eXp World Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2024

There are 8 speakers on the call.

Operator

All right, great. Thanks Gabe. Let's get started then. Good afternoon and welcome to eXp World Holdings' Q1 2024 Earnings Fireside Chat via Livestream and our metaverse on the web. My name is Denise Garcia, and I manage Investor Relations for EXP World Holdings.

Operator

Today, we will begin with our earnings fireside chat with prepared remarks from Glenn Sanford, Founder, Chairman and CEO of EXP World Holdings and Leo Pereja, CEO of EXP Realty, followed by a review of the Q1 2024 financial highlights presented by Kent Chang, Principal Financial Officer and Chief Accounting Officer of EXP World Holdings. Following our prepared remarks, we will open the call to a Q and A session with EXP World Holdings covering analysts and questions submitted to eXp. Let's begin with a review of the Safe Harbor. There'll be a number of forward looking statements made today that should be considered in conjunction with the cautionary statements contained in the Company's SEC filings. Forward looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.

Operator

Please see our filings with the SEC, including our most recent filed Annual Report on Form 10 ks and quarterly reports on Form 10 Q for a discussion of specific risks that may affect our business performance and financial condition. We assume no obligation to update or revise any forward looking information. As a reminder, today's call is being recorded and a replay will also be made available on expworldholdings.com. Now, for a few logistics, and then we'll get started. For those of you joining in frame today, to zoom in on a specific screen, you can click on that screen and then click Zoom in.

Operator

If the content on that screen disappears or if you lose audio, simply refresh your page. While in frame, if you need help, just use the help button at the bottom right. Should you wish to ask a question during our presentation, you can enter your questions by, by scanning the QR code presented on this screen with your mobile phone or go to slido.com and type in the event code EX PI. From there, you can submit a question or vote up an existing question by giving a thumbs up if you'd also like that question to be asked. This screen will remain up and on the right hand side of the stage for the duration of our presentation.

Operator

Now, I'll turn the call over to Glenn to begin our fireside chat.

Speaker 1

Awesome. Thanks, Denise, and thanks everyone for joining us. And before we jump into our Q1 results, I want to just review our business strategy and provide an update on our structure. Our strategy as from the beginning is to ultimately create the most agent centric real estate brokerage on the planet and to really drive that value.

Speaker 2

One of

Speaker 1

the things we've been able to do is from the profitability of North America, it's actually enabled us to invest in growth opportunities across the business, including international, which we see as the largest potential driver of growth for the company. Through the profitability of eXp North America, we've been able to build a platform for agents worldwide that includes personal development, health resources, media and technology. This quarter, we increased our operational efficiencies by focusing entirely on Frame, our Metaverse where we're meeting today, and we've actually discontinued our Verbella operations. At a high level, we're now reporting on 3 business segments, North American Realty, International Realty and then other affiliated services, which is all the other businesses, which include Success and FrameVR. Io.

Speaker 1

Kent will also review the results of each segment in a moment. We're also increasing the transparency of our operating expenses. Starting this quarter, we're reporting technology and development expenses separately. And as you'll see from our financials, we are a technology company really at our core and have achieved significant scale. Moving forward, we expect to leverage our investment to support margin expansion while continuing to innovate and lead other branches in technology.

Speaker 1

Now I'll move to some highlights from the Q1. I'll start with NPS. The work we did in 2023 to improve the agent value proposition, increased support and our agents during the market downturn helped drive a higher Net Promoter Score, which resulted in a 3 point increase from last year from 70 to 73. As you know, Agent Net Promoter Score is a good indicator of our future growth and our retention, an important measure of our success that is often not reflected in the current quarter's financial results. I'm also pleased to report a 5% increase in real estate transactions and 11% increase in overall volume or overall revenue.

Speaker 1

We continue to add multiple highly productive teams and agents around the world during this quarter as well, which we highlight in a separate press release like we did back in mid April. We think our focus on bringing teams of agents will not only improve the quality of our agents, it will lead to productivity gains, particularly when the market downturn ends. We feel confident about this because our internal research shows EXP agents on Teams are 77% more productive than individual agents. Last quarter, I mentioned that I expect International Realty to be the largest driver of future growth for the company and the International segment continues to outperform with revenue from International increasing 45% over the Q1 of 2023. We continue to strengthen the agent value proposition and expand our management team across a variety of key functions such as human resources, technology, marketing and growth.

