10-Q 1 expi-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission File Number: 001-38493

Graphic

EXP WORLD HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

   

98-0681092

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

2219 Rimland Drive, Suite 301, Bellingham, WA

98226

(Address of principal executive offices)

(Zip Code)

(360) 685-4206

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

(Title of Each Class)

(Trading Symbol)

(Name of each exchange on which registered)

Common Stock, $0.00001 par value per share

EXPI

The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes     No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     No

There were 154,846,563 shares of the registrant’s Common Stock, $0.00001 par value, outstanding as of March 31, 2024.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains statements that are not historical fact and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not based on historical facts but rather represent current expectations and assumptions of future events. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Many of these risks and other factors are beyond our ability to control or predict. Forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “could,” “can,” “would,” “potential,” “seek,” “goal” and similar expressions of the future. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, including, but not limited to:

the impact of macroeconomic conditions on the strength of the residential real estate market;
the impact of monetary policies of the U.S. federal government and its agencies on our operations;
the impact of changes in consumer attitudes on home sale transaction volume;
the impact of excessive or insufficient home inventory supply on home sale transaction value;
our ability to effectively manage rapid growth in our business;
our ability to attract and retain additional qualified personnel;
changes in tax laws and regulations that may have a material adverse effect on our business;
our ability to protect our intellectual property rights;
the impact of security breaches, interruptions, delays and failures in our systems and operations on our business;
financial condition and reputation;
our ability to predict the demand or growth of our new products and services;
our ability to maintain our agent growth rate;
the impact of adverse outcomes in litigation and regulatory actions against us and other companies and agents in our industry on our business; and
the effect of inflation and rising interest rates on real estate transaction values and our operating results, profits and cash flows.

Other factors not identified above, including those described under the heading “Risk Factors” in Part I, Item 1A, and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report”), may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with considering any forward-looking statements that may be made by us.

Forward-looking statements are based on currently available operating, financial and market information and are inherently uncertain. Investors should not place undue reliance on forward-looking statements, which speak only as of the date they are made and are not guarantees of future performance. Actual future results and trends may differ materially from such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future developments or otherwise, except as may be required by law.

3

PART 1 – FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS (UNAUDITED)

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(UNAUDITED)

March 31, 2024

December 31, 2023

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$ 109,169

$ 125,873

Restricted cash

74,735

44,020

Accounts receivable, net of allowance for credit losses of $2,363 and $2,204, respectively

105,325

85,343

Prepaids and other assets

9,517

9,275

Current assets of discontinued operations

1,631

1,964

TOTAL CURRENT ASSETS

300,377

266,475

Property, plant, and equipment, net

12,231

12,967

Operating lease right-of-use assets

7

10

Other noncurrent assets

11,058

7,400

Intangible assets, net

6,644

7,012

Deferred tax assets

73,955

69,034

Goodwill

16,682

16,982

Noncurrent assets of discontinued operations

5,795

5,788

TOTAL ASSETS

$ 426,749

$ 385,668

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable

$ 8,986

$ 8,788

Customer deposits

75,789

44,550

Accrued expenses

102,104

86,483

Litigation contingency

16,000

-

Current portion of lease obligation - operating lease

7

10

Current liabilities of discontinued operations

1,406

1,809

TOTAL CURRENT LIABILITIES

204,292

141,640

Long-term payable

20

20

TOTAL LIABILITIES

204,312

141,660

EQUITY

Common Stock, $0.00001 par value 900,000,000 shares authorized; 186,361,476 issued and 154,846,563 outstanding at March 31, 2024; 183,606,708 issued and 154,669,037 outstanding at December 31, 2023

2

2

Additional paid-in capital

841,576

804,833

Treasury stock, at cost: 31,514,913 and 28,937,671 shares held, respectively

(578,591)

(545,559)

Accumulated deficit

(39,993)

(16,769)

Accumulated other comprehensive (loss) income

(557)

332

Total eXp World Holdings, Inc. stockholders' equity

222,437

242,839

Equity attributable to noncontrolling interest

-

1,169

TOTAL EQUITY

222,437

244,008

TOTAL LIABILITIES AND EQUITY

$ 426,749

$ 385,668

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except share amounts and per share data)

(UNAUDITED)

 

Three Months Ended March 31,

2024

2023

Revenues

$ 943,054

$ 848,453

Operating expenses

Commissions and other agent-related costs

864,746

776,838

General and administrative expenses

62,582

54,626

Technology and development expenses

14,761

14,060

Sales and marketing expenses

3,139

2,927

Litigation contingency

16,000

-

Total operating expenses

961,228

848,451

Operating (loss) income

(18,174)

2

Other (income) expense

Other (income) expense, net

(1,188)

(874)

Equity in losses of unconsolidated affiliates

149

342

Total (income) expense, net

(1,039)

(532)

Income (loss) before income tax expense

(17,135)

534

Income tax benefit

(3,305)

(1,458)

Net (loss) income from continuing operations

(13,830)

1,992

Net loss from discontinued operations

(1,809)

(539)

Net (loss) income

($ 15,639)

$ 1,453

(Loss) earnings per share

Basic, net (loss) income from continuing operations

($ 0.09)

$ 0.01

Basic, net loss from discontinued operations

($ 0.01)

($ 0.00)

Basic, net (loss) income

($ 0.10)

$ 0.01

Diluted, net (loss) income from continuing operations

($ 0.09)

$ 0.01

Diluted, net loss from discontinued operations

($ 0.01)

($ 0.00)

Diluted, net (loss) income

($ 0.10)

$ 0.01

Weighted average shares outstanding

Basic

154,740,334

152,546,766

Diluted

154,740,334

155,668,712

Comprehensive (loss) income:

Net (loss) income

($ 15,639)

$ 1,453

Other comprehensive (loss) income:

Foreign currency translation gain (loss), net of tax

(889)

643

Comprehensive (loss) income attributable to eXp World Holdings, Inc.

