eXp World Holdings, Inc. (NASDAQ:EXPI) Q3 2023 Earnings Call Transcript

eXp World Holdings, Inc. (NASDAQ:EXPI) Q3 2023 Earnings Call Transcript November 2, 2023

eXp World Holdings, Inc. misses on earnings expectations. Reported EPS is $0.01 EPS, expectations were $0.06.

Denise Garcia: Hi, everyone. My name is Denise Garcia, and I manage Investor Relations for eXp World Holdings. Welcome to eXp World Holdings Third Quarter earnings fireside chat via live stream and EXPI’s campus or metaverse. Today, we’ll begin with our earnings fireside chat with prepared remarks from Glenn Sanford, Founder, Chairman and CEO of eXp World Holdings and CEO, eXp Realty; and Leo Pareja, Chief Strategy Officer, eXp Realty; followed by a review of the third quarter 2023 financial highlights presented by Jeff Whiteside, CFO, and Chief Collaboration Officer of eXp World Holdings. Following our prepared remarks, we’ll open the call to a Q&A session with eXp World Holdings covering analysts and questions submitted to eXp. Let’s begin with a review of the forward-looking statements.

There will 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. Please see our filings with the SEC, including our most recently filed annual report on Form 10-K 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 statements or information. As a reminder, today’s call is being recorded and a replay will also be made available on expworldholdings.com.

An aerial view of the largest real estate development in the city, symbolizing the company’s success.

Now for a few logistics, we’ll get started. For those of you joining in the EXPI campus today, to see all three screens, hit the stage zoom button to the right of your chat box. To zoom into a specific screen, you can hit the plus icon above that screen. If you happen to see no slides or a gray slide, hit the refresh icon on the top right hand corner of that screen to correct. While on EXPI campus, should you need any help or have any questions, please enter your comments in the chat box at the bottom on the left, and a member of the team will contact you. Slido, should you wish to ask a question during our presentation, you could enter your questions by scanning the QR code presented on the screen. With your phone or go to slido.com and type in the event code EXPI.

From there, you could submit a question or vote up an existing question by giving a thumbs up. We’d also like to have that question asked. This screen will remain up on the left-hand side of the stage. Now I will turn the fireside chat over to our speakers before opening the call to your questions. Glenn, please go ahead. Hey Glenn, I think your mic might be off.

Glenn Sanford: It is. Sorry about that. I had a lot of great things there. Hey, everyone. Thanks today for joining us on our call, during our third quarter. I’ll discuss some of our business strategy before getting into some of the highlights for the quarter and then passing on to Leo, and Jeff will take you through the through the financials. First, as you know, we began sharing business segment information on our fourth quarter earnings call last year. So, you can actually see the profitability of eXp North America, which, as you will note when reviewing the Q, really enables us to invest in the growth areas of the business that we think are worth investing in. So, eXp Realty includes, the U.S. and Canada, and we are the largest single real estate brokerage in the U.S. by transaction volume.

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Q&A Session

So, I am really proud of that success that we’ve done in a really a very short period of time, 14 years. Our success in North America enables us to expand in international markets, where we operate in 24 markets today. We see international as the largest driver of future growth for the Company. And this quarter, we grew our revenues by 47% and reached a record $15 million in revenue. One item, to note is yesterday’s press release about homehunter.global, which is a partnership that we put together to actually create a differentiated consumer experience for buyers and sellers, who use the fragmented website network that most other countries have to help to streamline their search experience. So, we are excited about some of the new innovations there.

While small today, Revenos and our other various affiliated services are gaining a lot of momentum and represent really meaningful incremental dollars and margin per transaction in the future. Leo will discuss a few of those programs we’ve added recently and the traction we are generating. These represent our path to growth and overall revenue generation. While the business areas on the next slide have enabled us to drive the agent value proposition, build out a cloud-based asset-light model and ultimately drive the success of North America and the International Realty businesses. So on to the next slide. We are constantly iterating to improve the agent value proposition by developing an ecosystem of personal development, health resources and media, like SUCCESS magazine.

And this past quarter, on the eXp Realty side, we actually appointed Bryon Ellington inside of eXp Realty as our Chief Learning Officer responsible for developing custom agent driven training and coaching, while preserving the other aspects of personal development to the SUCCESS brand. Our enabling technology platform, obviously, Virbela, where you are now, and in the future, abr.io [ph] support our cloud based brokerage model that allows us to engage and interact and have a sense of place while running entirely remote. This next quarter — this quarter Frame is really getting to that enterprise ready scale. And in next quarter, when we do our next earnings call, we will be hosting that earnings call actually in Frame, so users can access the call within their browser or on mobile rather than having to download this — the Virbela software to their personal computer.

So we are really excited to do that with you, and to see how we can actually make eXp even more [Technical Difficulty].