Speaker 1

Last week, Wendy Forsyth joined our team as our Chief Marketing Officer and earlier in the month, we actually named Leo Perea as CEO of eXp Realty. I'm handing the reins over to eXp Realty over to LEO, so I can focus on more macro opportunities at the eXp World Holdings level. Leo is truly an innovative and well recognized leader in the industry. He's iterated and improved on the agent value proposition since joining eXp 2 years ago, and I think he'll continue to add value to our agents, strengthening our competitive advantage and drive growth for EXP Realty across the board. With that, I'll turn the call over to Leo, who can walk you through the Q1 highlights in our core businesses.

Speaker 1

Leo?

Speaker 3

Glenn, and thanks everyone for joining us today. While this isn't my first time I've joined our quarterly earnings call, this is my first time as the CEO of XP Realty. I'm excited to be here and I'm excited about the growth potential this year and the years to come. We're doing exciting things and I've had the good fortune to be part of that and we've started to see the results from our efforts across the business. I'll start with an industry update.

Speaker 3

Home sale transactions in the U. S. Were down nearly 3%. Despite that, eXp Realty was up 2%. As we continue to do better than the industry, we continue to grow our market share.

Speaker 3

Market share grew nearly 5%, increasing to 4.4 all home sale transactions in the United States. Thanks to the hard work of our agents and teams during what's undoubtedly one of the most challenging markets most of us have ever experienced in our careers. Moving on to agents. As Glenn mentioned, NPS is our leading indicator for our future growth reflecting on our agent satisfaction with eXp. ANPS helps us at the management team understand where we can improve and where we can focus our resources.

Speaker 3

Here, we said we focus on delivering vetted high quality opportunities to agents, expanding personal and professional services like success, revenue share, equity opportunities and affiliate agreements, streamlining operational support to our agents and enhancing our technology. We delivered all these promises in 2023 and we believe it's reflected in the higher agent NPS scores this year. More specifically, agents have told us that they are happy about our expert care decks because they're able to get a quick resolution to their issues and have one phone number contact 24 hours a day, 7 days a week, worldwide. They've also told us that they've been particularly happy about from Verbella to exp. World or Frame.

Speaker 3

They're enjoying Frame because it's web based, which makes it easier to access wherever they are working. Transaction processes have also improved with 87% of our agents rating the process a 9 or a 10 on a scale of 1 to 10. We're also introduced

Speaker 2

Did Leo cut out? Yes. Can I hear Leo?

Speaker 4

If you could do just a quick refresh, I think we'll get your audio back. I see a little sign that indicates you're in the might be a little weak.

Speaker 1

Yeah. So, one thing to note is, today, we actually announced our EXP revenue share 2.0 program. So that you may have seen the press release that went out earlier today. Obviously, this last year, we paid out more than $230,000,000 in a combination of revenue share and equity benefits to our agents and brokers. And with the new model and just anecdotally, our agents are ecstatic about our revenue share model 2.0.

Speaker 1

We recognize that we have competition in the industry, and since we really created this new rev share model, we redesigned it to give agents the best rev share opportunity that exists in the market today. And we also have a Fast Start program that's going to be kicking in July, which we think is also going to be super exciting, that we talked about in the press release. Leo, let me know if you've arrived back, and I can certainly turn it back over to you. Let's go on to the next slide and I'll keep things moving here.

Speaker 3

Sorry, I got kicked out. I just clicked it.

Speaker 1

Oh, well, then I will wait for you to take over Slide 12 here. Slide 12, sorry about

Speaker 3

that. Perfect. I'm very proud of the eXp We're

Speaker 2

losing Leo again.

Speaker 1

I think his Internet connection must be having issues. So just a note, obviously, we have a number of agents who have been named to our to the 20 23 Top Producer list. And one of the things that was kind of interesting is that if you actually looked at those agents that were listed, our top 220 250 agents, they would have actually ranked as a single brokerage in the top 5 or 6 brokerages in the entire industry. So pretty cool just to see a lot of the accolades. Here, a few weeks ago, I was actually awarded the Bravo Leadership Award from DSU, and EXP was awarded the number one spot in transactions on the 2024 Riz Media Power Broker Report.