($ 16,528)

$ 2,096

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(UNAUDITED)

 

Three Months Ended March 31,

2024

2023

Common stock:

Balance, beginning of period

$ 2

$ 2

Balance, end of period

2

2

Treasury stock:

Balance, beginning of period

(545,559)

(385,010)

Repurchases of common stock

(33,032)

(29,916)

Balance, end of period

(578,591)

(414,926)

Additional paid-in capital:

Balance, beginning of period

804,833

611,872

Shares issued for stock options exercised

977

307

Agent growth incentive stock compensation

7,908

8,668

Agent equity stock compensation

25,868

26,775

Stock option compensation

1,990

2,761

Balance, end of period

841,576

650,383

Accumulated (deficit) earnings:

Balance, beginning of period

(16,769)

20,723

Net (loss) income

(15,639)

1,453

Dividends declared and paid ($0.05 and $0.045 per share of common stock in Q1 2024 and Q1 2023, respectively)

(7,585)

(6,596)

Balance, end of period

(39,993)

15,580

Accumulated other comprehensive income (loss):

Balance, beginning of period

332

236

Foreign currency translation gain (loss)

(889)

643

Balance, end of period

(557)

879

Noncontrolling interest:

Balance, beginning of period

1,169

1,169

Transactions with noncontrolling interests

(1,169)

-

Balance, end of period

(0)

1,169

Total equity

$ 222,437

$ 253,087

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

Three Months Ended March 31,

2024

2023

OPERATING ACTIVITIES

Net (loss) income

($ 15,639)

$ 1,453

Reconciliation of net income (loss) to net cash provided by operating activities:

Depreciation expense

2,059

2,067

Amortization expense - intangible assets

340

512

Allowance for credit losses on receivables/bad debt on receivables

159

(1,790)

Equity in loss of unconsolidated affiliates

149

342

Agent growth incentive stock compensation expense

8,827

9,660

Stock option compensation

1,990

2,761

Agent equity stock compensation expense

25,868

26,775

Deferred income taxes, net

(4,786)

277

Changes in operating assets and liabilities:

Accounts receivable

(20,141)

(10,808)

Prepaids and other assets

(311)

(3,722)

Customer deposits

31,239

17,382

Accounts payable

197

(1,310)

Accrued expenses

14,703

17,200

Long term payable

-

(4,692)

Litigation contingency

16,000

-

Other operating activities

-

37

NET CASH PROVIDED BY OPERATING ACTIVITIES

60,654

56,144

INVESTING ACTIVITIES

Purchases of property, plant, equipment

(1,323)

(1,432)

Investments in unconsolidated affiliates

(3,807)

(350)

Capitalized software development costs in intangible assets

(115)

-

NET CASH USED IN INVESTING ACTIVITIES

(5,245)

(1,782)

FINANCING ACTIVITIES

Repurchase of common stock

(33,032)

(29,916)

Proceeds from exercise of options

977

307

Transactions with noncontrolling interests

(1,169)

-

Dividends declared and paid

(7,585)

(6,596)

NET CASH USED IN FINANCING ACTIVITIES

(40,809)

(36,205)

Effect of changes in exchange rates on cash, cash equivalents and restricted cash

(589)

594

Net change in cash, cash equivalents and restricted cash

14,011

18,751

Cash, cash equivalents and restricted cash, beginning balance

169,893

159,383

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE

$ 183,904

$ 178,134

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

Cash paid for income taxes

$ 1,109

$ 1,089

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

eXp World Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements

(UNAUDITED)

(Amounts in thousands, except share amounts and per share data or noted otherwise)

1.

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

eXp World Holdings, Inc. (“eXp,” or, collectively with its subsidiaries, the “Company,” “we,” “us,” or “our”) owns and operates a diversified portfolio of service-based businesses whose operations benefit substantially from utilizing our technology platform. We strategically prioritize our efforts to grow our real estate brokerage by strengthening our agent value proposition, developing immersive and cloud-based technology to enable our model and providing affiliate and media services supporting those efforts. Our real estate brokerage is now one of the largest and fastest-growing real estate brokerage companies in the United States and Canada and is rapidly expanding internationally.

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

These interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 22, 2024 (“2023 Annual Report”).

In our opinion, the accompanying interim unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

In the first quarter of 2024, the Company determined that there has been a significant change to the Virbela business model.  As our customers evolve post-COVID, including a return-to-work-offices, and in light of ongoing internal and external demand for web-accessible platforms and artificial intelligence solutions, we have experienced a decline in demand for our application-based platform, Virbela, and a rising interest in our web-accessible platform, Frame®. Accordingly, the Company has begun the process of winding down the Virbela business, which includes closing out current contracts, and reducing its external customers and internal employee support.  Further, the technology is being replaced with Virbela Frame® technology that will be primarily utilized internally within the Company.  The Company expects the process to wind down the Virbela business to be completed by the fourth quarter of 2024.  As a result of this change, the Company has determined that Virbela qualifies for reporting as discontinued operations and will be reported as discontinued operations in the Company’s quarterly report on Form 10-Q for the period ended March 31, 2024 (the “Form 10-Q”).  In accordance with Accounting Standards Codification (“ASC”) 205 – Presentation of Financial Statements, we will present the assets and liabilities of Virbela within discontinued operations in the Company’s condensed consolidated balance sheet and Virbela’s results of operations will be included in discontinued operations in the Company’s condensed consolidated statements of comprehensive income (loss).

In prior years, Virbela represented an operating and reporting segment under ASC 280.  Going forward, the remaining operations of Virbela will not meet the operating or reporting segment criteria, therefore, any operating results related to Virbela and Frame® technologies will be included in the Other Affiliated Services segment.  Prior year segment and financial statement information has been reclassified to reflect Virbela as discontinued operations.

8

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying interim unaudited condensed consolidated financial statements include the accounts of eXp and its consolidated subsidiaries, including those entities in which we have a variable interest of which we are the primary beneficiary. If the Company has a variable interest in an entity but it is not the primary beneficiary of the entity or exercises control over the operations and has less than 50% ownership, it will use the equity method or the cost method of accounting for investments. Entities in which the Company has less than a 20% investment and where the Company does not exercise significant influence are accounted for under the cost method. Intercompany transactions and balances are eliminated upon consolidation.

Variable interest entities and noncontrolling interests

A company is deemed to be the primary beneficiary of a variable interest entity (“VIE”) and must consolidate the entity if the company has both: (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Joint ventures

A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity through a jointly controlled entity. Joint control exists when strategic, financial, and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. Joint ventures are accounted for using the equity method and are recognized initially at cost. Joint ventures are typically included in the Other Affiliated Services unless the joint venture specifically supports one of the reportable segments.

