Company from these revenues. Because the Marketing Funds do not contribute to operating profit, we do not consider Marketing Funds revenue changes a part of our key performance indicators.

We review year-over-year revenue growth excluding the Marketing Funds as a key measure of our success in addressing customer needs. We measure revenue growth in terms of organic, acquisitive, and foreign currency impacts. We define these components as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","Organic \u2013 We define organic revenue growth as total revenue growth other than the Marketing Funds, acquisitions and foreign currency movements. Organic revenue growth can be achieved through many means, including by growing our RE/MAX agent count, selling and maintaining more open franchises, especially Motto franchises, and increasing home prices."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Acquisitive \u2013 We define acquisitive revenue as the revenue generated from acquired products and services from the date of acquisition to the first anniversary date of that acquisition."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Foreign currency \u2013 We define the foreign currency impact on revenue as the difference between current revenue measured at current exchange rates and current revenue measured at the corresponding prior period exchange rates. Due to the significance of revenue transacted in foreign currencies, we believe it is important to measure the impact of foreign currency movements on revenue."]]
[[/GREPCENT_TABLE]]

Adjusted EBITDA. Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. See “—Non-GAAP Financial Measures” for further discussion of Adjusted EBITDA and Adjusted EBITDA margin and a reconciliation of the differences between Adjusted EBITDA and net income (loss), which is the most comparable U.S. generally accepted accounting principles (“U.S. GAAP”) measure for operating performance. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue.

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Selected Operating and Financial Highlights

The following tables summarize several key performance indicators and our results of operations for the last three years.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,","\u200b","2022 vs. 2021","\u200b","\u200b","2021 vs. 2020","\u200b"],["\u200b","\u200b","2022","\u200b","2021","\u200b","2020","\u200b","#","\u200b","%","\u200b","\u200b","#","\u200b","%","\u200b"],["Agent Count:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S.","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Company-Owned Regions","\u200b","51,491","\u200b","53,946","\u200b","48,212","\u200b","(2,455)","\u200b","(4.6)","%","\u200b","5,734","\u200b","n/m","%"],["Independent Regions","\u200b","7,228","\u200b","7,381","\u200b","14,091","\u200b","(153)","\u200b","(2.1)","%","\u200b","(6,710)","\u200b","n/m","%"],["U.S. Total","\u200b","58,719","\u200b","61,327","\u200b","62,303","\u200b","(2,608)","\u200b","(4.3)","%","\u200b","(976)","\u200b","(1.6)","%"],["Canada","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Company-Owned Regions","\u200b","20,228","\u200b","19,596","\u200b","6,182","\u200b","632","\u200b","3.2","%","\u200b","13,414","\u200b","n/m","%"],["Independent Regions","\u200b","4,892","\u200b","4,548","\u200b","15,765","\u200b","344","\u200b","7.6","%","\u200b","(11,217)","\u200b","n/m","%"],["Canada Total","\u200b","25,120","\u200b","24,144","\u200b","21,947","\u200b","976","\u200b","4.0","%","\u200b","2,197","\u200b","10.0","%"],["U.S. and Canada Total","\u200b","83,839","\u200b","85,471","\u200b","84,250","\u200b","(1,632)","\u200b","(1.9)","%","\u200b","1,221","\u200b","1.4","%"],["Outside U.S. and Canada","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Independent Regions","\u200b","60,175","\u200b","56,527","\u200b","53,542","\u200b","3,648","\u200b","6.5","%","\u200b","2,985","\u200b","5.6","%"],["Outside U.S. and Canada Total","\u200b","60,175","\u200b","56,527","\u200b","53,542","\u200b","3,648","\u200b","6.5","%","\u200b","2,985","\u200b","5.6","%"],["Total","\u200b","144,014","\u200b","141,998","\u200b","137,792","\u200b","2,016","\u200b","1.4","%","\u200b","4,206","\u200b","3.1","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["RE/MAX open offices:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S.","\u200b","3,462","\u200b","3,534","\u200b","3,608","\u200b","(72)","\u200b","(2.0)","%","\u200b","(74)","\u200b","(2.1)","%"],["Canada","\u200b","972","\u200b","1,025","\u200b","1,011","\u200b","(53)","\u200b","(5.2)","%","\u200b","14","\u200b","1.4","%"],["U.S. and Canada Total","\u200b","4,434","\u200b","4,559","\u200b","4,619","\u200b","(125)","\u200b","(2.7)","%","\u200b","(60)","\u200b","(1.3)","%"],["Outside U.S. and Canada","\u200b","4,741","\u200b","4,405","\u200b","4,045","\u200b","336","\u200b","7.6","%","\u200b","360","\u200b","8.9","%"],["Total","\u200b","9,175","\u200b","8,964","\u200b","8,664","\u200b","211","\u200b","2.4","%","\u200b","300","\u200b","3.5","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Motto open offices (1)(2) :","\u200b","231","\u200b","187","\u200b","141","\u200b","44","\u200b","23.5","%","\u200b","46","\u200b","32.6","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","2022 vs. 2021","\u200b","\u200b","2021 vs. 2020","\u200b"],["\u200b","\u200b","2022","\u200b","2021","\u200b","2020","\u200b","#","\u200b","%","\u200b","\u200b","#","\u200b","%","\u200b"],["RE/MAX franchise sales:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. (3)","\u200b","184","\u200b","184","\u200b","177","\u200b","\u2014","\u200b","\u2014","%","\u200b","7","\u200b","4.0","%"],["Canada","\u200b","36","\u200b","61","\u200b","65","\u200b","(25)","\u200b","(41.0)","%","\u200b","(4)","\u200b","(6.2)","%"],["U.S. and Canada Total","\u200b","220","\u200b","245","\u200b","242","\u200b","(25)","\u200b","(10.2)","%","\u200b","3","\u200b","1.2","%"],["Outside U.S. and Canada","\u200b","743","\u200b","824","\u200b","791","\u200b","(81)","\u200b","(9.8)","%","\u200b","33","\u200b","4.2","%"],["Total","\u200b","963","\u200b","1,069","\u200b","1,033","\u200b","(106)","\u200b","(9.9)","%","\u200b","36","\u200b","3.5","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Motto franchise sales (1) :","\u200b","40","\u200b","64","\u200b","71","\u200b","(24)","\u200b","(37.5)","%","\u200b","(7)","\u200b","(9.9)","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Excludes virtual offices and Branchises."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","As of December 31, 2022, 2021 and 2020, there were 46, 24 and 13 offices, respectively, that we are offering short-term financial relief and are temporarily not being billed."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","This number excludes 22 franchise documents that we signed with an existing franchisee in the U.S. in connection with the migration of certain agents from a terminated franchisee during the year ended December 31, 2022."]]
[[/GREPCENT_TABLE]]