Speaker 1

I want to make sure that everybody it's important to note that these rankings really reflect our continued focus on our agents and that really rings true in why we've been able to get the awards that we have and continue to get all of the various different accolades. So let's go ahead and move to the next slide here. One thing you've heard us talk a lot about is AI across our entire business. And we're actually almost ready to roll out what we're referring to as Luna 2.0 And this is headed up under our innovation team, headed up by Seth Siegler, our Chief Innovation Officer, but we're actually ready to roll out 28 separate AI agents that each contain their own in-depth knowledge about topics and countries and it's able to actually handle multiple languages and lots of other cool features. So, similar to Luna, we plan to develop more customized generative AI personal assistance, responsive to both EXP, Agent and the broader industry questions.

Speaker 1

In terms of the we have a document creation and review process that we're working on improving. And another example is deploying technology to increase operational flexibility by creating what Patrick O'Neill, our Chief Operating Officer, calls following the Sun strategy to leverage both AI and people to enable 24 operations worldwide in support of agents and driving enhanced productivity. So AI for us represents an enormous long term opportunity. We're doing a lot of things with we've got a number of different projects. We're working with various vendors and others to really focus on the AI side.

Speaker 1

Leo, are you back?

Speaker 3

I hope so. Slide 14?

Speaker 1

Okay. Slide 14 is yours.

Speaker 3

We're also excited about our progress against our $20,000,000 profit improvement plan. We made good progress in implementing several initiatives in Q1 to drive our profit and cost savings. On an annualized basis, these initiatives that we put in place in Q1 will drive $27,300,000 in incremental profit and cost savings per year. Because many of these initiatives were implemented in the Q1, they are not reflected in our Q1 financials and may have even been booked as some costs like severance towards them, which Kent will discuss in a moment. With 3 quarters left in 2024, we expect to realize $6,800,000 per quarter or $20,400,000 this year.

Speaker 3

Turning to the next slide. Lastly, I want to provide an update on the real estate which in addition to the market downturn caused by higher interest rates has also impacted by antitrust lawsuits aimed at agent commissions. Understandably, our agents have lots of have had lots of questions about what this means for them and their clients. We've been providing support and education to agents through regional rallies where we can be there to answer questions about antitrust lawsuits, but also engage, educate, and celebrate and inspire their profession. During April, we hosted and impacted, rallies in 20 locations.

Speaker 3

We plan to host more throughout the year. We've also created a buyer representation toolkit, which includes a suite of tools to help eXp agents enhance and empower their value proposition for clients during this time. With that, I'll turn the call over to Kent who will walk you through the financials and we'll open it up for questions. Thank you.

Speaker 2

Thank you, Leo. As we review our performance for the Q1 of 2024, I'm pleased to highlight several key metrics that underscore our progress and strategic initiatives. Let's start with our agent Net Promoter Score, NPS. This quarter we achieved an NPS of 73, which is a 3 point improvement compared to Q1 of last year. This increase is a direct result of our continued investment in operational support for our agent and the enhancement to our technology platform that Glenn and Leo discussed earlier.

Speaker 2

Moving on to our agent network, we saw a slight decrease 2% in our agent count year over year. This refreshed both the challenged market condition and our strategic decision to outgrow a significant number of unproductive agents in the U. S. During the Q4 of last year and the Q1 of this year. This move is aligned with our focus on enhancing overall productivity and efficiency.

Speaker 2

In terms of real estate transaction, our real estate sales transaction units grew by 5% year over year. This growth is not only a testament to our team's hard work and also indicates that we are outperforming the industry and continue to gain market share in the U. S. While our cost per transaction experienced a slight increase year over year, they remain among the most competitive in the industry. We anticipate the real estate transaction costs will decrease as we leverage technology more effectively and move through the typical seasonal valuation in 2024.

Speaker 2

Now, let me discuss our financial objectives. I'm happy to report that our revenue for the Q1 was $943,000,000 11% increase year over year. On the adjusted EBITDA front, we generated $11,000,000 in a very challenging market condition. The Q1 adjusted EBITDA was lower than the $14,600,000 from the prior year's Q1 due to increased SG and A, which I will explain next. We have also enhanced the transparency of our financial reporting by breaking out our operating expense to include technology and development costs, reaffirming our commitment to being a technology driven company at heart.