The Company has several joint venture investments. The operations of these joint ventures are not material to the Company’s financial position or results of operations.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for credit losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Reclassifications

When necessary, the Company will reclassify certain amounts in prior-period financial statements to conform to the current period’s presentation. Prior year segment and financial statement information has been reclassified to reflect Virbela as discontinued operations.

9

Restricted cash

Restricted cash consists of cash held in escrow by the Company on behalf of real estate buyers. The Company recognizes a corresponding customer deposit liability until the funds are released. Once the cash transfers from escrow, the Company reduces the respective customers’ deposit liability.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown on the condensed consolidated statements of cash flows.

Cash and cash equivalents

Restricted cash

Total

Balance, March 31, 2023

$ 122,769

$ 55,365

$ 178,134

Balance, December 31, 2023

$ 125,873

$ 44,020

$ 169,893

Balance, March 31, 2024

$ 109,169

$ 74,735

$ 183,904

3.

DISCONTINUED OPERATIONS

In accordance with ASC 205-20, the results of the Virbela business are presented as discontinued operations in the condensed consolidated statements of comprehensive income and, as such, have been excluded from continuing operations. Further, the Company reclassified the assets and liabilities of the Virbela segment as assets and liabilities of discontinued operations in the consolidated balance sheets. The following tables present the information for Virbela’s operations for the three months ended March 31, 2024 and 2023, and the balance sheet information as of March 31, 2024 and December 31, 2023 (in thousands).

ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS

(Unaudited)

March 31, 2024

December 31, 2023

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$ 1,064

$ 991

Accounts receivable, net of allowance for credit losses of $16 and $99, respectively

310

626

Prepaids and other assets

257

347

TOTAL CURRENT ASSETS

1,631

1,964

Property, plant, and equipment, net

9

11

Intangible assets, net

3,396

3,469

Deferred tax assets

2,390

2,308

TOTAL ASSETS

$ 7,426

$ 7,752

LIABILITIES

CURRENT LIABILITIES

Accounts payable

$ 26

$ 110

Accrued expenses

1,380

1,699

TOTAL CURRENT LIABILITIES

1,406

1,809

TOTAL LIABILITIES

$ 1,406

$ 1,809

10

INCOME STATEMENT OF DISCONTINUED OPERATIONS

(Unaudited)

 

Three Months Ended March 31,

2024

2023

Revenues

$ 649

$ 2,163

Operating expenses

Commissions and other agent-related costs

679

721

General and administrative expenses

1,765

2,730

Technology and development expenses

116

351

Sales and marketing expenses

(3)

36

Total operating expenses

2,557

3,838

Operating (loss)

(1,908)

(1,675)

Other income

Other income, net

(17)

(6)

Total other income, net

(17)

(6)

(Loss) before income tax expense

(1,891)

(1,669)

Income tax benefit

(82)

(1,130)

Net loss from discontinued operations

($ 1,809)

($ 539)

4.

EXPECTED CREDIT LOSSES

The Company is exposed to credit losses primarily through trade and other financing receivables arising from revenue transactions. The Company uses the aging schedule method to estimate current expected credit losses (“CECL”) based on days of delinquency, including information about past events and current economic conditions. The Company’s accounts receivable is separated into three categories to evaluate allowance under the CECL impairment model. The receivables in each category share similar risk characteristics. The three categories include agent non-commission based fees, agent short-term advances, and commissions receivable for real estate property settlements.

The Company increases the allowance for expected credits losses when the Company determines all or a portion of a receivable is uncollectable. The Company recognizes recoveries as a decrease to the allowance for expected credit losses.

Receivables from real estate property settlements totaled $100,529 and $81,004 of which the Company recognized expected credit losses of $2 and $-, respectively as of March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023 agent non-commission based fees receivable and short-term advances totaled $7,487 and $7,268, of which the Company recognized expected credit losses of $2,363 and $2,204, respectively.

5.

PLANT, PROPERTY AND EQUIPMENT, NET

Plant, property and equipment, net consisted of the following:

    

March 31, 2024

December 31, 2023

Computer hardware and software

$ 38,372

$ 37,444

Furniture, fixture, and equipment

2,253

2,254

Total depreciable property and equipment

40,625

39,698

Less: accumulated depreciation

(29,778)

(27,733)

Depreciable property, net

10,847

11,965

Discontinued operations

(9)

(11)

Assets under development

1,393

1,013

Property, plant, and equipment, net

$ 12,231

$ 12,967

For the three months ended March 31, 2024 and 2023 depreciation expense was $2,059 and $2,067, respectively.

11

6.

GOODWILL AND INTANGIBLE ASSETS

Goodwill was $16,682 as of March 31, 2024 and $16,982 as of December 31, 2023. As of March 31, 2024, the Company recorded cumulative translation adjustment of ($300) related to Canadian goodwill. Additionally, if current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of the Company’s control change unfavorably, the estimated fair value of goodwill could be adversely affected, leading to a potential impairment in the future. For the three months ended March 31, 2024, no events occurred that indicated it was more likely than not that goodwill was impaired. The following tables present definite-lived intangible assets as of March 31, 2024 and December 31, 2023, in thousands:

March 31, 2024

Gross

Accumulated

Net Carrying

    

Amount

    

Amortization

    

Amount

Trade name

 

$ 2,661

 

($ 1,071)

 

$ 1,590

Existing technology

3,254

(1,351)

1,903

Non-competition agreements

461

(125)

336

Customer relationships

1,284

(675)

609

Licensing agreement

210

(210)

-

Intellectual property

2,836

(630)

2,206

Total intangible assets

 

$ 10,706

 

($ 4,062)

 

$ 6,644

December 31, 2023

Gross

Accumulated

Net Carrying

Operations

    

Amortization

    

Amount

Trade name

 

$ 2,672

 

($ 1,030)

 

$ 1,642

Existing technology

3,263

(1,122)

2,141

Non-competition agreements

468

(125)

343

Customer relationships

1,285

(652)

633

Licensing agreement

210

(210)

-

Intellectual property

2,836

(583)

2,253

Total intangible assets

 

$ 10,734

 

($ 3,722)

 

$ 7,012

Definite-lived intangible assets are amortized using the straight-line method over an asset’s estimated useful life. Amortization expense for definite-lived intangible assets for the three months ended March 31, 2024 and 2023 was $340 and $512, respectively.

