Table of Contents
tota
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 September 30, 2023
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
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).
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 153,798,815 shares of the registrant’s Common Stock, $0.00001 par value, outstanding as of September 30, 2023.
TABLE OF CONTENTS
Page
Forward Looking Statements
3
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
4
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28
Item 4.
Controls and Procedures
PART II
OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
29
Unregistered Sales of Equity Securities and Use of Proceeds
30
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
31
2
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:
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, 2022, 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.
PART 1 – FINANCIAL INFORMATION
Item 1.FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(UNAUDITED)
September 30, 2023
December 31, 2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 120,141
$ 121,594
Restricted cash
54,000
37,789
Accounts receivable, net of allowance for credit losses of $1,803 and $4,014, respectively
113,344
87,262
Prepaids and other assets
12,325
8,468
TOTAL CURRENT ASSETS
299,810
255,113
Property, plant, and equipment, net
13,862
18,151
Operating lease right-of-use assets
14
2,127
Other noncurrent assets
7,598
1,703
Intangible assets, net
11,458
8,700
Deferred tax assets
65,241
68,676
Goodwill
24,879
27,212
TOTAL ASSETS
$ 422,862
$ 381,682
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable
$ 9,322
$ 10,391
Customer deposits
54,210
Accrued expenses
108,385
78,944
Current portion of lease obligation - operating lease
175
TOTAL CURRENT LIABILITIES
171,931
127,299
Long-term payable
5
4,697
Long-term lease obligation - operating lease, net of current portion
-
694
TOTAL LIABILITIES
171,936
132,690
EQUITY
Common Stock, $0.00001 par value 900,000,000 shares authorized; 180,883,383 issued and 153,798,815 outstanding at September 30, 2023; 171,656,030 issued and 152,839,239 outstanding at December 31, 2022
Additional paid-in capital
757,006
611,872
Treasury stock, at cost: 27,084,568 and 18,816,791 shares held, respectively
(519,635)
(385,010)
Accumulated earnings
11,968
20,723
Accumulated other comprehensive income
416
236
Total eXp World Holdings, Inc. stockholders' equity
249,757
247,823
Equity attributable to noncontrolling interest
1,169
TOTAL EQUITY
250,926
248,992
TOTAL LIABILITIES AND EQUITY
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except share amounts and per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
Revenues
$ 1,214,513
$ 1,238,975
$ 3,298,056
$ 3,664,766
Operating expenses
Commissions and other agent-related costs
1,130,888
1,145,853
3,044,858
3,380,930
General and administrative expenses
78,568
89,460
232,876
256,173
Sales and marketing expenses
3,194
3,636
9,035
11,546
Total operating expenses
1,212,650
1,238,949
3,286,769
3,648,649
Operating income
1,863
26
11,287
16,117
Other (income) expense
Other (income) expense, net
(708)
(78)
(2,887)
394
Equity in losses of unconsolidated affiliates
354
329
839
1,213
Total other (income) expense, net
(354)
251
(2,048)
1,607
Income (loss) before income tax expense
2,217
(225)
13,335
14,510
Income tax (benefit) expense
868
(4,627)
1,111
(8,115)
Net income
1,349
4,402
12,224
22,625
Net income attributable to noncontrolling interest
18
Net income attributable to eXp World Holdings, Inc.
$ 1,349
$ 4,402
$ 12,224
$ 22,643
Earnings per share
Basic
$ 0.01
$ 0.03
$ 0.08
$ 0.15
Diluted
$ 0.14
Weighted average shares outstanding
153,392,005
151,826,315
153,065,727
150,622,845
158,183,888
155,915,307
156,834,985
156,434,440
Comprehensive income:
$ 22,625
Comprehensive loss attributable to noncontrolling interests
22,643
Other comprehensive income:
Foreign currency translation gain (loss), net of tax
(527)
(521)
180
(1,662)
Comprehensive income attributable to eXp World Holdings, Inc.