Speaker 2

General and administrative expenses were $63,000,000 up 15% over the Q1 of 2023, primarily due to increased transaction volume and effort to improve our NPS, coupled with higher severance and legal expenses. This quarter, we recorded a provision of 16,000,000 for the antitrust litigation contingency. It is important to note that this $60,000,000 contingency is provisional and subject to change as the case is involved. The net of cash impact on earning of the provision is $11,400,000 Our GAAP net loss for this quarter was $15,600,000 which also includes a $1,800,000 loss from the discontinued operation of the Vergara salmon. Excluding the antitrust contingency provision and the discontinued operation, our adjusted loss was $2,400,000 with an adjusted loss per diluted share of $0.02 In terms of liquidity, our adjusted operating cash flow was $29,400,000 We have continued our commitment to shareholder return by repurchasing $33,000,000 of share during the quarter.

Speaker 2

The number of the share we repurchased completely offset the share issue via our agent equity program and the agent growth incentive program in the Q1. In the next slide, I will provide more detail about the driver behind our revenue increase. This chart shows the driver behind the increase of the revenue from the Q1 of 2023 to the Q1 of 2024. In the Q1 2023, our revenues stood at $849,000,000 as shown by the bar on the left. For the same period in 2024, revenue increased to $943,000,000 as indicated by the bar on the right, making a year over year increase of $95,000,000 or 11%.

Speaker 2

This increase was primarily fueled by significant gains in our North America Realty segment, which includes U. S. And Canada, contributed an additional 90,000,000 dollars revenue growth. The international Realty segment also, as summarized, contributed a $5,000,000 revenue increase. Let's dive deeper into the North America Realty segment.

Speaker 2

A 2% decline in our agent base impacted our revenue negatively by approximately $8,000,000 U. S. Home sales in the Q1 2024 declined 2.7% year over year, which pressured our agent production. We estimated the decrease of overall real estate market reduced our revenue by $11,000,000 However, the market declines were more than offset by gains from several areas in our business. Relative to the performance of the real estate market, an increase of our Asian productivity over prior year added $48,000,000 revenue.

Speaker 2

Higher home sales prices contributed incremental revenue of $46,000,000 Additionally, our strategic focus on expanding our lease, referral and other ancillary services brought an extra $15,000,000 top line growth. On next slide, I will discuss financial for each segment in more detail. This quarter, we streamlined our reporting by reducing number of segments from 4 to 3. This change follows the discontinuation of a valid operation as we shift our focus entirely to web based metaverse frame, which is now included in the other affiliated services. North America Realty segment.

Speaker 2

This segment continued to be a primary driver of both revenue and profit for the Company. We reported an 11% increase in revenue as I discussed previously. However, our EBITDA saw a 16% decline at $18,000,000 This was largely due to our investment in personnel to support future growth and improve NPS, an increase in legal and severance expenses, which were partially offset by higher revenue, net of agent commission and other agent related costs. International Realty revenue was $60,000,000 an increase of 45%. Adjusted EBITDA loss was $3,400,000 which is 9% improvement from prior year.

Speaker 2

Other affiliated services, including Frame and Success, contributed modest revenue and adjusted EBITDA loss. So this slide summarizes our Q1 highlight, which I have discussed in the previous slides. I'm happy to report that we are off a great start to 2024 and we are well positioned to capitalize on upcoming market growth opportunity. With that overview, I'd like to turn the presentation back to Denise, who will facilitate the Q and A section. Thank you.

Operator

Great. Thanks, Kent. I'll kick off for a question for everyone on the team before we open the call up to our covering analysts. First, Glenn, this one's for you. You announced some enhancements to eXp rev share model earlier today, and I think you took us through some of the highlights.

Operator

I suppose the next question is, what made you decide to make these updates now?

Speaker 1

Yes, so there was a few things that went into this. In 2019, we announced our sustainable revenue share platform, which basically was our commitment to paying up 50% of company dollar. But it was based on the model that we originally rolled out in 2,009, where if you actually calculated the numbers, we expected, we'll call it more breakage in the system, but we ended up overheating the rev share system to the point where we would fundamentally not be a sustainable company. So we introduced in 2019, where we are committed to paying out 50% of company dollar, but embedded in that is that we use 50% of the company dollar to pay the bills and run the company and all of that. The second part of it was, because of the way it was calculated, it was a little bit unclear for a lot of our agents actually how the numbers rolled out because it was using what we referred to as a buffering system.