7.STOCKHOLDERS’ EQUITY

The following table represents a share reconciliation of the Company’s common stock issued for the periods presented:

 

Three Months Ended March 31,

2024

2023

Common stock:

Balance, beginning of quarter

183,606,708

171,656,030

Shares issued for stock options exercised

211,158

113,208

Agent growth incentive stock compensation

353,688

656,436

Agent equity stock compensation

2,189,922

2,106,369

Balance, end of quarter

186,361,476

174,532,043

The Company’s equity programs described below are administered under the stockholder approved 2015 Equity Incentive Plan. The purpose of the equity plan is to retain the services of valued employees, directors, officers, agents, and consultants and to incentivize such persons to make contributions to the Company and motivate excellent performance.

Agent Equity Program

The Company provides agents and brokers the opportunity to elect to receive 5% of commissions earned from each completed real estate transaction in the form of common stock (the “Agent Equity Program” or “AEP”). If agents and brokers

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elect to receive portions of their commissions in common stock, they are entitled to receive the equivalent number of shares of common stock, based on the fixed monetary value of the commission payable. The Company recognizes a 10% discount on these issuances for the period beginning January 1, 2024 through February 29, 2024, and a 5% discount on these issuances beginning as of March 1, 2024, as an additional cost of sales charge during the periods presented.

During the three months ended March 31, 2024 and 2023, the Company issued 2,189,922 and 2,106,369 shares of common stock, respectively, to agents and brokers with a value of $25,868 and $26,775, respectively, inclusive of discount.

Agent Growth Incentive Program

The Company administers an equity incentive program whereby agents and brokers become eligible to receive awards of the Company’s common stock through agent attraction and performance benchmarks (the “Agent Growth Incentive Program” or “AGIP”). The incentive program encourages greater performance and awards agents with common stock based on achievement of performance milestones. Awards typically vest after performance benchmarks are reached and three years of subsequent service is provided to the Company. Share-based performance awards are granted on a fixed-dollar amount of shares based on the achievement of performance metrics. As such, the awards are classified as liabilities until the number of share awards becomes fixed once the performance metric is achieved.

For the three months ended March 31, 2024 and 2023 the Company’s stock compensation expense attributable to the Agent Growth Incentive Program was $8,827 and $9,660, respectively, of which the total amount of stock compensation attributable to liability classified awards was $650 and $993, respectively.

Agent Thrive Program

Announced in October 2023, the Thrive program provides a stock incentive to the individual teams of leaders of culturally aligned teams that join the Company as part of the program. After affiliating with the Company, the team leader becomes eligible to receive an award of the Company’s common stock through team performance benchmarks. Awards typically vest after production benchmarks are reached and three years of subsequent service is provided to the Company. Share-based performance awards are based on a fixed-dollar amount of shares based on the achievement of production metrics. As such, the awards are classified as liabilities until the number of share awards becomes fixed once the production metric is achieved.

The following table illustrates changes in the Company’s stock compensation liability for the periods presented:

Amount

Stock grant liability balance at December 31, 2022

$ 3,885

Stock grant liability increase year to date

3,832

Stock grants reclassified from liability to equity year to date

(2,717)

Balance, December 31, 2023

$ 5,000

Stock grant liability increase year to date

650

Stock grants reclassified from liability to equity year to date

-

Balance, March 31, 2024

$ 5,650

Stock Option Awards

Stock options are granted to directors, officers, certain employees and consultants with an exercise price equal to the fair market value of common stock on the grant date and the stock options expire 10 years from the date of grant. These options typically have time-based restrictions with equal and periodically graded vesting over a three-year period.

During the three months ended March 31, 2024 and 2023 the Company granted 353,656 and 88,553 stock options, respectively, to employees with an estimated grant date fair value of $6.93 and $8.18 per share, respectively. The fair value was calculated using a Black Scholes-Merton option pricing model.

Stock Repurchase Plan

In December 2018, the Company’s board of directors (the “Board”) approved a stock repurchase program authorizing the Company to purchase up to $25.0 million of its common stock, which was later amended in November 2019 increasing the authorized repurchase amount to $75.0 million. In December 2020, the Board approved another amendment to the repurchase plan, increasing the total amount authorized to be purchased from $75.0 million to $400.0 million. In May 2022,

13

the Board approved an increase to the total amount of its buyback program from $400.0 million to $500.0 million. In June 2023, the Board approved an increase to the total amount of its buyback program from $500.0 million to $1.0 billion.  Purchases under the repurchase program may be made in the open market or through a 10b5-1 plan and are expected to comply with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The timing and number of shares repurchased depends upon market conditions. The repurchase program does not require the Company to acquire a specific number of shares. The cost of the shares that are repurchased is funded from cash and cash equivalents on hand.

10b5-1 Repurchase Plan

The Company maintains a stock repurchase program with program changes subject to Board consent. In June 2023, the Board approved increasing the stock repurchase program to $1.0 billion. From time to time, the Company adopts written trading plans pursuant to Rule 10b5-1 of the Exchange Act to conduct repurchases on the open market.

On January 10, 2022, the Company and Stephens Inc. entered into a form of Issuer Repurchase Plan (“Issuer Repurchase Plan”) which authorized Stephens to repurchase common stock of the Company, which is amended from time to time to adjust the monthly repurchase amount. Most recently, on March 6, 2024, the Board approved, and the Company entered into a seventh amendment to the Issuer Repurchase Plan to increase the monthly repurchase to (i) $20.0 million during the calendar months commencing March 1, 2024 through and including April 30, 2024, and (ii) $15.0 million during the calendar months commencing May 1, 2024 through and including December 31, 2024.

For accounting purposes, common stock repurchased under the stock repurchase programs is recorded based upon the settlement date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method. These shares are considered issued but not outstanding.

The following table shows the share changes in treasury stock for the periods presented:

Three Months Ended March 31,

2024

2023

Treasury stock:

Balance, beginning of quarter

28,937,671

18,816,791

Repurchases of common stock

2,577,242

2,272,831

Balance, end of quarter

31,514,913

21,089,622

8.SEGMENT INFORMATION

The reportable segments presented below represent the Company’s segments for which separate financial information is available and which is utilized on a regular basis by its chief operating decision maker to assess performance and to allocate resources. In identifying its reportable segments, the Company also considers the nature of services provided by its segments.