$ 822
$ 3,881
$ 12,404
$ 20,981
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Common stock:
Balance, beginning of period
$ 2
$ 1
Agent equity stock compensation
1
Balance, end of period
Treasury stock:
(463,738)
(289,829)
(210,009)
Repurchases of common stock
(55,897)
(59,815)
(134,625)
(139,635)
Issuance of treasury stock, for acquisition
4,800
(344,844)
Additional paid-in capital:
701,806
509,476
401,479
Shares issued for stock options exercised
3,507
1,443
4,761
2,220
Agent growth incentive stock compensation
10,238
8,523
28,142
21,793
38,897
44,395
104,548
131,230
Stock option compensation
2,558
3,757
7,683
10,872
567,594
Accumulated earnings:
18,138
37,007
30,510
Dividends declared and paid
(7,519)
(6,793)
(20,979)
(18,537)
34,616
Accumulated other comprehensive income (loss):
943
(953)
188
Foreign currency translation gain (loss)
(1,474)
Noncontrolling interest:
1,364
Net loss
(18)
Transactions with noncontrolling interests
(177)
Total equity
$ 250,926
$ 257,063
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Reconciliation of net income to net cash provided by operating activities:
Depreciation expense
6,299
5,699
Amortization expense - intangible assets
1,849
1,455
Loss on disposition of business
472
361
Allowance for credit losses on receivables/bad debt on receivables
(2,211)
588
Equity in loss of unconsolidated affiliates
Agent growth incentive stock compensation expense
29,912
22,828
7,659
Agent equity stock compensation expense
Deferred income taxes, net
3,435
(10,845)
Changes in operating assets and liabilities:
Accounts receivable
(23,401)
13,603
(3,966)
(3,003)
16,421
(16,135)
(1,069)
1,952
28,039
4,770
Long term payable
(4,692)
Other operating activities
158
111
NET CASH PROVIDED BY OPERATING ACTIVITIES
176,516
187,324
INVESTING ACTIVITIES
Purchases of property, plant, equipment
(4,193)
(9,222)
Proceeds from sale of business
330
Acquisition of business, net of cash acquired
(9,668)
Investments in unconsolidated affiliates
(5,525)
Capitalized software development costs in intangible assets
(1,930)
NET CASH USED IN INVESTING ACTIVITIES
(11,318)
(18,890)
FINANCING ACTIVITIES
Repurchase of common stock
Proceeds from exercise of options
2,221
(425)
NET CASH USED IN FINANCING ACTIVITIES
(150,843)
(156,376)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash
403
(771)
Net change in cash, cash equivalents and restricted cash
14,758
Cash, cash equivalents and restricted cash, beginning balance
159,383
175,910
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE
$ 174,141
$ 187,197
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes
$ 2,382
$ 2,933
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Termination of lease obligation - operating lease
855
Contingent consideration for disposition of business
1,209
Property, plant and equipment increase due to transfer of right-of-use lease asset
1,100
Property, plant and equipment purchases in accounts payable
27
20
7
eXp World Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
(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 generally accepted accounting principles 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, 2022, filed with the SEC on February 28, 2023 (“2022 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 nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
Effective in December 2022, the Company revised the presentation of segment information to reflect changes in the way the Company manages and evaluates the business. As such, we now report operating results through four reportable segments: North American Realty, International Realty, Virbela and Other Affiliated Services, as further discussed in Note 11 – Segment Information. Accordingly, certain amounts in the prior years’ consolidated financial statements have been revised to conform to the current year presentation. See additional information in Note 11 – Segment Information.
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
8
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.
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. No reclassifications occurred during the current period.
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 such amounts shown on the condensed consolidated statements of cash flows.
Total
Balance, December 31, 2021
$ 108,237
$ 67,673
$ 175,910
Balance, September 30, 2022
$ 134,545
$ 52,652
Balance, December 31, 2022
$ 37,789
$ 159,383
Balance, September 30, 2023
$ 54,000
3.
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 $107,133 and $79,135 of which the Company recognized expected credit losses of $25 and $3,127, respectively as of September 30, 2023 and December 31, 2022. As of September 30, 2023 and December 31, 2022 agent non-commission based fees receivable and short-term advances totaled $8,014 and $12,141, of which the Company recognized expected credit losses of $1,778 and $887, respectively.
9
4.
PLANT, PROPERTY AND EQUIPMENT, NET
Plant, property and equipment, net consisted of the following:
Computer hardware and software
$ 36,528
$ 34,206
Furniture, fixture, and equipment
2,252
Total depreciable property and equipment
38,780
34,226
Less: accumulated depreciation
(25,675)
(19,282)
Depreciable property, net
13,105
14,944
Assets under development
757
3,207
$ 13,862
$ 18,151
For the three months ended September 30, 2023 and 2022 depreciation expense was $2,136 and $2,129, respectively. For the nine months ended September 30, 2023 and 2022, depreciation expense was $6,299 and $5,699, respectively.
5.
GOODWILL AND INTANGIBLE ASSETS
Goodwill was $24,879 as of September 30, 2023 and $27,212 as of December 31, 2022. As of September 30, 2023, the Company recorded cumulative translation adjustment of $23 related to Canadian goodwill. During the third quarter of 2023, the Company disposed of its Showcase Web Sites LLC business, which resulted in a reduction of goodwill of $2,310, this business was included in the North American Realty segment. The Company has a risk of future impairment to the extent that individual reporting unit performance does not meet projections. 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 and nine months ended September 30, 2023, no events occurred that indicated it was more likely than not that goodwill was impaired.
