This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good afternoon everyone and welcome to the eXp World Holdings fourth quarter and full year earnings fireside chat via live stream and our metaverse on the web frame. My name is Denise Garcia and I manage investor relations for eXp World Holdings. Today We'll begin 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 fourth quarter and full year 2023 financial highlights presented by Kent Chang, Principal Financial Officer and Chief Accounting Officer of eXp World Holdings. Following our prepared remarks, we will open the call to a Q&A session with eXp World Holdings covering analysts and questions submitted to eXp. But first, let me begin with a review of our forward-looking statements. There'll be a number of forward-looking statements made today that should be considered in conjunction with the cautionary statements contained in the company's SEC filings. Forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. 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. Now for a few logistics and we'll get started. For those of you joining us in Frame today, to zoom into a specific screen, you can click on that screen and then click Zoom In. If the content on the screen disappears, or if you lose audio, simply refresh your page. While in Frame, if you need help, just use the Help button on the bottom right hand to link with tech support. Should you wish to ask a question during our presentation, you can enter your questions by scanning the QR code presented on this screen with your phone or go to slido.com and type in the event code EXPI. From there, you can submit a question or vote up an existing question by giving a thumbs up if you would like that question to be asked. This screen will remain up on the left hand side of the stage. Now I'll turn the fireside chat over to our speakers before opening the call to questions. Glenn, you may begin.
spk03: All right. Thank you, Denise, and thank you, everyone. Thank you again. Obviously, this is the first event that we've done publicly for Frame VR, and this is a platform we've actually been developing since 2019. Frame is actually the first metaverse platform that works on desktop, mobile, And immersive hardware like the MetaQuest 3, and if you're lucky enough to have one, the Apple Vision Pro. It's kind of like Squarespace, but for the spatial web. We're really excited about the technology. In fact, it was presented by the CTO of Microsoft at Microsoft Build 2023. And Frame now powers exp.world. It's now our new browser-based immersive collaboration platform. It's faster and easier for our staff and agents to collaborate online. And specifically, eXp agents can now create their own spaces and also meet with clients and even, in reality, give remote home tours. Agents can look at 360 photos of properties, walk around Matterport scans, and navigate Google Street Views with others. And then in terms of AI, which we've talked a little bit about, Frame actually uses AI to do real-time translations and closed captioning, but also to help people create their own custom spaces and 3D bots. There's more to come in areas of AI and 3D. We're just getting started, so stay tuned. Now I'll move on to our fourth quarter earnings call information. So I'll start first with an overview of our business strategy before discussing our results for 2023 in the fourth quarter. As most of you are familiar, 2023 has been a difficult year with existing home sales in the US at their lowest level in nearly 30 years. Despite the industry slowdown, North American Realty continues to gain market share, which I'll discuss in more detail in a moment. But first, I want to touch on our business strategy. We began sharing business segment information on this call one year ago to show how the profitability of EXP North America enables us to invest in other growth opportunities across the business, and that dynamic continued also into 2023. In 2023, our North American Realty segment generated 91 million of adjusted EBITDA, which allowed us to continue to drive our overall business growth initiatives forward. We're also EBITDA positive for the year when not adjusting for stock-based comp. Our success in North America has enabled us to expand into international markets where we operate in 24 markets, including South Africa, which is where I am today. It's 12.05 in the morning. A unique item about South Africa is we're now We're the fastest growing real estate estate agency in South Africa. And we're actually the seventh largest now. So it's pretty, pretty cool to see in just a couple of few short years, the amount of impact here. There's an event last week that was here and a lot of agents came together. So this year, one of our goals is to definitely be more visible internationally. In fact, we have our first EXP con in Lisbon, Portugal in June of this year. We continue to see international realty as the largest driver of future growth for the company. We continue to break records in our international segment. In 2023, we grew international revenues 50% to $53.9 million. In Q4, we increased revenues by 67% year over year to $16 million, while at the same time decreasing our losses on an adjusted EBITDA basis by 14% year over year. While revenues and affiliate services still remain small, they're gaining momentum and represent opportunities for meaningful incremental revenue and margins per transaction in the future. eXp Realty North America and international represent our path to overall revenue growth powered by our cloud-based asset light model, which allows us to continue iterating on our superior agent value proposition. The business areas I'll discuss on the next slide represent our key sources of differentiation. 