n/m – not meaningful

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended","\u200b"],["\u200b","December 31,","\u200b"],["\u200b","2022","\u200b","2021","\u200b","2020","\u200b"],["Total revenue","$","353,386","\u200b","$","329,701","\u200b","$","266,001","\u200b"],["Total selling, operating and administrative expenses","$","173,278","\u200b","$","179,873","\u200b","$","128,998","\u200b"],["Operating income (loss)","$","38,212","\u200b","$","(9,931)","\u200b","$","38,593","\u200b"],["Net income (loss)","$","10,757","\u200b","$","(24,620)","\u200b","$","20,546","\u200b"],["Net income (loss) attributable to RE/MAX Holdings, Inc.","$","6,110","\u200b","$","(15,616)","\u200b","$","11,250","\u200b"],["Adjusted EBITDA (1)","$","121,632","\u200b","$","119,583","\u200b","$","92,558","\u200b"],["Adjusted EBITDA margin (1)","\u200b","34.4","%","\u200b","36.3","%","\u200b","34.8","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","See \u201c\u2014Non-GAAP Financial Measures\u201d for further discussion of Adjusted EBITDA and Adjusted EBITDA margin and a reconciliation of the differences between Adjusted EBITDA and net income (loss), which is the most comparable U.S. GAAP measure for operating performance. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue."]]
[[/GREPCENT_TABLE]]

Results of Operations

Year Ended December 31, 2022 vs. Year Ended December 31, 2021

Revenue

A summary of the components of our revenue is as follows (in thousands except percentages):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","Change","\u200b"],["\u200b","\u200b","December 31,","\u200b","Favorable/(Unfavorable)","\u200b"],["\u200b","\u200b","2022","\u200b","2021","\u200b","$","\u200b","%","\u200b"],["Revenue:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Continuing franchise fees","\u200b","$","133,389","\u200b","$","118,504","\u200b","$","14,885","\u200b","12.6","%"],["Annual dues","\u200b","\u200b","35,676","\u200b","\u200b","35,549","\u200b","\u200b","127","\u200b","0.4","%"],["Broker fees","\u200b","\u200b","62,939","\u200b","\u200b","65,456","\u200b","\u200b","(2,517)","\u200b","(3.8)","%"],["Marketing Funds fees","\u200b","\u200b","90,319","\u200b","\u200b","82,391","\u200b","\u200b","7,928","\u200b","9.6","%"],["Franchise sales and other revenue","\u200b","\u200b","31,063","\u200b","\u200b","27,801","\u200b","\u200b","3,262","\u200b","11.7","%"],["Total revenue","\u200b","$","353,386","\u200b","$","329,701","\u200b","$","23,685","\u200b","7.2","%"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","Change","\u200b"],["\u200b","\u200b","December 31,","\u200b","Favorable/(Unfavorable)","\u200b"],["\u200b","\u200b","2022","\u200b","2021","\u200b","$","\u200b","%","\u200b"],["Revenue excluding the Marketing Funds:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total revenue","\u200b","$","353,386","\u200b","$","329,701","\u200b","$","23,685","\u200b","7.2","%"],["Less: Marketing Funds fees","\u200b","\u200b","90,319","\u200b","\u200b","82,391","\u200b","\u200b","7,928","\u200b","9.6","%"],["Revenue excluding the Marketing Funds","\u200b","$","263,067","\u200b","$","247,310","\u200b","$","15,757","\u200b","6.4","%"]]
[[/GREPCENT_TABLE]]

RE/MAX Holdings generated revenue of $353.4 million in 2022, an increase of $23.7, or 7.2%, compared to $329.7 million in the same period in 2021. Revenue excluding the Marketing Funds was $263.1 million for 2022, an increase of $15.8 million, or 6.4%, compared to $247.3 million for 2021. This increase was comprised of growth of 7.8% from acquisitions, partially offset by negative organic revenue growth of 0.8% and adverse foreign currency movements of 0.6%. Revenue growth from acquisitions was attributable to revenue from the INTEGRA acquisition completed in July 2021. Organic growth decreased primarily due to lower Broker fees and declines in RE/MAX U.S. agent count. These declines were partially offset by agent count growth in Canada and globally, higher attendance at our annual RE/MAX agent convention and Mortgage segment growth. Total revenue increased due to the aforementioned factors plus growth in Marketing Funds fees primarily from the INTEGRA acquisition.

Continuing Franchise Fees

Revenue from Continuing franchise fees increased primarily due to contributions from the INTEGRA acquisition, Motto growth and RE/MAX growth in Canada and globally, partially offset by a decrease in U.S. agent count and adverse foreign currency movements.

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Broker Fees

Revenue from Broker fees decreased primarily due to lower average transactions per agent, partially offset by rising home prices and contributions from the acquisition of INTEGRA.

Marketing Funds Fees and Marketing Funds Expenses

Revenue from Marketing Funds fees increased primarily from the INTEGRA acquisition and an increase in Canadian agent count, partially offset by a decrease in U.S. agent count and adverse foreign currency movements. We recognize an equal and offsetting amount of expenses to revenue such that there is no impact to our overall profitability.

Franchise Sales and Other Revenue

Franchise sales and other revenue increased primarily due to higher attendance at our events including our annual RE/MAX agent convention.