Speaker 1

So we got a lot of feedback that our agents wanted something that was easier to calculate. But then the other piece was we definitely got feedback around agents who we'll say are mid level attractors who had built reasonably large organizations in eXp and really were our key to the growth of the company, but they weren't opening up more of the levels and yet they were instrumental in the growth of the company. So what we had seen was some of the attrition that we were seeing, when agents were leaving to some of our competitors was really that group of agents who were kind of in the middle. They weren't super big agent attractors, meaning they weren't going in 30, 40, 50 people personally, but their organizations, they were really involved in supporting the rate. Basically, the program, as it's laid out is that, starting in the U.

Speaker 1

S. And Canada, May 9th, levels 1 through 3 are opened up for all agents in the company, and then levels 4, 56 are opened up with 5, 10, 15 agents that they've personally brought in. We still left level 7 at the same, which is 30 or more. And so that's really for those people who are, I'll call it the broker owner persona, they're the sales manager persona. That's what they do is they do a lot of of recruiting and that's how they're wired.

Speaker 1

But for the masses of agents, we wanted to make it more accessible to agents. And just as I mentioned, the anecdotal evidence of just the feedback today has been really, really positive. So many people saying this is exactly what we needed to get excited about sort of the next evolution of EXP. And so I'm pretty excited where we're going to go with this. And we'll be rolling this out across the globe, but we launched it in the U.

Speaker 1

S. And Canada to start.

Operator

Great. Makes sense. Thanks, Glenn. The next question is for Leo. I have a couple of questions for you about agent growth trends.

Operator

First, just a near term question about the Q1, if it was continued to be impacted by the cleanup of non productive agents that you undertook last quarter? And more longer term, what are you focused on in terms of agent growth?

Speaker 3

Thanks, Denise. Yes, there are 2 drivers impacting agent count. First, some agents have left the industry due to tougher selling new environment that we've been experiencing over the last 18 months. And second, the cost of nonproductive agents such as technology support and other things. So we purposely off boarded a large number in the Q4 and yes it did extend into the Q1.

Speaker 3

We're really focused on building our agent base with the highest quality of agents in the industry. We've been very encouraged by the number of teams that have joined eXp in 2023 and again in Q1 of 2024, along with the increase in our agent productivity. We invest quite a bit in tech to support our agents, which is offset a bit by the agent fees. For example, a subscription to kvCORE, which would cost an individual agent 100 of dollars per month to pay directly is included in our $85 a month agent fee. We believe the fee deflects non productive agents who can be counted at brokerages that don't charge fees.

Speaker 3

Clearly, our agent value proposition is resonating with productive agents and teams of agents joining us and we believe our focus on these agents will put us in the optimal position to capture growth as the market turns.

Operator

Got it. Thank you. And now last one for Kent. Can you discuss the components of the $20,000,000 profit improvement plan?

Speaker 2

Yes, happy to do that. We noted a few adjustments we initiated in the Q1 with regard to the risk management fee, agent equity program discount and other profit enhancement opportunity. Those initiatives have helped us on profit generating side. We estimate they will contribute about $30,300,000 on annualized base. On the cost savings side, we took action in the Q1 to reduce personnel costs, primarily through the headcount reduction, by estimating about 10,900,000 in the Realty business and 3,000,000 in the Rubella business on the annualized space.

Speaker 2

The combined of these two actions possibly will generate about 13,900,000 annualized cost savings. So overall, you add them together, we get about 20 $7,000,000 overall profit improvement.

Operator

Got it. Okay. Now I'll open up the call to our analysts to ask questions. I'll start with Jonathan Bast, who's sitting in for John Campbell from Stephens. You can open up your mic and ask a question.

Operator

Jonathan?

Speaker 5

Hey, guys. Thanks for taking my questions. I wanted to start off on agent count growth. It sounds like the off boarding and non producing agents continued into 1Q. Is that expected to flow into 2Q and potentially beyond?

Speaker 5

And then looking forward on agent count growth, maybe like breaking it down between North America as well as international growth. Could you talk about what you're expecting for the remainder of the year?