Definite-lived intangible assets were as follows:
Gross
Accumulated
Net Carrying
Amount
Amortization
Trade name
$ 3,242
($ 970)
$ 2,272
$ 3,459
($ 841)
$ 2,618
Existing technology
8,754
(3,639)
5,115
3,995
(2,458)
1,537
Non-competition agreements
460
(125)
335
461
336
Customer relationships
1,655
(617)
1,038
1,895
(551)
1,344
Licensing agreement
208
(208)
210
(181)
Intellectual property
2,836
(138)
2,698
Total intangible assets
$ 17,155
($ 5,697)
$ 11,458
$ 12,856
($ 4,156)
$ 8,700
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 September 30, 2023 and 2022 was $654 and $638, respectively. Amortization expense for definite-lived intangible assets for the nine months ended September 30, 2023 and 2022 was $1,849 and $1,455, respectively. The Company has no indefinite-lived assets.
10
6.STOCKHOLDERS’ EQUITY
The following table represents a share reconciliation of the Company’s common stock issued for the periods presented:
Balance, beginning of quarter
177,900,083
163,286,569
171,656,030
155,516,284
610,132
681,139
802,939
2,044,193
387,999
1,184,446
1,774,438
2,098,770
1,985,169
3,410,310
6,649,976
8,903,217
Balance, end of quarter
180,883,383
168,562,464
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 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 as an additional cost of sales charge during the periods presented.
During the three months ended September 30, 2023 and 2022, the Company issued 1,985,169 and 3,410,310 shares of common stock, respectively, to agents and brokers with a value of $38,897 and $44,395, respectively, inclusive of discount. During the nine months ended September 30, 2023 and 2022, the Company issued 6,649,976 and 8,903,217 shares of common stock, respectively, to agents and brokers with a value of $104,548 and $131,230, 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 based 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 September 30, 2023 and 2022 the Company’s stock compensation expense attributable to the Agent Growth Incentive Program was $11,764 and $5,800, respectively, of which the total amount of stock compensation attributable to liability classified awards was $1,458 and ($985), respectively. For the nine months ended September 30, 2023 and 2022 the Company’s stock compensation expense attributable to the Agent Growth Incentive Program was $29,912 and $22,828, respectively, of which the total amount of stock compensation attributable to liability classified awards was $2,796 and $3,466, respectively.
11
The following table illustrates changes in the Company’s stock compensation liability for the periods presented:
$ 3,885
Stock grant liability increase year to date
2,796
Stock grants reclassified from liability to equity year to date
(1,094)
$ 5,587
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 September 30, 2023 and 2022 the Company granted 445,380 and 394,657 stock options, respectively, to employees with an estimated grant date fair value of $10.71 and $8.50 per share, respectively. During the nine months ended September 30, 2023 and 2022, the Company granted 1,973,943 and 1,167,042 stock options, respectively, to employees with an estimated grant date fair value of $8.87 and $11.21 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, 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 an internal stock repurchase program with program changes subject to Board consent. 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 up to $10.0 million of its common stock per month. On May 3, 2022, the Board approved and on May 6, 2022, the Company entered into a form of first amendment to the Issuer Repurchase Plan to increase monthly repurchases from $10.0 million of its common stock per month up to $20.0 million. On September 27, 2022, the Board approved, and the Company entered into, a form of second amendment to the Issuer Repurchase Plan, to decrease the monthly repurchases from $20.0 million of its common stock per month to $13.3 million, in anticipation of volume decreases in connection with the contraction in the real estate market. On December 27, 2022, the Board approved, and the Company entered into, a form of third amendment to the Issuer Repurchase Plan, to decrease the monthly repurchases from $13.3 million of its common stock per month to $10.0 million, in connection with ongoing contractions in the real estate market. On May 10, 2023, the Board approved and, on May 11, 2023, the Company entered into, a form of fourth amendment to the Issuer Repurchase Plan, to increase the monthly repurchase amounts during 2023 due to actual and projected changes in the Company’s cash and cash equivalents; specifically, to permit purchases of up to: (i) $17.0 million during May 2023, (ii) $22.0 million during June 2023, (iii) $18.67 million during any calendar month commencing July 1, 2023 through and including September 30, 2023, and (iv) $12.0 million during any calendar month commencing October 1, 2023 through and including December 31, 2023. On June 26, 2023, the Board approved, and the Company entered into, a form of fifth amendment to the Issuer Repurchase Plan to increase the maximum aggregate buyback from $500.0 million to $1.0 billion in accordance with the repurchase program limit.