Management evaluates the operating results of each of its reportable segments based upon revenue and Adjusted Segment EBITDA. Adjusted Segment EBITDA is defined by us as a segment’s operating profit (loss) from continuing operations plus depreciation and amortization, litigation contingency and stock-based compensation expenses. The Company’s presentation of Adjusted Segment EBITDA may not be comparable to similar measures used by other companies. Historically, the Company has reported results for four reportable segments. In the first quarter of 2024, the Company determined that the Virbela segment qualified for reporting as discontinued operations.  In prior years, Virbela represented an operating and reporting segment under ASC 280.  Going forward, the remaining operations of Virbela will not meet the operating or reporting segment criteria, therefore, any operating results related to Virbela technology will be included in the

14

Other Affiliated Services segment.  Prior year segment information has been reclassified to remove Virbela from the segment disclosure, in accordance with discontinued operations treatment.

The Company’s three reportable segments are as follows:

North American Realty: includes real estate brokerage operations in the United States and Canada, as well as lead-generation and other real estate support services provided in North America.
International Realty: includes real estate brokerage operations in all other international locations.
Other Affiliated Services: includes our SUCCESS® Magazine, Frame® technology, and other smaller ventures.

The Company also reports corporate expenses, as further detailed below, as “Corporate and other” which include expenses incurred in connection with business development support provided to the agents as well as resources, including administrative, brokerage operations and legal functions.

All segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Condensed Consolidated Financial Statements included herein. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. The following table provides information about the Company’s reportable segments and a reconciliation of the total segment Revenues to consolidated Revenues and Adjusted Segment EBITDA to the consolidated operating profit (loss) from continuing operations and Goodwill (in thousands). Financial information for the comparable prior periods presented have been revised to conform with the current year presentation.

 

Revenues

Three Months Ended March 31,

2024

2023

North American Realty

$ 927,137

$ 837,114

International Realty

15,596

10,758

Other Affiliated Services

1,788

1,677

Revenues reconciliation:

Segment eliminations

(1,467)

(1,096)

Consolidated revenues

$ 943,054

$ 848,453

Adjusted EBITDA

Three Months Ended March 31,

2024

2023

North American Realty

$ 17,807

$ 21,203

International Realty

(3,355)

(3,676)

Other Affiliated Services

(767)

(681)

Corporate expenses and other

(2,643)

(2,223)

Consolidated Adjusted EBITDA

$ 11,042

$ 14,623

Operating (Loss) Profit Reconciliation:

Depreciation and amortization expense

2,399

2,215

Litigation contingency

16,000

-

Stock compensation expense

8,827

9,660

Stock option expense

1,990

2,746

Consolidated operating (loss) profit

($ 18,174)

$ 2

Goodwill

March 31, 2024

December 31, 2023

North American Realty

$ 14,295

$ 14,595

International Realty

-

-

Other Affiliated Services

2,387

2,387

Segment and consolidated total

$ 16,682

$ 16,982

The Company does not use segment assets to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed.

15

9.EARNINGS PER SHARE

Basic earnings per share is computed based on net income attributable to eXp stockholders divided by the basic weighted-average shares outstanding during the period. Dilutive earnings per share is computed consistently with the basic computation while giving effect to all dilutive potential common shares and common share equivalents that were outstanding during the period. The Company uses the treasury stock method to reflect the potential dilutive effect of unvested stock awards and unexercised options.

The following table sets forth the calculation of basic and diluted earnings per share attributable to common stock during the periods presented:

Three Months Ended March 31,

2024

2023

Numerator:

Net (loss) income from continuing operations

($ 13,830)

$ 1,992

Net loss from discontinued operations

($ 1,809)

($ 539)

Denominator:

Weighted average shares - basic

154,740,334

152,546,766

Dilutive effect of common stock equivalents

-

3,121,946

Weighted average shares - diluted

154,740,334

155,668,712

Earnings per share:

Net (loss) income from continuing operations per share - basic

($ 0.09)

$ 0.01

Net (loss) income from discontinued operations per share - basic

($ 0.01)

($ 0.00)

Net (loss) income from continuing operations per share - diluted

($ 0.09)

$ 0.01

Net (loss) income from discontinued operations per share - diluted

($ 0.01)

($ 0.00)

For three months ended March 31, 2024 and 2023 total outstanding shares of common stock excluded 3,212,244 and 635,343 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.

10.INCOME TAXES

Our quarterly tax provision is computed by applying the estimated annual effective tax rate to the year-to-date pre-tax income or loss plus discrete tax items arising in the period. Our provision for income tax expense (benefit) amounted to ($3.4) million and ($2.6) million for the three months ended March 31, 2024 and 2023, which represent effective tax rates of positive 18% and 238%, respectively. The provision for income tax benefit was primarily attributable to income(loss) from continuing and discontinuing operations, deductible stock-based compensation shortfalls and research and development credit. The effective tax rate differs from our statutory rates in both periods primarily due to the impact of the stock- based compensation and R&D tax credit.

The Company is subject to a wide variety of tax laws and regulations across the jurisdictions where it operates. Regulatory developments from the U.S. or international tax reform legislation could result in an impact to the Company's effective tax rate. The Company continues to monitor the Base Erosion and Profit Shifting (BEPS) Integrated Framework provided by the Organization for Economic Co-operation and Development (OECD) including the legislative adoption of Pillar II by countries, and all other tax regulatory changes, to evaluate the potential impact on future periods. The Company does not expect adoption of Pillar Two rules to have a significant impact on its consolidated financial statements during fiscal year 2024.

16

11.FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

Level 1 – Inputs are quoted market prices in active markets for identical assets or liabilities (these are observable market inputs).
Level 2 – Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability (includes quoted market prices for similar assets or identical or similar assets in markets in which there are few transactions, prices that are not current or prices that vary substantially).
Level 3 – Inputs are unobservable inputs that reflect the entity's own assumptions in pricing the asset or liability (used when little or no market data is available).