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 the recent appointment of Brian Ellington inside of eXp Realty as Chief Learning Officer, which I mentioned last quarter. We have many exciting things going on in training and education that Leo will highlight in a moment. Our enabling technology platforms support our cloud-based brokerage model, and we also use AI and other machine learning technologies to improve our transaction management workflow and eventually plan to use technology to build out an entirely new way of transacting business. We'll continue to invest these resources to enhance the agent value proposition and ultimately increase the satisfaction of our agents as measured by Agent NPS, which I'll discuss on the next slide. One area that we've been highlighting focus is on NPS. In fact, we added Fred Reicheld, the creator of Net Promoter System to our board last year. It's very important for us because we believe NPS is a leading indicator of our future success. So I'm thrilled to share that Agent NPS improved throughout 2023 to reach 73 for the year. And I called it an anomalous 77 because it was a little bit of an outlier for the fourth quarter, but it just shows the strength of our model and how well it resonates with our agents and brokers. I believe this is the result of constant iteration of our agent value proposition and our key sources of differentiation. I discussed on the last slide. Also last year, our operations team made many improvements and investments to reduce agents' time spent on non-revenue generating tasks to enable them to be more productive. And a few examples are listed here. Most notably, we improved onboarding and transaction support with applications like Luna. We launched Express Pay and the Expert Care Desk. We expanded benefits within eXp Agent Healthcare powered by Clearwater to provide agents with exclusive access to industry leading plans for themselves and their families with low copays, low to pocket costs and zero dollar deductibles. Now over 2000 agents and their families get affordable quality healthcare from eXp Agent Healthcare. We improved our marketing center in the US and launched also into all other countries. We also launched agent advisory councils in more jurisdictions. These operational improvements resulted in helping our agents get support, get paid, and get more business. Ultimately, we hope to improve our agents' lives with ongoing operational improvements. Leo will expand on our operational improvements and additional products in a moment. But first, I want to share some recognition awards we've received for eXp and our agents on the next slide. Both eXp and eXp Agents have been recognized widely for our shared success. One award that I believe is driven by our high NPS scores is Glassdoor's Best Places to Work. We've made the list six years in a row in the US and we moved up to number seven from 15 in Canada. Also in 2023, our agent teams have been recognized across the industry and eXp was named the number one growth leader across agent count volume and transactions at Real Trans T3 and Power Broker. Turning to the next slide. We've been updating this table for over a year now, and the numbers keep proving that our platform is even stickier for productive agents in a down market. Consistent with previous quarters, the majority of our attrition is with lower producing agents in the zero to two transactions per year category. With home sales in the US and Canada at their lowest levels we've seen in decades, we proactively off-boarded many non-productive agents in the fourth quarter, such as agents that had no sides in the last 12 months and agents which also not that paid their fees. We ended the year with 87,515 agents, which was up 2% over 2022, but down 1.8% from Q3. This is the first time in our history that our agent count has declined quarter over quarter. However, our agent value proposition remains strong with big teams and agents joining worldwide and agent NPS at their highest it's ever been. I think that our high NPS scores will further drive retention of eXp's top agents who are more likely than ever to recruit additional agents to the company. Our focus continues to be on building the future of real estate with the most productive agents in the industry so that ultimately when the market turns, we'll be in optimal position to gain an outside share of transactions in the market, which we'll discuss on the next slide. So this slide actually compares eXp US residential sales transactions to US residential real estate industry. as measured by transaction sides on the left side and our market share on the right. On the left, you can see that eXp Realty US residential real estate transactions were down less than 2% year over year in Q4 and approximately 8% for the full year. This compares to a US residential real estate industry, which was down over 10% year over year and Q4 over 17% in 2023. As a result, we grew our transaction side market share, which I've talked about focusing on the last almost two years, 8.4% in 2023 and nearly 7% in Q4 to 4.2% in the US. Before turning it over to Leo, I'll conclude with a few takeaways from 2023 and why I'm so optimistic about eXp's prospects in 2024 on the next slide. We're entering 2024 with very strong momentum. To recap, our value proposition remains strong with high agent NPS scores at 73 for 2023 and 77 for Q4. Big teams and agents are joining worldwide. and we are retaining our most productive agents. We continue to grow our market share from 3.9% in 2022 to 4.2% in 2023, reflecting over 8% growth year over year. We're leveraging technology and increasing our operational efficiencies. And lastly, with 2023 behind us, we're entering 2024 in a position of strength with increased momentum. We have a solid vision for 2024. And now I'll turn it over to Leo, who will take you through our 2024 goals.