12
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:
24,311,897
11,487,691
18,816,791
6,751,692
2,761,943
4,716,026
8,257,049
9,452,025
Forfeiture to treasury stock for acquisition
10,728
Issuance of treasury stock for acquisition
(343,331)
27,084,568
15,860,386
7.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:
Numerator:
Denominator:
Weighted average shares - basic
Dilutive effect of common stock equivalents
4,791,883
4,088,992
3,769,258
5,811,595
Weighted average shares - diluted
Earnings per share:
Earnings per share attributable to common stock- basic
Earnings per share attributable to common stock- diluted
For three months ended September 30, 2023 and 2022 total outstanding shares of common stock excluded 192,684 and 1,315,861 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.
For nine months ended September 30, 2023 and 2022 total outstanding shares of common stock excluded 679,425 and 845,162 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.
8.INCOME TAXES
Our quarterly tax 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 $1,111 and ($8,115) for the nine months ended September 30, 2023 and 2022, which represent effective tax rates of positive 8.31% and negative 56.22%, respectively. The increase in the provision for income tax expense is primarily attributable to income from operations, lower deductible stock-based compensation windfalls and return to provision true-ups in various jurisdictions. 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.
13
9.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:
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 September 30, 2023 and December 31, 2022, the fair value of the Company’s money market funds was $45,666 and $44,062, 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.
10.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 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.
As of September 30, 2023, there were no matters pending or, to the Company’s knowledge, threatened that the Company believed could have a material adverse impact on the business, reputation, results of operations, or financial condition.
There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder is an adverse party or has a material interest adverse to the Company’s interest.
11.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 EBITDA. Adjusted Segment EBITDA is defined by us as operating profit plus depreciation and amortization and stock-based compensation expenses. The Company’s presentation of Adjusted Segment EBITDA may not be comparable to similar measures used by other companies. The Company’s four reportable segments are as follows:
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 Audited 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 and Goodwill (in thousands). Financial information for the comparable prior periods presented have been revised to conform with the current year presentation.
North American Realty
$ 1,198,207
$ 1,226,368
$ 3,254,666
$ 3,632,276
International Realty
14,896
10,146
37,644
26,148
Virbela
1,720
2,328
5,694
6,181
Other Affiliated Services
979
1,417
3,729
3,298
Revenues reconciliation:
Segment eliminations
(1,289)
(1,284)
(3,677)
(3,137)
Consolidated revenues
Adjusted EBITDA
$ 27,171
$ 22,445
$ 82,496
$ 91,115
(2,647)
(4,614)
(10,105)
(9,584)
(1,297)
(3,197)
(3,789)
(8,684)
(918)
(563)
(2,767)
(2,139)
Corporate expenses and other
(3,359)
(1,722)
(8,829)
(13,737)
Consolidated Adjusted EBITDA
$ 18,950
$ 12,349
$ 57,006
$ 56,971
Operating Profit Reconciliation:
Depreciation and amortization expense
2,790
2,767
8,148
7,154
Stock compensation expense
11,764
5,800
Stock option expense
2,533
3,756
Consolidated operating profit
$ 1,863
$ 26
$ 11,287
$ 16,117
$ 14,244
$ 16,577
8,248
2,387
Segment total
Corporate and other
Consolidated total
$ 24,879
$ 27,212
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
12.SUBSEQUENT EVENTS
Quarterly Cash Dividend
On October 25, 2023, the Company’s Board of Directors declared a dividend of $0.05 per share which is expected to be payable on November 30, 2023, to stockholders of record as of the close of business on November 16, 2023. The ex-dividend date is expected to be on or around November 15, 2023. The dividend will be paid in cash.
Antitrust Litigation
Gibson v. National Association of Realtors was filed on October 31, 2023 in the United States District Court for the Western District of Missouri, Western Division, naming the National Association of Realtors, the Company, Compass, Inc., Redfin Corporation, Weichert Realtors, United Real Estate, Howard Hann Real Estate Services, and Douglas Elliman, Inc. as defendants. The Company disputes the allegations against it, and intends to vigorously defend the action. An estimate of the possible loss or range of loss cannot be made at this time.
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 2022 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:
All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.
OVERVIEW
eXp World Holdings empowers the new economy through its people, technology platforms and personal and professional development solutions. Through our brokerage, eXp Realty, we operate one of the world’s fastest-growing real estate brokerages. We are focused on being the most agent-centric company on the planet and offer our agents a generous commission model, and a thriving community built on our proprietary and unique cloud-based brokerage and collaboration suite.
eXp manages its operations in four operating business segments: North American Realty; International Realty; Virbela; 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.