Operating Expenses

A summary of the components of our operating expenses is as follows (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","Change","\u200b"],["\u200b","\u200b","December 31,","\u200b","Favorable/(Unfavorable)","\u200b"],["\u200b","\u200b","2022","\u200b","2021","\u200b","$","\u200b","%","\u200b"],["Operating expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Selling, operating and administrative expenses","\u200b","$","173,278","\u200b","$","179,873","\u200b","$","6,595","\u200b","3.7","%"],["Marketing Funds expenses","\u200b","\u200b","90,319","\u200b","\u200b","82,391","\u200b","\u200b","(7,928)","\u200b","(9.6)","%"],["Depreciation and amortization","\u200b","\u200b","35,769","\u200b","\u200b","31,333","\u200b","\u200b","(4,436)","\u200b","(14.2)","%"],["Settlement and impairment charges","\u200b","\u200b","15,808","\u200b","\u200b","46,035","\u200b","\u200b","30,227","\u200b","65.7","%"],["Total operating expenses","\u200b","$","315,174","\u200b","$","339,632","\u200b","$","24,458","\u200b","7.2","%"],["Percent of revenue","\u200b","\u200b","89.2","%","\u200b","103.0","%","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

Selling, Operating and Administrative Expenses

Selling, operating and administrative expenses consist of personnel costs, professional fee expenses, lease costs and other expenses. Other expenses within Selling, operating and administrative expenses include certain marketing and production costs that are not paid by the Marketing Funds, including travel and entertainment costs, and costs associated with our annual conventions in the U.S. and other events and technology services.

A summary of the components of our selling, operating and administrative expenses is as follows (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","Change","\u200b"],["\u200b","\u200b","December 31,","\u200b","Favorable/(Unfavorable)","\u200b"],["\u200b","\u200b","2022","\u200b","2021","\u200b","$","\u200b","%","\u200b"],["Selling, operating and administrative expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Personnel","\u200b","$","101,994","\u200b","$","110,748","\u200b","$","8,754","\u200b","7.9","%"],["Professional fees","\u200b","\u200b","17,329","\u200b","\u200b","24,988","\u200b","\u200b","7,659","\u200b","30.7","%"],["Lease costs","\u200b","\u200b","8,316","\u200b","\u200b","8,428","\u200b","\u200b","112","\u200b","1.3","%"],["Other","\u200b","\u200b","45,639","\u200b","\u200b","35,709","\u200b","\u200b","(9,930)","\u200b","(27.8)","%"],["Total selling, operating and administrative expenses","\u200b","$","173,278","\u200b","$","179,873","\u200b","$","6,595","\u200b","3.7","%"],["Percent of revenue","\u200b","\u200b","49.0","%","\u200b","54.6","%","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

Total selling, operating and administrative expenses decreased as follows:

Personnel costs decreased due to lower equity-based compensation expense, excluding the restructuring charges mentioned below, a decrease in the corporate bonus versus the prior year and lower costs associated with acquiring and integrating new companies. This decrease was partially offset by restructuring charges including $7.6 million of severance

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and related expenses and $2.2 million accelerated equity-based compensation expense (see Note 2, Summary of Significant Accounting Policies) as well as increased salaries and benefits and increases in average headcount from acquisitions.

Professional fees decreased primarily due to lower costs associated with acquiring and integrating new companies, partially offset by an increase in legal expenses. See Note 14, Commitments and Contingencies, for additional information. We expect to incur $5.0 million to $7.0 million in ongoing legal expenses related to our antitrust litigations in 2023.

Other selling, operating and administrative expenses increased primarily due to higher travel and events-related expenses, mainly from increased attendance at our annual RE/MAX agent convention and fewer COVID restrictions, an increase in bad debt expense, increased investments in technology and restructuring charges including a $1.2 million write off capitalized software development costs (see Note 2, Summary of Significant Accounting Policies), partially offset by lower costs associated with acquiring and integrating new companies and changes in the fair value of the contingent consideration liabilities.

Depreciation and Amortization

Depreciation and amortization expense increased primarily due to new amortization related to our acquisitions and the acceleration of amortization of technology products in conjunction with our restructuring.

Settlement and Impairment Charges

Impairment Charge – Goodwill (2022)

During the fourth quarter of 2022, in connection with the restructuring of our business and change to our RE/MAX technology offerings, we made the decision to wind down the Gadberry Group reporting unit in the Real Estate segment. Therefore, we fully impaired the reporting unit’s goodwill and recorded a non-cash impairment charge of $7.1 million. See Note 8, Intangible Assets and Goodwill for additional information.

Impairment Charge – Leased Assets (2022)

During the first and third quarters of 2022, we subleased portions of our corporate headquarters. As a result, we performed impairment tests on the portions subleased and recognized an impairment charge of $3.7 million in the first quarter and $2.5 million in the third quarter. See Note 3, Leases for additional information about our leases.

Loss on Lease Termination (2022)

During the second quarter of 2022, we terminated our booj office lease, which was owned by an entity controlled by former employees. As a result, we wrote off a right of use (“ROU”) asset of $2.7 million and derecognized $1.5 million of lease liability associated with the terminated lease. We also recognized a loss on termination of $2.5 million, which included a lease termination payment of $1.3 million. See Note 3, Leases for additional information about our leases.

Loss on Contract Settlement (2021)

We recorded a $40.9 million loss on our contractual relationship with INTEGRA which was settled with the acquisition of INTEGRA. The loss represents the fair value of the difference between the historical contractual rates paid by INTEGRA and the current market rate. The loss is recorded in “Settlement and impairment charges” in the accompanying Consolidated Statements of Income (Loss). See Note 6, Acquisitions and Dispositions for additional information about our acquisition.

Impairment Charge – Goodwill (2021)

We identified impairment indicators associated with the First reporting unit in the Real Estate segment, primarily due to lower-than-expected adoption rates of the technology, resulting in downward revisions to long-term forecasts which is a significant input in the fair value of the reporting unit. Therefore, we performed an interim impairment test on the goodwill of the First reporting unit and recorded a non-cash impairment charge of $5.1 million. See Note 8, Intangible Assets and Goodwill for additional information.

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Impairment Charge – Leased Assets (2020)

We began executing on a plan to both refresh our corporate headquarters and sublease space made available through the refresh. As a result, we performed an impairment test on the portion of our headquarters we intend to sublease and recognized an impairment charge of $7.9 million. See Note 3, Leases, for additional information about our leases.