The Company holds funds in a money market account, which are considered Level 1 assets. The Company values its money market funds at fair value on a recurring basis.

As of March 31, 2024 and December 31, 2023, the fair value of the Company’s money market funds was $46,665 and $46,268, respectively.

There have been no transfers between Level 1, Level 2 and Level 3 in the period presented. The Company did not have any Level 2 or Level 3 financial assets or liabilities in the period presented.

12.COMMITMENTS AND CONTINGENCIES

From time to time, the Company is subject to potential liability under laws and government regulations and various claims and legal actions that may be asserted against us that could have a material adverse effect on the business, reputation, results of operations, cash flows or financial condition. Such litigation includes, but is not limited to, actions or claims relating to cyber-attacks, data breaches, the Real Estate Settlement Procedures Act (“RESPA”), the Telephone Consumer Protection Act of 1991 and state consumer protection laws, antitrust and anticompetition, worker classification, timely filing required SEC filings and non-compliance with contractual or other legal obligations.

The Company and its affiliated brokerage entities are among several defendants in eight U.S. and one Canadian putative class action lawsuits alleging that the Company participated in a system that resulted in sellers of residential property paying inflated buyer broker commissions in violation of U.S. federal and state antitrust laws and federal Canadian antitrust laws, as applicable, as discussed further in our 2023 Annual Report and Note 13 – Subsequent Events to these unaudited consolidated financial statements (“antitrust litigation”). As of March 31, 2024, the Company has determined that it is probable that a loss associated with the antitrust litigation has occurred and that the lower boundary of potential loss is reasonably estimable.

Based on an analysis of settlements negotiated by co-defendants companies in similar legal matters and ongoing developments in the antitrust litigation, the Company has recorded a provision for loss of $16.0 million which represents the lower boundary of a reasonably possible range of loss. The high-end range of loss cannot be reasonably estimated at this time due to the dynamic nature of the lawsuit and the contingent nature of possible outcomes. We have determined that it is at least reasonably possible that the loss estimate provision could change in the near term and that such change could be material. This contingent uncertainty highlights the provisional nature of the current loss estimate. Additionally, we cannot provide any assurances that results of such litigation will not have a material adverse effect on our business, results of operations, cash flows or financial condition.

The Company continues to vigorously defend against these claims. However, due to the complexities inherent in such litigation, including the uncertainty of legal processes and potential developments in the cases, the ultimate liability may differ from the current provision. The Company will reassess this estimate as additional information becomes available or as circumstances change.

17

13.SUBSEQUENT EVENTS

Quarterly Cash Dividend

On April 24, 2024, the Company’s Board of Directors declared a dividend of $0.05 per share which is expected to be payable on May 27, 2024, to stockholders of record as of the close of business on May 13, 2024. The ex-dividend date is expected to be on or around May 10, 2024. The dividend will be paid in cash.

Antitrust Litigation

On April 11, 2024, the Company was named in Shauntell Burton et al. v. Bluefield Realty Group, LLC, et al., Case No. 7:24-cv-01800-JDA (filed in the United States District Court for the District of South Carolina) (the “Burton Litigation”), brought by a putative class of residential property sellers, alleging that defendants participated in a system that resulted in sellers of residential property purportedly paying inflated buyer broker commissions in violation of federal antitrust law. As with the other antitrust litigation, the plaintiffs seek a permanent injunction enjoining the defendants from requiring home sellers to pay buyer-broker commissions or from otherwise restricting competition among brokers, an award of declaratory relief and damages or restitution on behalf of certain home sellers as well as attorneys’ fees and costs of suit. Plaintiffs allege joint and several liability and seek treble or other multiple damages. The Burton Litigation is in the pleadings phase and the Company intends to vigorously defend against all claims. The Company may become involved in additional litigation or other legal proceedings concerning the same or similar claims.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with our condensed consolidated financial statements and related notes included elsewhere in this report. Management’s Discussion and Analysis of Financial Conditions and Results of Operations contain forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements. See “Item 1 A. – Risk Factors” in our 2023 Annual Report and “Item 1 A. – Risk Factors” in this Quarterly Report for a discussion of certain risks, uncertainties and assumptions associated with these statements.

This MD&A is divided into the following sections:

Operational Highlights for the Three Months Ended March 31, 2024
Overview
Market Conditions and Industry Trends
Key Business Metrics
Results of Operations
Business Segment Disclosures
Non-U.S. GAAP Financial Measures
Liquidity and Capital Resources
Critical Accounting Policies and Estimates

All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.

OPERATIONAL HIGHLIGHTS FOR THE THREE MONTHS ENDED MARCH 31, 2024

eXp ended the first quarter of 2024 with a global agent Net Promoter Score (“aNPS”) of 73.
Agents and brokers on the eXp Realty platform decreased 2% year-over-year to 85,780.
Transactions increased 8% year-over-year to 110,976.
Transaction volume increased 12% year-over-year to $37.2 billion.

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OVERVIEW

eXp World Holdings, Inc. (the “Company”) was incorporated in Delaware on July 30, 2008 and launched the first cloud-based real estate brokerage offering agent-centric commission structure, revenue sharing, and agent equity opportunities in 2009. Today, the Company operates a diversified portfolio of service-based businesses whose operations benefit substantially from utilizing our enabling technology platform. A substantial portion of our revenue is derived from commissions received by our residential real estate brokerages which provide a full suite of brokerage and adjacent services (such as mortgage, title, and content creation) to our real estate agents and brokers. Our residential real estate agents and brokers affiliate their real estate licenses with us and operate their businesses utilizing our cloud-based technology platform to enhance their real estate business and optimize efficiencies. Our enabling and innovative technology platform is a robust suite of cloud-based applications and software services tailored for our real estate agents and brokers and targets business operations such as customer relationship management, marketing, client services, and brokerage functionalities. We succeed when our real estate professionals succeed and we remain focused on being the most agent-centric business on the planet.

Beginning in the first quarter of 2024, following the discontinuation of Virbela, eXp manages its operations in three operating business segments: North American Realty; International Realty; and Other Affiliated Services. While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions and believe we are well-positioned to capture additional revenue from such solutions.

