Glenn Sanford: Yes. So I touched on it in my prepared remarks, but basically we — it’s obviously, we have a tough housing market. And as a result agents have sold less real estate. That has been one aspect, so there’s definitely been just industry churn. The other part was that we actually had a number of nonproductive agents that were on our rosters and weren’t contributing, and they work cost. Every agent that’s with eXp, there’s a cost to have them involve technology, support and other things. So we did off board them, but they hadn’t sold real estate for — a piece of real estate for over 12 months and hadn’t been paying fees, most cases of similar length of time. So it was really just trimming the numbers to be really our productive agents who are actually focused on being here.
Moving forward, we expect, our agent count to return to growth over time as we continue to sort of retain our highly productive agents and demonstrate, obviously, it’s demonstrated really by our strong agent satisfaction. But we’re actually going back to the drawing board on a few different things that we’re really excited to work on and hopefully be able to announce here in the not too distant future that we think is going to be really helpful as well.
Denise Garcia: And now I’ll ask Leo a question. You mentioned a lot of initiatives that eXp kicked off in 2023 that would improve agents’ lives and your plans for 2024. Is there anyone that truly differentiates eXp’s value proposition from the competition?
Leo Pareja: Yes. One of the strongest value propositions that gives us an advantage over everybody is scale. We’ve achieved scale and profitability consistently, which allows us to reinvest and take advantage of new opportunities. And we’re hyper focused on initiatives that are unique and unreplicable due to our size and scale, whether that’s technology that’s proprietary and/or substantially cheaper than retail, all the way to just advantages like eXp exclusive due to size. A lot of our copycat competitors have undercut our economic model and have yet to prove any net profitability with no path forward.
Denise Garcia: And then I’ll wrap up with one for Kent. Can you discuss the components of the $20 million profit improvement plan you mentioned?
Kent Cheng: Yes. We’re very excited about it. The $20 million profit improvement is really including impact on operating costs, which impact our cost of selling and SG&A, and also some additional revenue opportunity.
Denise Garcia: I’ll move over to our covering analysts and open up the call for John Campbell from Stephens.
John Campbell : Glenn maybe a couple of questions. I want to kind of stay on the topic of the decision to offer the unprotected agents. I guess a few questions there. Why now would be the first one. And then, do you feel like that’s — this is kind of a one-time cleanup effort or is this, like, new you’re going to have iterations over the next couple of months, next couple of quarters? And then, I guess, from a bigger picture, does this imply that you might have a minimum, for agents over a year or so? Is there a timeframe? Is there a minimum that you might be exploring now?
Glenn Sanford: No. We had really cleaned up a lot of our, we’ll say our operations in the last year or so. And one thing that we had noted was a fairly significant — one, we had cleaned up a whole bunch of what we call accounts receivable, which basically means there was a lot of things that we hadn’t collected that needed to be collected. And in that, it sort of revealed as we kind of more granular that we’ve got a group of agents who for all intents and purposes were just on our on our roster. But there’s we’re providing there’s a number of tools and technologies. So you figure out that each agent has a monthly cost. And they just, we had worked with them. We had tried to get them in production, and a lot of them really effectively ghosted us as an organization.
So they weren’t even really communicating with us. So it was — so we did off board some in Q4, we off board a few more here in Q1. But I think we’re pretty much done and then it should be a much more — there shouldn’t be like big blocks of agents off boarded for this reason, because we do want to stay a little bit more up to speed on it so that we don’t show a higher agent count than truly active and productive with eXp.
John Campbell : And then maybe this is a question for Kent, but on the gross margin, hopefully, we get a solid rebound in U.S. housing this year. I mean, it feels like that would maybe apply a little bit of an underlying pressure on gross margin with more capping. You’ve got the incentive programs in place like Boost. Seems like that’s going to provide a little bit of an impact, at least this year and then you’ll lap that and it kind of goes away. So maybe, Kent, I don’t know if you want to put a fine tooth comb on it and give us some direction on where you think gross margin goes exactly, or maybe this is high level. Would you think it’s up or down relative to ’23?
Kent Cheng : If you maybe talk about 2023, it’s look on the full year base as I talk about as we in 2023, we started to report the agent growth incentive expense in the cost of sale. If you take that out, you learn a like to like comparison on the full year base actually, our gross margin percentage is higher ’23 versus ’22. I would say is going forward, I mean, our number difficult to forecast. Because a lot of variable, when is your cap, yes, agent stock compensation. But in general, what we would expect our gross margin percentage more like similar this level like 2024 similar to 2023 level.
John Campbell : And then also just to help pinpoint this for us, I guess, in what quarter was it 3Q where you started adding the agent growth incentive into gross margin to cost of goods?
Kent Cheng : That start at Q1 2023.