Other Expenses, Net

A summary of the components of our operating expenses is as follows (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","Change","\u200b"],["\u200b","\u200b","December 31,","\u200b","Favorable/(Unfavorable)","\u200b"],["\u200b","\u200b","2022","\u200b","2021","\u200b","$","\u200b","%","\u200b"],["Other expenses, net:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest expense","\u200b","$","(20,903)","\u200b","$","(11,344)","\u200b","$","(9,559)","\u200b","(84.3)","%"],["Interest income","\u200b","\u200b","1,460","\u200b","\u200b","217","\u200b","\u200b","1,243","\u200b","n/m","\u200b"],["Foreign currency transaction gains (losses)","\u200b","\u200b","(641)","\u200b","\u200b","(839)","\u200b","\u200b","198","\u200b","23.6","%"],["Loss on early extinguishment of debt","\u200b","\u200b","\u2014","\u200b","\u200b","(264)","\u200b","\u200b","264","\u200b","100.0","%"],["Total other expenses, net","\u200b","$","(20,084)","\u200b","$","(12,230)","\u200b","$","(7,854)","\u200b","(64.2)","%"],["Percent of revenue","\u200b","\u200b","5.7","%","\u200b","3.7","%","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

n/m – not meaningful

Other expenses, net increased primarily due to an increase in interest expense because of the refinance of and increase to our Senior Secured Credit Facility (see Note 10, Debt, for more information) in the prior year and rising interest rates. Foreign currency transaction gains (losses) are primarily the result of transactions denominated in the Canadian Dollar.

Provision for Income Taxes

Our effective income tax rate increased to 40.7% from (11.1)% for the years ended December 31, 2022 and 2021, respectively, primarily driven by the settlement of uncertain tax positions and other nonrecurring adjustments recorded during the twelve months ended December 31, 2021 which resulted in an unusually low effective income tax rate during that period. The effective income tax rate for the year ended December 31, 2021 is impacted by the $40.9 million loss on contract settlement which has no tax provision.

Our effective income tax rate depends on many factors, including a rate benefit attributable to the fact that the portion of RMCO’s earnings attributable to the non-controlling interests are not subject to corporate-level taxes because RMCO is classified as a partnership for U.S. federal income tax purposes and therefore is treated as a “flow-through entity,” as well as annual changes in state and foreign income tax rates and geographic mix of business. See Note 4, Non-controlling Interest, for further details on the allocation of income taxes between Holdings and the non-controlling interest and see Note 12, Income Taxes for additional information.

Adjusted EBITDA

See “—Non-GAAP Financial Measures” for our definition of Adjusted EBITDA and for further discussion of our presentation of Adjusted EBITDA as well as a reconciliation of Adjusted EBITDA to net income (loss), which is the most comparable GAAP measure for operating performance.

Adjusted EBITDA was $121.6 million for the year ended December 31, 2022, an increase of $2.0 million from the comparable prior year period. Adjusted EBITDA increased primarily due to contributions from the INTEGRA acquisition during the first half of the year and a decrease in the corporate bonus versus the prior year, partially offset by decreased Broker fees (excluding the contributions from the INTEGRA acquisition), an increase in bad debt expense, net investments in our Mortgage segment, and increased legal expenses.

Non-GAAP Financial Measures

The Securities and Exchange Commission (“SEC”) has adopted rules to regulate the use in filings with the SEC and in public disclosures of financial measures that are not in accordance with U.S. GAAP, such as Revenue excluding the

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Marketing Funds and Adjusted EBITDA and the ratios related thereto. These measures are derived on the basis of methodologies other than in accordance with U.S. GAAP.

Revenue excluding the Marketing Funds is a non-GAAP measure of financial performance that differs from the U.S. Generally Accepted Accounting Principles. Revenue excluding the Marketing Funds is calculated directly from our consolidated financial statements as Total revenue less Marketing Funds fees.

We define Adjusted EBITDA as EBITDA (consolidated net income (loss) before depreciation and amortization, interest expense, interest income and the provision for income taxes, each of which is presented in our audited financial statements included elsewhere in this Annual Report on Form 10-K), adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance: gain or loss on sale or disposition of assets, settlement and impairment charges, equity-based compensation expense, acquisition-related expense, gains or losses from changes in the tax receivable agreement liability, expense or income related to changes in the fair value measurement of contingent consideration, restructuring charges and other non-recurring items.

As Adjusted EBITDA omits certain non-cash items and other non-recurring cash charges or other items, we believe that it is less susceptible to variances that affect our operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items. We present Adjusted EBITDA, and the related Adjusted EBITDA margin, because we believe they are useful as supplemental measures in evaluating the performance of our operating businesses and provide greater transparency into our results of operations. Our management uses Adjusted EBITDA and Adjusted EBITDA margin as factors in evaluating the performance of our business.

Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider these measures either in isolation or as a substitute for analyzing our results as reported under U.S. GAAP. Some of these limitations are:

[[GREPCENT_TABLE]]
[["","\u25cf","these measures do not reflect changes in, or cash requirements for, our working capital needs;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","these measures do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments on our debt;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","these measures do not reflect our income tax expense or the cash requirements to pay our taxes;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","these measures do not reflect the cash requirements to pay dividends to stockholders of our Class A common stock and tax and other cash distributions to our non-controlling unitholders;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","these measures do not reflect the cash requirements pursuant to the Tax Receivable Agreements (\u201cTRAs\u201d);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","these measures do not reflect the cash requirements for share repurchases;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","although equity-based compensation is a non-cash charge, the issuance of equity-based awards may have a dilutive impact on earnings per share; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","other companies may calculate these measures differently, so similarly named measures may not be comparable."]]
[[/GREPCENT_TABLE]]

The adjustments to EBITDA in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA in prior periods. The exclusion of these charges and costs in future periods will have a significant impact on our Adjusted EBITDA. We are not able to provide a reconciliation of anticipated non-GAAP financial information for future periods to the corresponding U.S. GAAP measures without unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and costs.