spk08: Thank you, Glenn. If I were to characterize 2023, I would call it the year of operational excellence. No doubt it was a rough year and a tough one for the market. It's literally the worst year we've had since 1995, even worse than 2008. So what we've been focused on is what we can control with increased support for eXp agents during these times. By helping our agents reduce the time they spend on non-revenue generating tasks, we can increase their productivity so they can do what they do best, which is sell real estate. In terms of operations, while we focus our efforts on three key areas, faster onboarding, faster access to service, faster payments that Glenn mentioned earlier, we're obsessed with supporting our agents and making incremental improvements that will make a big difference in their lives as we continue to do so in 2024. In an evolving real estate commission landscape, we launched eXp Exclusives, an initiative that could become increasingly important in this environment. Exclusives was literally launched last quarter, and we've had over 7,000 agents use the application. We're creating hundreds of unique listings only specific to our ecosystem. We launched eXp Luxury with an astounding results. Already, we've had over 1,100 agents in the program and began expanding globally. We've launched in five countries in 2003. with a plan to expand to every country in 2024. We've already expanded to Portugal, Spain, France, Italy, Germany, and Greece so far this year. We created a first of its kind collaboration with Open Door that I'm very excited about for a true instant offer for our agents and their sellers in the 50 plus markets they serve across the United States. Revenos has increased the number of leads we've delivered to agents by 250% compared to 2022, delivering over 22,800 leads that led to over 1.1 billion in closed volume in 2023. We also doubled down on our commitment to do more training and coaching programs by hiring Brian Ellington as our first ever Chief Learning Officer, as Glenn mentioned earlier. We launched several programs that have been super well received, Accelerate for New Agents, Boost to Attract Independent Brokers to eXp, which has already attracted some of the largest brokerages of the country to eXp, including the Bean Group in Boston and Justin Haver and Associates in Calgary, Canada that I discussed last quarter, and Thrive, a program focused on incentivizing teams to join eXp partly through an equity incentive program. And we initiated a very important profitability improvement plan in the fourth quarter to reduce operational costs by approximately $20 million and identifying new revenue opportunities in 2024, which I'll discuss in the next slide. In 2024, we will continue to innovate and drive efficient growth through a number of initiatives, starting with... Technology, we will continue to leverage our technology to improve operational efficiency and productivity, a great example is my exp APP currently in beta and it will become the Center of the universe for our agents. With easy access to their commissions settlements rapture and all of exp technology services, we expect to see dramatic improvements as we launch my exp in the next few months. with our goal to continue to make technology simple, mobile, and easily accessible for one place for our agents. We will be working with many more software deals, lead partners at no additional cost to our agents, including providing tracking information that our agents have been asking for. The success of the luxury division encourages us to launch additional divisions this year, Farm and Ranch, Sports Entertainment, and Green to help our agents further differentiate themselves from our competitors in all markets. While we expanded and hired Chief Learning Officer Brian Ellington, you can expect to see more announcements in training and coaching, including some familiar faces that we're partnering with in our eXp ecosystem. We're also launching a live streaming real estate radio station to further establish our agents as thought leaders in the space. This station will feature podcast channels, content creators, and industry experts to discuss news, trends, strategies, and tactics to grow agent businesses, and it's expected to be live soon. And last but not least, I'm personally focused on continuing to help our agents increase their productivity and operating business more efficiently in 2024. We will be paying close attention to unit economics through an SG&A to unit cost as a new KPI to measure efficiencies in 2024. On that note, I'll pass it along to Kent to provide additional insight into Q4 and 2023 financial results. Leo, thank you.