Speaker 1

Yes. Leo, you want to take that or

Speaker 3

I was going to ask you

Speaker 1

the same thing. I can Oh, sir. Yes. So, going into Q2, obviously, we rolled out what we talked about RevShare 2.0. So that, we believe is going to be helpful for on the growth side.

Speaker 1

On the off boarding side, it's still a pretty tough market. A lot of our agents that we were off boarding and have off boarded and those who have voluntarily off boarded, a lot of them are behind on their fees, their MLS dues and other things that are obligations there, and they weren't selling, any homes. So, it was just natural that there was some attrition. When I found this is just anecdotal, but I believe that even NARs quit a couple months ago publishing their numbers of members, because I think their numbers are dwindling at the moment. So, I think there's some industry attrition going on at the moment that's affecting us.

Speaker 1

And obviously, we're still we're seeing our productive agents sticking with us for the most part, which is why you're seeing volumes pick up and transaction counts pick up as the lower production. Anything you want to add there, Leo?

Speaker 3

Yes. We're and again, people need to remember that when you don't stay current with your MLS and associate induce, once you get turned off, we have to off board you. And so we have the larger denominator. And so the churn that's endemic to this market cycle is going to be present. But the one thing I will say that, you know, it's I'm having and so is Glenn very promising conversations with small to midsize independents where the fear of the changing model rules to from the NIR settlement we'll probably see some more activity of independents joining us in larger numbers, 50, 100, 200, 500 agents at a time.

Operator

Go ahead, Jonathan. Did you have another add on follow on to that question?

Speaker 5

Yes. If I could have one more, if I could. Maybe switching topics. Could you guys maybe elaborate on how eXPI and your agents are preparing for the mandated buyer rep agreement rule change that's expected to come this summer? What are the discussions you're having with agents and what are you

Speaker 3

Yes. I'll jump into that. We're being extremely proactive. I want to say we're probably the leading scaled company who's being very proactive. A couple of weeks ago, we rolled out a 1 page buyer representation agreement that becomes only binding for 1 property in basically one day.

Speaker 3

The one thing I keep reminding agents because I'm probably talking to 300 at a time a couple times a day just to make sure that they're well prepared is that nobody knows what's actually going to happen. The final settlement needs to be completely fleshed out. The DOJ could opine, but it's really operationalizing the change. And so what we're doing is we're preparing our agents with the most tactical scripts, tools, buyer presentations. We've even gotten it down to a slogan of treat your buyers like you treat your sellers.

Speaker 3

And what we're we're encouraging them to do is to start being prepared today. So we we've given them the forms and the tools that we think will help get them through the transition and making sure that the objections and the concerns that come up, we've already role played, we've already prepared them for it. And the one advantage that we have as a company is we're the largest scaled by transaction count. According to Real Trends last year, we did 355,000 sides. That's 40% more than number 2.

Speaker 3

And so what we have is this phenomenal collaborative feedback loop. So as our agents are in the field dealing with consumers directly, we'll be able to support their change. And the one thing I keep saying to agents is we're a platform to allow real estate practitioners to build the size business they want. And so what that means, as long as it's legal and ethical and it falls within the rules, we're here to support whatever type of business they would like to innovate on. And in a couple of years, we'll probably have a new normal, but we're very prepared proactively to guide them through the I'm calling it the messy middle as we adjust to the new rules of engagement.

Speaker 5

That's great. Thank you, guys.

Speaker 2

Sure.

Operator

And we'll move on. Tom White from D. A. Davidson, did you have a question?

Speaker 6

Yes, a couple if I could. Glenn, Leo, I was hoping maybe you could share some directional thoughts on how you're feeling your transaction growth in the Q2. There have been some other companies in this space that have highlighted the recent uptick in mortgage rates, a little bit of kind of directional color there. And then maybe one for Kent, operating expenses, specifically kind of G and A plus that new tech and DevLine. Is that kind of the new level we should think about in terms of like absolute dollars over the next few quarters?

Speaker 6

Is that a good way to model it kind of from what we saw in the Q1? Thanks.

Speaker 3

I could take the directional one. Quarter over quarter, it's looking like flat year transactionally for the country. So I would venture to bet that what we saw in Q1 is probably pretty representative of Q2. And again, as we shared throughout the other slides, we're really focused on the productive agents. And again, what I actually tell agents is in a market like this, thriving looks like surviving and so sometimes this is just a market expansion moment and then once rates and we get more back to a normalized transactional volume year of 5,500,000,000, 6,000,000 transactions, which over a 30 year period is probably more average, that will actually pay dividends for us.