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A reconciliation of Adjusted EBITDA to net income (loss) is set forth in the following table (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Three Months Ended","\u200b","Year Ended"],["\u200b","\u200b","December 31,","\u200b","December 31,"],["\u200b","\u200b","2022","\u200b","2021","\u200b","2022","\u200b","2021","\u200b","2020"],["Net income (loss)","\u200b","$","(1,553)","\u200b","$","5,620","\u200b","$","10,757","\u200b","$","(24,620)","\u200b","$","20,546"],["Depreciation and amortization","\u200b","\u200b","8,914","\u200b","\u200b","9,097","\u200b","\u200b","35,769","\u200b","\u200b","31,333","\u200b","\u200b","26,106"],["Interest expense","\u200b","\u200b","7,491","\u200b","\u200b","3,807","\u200b","\u200b","20,903","\u200b","\u200b","11,344","\u200b","\u200b","9,223"],["Interest income","\u200b","\u200b","(785)","\u200b","\u200b","(16)","\u200b","\u200b","(1,460)","\u200b","\u200b","(217)","\u200b","\u200b","(340)"],["Provision for income taxes","\u200b","\u200b","3,012","\u200b","\u200b","1,005","\u200b","\u200b","7,371","\u200b","\u200b","2,459","\u200b","\u200b","9,162"],["EBITDA","\u200b","\u200b","17,079","\u200b","\u200b","19,513","\u200b","\u200b","73,340","\u200b","\u200b","20,299","\u200b","\u200b","64,697"],["Loss on contract settlement (1)","\u200b","\u200b","\u2014","\u200b","\u200b","400","\u200b","\u200b","\u2014","\u200b","\u200b","40,900","\u200b","\u200b","\u2014"],["Loss on extinguishment of debt (2)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","264","\u200b","\u200b","\u2014"],["Impairment charge - leased assets (3)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","6,248","\u200b","\u200b","\u2014","\u200b","\u200b","7,902"],["Impairment charge - goodwill (4)","\u200b","\u200b","7,100","\u200b","\u200b","\u2014","\u200b","\u200b","7,100","\u200b","\u200b","5,123","\u200b","\u200b","\u2014"],["Loss on lease termination (5)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","2,460","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Equity-based compensation expense","\u200b","\u200b","4,038","\u200b","\u200b","6,983","\u200b","\u200b","22,044","\u200b","\u200b","34,298","\u200b","\u200b","16,267"],["Acquisition-related expense (6)","\u200b","\u200b","(138)","\u200b","\u200b","3,119","\u200b","\u200b","1,859","\u200b","\u200b","17,422","\u200b","\u200b","2,375"],["Fair value adjustments to contingent consideration (7)","\u200b","\u200b","(1,436)","\u200b","\u200b","(21)","\u200b","\u200b","(133)","\u200b","\u200b","309","\u200b","\u200b","814"],["Restructuring charges (8)","\u200b","\u200b","598","\u200b","\u200b","\u2014","\u200b","\u200b","8,690","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Other","\u200b","\u200b","(703)","\u200b","\u200b","1,072","\u200b","\u200b","24","\u200b","\u200b","968","\u200b","\u200b","503"],["Adjusted EBITDA","\u200b","$","26,538","\u200b","$","31,066","\u200b","$","121,632","\u200b","$","119,583","\u200b","$","92,558"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Represents the effective settlement of the pre-existing master franchise agreements with INTEGRA that was recognized with the acquisition. See Note 6, Acquisitions and Dispositions for additional information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","The loss was recognized in connection with the amended and restated Senior Secured Credit Facility. See Note 10, Debt for additional information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Represents the impairment recognized on portions of our corporate headquarters office building. See Note 3, Leases for additional information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","During the fourth quarter of 2022, in connection with the restructuring of our business and technology offerings, we made the decision to wind down the Gadberry Group, resulting in an impairment charge to the Gadberry Group reporting unit goodwill. In addition, during 2021, lower than expected adoption rates of the First technology resulted in downward revisions to long-term forecasts, resulting in an impairment charge to the First reporting unit goodwill. See Note 8, Intangible Assets and Goodwill for additional information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","During the second quarter of 2022, a loss was recognized in connection with the termination of the booj office lease. See Note 3, Leases for additional information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(6)","Acquisition-related expense includes personnel, legal, accounting, advisory and consulting fees incurred in connection with acquisition activities and integration of acquired companies."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(7)","Fair value adjustments to contingent consideration include amounts recognized for changes in the estimated fair value of the contingent consideration liabilities. See Note 11, Fair Value Measurements, to the accompanying consolidated financial statements for additional information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(8)","During the second half of 2022, we incurred expenses related to the restructuring of our business and technology offerings, including $7.6 million of severance and related expenses and a $1.2 million write off of capitalized software development costs. See Note 2, Summary of Significant Accounting Policies for additional information."]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

Overview of Factors Affecting Our Liquidity

Our liquidity position is affected by the growth of our agent and franchise base and conditions in the real estate market. In this regard, our short-term liquidity position from time to time has been, and will continue to be, affected by a number of factors including agents in the RE/MAX network, particularly in Company-Owned Regions. Our cash flows are primarily related to the timing of:

[[GREPCENT_TABLE]]
[["","(i)","cash receipt of revenues;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(ii)","payment of selling, operating and administrative expenses;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(iii)","net investments in Mortgage;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(iv)","cash consideration for acquisitions and acquisition-related expenses;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(v)","principal payments and related interest payments on our Senior Secured Credit Facility;"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","(vi)","dividend payments to stockholders of our Class A common stock;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(vii)","distributions and other payments to non-controlling unitholders pursuant to the terms of RMCO\u2019s limited liability company operating agreement (\u201cthe RMCO, LLC Agreement\u201d);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(viii)","corporate tax payments paid by the Company;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(ix)","payments to the TRA parties pursuant to the TRAs; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(x)","share repurchases."]]
[[/GREPCENT_TABLE]]

We have satisfied these needs primarily through our existing cash balances, cash generated by our operations and funds available under our Senior Secured Credit Facility. We may pursue other sources of capital that may include other forms of external financing, such as additional financing in the public capital markets, in order to increase our cash position and preserve financial flexibility as needs arise.

Financing Resources

RMCO and RE/MAX, LLC, a wholly owned subsidiary of RMCO, have a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto (the “Senior Secured Credit Facility”). On July 21, 2021, we amended and restated our Senior Secured Credit Facility to fund the acquisition of INTEGRA and refinance our existing facility. The revised facility provides for a seven-year $460.0 million term loan facility and a five-year $50.0 million revolving loan facility. The revised facility also provides for incremental facilities under which RE/MAX, LLC may request to add one or more tranches of term facilities or increase any then existing credit facility in the aggregate principal amount of up to $100 million (or a higher amount subject to the terms and conditions of the Senior Secured Credit Facility), subject to lender participation.