spk00: Four quarter NPS increased to 77, which was an outstanding result of our investment in operational excellence in 2023. Due to our compelling agent value proposition, we increased our agent count by 2% year over year. While we off-boarded a significant number of unproductive agents during the fourth quarter, resulting in a decrease in our agent count from the third quarter, we retained our most productive agent cohorts. Our real estate transaction unit grew 6% year-over-year, outperformed the industry. This was really a remarkable outcome, and thanks for the hard work of our higher productive agents and dedicated staff. Our two most important financial objectives are revenue and adjusted EBITDA. Our four-quarter revenue was $983 million, an increase of 5% year-over-year. We generated $0.5 million adjusted EBITDA compared to $3.6 million in prior year quarter. Reported gross profit was $71 million, a decrease of 15%. You might recall, we started to report age and growth incentive stock compensation expense in the cost of sale in 2023. In the previous year, the expense was reported in the sales, general, and administrative expenses. If this expense has been excluded in both years, 2023 gross profit would have been consistent with last year. Reporting SG&A was $89.4 million, a 5% decrease from the fourth quarter in the prior year, primarily due to the above-mentioned reallocation of agent growth incentive stock compensation to the cost of sale. In addition, the fourth quarter included approximately $8 million of one-time costs related to ESPCON and a provision for workforce reduction. Net loss was $21.2 million in Q4 2023, compared to a net loss of $7.2 million in Q4 2022, driven by $9.2 million of impairment charge related to the Bella segment, and $8 million of one-time exchange costs, as I mentioned previously. Adjusted operating cash flow was $42.3 million, and we repurchased $25.9 million of share during the quarter. In the next slide, I will provide more detail about the driver of our revenue change in the fourth quarter. This chart helps to explain what drove the change in the fourth quarter revenue between 2022 and 2023. 2022 revenue was $933.4 million, indicated by the bar on the left. 2023 revenue was $983 million, indicated by the bar on the right. The year-over-year increase in revenue was $50 million, or 5%. The increase was attributable to a $45 million increase in the North America realty segment, which consists of the U.S. and Canada, and a $6.5 million increase in international realty segment. I will dive into more detail of the $45 million revenue growth in North America realty segment, which included the bars under the heading North America realty segment revenue change plus $45 million. Our agent base grew 2% and contributed $21 million of additional revenue. According to NAR, Assistant Home Sales, and US Census Bureau's new home sales data, US residential home sales size decreased approximately 8%, which pressure our agent production. We calculated the negative impact of lower home sales to our revenue as $62.6 million. Normalize the impact of lower home sales of the overall markets. An increase of our agent productivity over prior year contributed 42 million revenue increase. Higher home sales prices and more affordable, more favorable commission rates also brought in $30.8 million incremental revenue. Lastly, our focus on growing our lease, rental, and other ancillary services contribute additional 13.5 million revenue. I will discuss seven financial for the quarter on the next slide. On the slide, you can see our Q4 2023 segment revenue and adjusted EBITDA for each of our four business segments and the breakdown of corporate and elimination. Our North America Realty segment was primarily driver of the revenue and profit of the company. Revenue was $965 million, an increase of 5% over prior year. Adjusted EBITDA was $8.6 million. International realty segment revenue was 16.3 million, an increase of 67%. Adjusted EBITDA loss was $3.6 million. But Bella contributed modest amount of revenue and its adjusted EBITDA was $1.9 million. The other segment, which is primarily success, also contributed modest amount of revenue and generated a small adjusted EBITDA loss. On the next slide, I will recap the full year financial performance on a consolidated basis. And next slide, please. Agent MPS was 73, an increase from 71 in 2022. We completed nearly half million transaction unit in 2023. Our real estate sale transaction unit growth outperformed the industry. 2023 full-year revenue was $4.3 billion, a decrease of 7% year-over-year. Adjusted EBITDA was $57.5 million, a decrease of 5% from prior year. However, we are able to maintain adjusted EBITDA relatively stable to 2023 level, despite a significant market decline. Reported gross profit was $324 million, a decrease of 5% year over year. As I mentioned before, in 2023, we began including agent growth incentive stock compensation expense in cost of sale. If this expense has been excluded from cost of sale in both years, 2023 gross profit would have been consistent with 2022. Reported SG&A was $331.3 million, an 8% decrease from prior year, primarily due to the above-mentioned reallocation of stock compensation expense. If the expense has been excluded from both year, 2023 SG&A would have been flat compared to 2022. 