Update Relating to Reportable Segments

In the first quarter of 2024, we determined that there has been a significant change to the Virbela business model. We have begun the process of winding down the Virbela business, which includes closing out current contracts and reducing our external customers.  Further, the technology is being replaced with Virbela Frame® technology that will be initially utilized internally within the Company.  We expect the process to wind down the Virbela business to be completed by the fourth quarter of 2024.  As a result of this change, the Company has determined that Virbela qualifies for reporting as discontinued operations and will be reported as discontinued operations in our consolidated balance sheet and condensed consolidated statements of comprehensive income. Prior year segment and financial statement information has been reclassified to reflect Virbela as discontinued operations. See Note 3 – Discontinued Operations to the condensed consolidated financial statements for additional information regarding the discontinuation of Virbela.

Strategy

Our strategy is to grow organically in North America and certain international markets by increasing our independent agent and broker network. Through our cloud-based operations and technology platform, we strive to achieve customer-focused efficiencies that allow us to increase market share and attain strong returns as we scale our business within the markets in which we operate. By building partnerships and strategically deploying capital, we seek to grow the business and enter attractive verticals and adjacent markets.

The Company’s primary emphasis is on achieving operational excellence for our real estate agents, which we monitor using the aNPS. We remain focused on optimizing our operating costs to match our revenue trends. One critical area of capital deployment during the first quarter of 2024 remained our Sustainable Revenue Share Plan (the “Revenue Share Plan”), whereby we pay real estate professionals affiliated with the Company a portion of eXp Realty’s commission for their contribution to Company growth. Regular evaluations are conducted to ensure the plan’s continued alignment with the Company's overarching objectives and for regulatory compliance.

MARKET CONDITIONS AND INDUSTRY TRENDS

Our business is dependent on the levels of home sales transactions and prices, which can vary based on economic conditions within the markets for which we operate. Changes in these conditions can have a positive or negative impact on our business. The economic conditions influencing housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability and supply and demand.

In periods of economic growth, rising consumer confidence and lower interest rates, demand typically increases resulting in higher home sales transactions and home sales prices. Conversely, in periods of economic recession, declining consumer confidence and higher interest rates, demand typically decreases, resulting in lower home sales transactions and home sale prices. Additionally, regulations imposed by local, state and federal government agencies and geopolitical instability can also negatively impact the housing markets in which we operate.

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Beginning in the second quarter of 2022, several macroeconomic conditions have been contributing to the slowdown in the U.S. residential real estate market, which directly impacts our business and financial results.  These conditions include, but are not limited to rising inflation, rising mortgage interest rates driven by the Federal Reserve Board increasing federal funds rate, volatility in the U.S. equity markets and continued unrest around the world.  

The Company believes it is well positioned to grow its market share in the current market conditions. We have a strong base of agent support, which should drive organic market share growth, retention and productivity.  Additionally, we offer agents a low-cost, high-engagement model, which affords agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners who want to survive and thrive during market fluctuations.  We have an efficient operating model with lower fixed costs driven by our cloud-based model, with no brick-and-mortar locations.

National Housing Inventory

In the first quarter of 2024, the continued increase of mortgage rates and higher home prices have contributed to a rise in inventory levels, as measured in months of supply. According to NAR, inventory of existing homes for sale in the U.S. was 1.1 million as of March 2024 (preliminary) compared to 970,000 at the end of March 2023. This represents 3.2 months of inventory in 2024 compared to 2.7 months of inventory in the prior year.

Mortgage Interest Rates

Persistently high mortgage rates during the first quarter of 2024 continue to negatively impact the demand for homebuying.  Based on Freddie Mac data, the average rate for a 30-year, conventional, fixed rate mortgage was 6.8% in March 2024 compared to 6.3% in March 2023.

Housing Affordability Index

According to NAR, the composite housing affordability index decreased to 103.0 for February 2024 (preliminary) from 109.3 for February 2023. When the index is above 100, it indicates that a family earning the median income has sufficient income to purchase a median-priced home, assuming a 20% down payment and ability to qualify for a mortgage. The housing affordability index has been declining year over year due to mortgage rate conditions and higher average home prices driven by constrained inventory levels.

Existing Home Sales Transactions and Prices

According to NAR, existing home sale transactions decreased to an annual rate of 4.2 million in March 2024 (preliminary) compared to 4.4 million in March 2023, a decrease of 3.7%.

According to NAR, the nationwide existing home sales average price for March of 2024 (preliminary) was $393,500 compared to $375,300 in March 2023, an increase of 4.8%.

The declining home sales transactions and increased prices in the U.S. have negatively impacted our transaction and volume metrics.

Legal & Regulatory Environment

See Part II, Item 1 of this Quarterly Report for a discussion of the current legal environment and how such environment could potentially impact our business, results of operations, cash flows or financial condition.

20

KEY BUSINESS METRICS

Management uses our results of operations, financial condition, cash flows, and key business metrics related to our business and industry to evaluate our performance and make strategic decisions.

The following table outlines the key business metrics that we periodically review to track the Company’s performance:

Three Months Ended March 31,

Change 

2024

2023

2024 vs. 2023

% Change

Performance:

Agent NPS

73

70

3

4%

Agent count

85,780

87,327

(1,547)

(2)%

Real estate sales transactions

91,780

87,101

4,679

5%

Real estate sales volume

$ 37,154,750

$ 33,241,616

$ 3,913,134

12%

Other real estate transactions

19,196

15,204

3,992

26%

Real estate per transaction cost

$ 650

$ 613

$ 37

6%

Revenues

$ 943,054

$ 848,453

$ 94,601

11%

Operating profit (loss)

($ 18,174)

$ 2

($ 18,176)

(908,800)%

Adjusted EBITDA(1)

$ 11,042

$ 14,623

($ 3,581)

(24)%

(1)Adjusted EBITDA is not a measurement of our financial performance under generally accepted accounting principles in the U.S. and should not be considered as an alternative to net income (loss) from continuing operations, operating income, or any other measures derived in accordance with U.S. GAAP. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss) from continuing operations, see “Non-U.S. GAAP Financial Measures”.

Revenue and adjusted EBITDA are key financial measures, and we review these measures to evaluate and drive our core operating performance.