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 into attractive verticals and associated businesses.
Throughout 2022, and during the first nine months of 2023, we continued to make progress in achieving our strategic goals, including a 5% increase in our agent count, going from 84,911 agents as of September 30, 2022 to 89,156 agents as of September 30, 2023. The increase in our agents occurred even though, according to the National Association of Realtors (“NAR”), real estate industry agents declined 1.3% from September 2022 to September 2023. The expected outcome of these activities will be to better position us to deliver on our full potential, to provide a platform for future growth opportunities, and to achieve our long-term financial goals.
MARKET CONDITIONS AND INDUSTRY TRENDS
In September of 2023, the existing home sales market declined 15.4%, compared to September of 2022 according to the NAR. Due to reduced affordability driven by higher interest rates and increasing inflation, the market began a contraction trend in the third quarter of 2022, that is continuing into the third quarter of 2023.
The Company believes it continues to be well positioned to gain market share in the current economic climate. We have a strong base of agent support, which should drive organic market share growth, through greater retention and productivity. Additionally, we have an efficient operating model with lower fixed costs driven by our cloud-based infrastructure, with no brick-and-mortar locations.
Regardless of whether the housing market continues to slow or begins to recover, we believe that we are positioned to leverage our low-cost, high-engagement model, affording agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to survive and thrive during fluctuations in economic activity.
National Housing Inventory
According to NAR, inventory of existing homes for sale in the U.S. was 1,130,000 as of September 2023 (preliminary) compared to 1,230,000 at the end of September 2022.
Mortgage Interest Rates
The sharp increase in mortgage rates have continued to negatively impact the demand for homebuying. Based on Freddie Mac data, the average rate for a 30-year, conventional, fixed rate mortgage was 7.3% in September 2023 vs 6.7% in September 2022.
Housing Affordability Index
According to NAR, the composite housing affordability index decreased to 91.7 for August 2023 (preliminary) from 110.5 for August 2022. 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 increasing mortgage rates.
Existing Home Sales Transactions and Prices
According to NAR, seasonally adjusted existing home sale transactions decreased to an annual rate of 3.96 million in September 2023 (preliminary) compared to 4.68 million in September 2022 a decrease of 15.4%.
According to NAR, the nationwide existing home sales median price for September of 2023 (preliminary) was $394,300 compared to $383,500 in September 2022, an increase of 2.8%. Housing inventory was also up to 3.4 months of inventory compared to 3.2 months last year.
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, or financial condition.
17
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:
(in thousands, except transactions and agent count)
Performance:
Agent count
89,156
84,911
Real estate sales transactions
118,626
124,774
325,004
363,699
Other real estate transactions
20,854
13,580
53,980
38,992
Volume
$ 48,526,164
$ 50,392,432
$ 130,337,913
$ 149,666,700
Revenue
Gross profit
83,625
93,122
253,198
283,836
Gross margin (%)
6.9%
7.5%
7.7%
Adjusted EBITDA(1)
18,950
12,349
57,006
56,971
We periodically evaluate trends in certain metrics to track the Company’s performance.
Our strength is attracting real estate agent and broker professionals that contribute to our growth. Real estate sales transactions are recorded when our agents and brokers represent buyers and/or sellers in the purchase or sale, respectively, of a home. Other real estate transactions are recorded for leases, rentals and referrals. 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, local inventory levels, mortgage interest rates, and seasonality. Real estate transaction revenue represents the commission revenue earned by the Company for closed brokerage real estate transactions.
We continue to increase our agents and brokers in the United States, Canada, and certain international locations through the execution of our growth strategies. 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 macroeconomic factors affecting the real estate industry in general.
Settled home sales transactions and volume result from closed real estate transactions and typically change directionally with changes in the market’s existing home sales transactions as reported by NAR, with disproportionate variances are representative of company-specific performance. Our home sale transaction performance was directly related to the performance of our agent base over the prior comparative period.
We utilize gross profit and gross margin, financial statement measures based on generally accepted accounting principles in the U.S. (“U.S. GAAP”) to assess the Company’s financial performance from period to period.