2023 net loss was $9 million, primarily due to $9.2 million of non-cash, one-time impairment charge recorded in the Webela segment. The decline net income year over year was primarily due to Webela impairment charges, increased agent growth incentive stock compensation, and a higher effective test rate. Finally, We repurchased $161 million of shares during the year. To give you some perspective of a share repurchase in 2023, we purchased 10.1 million shares, which is equivalent to 91% of share issued via our agent growth incentive and agent equity plan. And now I will take you through the full year 2022 to 2023 revenue change analysis. 2022 revenue was $4,498,000,000, indicated by the bar on the left. 2023 revenue was $4,281,000,000, indicated by the bar on the right. The year-over-year decline in revenue was $317 million. The North America realty segment contributed $333 million revenue decrease, partially offset by an $18 million revenue increase in the international realty segment. Let me dive into more detail of the North America realty segment revenue change in 2023. Our agent base grew 2%, which contributed $280 million of additional revenue. According to NAR existing home sales and US Census Bureau's new home sales data, US residential home sales sites decreased approximately 17.3%. We calculated the negative impact of lower home sales to our revenue was a reduction of $759 million. Normalize the impact of a lower home sales of overall markets, our Asian productivity improvement contributed an increase of 93 million revenue. Higher home sales price and a more affordable commission mix, a more favorable commission mix brought in additional revenue, 11 million. Lastly, growing our lease, referral, and other ancillary services contributed 43 million revenue additionally. In summary, due to our superior agent value proposition and the resilience and hard work of our agent and staff, our revenue growth outperformed the industry. Next, I will take you through a full year segment performance. 2023 North America realty segment revenue, $4.2 billion, decreased 7% year over year. Adjusted EBITDA was $91.1 million. Again, our core North American realty business was profitable. International realty revenue, was up 50% to a record $53.4 million in 2023. Due to our continued investment in the international reality, adjusted EBITDA loss was $13.7 million. But bailout revenue was down 14% in 2023, while adjusted EBITDA loss improved by 41% year over year due to cost reduction actions. And revenue in other segment was down 6% in 2003 to a $4.8 million with adjusted EBITDA loss $3.8 million. And next slide will summarize the highlight. This slide summarizes our highlights for the year, most of which I have discussed in the previous slides. What's important to point out is our plan for 2024 that Leo mentioned previously. At the end of the year, we identified approximately $20 million of cost savings and other profit improvement initiatives for 2024. We will continue to monitor our business volume and cost space and identify additional profit improvement opportunity throughout 2024. We are well positioned for 2024. I'm confident ESP will emerge from current market downturn into a much stronger position to capitalize the future market growth opportunity. And with that, I will turn it back to Denise to take your question.
spk01: Great. Thanks, Kent. I'll kick it off with a question for each speaker before we open the call to our analysts and questions from the audience. First, starting with you, Glenn, agent count grew 2% year over year, but it declined slightly from the third quarter. Can you discuss what happened to your agent count from the third quarter to the fourth quarter?
spk03: Yeah, so I touched on it in my prepared remarks, but basically we, you know, obviously we have a tough housing market. And as a result, you know, agents have sold less real estate. That's been one aspect. So there's definitely been just industry churn. The other part was that we actually had a number of non-productive agents that were on our, on our rosters and weren't contributing. And they were costs. Every agent that's with the EXP, there's a cost to have them involved, 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 are similar like the time. So it was really just trimming the numbers to be really our productive agents who were actually focused on being here. Um, you know, moving forward, we expect, you know, our agent count to return to growth over time as we continue to sort of retain our highly productive agents and demonstrate, obviously, um, it's, you know, it's demonstrated really by a strong agent satisfaction, but we're actually going back to the 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.
spk01: Great. Got it. 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 any one that truly differentiates eXp's value proposition from the competition?