The Senior Secured Credit Facility requires RE/MAX, LLC to repay term loans at $1.2 million per quarter. We are also required to repay the term loans and reduce revolving commitments with (i) 100% of proceeds of any incurrence of additional debt not permitted by the Senior Secured Credit Facility, (ii) 100% of proceeds of asset sales and 100% of amounts recovered under insurance policies, subject to certain exceptions and a reinvestment right and (iii) 50% of Excess Cash Flow (or “ECF” as defined in the Senior Secured Credit Facility) at the end of the applicable fiscal year if RE/MAX, LLC’s Total Leverage Ratio (or “TLR” as defined in the Senior Secured Credit Facility) is in excess of 4.25:1. If the TLR as of the last day of such fiscal year is equal to or less than 4.25:1 but above 3.75:1, the repayment percentage is 25% of ECF and if the TLR as of the last day of such fiscal year is less than 3.75:1, no repayment from ECF is required. In addition, the Company is limited in the amount of restricted payments it can make as defined in the Senior Secured Credit Facility. These restricted payments include declaration or payment of dividends, repurchase of shares, or other distributions. In general, the Company can make unlimited restricted payments, so long as the TLR is below 3.50:1 (both before and after giving effect to such payments). As of December 31, 2022, our TLR was 3.00:1, as such no ECF payment was required, and the limits on restricted payments were not applicable.

The Senior Secured Credit Facility is guaranteed by RMCO and is secured by a lien on substantially all of the assets of RE/MAX, LLC and other operating companies.

The Senior Secured Credit Facility provides for customary restrictions on, among other things, additional indebtedness, liens, dispositions of property, dividends, transactions with affiliates and fundamental changes such as mergers, consolidations and liquidations. With certain exceptions, any default under any of our other agreements evidencing indebtedness in the amount of $15.0 million or more constitutes an event of default under the Senior Secured Credit Facility.

Borrowings under the term loans and revolving loans accrue interest, at our option on (a) LIBOR, provided LIBOR shall be no less than 0.50% plus an applicable margin of 2.50% and, provided further that such rate shall be adjusted for reserve requirements for eurocurrency liabilities, if any (the “LIBOR Rate”) or (b) the greatest of (i) the prime rate as quoted by the Wall Street Journal, (ii) the NYFRB Rate (as defined in the Senior Secured Credit Facility) plus 0.50% and (iii) the one-month Eurodollar Rate plus 1.00%, (such greatest rate, the “ABR”) plus, in each case, an applicable margin of 1.50%. The Senior Secured Credit Facility includes a provision for transition from LIBOR to the alternative reference rate of Term Secured Overnight Financing Rate (“SOFR”)) on or before June 2023 (the LIBOR Rate cessation date). As of December 31, 2022, the interest rate on the term loan facility was 6.9%. If we had transitioned to SOFR the margin on our term loan facility would have increased our interest rate by approximately 0.1% or $0.5 million for the year ended December 31, 2022.

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Whenever amounts are drawn under the revolving line of credit, the Senior Secured Credit Facility requires compliance with a leverage ratio (calculated as net debt to EBITDA as defined therein). A commitment fee of 0.5% per annum (subject to reductions) accrues on the amount of unutilized revolving line of credit.

As of December 31, 2022, we had $448.3 million of term loans outstanding, net of unamortized discount and issuance costs, and no revolving loans outstanding under our Senior Secured Credit Facility.

Sources and Uses of Cash

As of December 31, 2022, and 2021, we had $108.7 million and $126.3 million, respectively, in cash and cash equivalents, of which approximately $23.5 million and $8.9 million were denominated in foreign currencies, respectively.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended"],["\u200b","\u200b","December 31,"],["\u200b","\u200b","2022","\u200b","2021"],["Cash provided by (used in):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating activities","\u200b","$","71,142","\u200b","$","42,442"],["Investing activities","\u200b","\u200b","(11,500)","\u200b","\u200b","(194,922)"],["Financing activities","\u200b","\u200b","(78,363)","\u200b","\u200b","189,352"],["Effect of exchange rate changes on cash","\u200b","\u200b","(1,550)","\u200b","\u200b","300"],["Net change in cash, cash equivalents and restricted cash","\u200b","$","(20,271)","\u200b","$","37,172"]]
[[/GREPCENT_TABLE]]

Operating Activities

Cash provided by operating activities increased primarily as a result of:

[[GREPCENT_TABLE]]
[["","\u25cf","an increase due to the loss on contract settlements of $40.9 million in 2021;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase due to lower costs associated with acquiring and integrating new companies;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase due to lower tax payments in the current year of $8.4 million;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in Adjusted EBITDA of $2.0 million that more than offset by;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","a decrease due to higher payments of certain employee related liabilities;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","a decrease due to higher interest payments of $9.0 million, due to the increase of our Senior Secured Credit Facility in July 2021 and higher interest rates in the current year;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","a decrease due to severance and related expenses of $7.6 million for the restructure of our business; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","timing differences on various operating assets and liabilities."]]
[[/GREPCENT_TABLE]]

Investing Activities

During the year ended December 31, 2022, the change in cash (used in) investing activities was primarily the result of the INTEGRA acquisition in the prior year and lower spend on our corporate headquarters refresh.

Financing Activities

During the year ended December 31, 2022, the change in cash provided by (used in) financing activities was primarily due to net cash received from the increase in our term loan in the prior year, the allocation of capital to our share repurchase program that began in the first quarter of 2022, higher payments related to tax withholding for share-based compensation and an increase in principal payments on our Senior Secured Credit Facility.

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Capital Allocation Priorities

Liquidity

Our objective is to maintain a strong liquidity position. We have existing cash balances, cash flows from operating activities, access to our revolving facility and incremental facilities under our Senior Secured Credit Facility available to support the needs of our business. As needs arise, we may seek additional financing in the public capital markets.