Speaker 2

Yeah, maybe to add on the unit side, right, Tom, it's typical, you see Q1 is very it's slower season, right? When you get to Q2 spring season, I mean, just the seasonality, the revenue will pick up in the Q2.

Speaker 6

Okay, great. Maybe one last one if I could slip it in. Any chance you can update us on how you're thinking about a potential settlement of the NAR lawsuit? Some of your brokerages have settled recently. I noticed that litigation contingency pop up on the P and L.

Speaker 6

So anything you can share there would be helpful. And then I'll get back in the queue. Thanks.

Speaker 1

Yes. So, I spent a fair bit of time, I know Leo does as well, talking through what's going on in the industry from a settlement perspective or litigation perspective. We're still fairly early on in our in the suits that we're named to. I think there's 10 suits that were named to in the U. S.

Speaker 1

We're still trying to figure out where there's consolidation of that. Where does this all set? I think we may be the last of the large brokerages that haven't settled yet and are presently not in a settlement discussion at the moment, but obviously, we're open to those conversations. We've had some in the past. But right now, we're still looking at what's going on.

Speaker 1

Obviously, you had Douglas Elliman, you had, of course, Home Services. Of course, they were on the hook, so to speak, for the previous judgment, and they were kind of the last one in there. So it's but it's still early on. We still got a couple, 3 years of work to do before it, you know, gets into some sort of trial situation is the way that we're looking at it. So we're watching on a day by day basis.

Speaker 1

And if there's an opportunity to settle for a number that makes sense for us, then we'll take that opportunity. But if not, we think we've got very good arguments on our side of the equation if we were to go sort of the distance, so to speak.

Speaker 2

Tom, you also asked about SG and A, right, in the versus the rest of the year. Now volume from any unforeseen, right, or one time item, you can assume our Q1 SG and A is essentially is more like generate direction what we're going to see in the future.

Operator

All right. I'll move on. Moving on to Matt Fialik from William Blair. Did you have a question?

Speaker 4

I did. Thank you, Denise. Hey, everyone. You have Matt and Sheldon. Thank you for the questions.

Speaker 4

To start here, what could the recent changes to the revenue share model mean to company financials, particularly gross margins?

Speaker 2

Yes, Sean. So it's a no change, right?

Speaker 1

Yes, I mean, that's the short answer. The short answer is that it's how we're paying out the 50% of company dollar is really what it comes down to, and we've done it in a way that helps agents in the company that are working to grow the company. And so we've really just created a, what we refer to as a model that our agents feel is more aligned with what their interests are over the long haul. So it's, generally, we're paying out the same numbers. We're just doing it slightly differently, which our agents are excited about.

Speaker 4

Got it. Thank you for clarifying that, Glenn. And then since Leo is taking over as the CEO of eXp Realty and congrats on that opportunity, Leo. Glenn, can you provide some more detail on how you plan to allocate your time? Sounds like macro level opportunities will be a core focus, but any additional color on what that entails would be helpful.

Speaker 1

Yes. So there's when I look at macro, obviously, we've got a few subsidiaries, Success Enterprises, FrameVR. Io. We've got some other businesses that we've made either strategic investments in or and other businesses that we think could be synergistic to EXP. So it's really working on a number of these opportunities.

Speaker 1

There are some things that I think are pretty exciting that I don't want to talk about yet, so they're non public. But there are some areas where I think leveraging EXP Realty's scale and what we've been able to accomplish, there are some things that could create some nice aligned synergies that are maybe which are, in fact, outside of the core of Realty, so not the traditional affiliated services, but other services that we think could really align well and could be profitable in their own right.

Speaker 4

All right. Thank you, Glenn. Very helpful.

Operator

And then last, Soham Bhosle at BTIG. Would you like to ask a question?

Speaker 7

Evening. Maybe first one for you, Leo. Last fall, you introduced the Boost and Accelerate program. So I'm just curious how those have fared so far? And then if you could just expand on what's incremental here with the fast start and the rev share 2.0 program, that'd be great.