spk08: Yeah, 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 unreplicatable 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 undercard our economic model and have yet to prove any net profitability with no path forward.
spk02: Got it.
spk01: And then I'll wrap up with one for Kent. Can you discuss the components of the $20 million profit improvement plan you mentioned?
spk00: Yes. No, we are very excited about it. The $20 million profit improvement is really including impact on operating costs, which impact our cost of selling SG&A and also some additional revenue opportunity.
spk01: All right. All right. I'll move over to our covering analysts and open up the call for John Campbell from Stevens. You can ask your question. Yeah, thanks, Denise.
spk06: Hey, guys. Glenn, maybe a couple questions. I want to kind of stay on the topic of the decision to offboard the unproductive agents. I guess a few questions there. Why now would be the first one. And then do you feel like this is kind of a one-time cleanup effort or is this like 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?
spk03: No, you know, 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'd 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 got more granular and that we've got a group of agents who for all intents and purposes were just on our roster, but there's a number of tools and technologies. So you figure out that each agent has a monthly cost. And they just, you know, we had worked with them. We had, you know, 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 that was it. So we did off-board some in Q4. We off-boarded 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.
spk06: Okay. That's helpful. And then maybe this is a question for Kent, but on the gross margin, you know, 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, you know, the incentive programs in place like boost. It 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, you know, it, 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 just as a high level, do you think it's up or down relative to 2023?
spk00: Yeah, if you talk about 2023, it's located on the full-year base. As I talk about, in 2023, we started to report an Asian growth incentive. expense in the cost of sale, if you take that out, like to like comparison, on the full year base, actually, our gross margin percentage is higher. 23 versus 22. And so I would say it's going forward. I mean, it's difficult to forecast because a lot of variables. When is your cap? Yes, agent stock compensation. But in general, we would expect our gross margin percentage more like More like similar at this level, like 2020, 2024, similar 2023 level.
spk06: Okay. 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 cost of goods?
spk00: No, that started Q1 2023.
spk06: Okay. So we're going to annualize that in 1Q24. Okay. That's all I know. Yeah. Thank you.
spk01: Great. Thanks, John. We'll take our second question from Matt Feilich from William Blair. Matt, you may go ahead.
spk05: Thank you, Denise. Hey, everyone. You have Matt Feilich 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.
spk03: Yeah. So, um, certainly domestically, certainly we've, we've felt, uh, um, some competitive pressures. Um, you know, we were effectively the only cloud based, uh, brokerage model for the first 11 years of our existence. Um, now there's, 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 a better term, copycat cheaper versions of the model. And so we've definitely felt some pressure. Certainly, 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, seventh 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. um we're we're getting we're getting traction in different markets we also have some markets where we haven't really grown and so we're either looking at leadership changes or just seeing if the model needs to be tweaked in some 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, you know, these are anecdotal numbers because there's not statistics like NAR in most of these countries. but we figure there's there's approximately 20 million real estate professionals worldwide and if we you know over the next 10-15 years can get to a similar market penetration that we have in the U.S. and in Canada then you know that puts us gives us a path to you know to a potential million agents which is a crazy number to think about underneath one umbrella but because we're very unique in the way that we approach the model. We think there's a lot of growth potential there, and that's where we're spending a fair bit of time really figuring that piece out.
spk05: That's very helpful. Thank you, Glenn. 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?
spk03: Yeah, we already have at least one or two countries that are fairly mature in the discussions to open up those new countries. One country we expect to, day one, start with hundreds of agents. And so we've got a number of good partners in terms of international market. 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 running international markets to go back and retool in a way that we think is gonna 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 US with a managing broker and then just the EXP back office staff. But we could operate $10,000 a month or so with no transactions. We think that there's a way to do something 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 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.
spk05: Got it. Thank you. And then one more, if I may. I was wondering if you could elaborate on the technical advantages of frame compared to Verbella 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 Verbella.