Gross profit is calculated from U.S. GAAP reported amounts and equals the difference between revenues and cost of sales. Gross margin is the calculation of gross profit as a percentage of revenues. Commissions and other agent-related costs represent the cost of sales for the Company. The cost of sales does not include depreciation or amortization expenses as the Company’s assets are not directly used in the production of revenue. Gross profit is based on the information provided in our results of operations or our consolidated statements of comprehensive income and is an important measure of our potential profitability and brokerage performance. For the three months ended September 30, 2023 and 2022 gross profit was $83.6 million, and $93.1 million, respectively and gross margin was 6.9% and 7.5%, respectively. For the three months ended September 30, 2023, gross profit and gross margin decreased year-over-year primarily due to decreased revenue related to the slowdown in the housing market and higher agent stock-based compensation costs in 2023.
For the nine months ended September 30, 2023 and 2022, gross profit was $253.2 million, and $283.8 million, respectively and gross margin was 7.7% for each of the nine month periods. Gross profit decreased in the first nine
months of 2023 compared to 2022 due to lower revenue related to the slowdown in the housing market. Gross margin was 7.7% for both periods, because of the lower increase in commissions and agent-related costs due to a lower percentage of agents reaching their commissions capping requirements offset by higher agent stock-based compensation expense in 2023.
Management also reviews Adjusted EBITDA, which is a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. Adjusted EBITDA increased slightly for the first nine months of 2023 and increased for the three months ended September 30, 2023 compared to the same periods in 2022 due to lower operating costs.
Agent and Employee Experience
The Company has embarked on an initiative to better understand both its agents’ and employees’ experiences. In doing so, we have adopted many of the principles of the Net Promoter Score® (“NPS”) across many aspects of our organization. NPS is a measure of customer satisfaction and is measured on a scale between -100 and 100. An NPS above 50 is considered excellent. The Company’s agent NPS was 74 in the third quarter of 2023.
The NPS measure is an important vehicle for delivering on our core value of transparency. While we strive for high satisfaction, it is equally important to investigate a low or unfavorable trending of NPS. As NPS scores are often leading indicators to agents’ and employees’ future actions, we are able to learn quickly what may be a ‘pain point’ or product that is not meeting its desired objective. We then take that information and translate it into action with an effort to remediate the specific root cause(s) driving the lower score. Our fast and iterative approach has already led to improvements in parts of our business such as agent onboarding, commission transaction processing, and employee benefits.
19
RESULTS OF OPERATIONS
Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022
Three Months Ended
% of
Change
2023 vs. 2022
September 30, 2022
$
%
Statement of Operations Data:
100%
($ 24,462)
(2)%
93%
92%
(14,965)
(1)%
6%
7%
(10,892)
(12)%
-%
(442)
(26,299)
1,837
7065%
(630)
(808)%
25
8%
(605)
(241)%
2,442
1085%
Income tax expense
5,495
119%
(3,053)
(69)%
Add back: Net loss attributable to noncontrolling interest
2%
1%
$ 6,601
53%
($ 0.02)
(67)%
In addition to the financial information noted above, the Company had:
Our total revenues were $1.2 billion for the three months ended September 30, 2023 compared to $1.2 billion for the same period in 2022, a decrease of ($24.5) million, or (2)%. Total revenues decreased in the third quarter of 2023 as a result of a decrease in real estate transactions compared to the same period in 2022 primarily due to the continued decline of the U.S. and Canada residential real estate market.
Commission and Other Agent-Related Costs
Commission and other agent-related costs were $1.1 billion for the three months ended September 30, 2023 compared to $1.1 billion for the same period in 2022, a decrease of ($15.0) million, or (1)%. Commissions and other agent-related costs decreased primarily as a result of a decrease in real estate transactions compared to the three months ended September 30, 2022 , such decrease is partially offset by increased agent related stock-based compensation.
General and Administrative Expenses
General and administrative expenses were $78.6 million for the three months ended September 30, 2023 compared to $89.5 million for the same period in 2022, a decrease of ($10.9) million or (12)%. General and administrative expenses include costs related to wages, stock compensation, and other general overhead expenses.
Sales and Marketing Expenses
Sales and marketing expenses decreased to $3.2 million for the three months ended September 30, 2023 compared to $3.6 million the same period in 2022. The decrease of ($0.4) million is due to decreased advertising to offset the contraction in the U.S. and Canada residential real estate market.
Other (Income) Expense
Other (income) in the third quarter of 2023 relates primarily to increased interest income when compared to the third quarter of 2022.
Income Tax Expense (Benefit)
The Company’s provision for income tax expense(benefit) amounted to $868 and ($4,627) for the three months ended September 30, 2023 and 2022, respectively, which represented effective tax rates of positive 39.02% and 2055.79%, respectively. The increase in the provision for income tax expense was primarily attributable to income from operations, lower deductible stock-based compensation windfalls and return to provision true-ups in various jurisdictions.