Speaker 3

Yes. No, it's definitely opened up lines of communication. Tomorrow we're filing a press release of a 500 person, brokerage that joined us here in Miami, 20 year independent, who just, you know, the the interesting talk track that I keep hearing over and over again is, you know, I've been I've been grinding at it for years years, and this this upcoming climate, is just giving me the entrepreneurs to continue to grow and pour into their people. They give us their back end. They give us their liability.

Speaker 3

And then they can focus on pouring in. And a lot of times, once they get rid of their fixed liabilities in the real estate, it becomes a more profitable enterprise to be in business with business with us. And so by introducing Boost, it gave us a very powerful talk track. And I'm in active negotiations with companies ranging of all sizes that I feel like last summer, I would not have an opening to. So it's really been a huge catalyst to having conversations.

Speaker 3

And then with Rev 2 Share 2.0, I think it's going to give a shot in the arm to

Speaker 4

the folks

Speaker 3

who are great at attracting. And one of the beautiful things about this company is it's very much agent led from the voice standpoint. So when we designed rev share 2.0, it was strictly with the input of the feedback loop of the agents in the field who are competing for talent. And so we're pretty excited that it's going to help us attract the smartest and brightest folks in the industry.

Speaker 7

Got it. And then I guess just one more on productivity. Look, it looks like transactions are up. But when I sort of look at just the home sales transactions purely, right, it looks like it's up 2% per your slides and then you had about 26% growth in other. Is there any way to sort of parse out what productivity was on sort of the core business like just selling homes?

Speaker 4

Ken, I don't know

Speaker 3

if you have that.

Speaker 2

We don't sell transactions. And in general, we don't sell as other transaction is all the same thing to support all the transaction.

Speaker 1

I think Kent's mic is kind of messed up. But do you want to try to reset your mic there, Ken?

Speaker 2

Yes. Can you hear me okay? Yes. Yes. Very good.

Speaker 2

Well, to answer your question, right, our our home sale transaction increased 5%, right? And you asked for the activity. We don't have a separate team to support as a real estate sales transaction, plus lease rental refer is a one team to support them. So when we look at productivity, if you look at more like the overall personal session costs, right, they're all real estate related.

Speaker 7

Got it. And then Ken, just on gross margin, any help there? I think you said similar last quarter, you said similar to 2023. Any updated thoughts there would be great. Thank you.

Speaker 2

Yes, similar. We are about 8.3% level, yes.

Speaker 7

For the year?

Speaker 2

Oh, for the year. Now we we don't forecast. Right? You can see, right, our typically what you see is the gross margin, there's a seasonality, right? When we get across the year, the agents start to cap.

Speaker 2

So what you see actually in the summertime, our gross margin tend to be lower and then come back again in Q4. Okay.

Speaker 7

Thank you for the thoughts.

Speaker 2

Yes.

Operator

All right. Well, thank you, everyone. We answered all the questions that were asked on Slido for the most part. I want to thank everyone for joining us in this quarterly call. As always, you can stay connected with us through our website through our website for the latest updates on eXp news, results, events.

Operator

And additionally, you'll find a recording of this call and our latest investor presentation on the Investors section of the site. So this concludes the eXp World Holdings Q1 2024 Earnings Fireside Chat.

Speaker 2

Thank you. Welcome.

Operator

Thank you.

Speaker 1

Thanks, everyone. Bye.

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Key Takeaways

  • eXp World Holdings has restructured into three reporting segments—North American Realty, International Realty and Other Affiliated Services—discontinued its Verbella operations and now separately discloses technology and development expenses to highlight its core positioning as a technology-driven company.
  • The company’s Net Promoter Score rose from 70 to 73 year-over-year, while real estate transactions increased 5% and total revenue grew 11%, driven in part by a 45% jump in International segment revenue.
  • eXp introduced its Revenue Share 2.0 model and a new Fast Start program, earning enthusiastic agent feedback without changing the overall payout percentage of company dollar.
  • A $27.3 million annualized profit improvement plan—including headcount reductions and fee adjustments—will deliver roughly $20.4 million in cost savings in the remaining three quarters of 2024.
  • The company booked a $60 million antitrust litigation contingency, reported a GAAP net loss of $15.6 million (adjusted net loss of $2.4 million), generated $29.4 million of operating cash flow and repurchased $33 million of shares to offset equity issuances.
AI Generated. May Contain Errors.
Earnings Conference Call
eXp World Q1 2024
00:00 / 00:00