spk03: yeah so frame is a you know i've referred to it in the past when we've talked about it as really kind of your the do-it-yourself metaverse um meaning that it doesn't whereas verbella was a fairly heavy application you had to do i didn't have to download a client And then, you know, those clients, you know, when you get into large enterprises, investment banks, et cetera, a lot of times, you know, getting through the InfoSecurity or InfoSec to actually get those things actually allowed or firewalls or other things would just prevent the application at, you know, in the way that, you know, we envisioned 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, you know, I don't know if there's auditoriums in there, it probably is, but you've got, you know, 50 plus spaces that you can choose from either offices to big campuses to, you know, lodges to what have you. And, you know, we, 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, it's now really what I call enterprise ready. And that's why we sort of put it out there at this point. Burbella is a great platform. We do have a number of clients that use it, but it never really had the appeal on the enterprise level that we originally expected in 2020 after COVID hit. So when we made a big investment before it was really just we were using it primarily for us and obviously some clients came. Frame, I think, is going to have already has a natural fan base of users because of the way that it's structured from teacher organizations to museums to all kinds of different places because it is much more accessible. So you'll see a lot of that freemium type service coming out of Frame. And we think there's a good path to actually create a SaaS-based platform that could be significant over time using Frame.
spk05: Very helpful. Thank you, Glenn and team.
spk02: And next, we'll go to Tom White from DA Davidson. Tom, if you have a question, you can go ahead.
spk04: Great. Thanks, guys. Glenn, you mentioned, you know, an expectation to return to agent growth, you know, at some point here. Could you maybe talk a little bit about your expectations around domestic agents in the next couple of quarters? You know, if you look at like NAR member roles over the years, there tends to be kind of an uplift in kind of licensed agents in the spring. Just curious if you're seeing any signs that maybe your business will exhibit some of that and i guess sort of related just i was hoping you'd comment a little bit about you know the success or traction maybe that things like accelerate and thrive and those platforms may may be getting i mean do you feel like they're helping you kind of go back on offense a little bit in domestic agents or domestic agent counter do you still feel like you're maybe a little bit on the defensive domestically given some of the uh competition uh you touched on earlier
spk03: Yeah, well, domestically, I think we're in an industry right now that's not going to see a huge number of new licensees, like we've seen in 2021, maybe even 2022, with the decline in real estate transactions. Obviously, there's a backdrop of What's the industry going to look like in two, three, four years? I think that in a lot of people's minds, even potential new licensees. So I think we're kind of in this kind of little bit of a slower growth. Obviously, the Fed decides to reduce interest rates substantially. And then that ultimately adds fuel to the fire. Maybe we end up picking up more agents wanting to get in the business. I think the backdrop is we're not gonna see a lot of industry changes in terms of agent count, but accelerate, thrive, boost, those are tools that we have now that are definitely helping. We think that there's probably more things we can do to be offensive in terms of growth. We've got some meetings actually coming up in early March. where we're actually going over some things that we believe are going to do just that. So we're excited to get those masterminded and rolled out. I guess the long and short of it is it's a little bit early, too early to tell, but we have obviously seen more competition, no doubt. We've seen less agents in the industry at large, which doesn't help in terms of overall growth, but we've still obviously continued to grow market share, which is really the thing I mentioned a couple of years ago. Let's focus on market share because the market's going to be tough And then, but we think that there's some ways to actually get good agent growth by creating some better ways to monetize from an agent's perspective to be at eXp.
spk04: That makes sense. Thanks. Maybe just one quick follow-up or clarification. So the $20 million in annualized benefit to your results that you called out in the press release, it made it sound like it was a combination of cost saves and kind of revenue enhancements. But then did you say in kind of the prepared remarks that cost adjustments will kind of be the bulk of that? Can you just maybe just clarify a little bit? I'm just trying to get a sense of like what – your quarterly kind of GNA might look like, you know, kind of starting in, you know, starting in the first or second quarter.