Acquisitions

As part of our growth strategy, we may pursue acquisitions of Independent Regions in the U.S. and Canada as well as additional acquisitions or investments in complementary businesses, services and technologies that would provide access to new markets, revenue streams, or otherwise complement our existing operations. We may fund any such growth with various sources of capital including existing cash balances and cash flow from operations, as well as proceeds from debt financings including under existing credit facilities or new arrangements raised in the public capital markets.

Capital Expenditures

The total aggregate amount for purchases of property and equipment and capitalization of developed software was $9.9 million, $15.2 million and $6.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. These amounts primarily relate to spend on our corporate headquarters refresh and investments in technology. In order to expand our technology, we plan to continue to re-invest in our business in order to improve operational efficiencies and enhance the tools and services provided to the affiliates in our networks. Total capital expenditures for 2023 are expected to be between $8.0 million and $11.0 million. See Financial and Operational Highlights above for additional information.

Return of Capital

Our Board of Directors approved quarterly cash dividends of $0.23 per share on all outstanding shares of Class A common stock every quarter in 2022 and 2021, respectively, as disclosed in Note 5, Earnings Per Share and Dividends. On February 15, 2023, we announced that our Board of Directors approved a quarterly dividend of $0.23 per share on all outstanding shares of Class A common stock, which is payable on March 22, 2023 to stockholders of record at the close of business on March 8, 2023.

During the first quarter of 2022, our Board of Directors authorized a common stock repurchase program of up to $100 million. The share repurchase program does not obligate the Company to purchase any amount of common stock and does not have an expiration date. The share repurchase program may be suspended or discontinued at any time. During the year ended December 31, 2022, 1,533,728 shares of our Class A common stock were repurchased and retired for $34.1 million, excluding commissions, at an average cost of $22.23 per share. As of December 31, 2022, $65.9 million remained available under the share repurchase authorization.

Future capital allocation decisions with respect to return of capital either in the form of additional future dividends, and, if declared, the amount of any such future dividend, or in the form of share buybacks, will be subject to our actual future earnings and capital requirements and any amounts authorized will be at the discretion of our Board of Directors. During 2022, we were able to repurchase shares advantageously and we anticipate we will repurchase shares at a lower rate in 2023.

Distributions and Other Payments to Non-controlling Unitholders by RMCO

Distributions to Non-Controlling Unitholders Pursuant to the RMCO, LLC Agreement

As authorized by the RMCO, LLC Agreement, RMCO makes cash distributions to its members, Holdings and RIHI. Distributions are required to be made by RMCO to its members on a pro-rata basis in accordance with each members’ ownership percentage in RMCO. These distributions have historically been either in the form of payments to cover its members’ estimated tax liabilities, dividend payments, or payments to ensure pro-rata distributions have occurred.

As a limited liability company (treated as a partnership for income tax purposes), RMCO does not incur significant domestic federal, state or local income taxes, as these taxes are primarily the obligations of its members. RMCO is generally required to distribute cash to its members to cover each member’s estimated tax liabilities, if any, with respect to

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their allocable share of RMCO earnings. Such distributions are required if any other distributions from RMCO (i.e., in the form of dividend payments) for the relevant period are otherwise insufficient to enable each member to cover its estimated tax liabilities.

Holdings’ only source of cash flow from operations is in the form of distributions from RMCO. Holdings receives distributions from RMCO on a quarterly basis that are equal to the dividend payments Holdings makes to the stockholders of its Class A common stock. As a result, absent any additional distributions, Holdings may have insufficient funds to cover its estimated tax and TRA liabilities. Therefore, as necessary, RMCO makes a separate distribution to Holdings, and because all distributions must be made on a pro-rata basis, RIHI receives a separate payment to ensure such pro-rata distributions have occurred.

Payments Pursuant to the Tax Receivable Agreements

As of December 31, 2022, the Company reflected a total liability of $26.6 million under the terms of its TRAs. The liability pursuant to the TRAs will increase upon future exchanges by RIHI of RMCO common units, with the increase representing 85% of the estimated future tax benefits, if any, resulting from such exchanges. Payments are made on this liability as tax benefits are realized by Holdings.

Distributions and other payments pursuant to the RMCO, LLC Agreement and TRAs were comprised of the following (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended"],["\u200b","\u200b","December 31,"],["\u200b","\u200b","2022","\u200b","2021"],["Distributions and other payments pursuant to the RMCO, LLC Agreement:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Pro rata distributions to RIHI as a result of distributions to RE/MAX Holdings in order to satisfy its estimated tax liabilities","\u200b","$","2,276","\u200b","$","2,650"],["Dividend distributions","\u200b","\u200b","11,556","\u200b","\u200b","11,556"],["Total distributions to RIHI","\u200b","\u200b","13,832","\u200b","\u200b","14,206"],["Payments pursuant to the TRAs","\u200b","\u200b","3,314","\u200b","\u200b","3,444"],["Total distributions to RIHI and TRA payments","\u200b","$","17,146","\u200b","$","17,650"]]
[[/GREPCENT_TABLE]]