Agent net promoter score (aNPS)

aNPS is a scale-based measure of customer satisfaction and an aNPS above 50 is considered excellent. aNPS plays a crucial role in attracting and retaining agents and teams, especially during a period marked by market contraction, due to lower transaction volumes and higher mortgage rates. Despite the challenging market conditions, the Company’s aNPS was 73 in the first quarter of 2024 compared to 70 in the first quarter of 2023, due to our continuous investment in agent onboarding, expert care, transaction processing process and technology.

Agent count

One of our key strengths is attracting real estate agent and broker professionals that contribute to our growth. The rate of growth of our agent and broker base is difficult to predict and is subject to many factors outside of our control, including actions taken by our competitors and macroeconomic factors affecting the real estate industry in general including rising interest rates and declining transaction volume in the U.S.

The number of agents declined 2% in the first quarter of 2024, compared to the first quarter of 2023, as we continue to off board less productive agents.  However, we are committed to retaining our most productive agents in the United States and Canada through the execution of our growth strategies and the end-to-end suite of services we offer our agents.

Real estate sales transactions and volume

Real estate sales transactions are based on the side (buyer or seller) of each real estate transaction and are recorded when our agents and brokers represent buyers and/or sellers in the purchase or sale, respectively, of a home. The number of real estate transactions is a key driver of our revenue and profitability. Transaction volume represents the total sales value for all transactions and is influenced by several market factors, including, but not limited to, the pricing and quality of our services and market conditions that affect home sales, such as macroeconomic factors, economic growth, local inventory levels, mortgage interest rates, and seasonality.  

Our real estate sales transactions and volume typically fluctuate with changes in the market’s existing home sales transactions as reported by NAR; however, company-specific initiatives influence the transaction volume and productivity of our agents. In the first quarter of 2024, compared to the first quarter of 2023, our real estate sales transactions increased 5% due to our agents’ productivity, which more than offset the decline in existing home sales in the U.S. as reported by the NAR. Transaction volume increased 12% due to increased transactions and increased home sales prices.

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Other real estate transactions

Other real estate transactions are recorded for leases, rentals and referrals that are undertaken by our agents and brokers. The increase in other real estate transactions reflects the productivity of our agents and brokers.

Real estate per transaction cost

Real estate per transaction cost is measured as selling, general and administrative, sales and marketing and technology and development expenses resulting from our services that directly support our agents and brokers, divided by total transactions (real estate and other). Real estate per transaction cost increased 6% in the first quarter of 2024 compared to the first quarter of 2023, primarily due to strategic investments in personnel to support increased transaction volumes and agent NPS, and increased severance and employee-related expenses and legal expenses related to the antitrust lawsuits.  

Revenues

Revenues represent the commission revenue earned by the Company for closed brokerage real estate transactions. In the first quarter of 2024, compared to the first quarter of 2023, the Company’s revenue increased due to increased real estate transactions driven by increased agent productivity and higher home sales prices, which more than offset declines in the U.S. real estate markets. Our revenues also increased due to increased international production in previously launched markets.

Operating profit (loss)

The operating loss in the first quarter of 2024 of $18.2 million compared to operating profit of $0.2 million in the first quarter of 2023, reflects the litigation contingency accrual of $16 million, and increased legal expenses related to the antitrust lawsuits, as well as increased severance and employee-related expenses, partially offset by increased revenues, net of agent commissions and other agent-related costs.

Adjusted EBITDA

Management reviews Adjusted EBITDA, which is a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. Adjusted EBITDA, for the three months ended March 31, 2024 was $11.0 million compared to $14.6 million at March 31, 2023. The decrease in adjusted EBITDA reflects increased legal expenses related to the antitrust lawsuits, as well as increased severance and employee-related expenses, partially offset by increased revenues, net of agent commissions and other agent-related costs.

22

RESULTS OF OPERATIONS

Three Months Ended March 31, 2024 compared to the Three Months Ended March 31, 2023

Three Months Ended

Three Months Ended

Change
2024 vs. 2023

    

March 31, 2024

March 31, 2023

$

    

%

(In thousands)

Statement of Operations Data:

Revenues

 

$ 943,054

$ 848,453

$ 94,601

11%

Operating expenses

Commissions and other agent-related costs

864,746

776,838

87,908

11%

General and administrative expenses

62,582

54,626

7,956

15%

Technology and development expenses

14,761

14,060

701

5%

Sales and marketing expenses

3,139

2,927

212

7%

Litigation contingency

16,000

-

16,000

-%

Total operating expenses

961,228

848,451

112,777

13%

Operating (loss) income

(18,174)

2

(18,176)

(908,800)%

Other (income) expense

Total (income) expense, net

(1,188)

(874)

(314)

(36)%

Equity in losses of unconsolidated affiliates

149

342

(193)

(56)%

Total other (income) expense, net

(1,039)

(532)

(507)

(95)%

Income (loss) before income tax expense

(17,135)

534

(17,669)

(3,309)%

Income tax benefit

(3,305)

(1,458)

(1,847)

(127)%

Net (loss) income from continuing operations

(13,830)

1,992

(15,822)

(794)%

Adjusted EBITDA (1)

$ 11,042

$ 14,623

($ 3,581)

(24)%

(1)Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss) from continuing operations, operating income or any other measures derived in accordance with U.S. GAAP. For a definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net income (loss) from continuing operations and a discussion of why we believe Adjusted EBITDA provides useful information to investors, see “Non-U.S. GAAP Financial Measures.”

Change
2024 vs. 2023

    

March 31, 2024

March 31, 2023

$

    

%

(In thousands, except percentages)

Revenues

$ 943,054

$ 848,453

$ 94,601

11%

Total revenues increased 11% as a result of an increase in real estate transactions compared to the same period in 2023, because of the unique productivity of our agents, which more than offset declines in the U.S. real estate market in the first quarter of 2024. Our revenue also increased due to increased home sales prices.

Change
2024 vs. 2023

    

March 31, 2024

March 31, 2023

$

    

%

(In thousands, except percentages)

Commissions and other agent-related costs

$ 864,746

$ 776,838

$ 87,908

11%

Commissions and other agent-related costs increased 11% primarily because of the increase in real estate transactions and increased home sales prices. Commissions and other agent-related costs include sales commissions, revenue share and stock-based compensation paid to our agents.

23

Change
2024 vs. 2023

    

March 31, 2024

March 31, 2023

$

    

%

(In thousands, except percentages)

General and administrative expenses