Leo Pareja: I just chatted with Glenn, it looks like he had a technical problem with his computer. He’s rebooting it. Denise, why don’t we just forward onto my slides, and then me and Jeff can take over and Glenn can come back in.

Denise Garcia: Yes. That sounds good. I think Jeff might be having technical issues. What we might want to do is pause for five minutes and reconvene and then come back on stage. Let’s go to the green room, and we will be back everyone, in about five minutes.

Glenn Sanford: And if we jump to the next slide around outperforming the industry, we’ve continued to outperform the industry.

Denise Garcia: Apologies, Glenn, you cut off speaking about Frame. So, agent NPS hasn’t been addressed yet.

Glenn Sanford: Okay. Thank you for that. So going back to Frame, this quarter — well, and of course, we had a little hiccup with Virbela, and my connection. But in the next quarter, finance — or when we do our next quarter financials, we’re actually going to do it in Frame. So you get a chance to actually see — which is actually accessible via mobile as well as your desktop. And it doesn’t require the download. So pretty excited about that, going into next year. We’re going to be using Frame more and more internally for the Company. And then we’re also continuing to work on the NPS side of the business. And that’s really the big driver. That ultimately drives where we’re going. So, I talk about NPS all the time.

We just added Fred Reichheld to the Board, who is actually the inventor of Net Promoter Score. We take it very seriously. And I think it’s one of the reasons why we’ve continued to put up good financial results, and to continue to grow. And you’ll see that we’ve got a few segments that we’ve broken out this quarter from a visual perspective, U.S., Canada, and global, and all are continuing to trend in the right direction. And overall, we have a 74 NPS score, which is indicative of that continued investment. So, we’ve got — our operations team led by Patrick O’Neill, has really done a phenomenal job of building out a much more quality connection with our agents from an ops perspective. Our leadership team is in the field, doing lots of events.

We’ve got regionals going on over the country right now this week and next week I’m traveling to a number of them. We’ve got our leadership team flying around as well. So we continue to really invest in the agents, which ultimately leads to our long-term value prop. It’s no secret that we continue to operate in a challenging market. U.S. residential transactions continue to be pressured by rising mortgage rates, which recently exceeded 8%. And overall, real — industry transactions were down over 15% year-over-year during the third quarter, and nearly 20% year-to-date yet, eXp Realty’s U.S. residential real estate transactions were down 8.6% in Q2, which is 43% better than the industry. While industry transactions have decreased year-over-year and in the third quarter, we’ve maintained a market share of 4.2% in the U.S., which really means we’ve increased our market share by around 8.7% on a transaction basis.

So, this performance is largely due to our continued ability to increase loyalty scores with our agents, aka, our and Net Promoter Score and retained productive agents, which I’ll discuss in the next slide. Consistent with previous quarters, and we started to do this quarters ago, we started to show the churn rate based on cohorts. And most of our attrition really is taking place with those agents doing few to no transactions. That’s a zero to two-transaction per year category. And also, it’s the category which has the shortest tenure in the business and on the eXp platform in general. These are new agents and there’s a — 80% of agents don’t make it through their first renewal in — relative to their real estate license. So there’s a lot of churn there.

However, if you look at overall, our most productive agents actually continue to be stickier and stickier on the platform. And so, they’re 4.5 times less likely or the — lowest producing agents are 4.5 times more likely to drop out than our top producing agents. And this is a fairly linear progression. So if you look at 3 to 7, 8 to 12, 13 to 20, each one of them gets better and better in terms of stickiness of the platform. And now, I’ll go ahead and turn over the call to Leo, so he can talk about how we continue to improve the agent value prop and to grow the business through new programs and ancillary services.

Leo Pareja: Thank you, Glenn. Thanks everybody for joining me here today. One of the things I’m most excited about is that we have the ability to retain our most productive agents, because we can listen to them. So, I take quite a bit of pride in that three of the C-suite folks who run this business were highly productive agents in Glenn, Michael, and myself. So, when agents come to us with ideas, we can iterate and launch very, very quickly. And we’re launching two programs in early of the fourth quarter, and I’m going to talk about those because I’m really excited about the potential that that drives for the agent value proposition and ultimately revenue. These programs demonstrate that we’re leaning in at moments when other companies are leaving, and we have the best solutions for independent brokers and large teams.

Last week, we announced Thrive, a new program focused on incenting teams to join eXp through an equity participation. This program helped attract Justin Havre & Associates, which we just announced yesterday. Justin was Canada’s number one RE/MAX team five years straight, bringing a staggering record of $4 billion in sales since 2016 with him to eXp Realty, where he and his team of 60 agents and 18 support people just joined us. And we launched Boost in the third — in September, and this has been phenomenal. So our first Boost recipient is the Bean Group in Boston. Michael Bean founded the Company in 2003, grew it to an independent brokerage of over 20 offices with hundreds of agents, more than $2 billion in annual sales when he joined us.