The Company is subject to a wide variety of tax laws and regulations across the jurisdictions where it operates. Regulatory developments from the U.S. or international tax reform legislation could result in an impact to the Company's effective tax rate. The Company continues to monitor the Base Erosion and Profit Shifting (BEPS) Integrated Framework provided by the Organization for Economic Co-operation and Development (OECD) including the legislative adoption of Pillar II by countries, and all other tax regulatory changes, to evaluate the potential impact on future periods.
21
Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022
Nine Months Ended
Change2023 vs. 2022
($ 366,710)
(10)%
(336,072)
(23,297)
(9)%
(2,511)
(22)%
(361,880)
(4,830)
(30)%
(3,281)
(833)%
(374)
(31)%
(3,655)
(227)%
(1,175)
(8)%
9,226
114%
(10,401)
(46)%
(100)%
(10,419)
Adjusted EBITDA (1)
$ 35
($ 0.07)
(47)%
($ 0.06)
(43)%
In addition to the financial information above, the Company had:
22
Our total revenues were $3.3 billion for the nine months ended September 30, 2023 compared to $3.7 billion for the same period in 2022, a decrease of ($366.7) million, or (10)%. Total revenues decreased in the first nine months of 2023 primarily as a result of a decrease in real estate transactions compared to the same period in 2022 primarily due to the decline of the U.S. and Canada residential real estate market.
Commission and other agent-related costs were $3.0 billion for nine months ended September 30, 2023 compared to $3.4 billion for the same period in 2022, a decrease of ($336.1) million, or (10)%. Commissions and other agent-related costs decreased primarily as a result of a decrease in real estate transactions compared to the period ended September 30, 2022 such decrease is partially offset by increased agent related stock-based compensation.
General and administrative expenses were $232.9 million for the nine months ended September 30, 2023 compared to $256.2 million for the same period in 2022, a decrease of ($23.3) million or (9)%. General and administrative expenses include costs related to wages, stock compensation, and other general overhead expenses.
Sales and marketing expenses decreased to $9.0 million for the nine months ended September 30, 2023 compared to $11.5 million the same period in 2022. The decrease of ($2.5) million is due to decreased advertising to offset the contraction in the U.S. and Canada residential real estate market.
Other (income) in the first nine months of 2023 relates primarily to increased interest income when compared to the first nine months of 2022.
Income Tax (Benefit) Expense
The Company’s provision for income tax expense (benefit) amounted to $1,111 and ($8,115) for the nine months ended September 30, 2023 and 2022, respectively, which represent an effective tax rate of positive 8.31% and negative 56.22%, respectively. The increase in the provision for income tax expense was primarily attributable to income from operations, lower deductible stock-based compensation windfalls and return to provision true-ups in various jurisdictions.
The Company is subject to a wide variety of tax laws and regulations across the jurisdictions where it operates. Regulatory developments from the U.S. or international tax reform legislation could result in an impact to the Company's effective tax rate. The company continues to monitor the Base Erosion and Profit Shifting (BEPS) Integrated Framework provided by the Organization for Economic Co-operation and Development (OECD) including the legislative adoption of Pillar II by countries, and all other tax regulatory changes, to evaluate the potential impact on future periods.
23
BUSINESS SEGMENT DISCLOSURES
See Note 11 – Segment Information to the consolidated financial statements for additional information regarding our business segments. The following table reflects the results of each of our reportable segments during the three months ended September 30, 2023 and 2022:
($ 28,161)
4,750
47%
(608)
(26)%
(438)
(5)
Total Consolidated Revenues
Adjusted Segment EBITDA (1)
27,171
22,445
$ 4,726
21%
1,967
43%
1,900
59%
(355)
(63)%
(1,637)
(95)%
Total Reported Adjusted EBITDA
North American Realty revenues decreased (2)% in the third quarter of 2023 compared to the same period in 2022 primarily due to decreased real estate transactions driven by the slowdown in the U.S. and Canada residential real estate markets. Adjusted EBITDA increased 21% due to lower general and administrative expenses, partially offset by lower revenue.
International Realty revenues increased 47% in the third quarter of 2023 compared to the same period in 2022 primarily due to increased real estate transactions driven by increased production in previously launched markets. Adjusted EBITDA improved 43% in the third of 2023 compared to the same period in 2022 due to increased revenue which was offset selling, general and administrative expenses to support the incremental production in existing operations.
Virbela revenues decreased (26)% due to softer customer demands in one-time virtual events. Adjusted EBITDA improved 59% primarily due to workforce reductions and decrease in marketing and advertising expenses.
