Prior to the settlement, when our TLR was below three and a half times, we had an unlimited basket where we could allocate capital to return of capital, so, both dividends and the buyback. Now, with it over that three and a half times level, we have a basket that we have to stay within that’s $50 million. And so, there is some restrictions from that perspective. And then, as we look ahead to capital allocation and allocation — opportunities of capital, we are currently, prevented from drawing on the revolver, a couple things I would note from that perspective. In our 10-year history as a public company, we’ve never drawn on the revolver and didn’t have plans to, and that’s really driven by the overall strength of the business model. The scale franchise business, the operations over 50 years, the ability to have an asset light business that can whether ups and downs from a macro perspective and generate earnings from an adjusted EBITDA basis and convert it to free cash flow.
And so, we still feel like the settlement, despite some of these restrictions on the credit agreement was absolutely in the right decisions of all of our stakeholders and really feel like we’ve got, we’ve set the company up, for growth in the future.
Soham Bhonsle: Great. Thank you. Thank you so much.
Operator: Your next question comes from the line of Anthony Paolone from JP Morgan. Please go ahead.
Anthony Paolone: Thanks, and good morning. If you can, we’d just like to go back to some of your bigger picture thoughts on what comes out of the settlement and the industry lawsuits, just generally speaking. I mean, I understand the cyclicality of the business and the strength of the RE/MAX platform, but just what do you think the biggest implications for the industry will be over the next few years? Like, do you think it’s the number of agents? Is it the commission rate? Is it who pays the commissions? Just kind of want to understand just how you’re thinking about where this goes?
Stephen Joyce: Nick, why don’t you start?
Nick Bailey: Sure. We have the ability with our organization being a global company. There’s a lot of comparisons to different markets and international markets. And I think the one thing that, we kind of see is the idea of what I mentioned earlier that we believe in buyer’s agency. We believe in transparency. We believe that that’s all going to continue. And many of the items, that were listed in our settlement, as we’re mentioned, we were adopting and had embraced prior to. And so, I think that that’s going to be a big piece. When I look at commission rates, so we look at history, commission rates have shown to follow supply and demand. And we’ve shown that there were, commission rates went down in the mid-2000s they came back up during the great recession, and they’ve come down, even sub 5%, since then.
And so I think that we’re going to see much of the same that this is going to be driven more by supply and demand. I think at the end of the day, our agents, top producers and our whole model has been based on the independence of an agent that they’re in business for themselves, not by themselves, with the freedom to always negotiate their commissions as they see fit. And regardless of how the rules shake out, which none of us know at this point, on if it will change or if it will unhinge on, and on the listing agent sharing the commission with the buyer’s agent, we’ll see more to come. But I do know that at the end of the day, I think it’s fair to say that both buyers and sellers are willing to pay for the service of an agent to have representation.
And I think that’s going to continue to be at the forefront of the industry regardless and those that are able to demonstrate their value. We’ll be able to negotiate the rate in which they think their value is is worth. And so I think at that point, is so important because, whether it’s next month, next year, or five years from now, I think that’s going to be the same.
Stephen Joyce: Yeah. And I think Nick, I think that’s right on one, but the other piece there are two fundamental things that have not changed. One is that sellers like more than one agent working on their sale because they think it increases their chances. And buyers want a trusted professional advising them. And we in our consumer research, I don’t know, Nick, which whatever six months ago, we’re still seeing that and we’re still rated very highly on the trust factor. I think that’s the top. And so if those two things haven’t changed, you know, you can see that, obviously [Spider Man] (ph) and this could put some pressure on them like the fees are, but the fundamental nature of it, people are still looking at this the same way as in terms of all of the recent consumer looks that we’ve done.
Anthony Paolone: Okay. And then just on bad debts, it’s the number that’s up a decent amount year-over-year. Like any comments on whether you think you’ve seen the worst of that or we’re on the front end of seeing that escalating up?
Stephen Joyce: Karri?
Karri Callahan: Sure. Yeah. Good morning, Tony. So, I guess I would kind of bifurcate that across the two brands. From a from a RE/MAX perspective, 50 years of history. I think we’ve seen this playbook before and we’re starting to — while it has gone up and it went up kind of in Q2 and Q3 that it’s kind of moderated between the quarters. On the mortgage side, it’s tougher right now. Obviously, mortgage rates are at a 20 plus year high. And the Motto franchise base is relatively young in comparison and in terms of navigating through the cyclicality that we’re seeing right now, it honestly is a little bit tougher right now. So we have seen that go up a little bit. We’re watching that. Ward and the team are working very closely with our franchisees, and it doesn’t change anything with regards to as we look over a significant long period of time, but near term is definitely a little bit more.
I think there are a little bit more headwinds that we’re facing on the Motto on the mortgage side.
Anthony Paolone: Okay. Thank you.
Operator: Your next question comes from the line of Ryan McKeveny from Zelman and Associates. Please go ahead.