spk03: Yeah. I mean, we, we, we got, you know, an interesting backdrop of things going on. We've got, obviously we're defending a ton of, of these commission-based lawsuits. So there's definitely what we call risk management. So there's some risk management fees because we're are just, our legal costs are going up. significantly so we're we're we're working on you know generating some additional revenue to pay some of that legal cost um and then we we made a adjustment to the the discount on the stock comp plan um again um it you know it's a little bit non-cash but at the same time it's still you know an item that actually plays a role in sort of our cost to operate and and everything else. So we made a couple adjustments there. And then we do have, you know, we do have new revenues coming down the pike as well. So we don't break all of it out at this point. I think those may be, I don't know how much visibility you've had to some of that, but we've got a couple small tweaks on the, which reducing costs on our stock comp, increasing a little bit of revenue on our risk management fees. And then we've got other business opportunities that are coming in. A lot of them that are stuff that Leo's been on underneath the revenues and and agent services affiliate services um you know even things like our you know we've got some some revenues that come from places like uh clearwater and some partnership type stuff that we've uh we've got there um and then we've got you know others so i don't know if leo if you've got any others that you want to touch on but those are just some that are top of mind
spk08: Yeah, I mean, piggybacking on the last question that was asked, you know, believe it or not, even with the dark clouds ahead, the conversations have sped up with independents that probably wouldn't have considered folding into a national company and just maintaining it independently. So, you know, there could be some growth that continues to materialize from the larger companies joining. You know, the single agents have struggled the most, and that's where we've seen our most attrition. But on the profit improvement, you know, it's cost plus addition. So we're hyper-focused on unit economics, making sure that we're very efficient from an SG&A to unit standpoint. And just really focusing on, you know, now that we're more of a mature enterprise, running it as such. And so we're just being very careful and holding everything accountable.
spk04: Well, great. Thanks so much for the color, guys. And I love the new frame VR. It's great. Appreciate it.
spk01: Thanks. Thanks. So we have time for one more question from Soham Bosle from VTIG. Soham, if you have a question, you can go ahead.
spk07: Great. Good evening, everyone. I guess our first one was just on the agent count up 2%. I was hoping you could maybe help us quantify the impact from, you know, the offboarding of agents in that number and then sort of where agent count growth has been in North America versus internationally.
spk00: Yeah, maybe I can collect one with the answer the question.
spk03: Yeah, you Yeah, I think you've got the more granular data.
spk00: Yeah. So we don't provide, let's say our addition and termination, right? We're not provided. But what we can say is look at 2023 grow. Pretty much all our agent growth is come from the United States and Canada.
spk07: Okay. And then on the gross margin, I think last quarter you talked about maybe being above seven and a half percent for this quarter. I think you came in a touch lighter than that. So I'm just wondering what's driving that. Is that sort of any makeshift that's happening within your base, you know, more productive agents doing more or is just sort of, you know, we have to pay a higher split in this sort of environment, which we're hearing as well.
spk00: Yeah, the major driver, even compared to, if you look at the list on the, if you, like we talk about the agent stock compensation, including the gross margin. Last year, right, we stayed about 8%. And Q4 2020, I mean, Q4 2022 is 8%. Q4 2023 is 7.2%. So we do drop about 80 base point. majority that really is the increase of the stock compensation. I mean, our stock agent stock compensation in Q4, about 12.5 million was Q4, 22, 8 million. So that's a major driver on that.
spk07: Okay. And then Kent, last one for SG&A is the best way to think about it. I think there was about 8 million of one-time items this quarter. So that would say, you know, 78 million is sort of the normalized run rate. And then we sort of take 5 million every quarter and sort of run with that going forward?
spk00: Yeah, the TRR, how I think about it, right, is now we don't provide guidance. You think about 89.4, right? 8 million is one time related to ESPCOM and the provision on workforce reduction, right? So your base roughly 81, 82. If you do this small run rate, right, for four quarter, give you about 326 million, that kind of cost. And as you know, Leo and Glenn talked about, part of the significant cost with saving or the profit improvement $20 million is SG&A. So I want to answer Tom's question. So with some further reduction SG&A, what you can expect is our SG&A cost will be lower in 2024 versus 2023.
spk08: Great. Thanks a lot for the answers.
spk01: Thank you. And thank you, everyone, for joining us today. As always, please stay connected by visiting expworldholdings.com for the latest updates on the EXP news results and events. Additionally, you'll find a recording of this call and our latest investor presentation on the investors section of the site. So this concludes the EXP World Holdings fourth quarter 2023 fireside chat. Thank you.
Disclaimer