Denise Garcia: We’ll take our second question from Matt Filek from William Blair.
Matt Filek: You have Matt Filek on for Stephen Sheldon. Thank you for taking my questions and the opportunity to experience the Frame platform. I wanted to start with one on agent growth. How are you thinking about the agent growth potential in 2024? And how should we be thinking about the agent growth between the United States and international markets? And it’s kind of a second part to that question. Also curious if you feel agent growth trends are being impacted by any sort of changes in the competitive landscape.
Glenn Sanford: So domestically certainly, we felt some competitive pressures. We were effectively the only cloud based brokerage model for the first 11 years of our existence. Now there’s a bunch. You probably know all the names but there’s real LPT epic, and there’s a number of others as well. So there’s a bunch of these for lack of better term, copycat, cheaper versions of the model. And so, we we’ve definitely felt some pressure. Certainly, agents have we’ve had lost agents to some of these other models and we’ve also gained agents back from some of those models already, even though they’re pretty young in their life cycle. So, domestically, probably see some of that. But internationally, we are in a completely blue ocean.
I mentioned earlier that in South Africa in just a couple of years, we’ve grown to about 1,200 agents, 7 largest state agency in South Africa, but we’re growing fast in South Africa, France, Dubai, still UK, which has been a really great market for us. We’re getting traction in different markets. We also have some markets where we haven’t really grown and so we we’re either looking at leadership changes or just seeing if the model needs to be tweaked in some capacity. But we really expect that international is going to be our big growth in the next coming years, and I’m super excited about it. And it’s really, these are anecdotal numbers because there’s not statistics like NAR in most of these countries, but we figure there’s approximately 20 million real estate professionals worldwide.
And if we — over the next 10, 15 years can get to a similar market penetration that we have in the U.S. and Canada then that puts us gives us a path to a potential 1 million agents, which is a crazy number to think about under these one umbrella. But because we we’re very unique in the way that we approach the model, we think there’s a lot, a lot of growth potential there and that’s where we’re spending a fair bit of time really figuring that piece out.
Matt Filek: A quick clarification, will most of the international growth come from existing markets? I believe last time we spoke, the focus was on ramping profitability and growth within the countries you’re already in or do you expect to start entering new countries over the course of 2024?
Glenn Sanford: Yes. We already have at least 1 or 2 countries that are fairly mature in the discussions to open up those new countries. One country we expect to day 1, we’ll start with 100 of agents. And so we’ve got a number of good partners in terms of international market. But one of the things we’re doing though is we’re actually going back to the drawing board and how we actually operate international markets. We’ve now got enough experience, open running international markets to go back and retool in a way that we think is going to reduce our expense to run a international market substantially. So, in the early days of eXp, we could operate in a given state in the U.S. with a managing broker and then just the eXp back office stuff.
But we could operate $10,000 a month or so, with no transactions. We think that there’s a way to do some an analog to that when we grow internationally, so that our expense load is substantially lower so we can keep these markets open while the initial momentum in those countries take place. And so, we’re excited to kind of regroup on a lot of that and that’s actually been that was part of our strategic discussions late last year and going into this year. And we think we’ve got a good path to really operate these more efficiently with more entrepreneurial mindset, country leaders.
Matt Filek: And then one more, if I may. I was wondering if you could elaborate on the technical advantages of Frame compared to Virbela, and maybe how those advantages enhance the value proposition for eXp agents. I know you talked about 3D home tours, which sounds interesting but any additional color there would be helpful when we think about Frame compared to Virbela?
Glenn Sanford: So Frame is I’ve referred to it in the past when we’ve talked about it as really kind of you’re to do it yourself Metaverse. Meaning that it doesn’t whereas, Virbela was a fairly heavy application you had to do — had to have to download a client and then those clients, when you get into large enterprises, investment banks, et cetera. A lot of times getting through the info security or info sec to actually get those things actually allowed or firewalls or other things would just prevent the application in the way that we envision it. When you’re doing it through the web, it makes it much more accessible. We can string together, rooms very easily, put in doors and basically portals to other spaces. And you can go to framevr.io and start playing with it today.
Like, literally, you can go there. You can set up your own space. You can go and build I don’t know if there’s auditoriums in there. Probably is. But you can you’ve got 50 plus spaces that you can choose from either offices to big campuses to lodges to what have you. There’s a lot of things going on behind the scenes just in the Metaverse arena. Mozilla Hubs, there’s some stuff going on with them right now. We’re actually because eXp is using this at a very high level, we’re — it’s now really what I call enterprise ready and that’s why we sort of put it out there at this point. Virbela is a great platform. There we don’t do have a number of clients that use it, but it never really got had the appeal on the enterprise level that we originally expected in 2020 after COVID hit.