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2022 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Payments due by Period"],["\u200b","\u200b","Total","\u200b","Less than 1 year","\u200b","1-3 years","\u200b","3-5 years","\u200b","After 5 years"],["Senior Secured Credit Facility (including current portion) (1)","\u200b","$","453,101","\u200b","$","4,600","\u200b","\u200b","9,200","\u200b","\u200b","9,200","\u200b","\u200b","430,101"],["Interest payments on credit facility (2)","\u200b","\u200b","172,219","\u200b","\u200b","31,747","\u200b","\u200b","62,611","\u200b","\u200b","61,230","\u200b","\u200b","16,631"],["Undiscounted lease obligations (3)","\u200b","\u200b","45,291","\u200b","\u200b","7,714","\u200b","\u200b","16,705","\u200b","\u200b","18,255","\u200b","\u200b","2,617"],["Payments pursuant to tax receivable agreements (4)","\u200b","\u200b","26,559","\u200b","\u200b","1,642","\u200b","\u200b","6,693","\u200b","\u200b","7,006","\u200b","\u200b","11,218"],["Vendor contracts (5)","\u200b","\u200b","24,812","\u200b","\u200b","16,768","\u200b","\u200b","7,334","\u200b","\u200b","710","\u200b","\u200b","\u2014"],["Estimated undiscounted contingent consideration payments (6)","\u200b","\u200b","6,976","\u200b","\u200b","1,209","\u200b","\u200b","3,743","\u200b","\u200b","2,024","\u200b","\u200b","\u2014"],["\u200b","\u200b","$","728,958","\u200b","$","63,680","\u200b","$","106,286","\u200b","$","98,425","\u200b","$","460,567"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","We have reflected full payment of our Senior Secured Credit Facility in July 2028 at maturity. The Senior Secured Credit Facility may require additional prepayments throughout the term of the loan based on the TLR as discussed above."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","The variable interest rate on the Senior Secured Credit Facility is assumed at the interest rate in effect as of December 31, 2022 of 6.9%."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","We are obligated under non-cancelable leases for offices and equipment. Future payments under these leases and commitments, net of payments to be received under sublease agreements of $7.9 million in the aggregate, are included in the table above, See Note 3, Leases, to the accompanying consolidated financial statements for more information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","As described elsewhere in this Annual Report on Form 10-K, we entered into TRAs, that will provide for the payment by us of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we realize as a result of tax deductions arising from the increase in tax basis in RMCO\u2019s assets. The amounts present above are undiscounted."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","Represents outstanding purchase orders with vendors initiated in the ordinary course of business for operating and capital expenditures, including payments from the Marketing Funds."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(6)","Represents estimated undiscounted payments to the former owner of Motto and former owners of Gadberry Group as required per the purchase agreements. See Note 11, Fair Value Measurements, to the accompanying consolidated financial statements for more information."]]
[[/GREPCENT_TABLE]]

Commitments and Contingencies

Our management does not believe there are any matters involving us that could result, individually or in the aggregate, in a material adverse effect on our financial condition, results of operations and cash flows.

Off Balance Sheet Arrangements

We have no material off balance sheet arrangements as of December 31, 2022.

Critical Accounting Judgments and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements and accompanying notes. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base estimates on historical experience and other assumptions believed to be reasonable under the circumstances and evaluate these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies. We believe that the accounting policies and estimates discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Mortgage Goodwill

We assess goodwill for impairment at least annually or whenever an event occurs, or circumstances change that would indicate impairment may have occurred at the reporting unit level. Reporting units are driven by the level at which segment management reviews operating results. We perform our required impairment testing annually on October 1.

For most of our reporting units, the fair value of the reporting unit significantly exceeded its carrying value at the latest assessment date and only a qualitative impairment test was performed. However, for the Mortgage reporting unit we performed a quantitative impairment test due to the smaller excess of fair value over carrying value in light of macroeconomic trends. We did not record a goodwill impairment for Mortgage reporting unit.

The Mortgage reporting unit, which has a carrying value of goodwill as of December 31, 2022 of $18.6 million, fair value is tied primarily to Motto franchise sales over the next several years. Failure to achieve targeted franchise sales (which are currently estimated at between 60 and 140 per year over the next 10 years) could result in an impairment of this goodwill balance.

Purchase Accounting for Acquisitions

We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the identifiable assets less liabilities is recorded as goodwill. Purchase price allocations require management to make assumptions and apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities primarily using discounted cash flow analysis.

We engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets, primarily franchise rights, and in measuring the loss on settlement of pre-existing master franchise contracts (if applicable). The timing and amount of expected future cash flows used in the valuation requires estimates, among other items, of revenue and agent growth rates, operating expenses and expected operating cash flow margins. The development of these cash flows, and the discount rate applied to the cash flows, is subject to inherent uncertainties. Any estimate of loss on settlement is dependent on determining market rates for similar services. We adjust the preliminary purchase price allocation, as necessary, after the acquisition closing date through the end of the measurement period of one year or less as we finalize valuations for the assets acquired and liabilities assumed. If estimates or assumptions used to complete the

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initial purchase price allocation and estimate the fair value of acquired assets and liabilities significantly differed from assumptions made in the final valuation, the allocation of purchase price between goodwill and intangibles could significantly differ. Such a difference would impact future earnings through amortization expense of these intangibles. In addition, if forecasts supporting the valuation of the intangible assets or goodwill are not achieved, impairments could arise, as discussed further above.

Deferred Tax Assets and TRA Liability

As discussed in Item 1. Business, Holdings has twice acquired significant portions of the ownership in RMCO. When Holdings acquired this ownership in the form of common units, it received a significant step-up in tax basis on the underlying assets held by RMCO. The step-up is principally equivalent to the difference between (1) the fair value of the underlying assets on the date of acquisition of the common units and (2) their tax basis in RMCO, multiplied by the percentage of units acquired. The majority of the step-up in basis relates to intangibles assets, primarily franchise agreements and goodwill, and is included within deferred tax assets on our consolidated balance sheets. The computation of the step-up requires valuations of the intangible assets of RMCO and has the same complexities and estimates as discussed in Purchase Accounting for Acquisitions above. In addition, the step-up is governed by complex IRS rules that limit which intangibles are subject to step-up, and also imposes further limits on the amount of step-up. Given the magnitude of the deferred tax assets and complexity of the calculations, small adjustments to our model used to calculate these deferred tax assets can result in material changes to the amounts recognized, especially in years when Holdings acquires ownership interest in RMCO. There were no redemptions of common units in RMCO in the periods presented. However, if more common units of RMCO are redeemed by RIHI, the percentage of RE/MAX Holdings’ ownership of RMCO will increase, and additional deferred tax assets will be created as additional tax basis step-ups occur and such amounts are likely to be material.

Pursuant to the TRA agreements, Holdings makes annual payments to RIHI and Parallaxes Rain Co-Investment, LLC (“Parallaxes”) (a successor to the TRAs prior owners) equivalent to 85% of any tax benefits realized on each year’s tax return from the additional tax deductions arising from the step-up in tax basis. A TRA liability of $26.6 million exists as of December 31, 2022 for the future cash obligations expected to be paid under the TRAs and is not discounted. The calculation of this liability is a function of the step-up described above and therefore has the same complexities and estimates. Similar to the deferred tax assets, these liabilities would likely increase materially if RIHI redeems additional common units of RMCO.

New Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, for recently issued accounting pronouncements applicable to us and the effect of those standards on our financial statements and related disclosures.