Other Affiliated Services revenues decreased 31% due to lower SUCCESS® print media, partially offset by expansion of SUCCESS® Coaching. Adjusted EBITDA decreased (63)% due to increases in selling, general and administrative expenses related to investing in business initiatives.
Corporate expenses and other contain the costs incurred to operate the corporate parent of eXp Realty.
24
See Note 11 – Segment Information to the consolidated financial statements for additional information regarding our business segments. The following table reflects the results of each of our reportable segments during the nine months ended September 30, 2023 and 2022:
($ 377,610)
11,496
44%
(487)
431
13%
(540)
(17)%
82,496
91,115
($ 8,619)
(5)%
4,895
56%
(628)
(29)%
4,908
36%
North American Realty revenues decreased (10)% in the first nine months of 2023 compared to the same period in 2022 primarily due to decreased real estate transactions driven by the slowdown in the real estate markets. Adjusted EBITDA decreased (9)% due to lower revenue, partially offset by lower general and administrative costs.
International Realty revenues increased 44% in the first nine months of 2023 compared to the same period in 2022 primarily due to increased real estate transactions driven by increased production in previously launched markets. Adjusted EBITDA decreased (5)% in the first nine months of 2023 compared to the same period in 2022 due to growing selling, general and administrative expenses to support the incremental production in existing operations.
Virbela revenues decreased (8)% due to a decrease in one-time virtual event revenue. Adjusted EBITDA improved 56% primarily due to workforce reductions and decreases in marketing and advertising expenses.
Other Affiliated Services revenues increased 13% due to expansion of SUCCESS® Coaching. Adjusted EBITDA decreased (29)% due to increased selling, general and administrative expenses to support the expansion.
Corporate expenses and other contain the costs incurred to operate the corporate parent of eXp Realty. The decrease in these costs (improved Adjusted EBITDA) in the first nine months of 2023 compared to the same period of 2022 reflect decreased costs primarily due to cost containment initiatives, partially offset by increased employee count to continue to support our agent growth strategy.
NON-U.S. GAAP FINANCIAL MEASURES
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA, a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S.GAAP.
We define the non-U.S. GAAP financial measure of Consolidated Adjusted EBITDA to mean net income, excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, stock-based compensation expense and stock option expense. Adjusted Segment EBITDA is defined as operating profit plus depreciation and amortization and stock-based compensation expenses. We believe that Consolidated Adjusted EBITDA and Adjusted Segment EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted Segment EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted Segment EBITDA. In particular, we believe the exclusion of stock and stock option expenses, provides a useful supplemental measure in evaluating the performance of our underlying operations and provides better transparency into our results of operations.
We are presenting the non-U.S. GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.
Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to Net Income (Loss), the closest comparable U.S. GAAP measure. Some of these limitations are that:
The following tables present a reconciliation of Adjusted EBITDA to net income, the most comparable U.S. GAAP financial measure, for each of the periods presented:
Depreciation and amortization
Stock compensation expense (1)
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are our cash and cash equivalents on hand and cash flows generated from our business operations. Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, repurchase our common stock, and meet obligations as they become due. Our cash and cash equivalents balances and cash flows from operations have strengthened primarily due to transaction volume growth and improved cost leverage over the prior five years, attributable to the expansion of our independent agent and broker network and, to a lesser extent, increased average prices of home sales.
Currently, our primary use of cash on hand is to sustain and grow our business operations, including, but not limited to, commission and revenue share payments to agents and brokers and cash outflows for operating expenses and dividend payments. In addition, the Company has no known material cash requirements as of September 30, 2023, relating to capital expenditures, commitments, or human capital (except as passthrough commissions to agents and brokers concurrent with settled real estate transactions).
We believe that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including our level of investment in technology, our rate of growth into new markets, and cash used to repurchase shares of the Company’s common stock. Our capital requirements may be affected by factors which we cannot control such as the changes in the residential real estate market, interest rates, and other monetary and fiscal policy changes to the manner in which we currently operate. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next twelve months.
Net Working Capital
Net working capital is calculated as the Company’s total current assets less its total current liabilities. The following table presents our net working capital as of September 30, 2023 and December 31, 2022:
Current assets
$ 299,810
$ 255,113
Current liabilities
(171,931)
(127,299)
Net working capital
$ 127,879
$ 127,814
For the nine months ended September 30, 2023, net working capital increased $0.1 million, or 0%, compared to December 31, 2022.
Cash Flows
The following table presents our cash flows for the nine months ended September 30, 2023 and 2022:
Cash provided by operating activities
$ 176,516
$ 187,324
Cash used in investment activities
Cash used in financing activities
$ 14,758
For the nine months ended September 30, 2023, cash provided by operating activities decreased ($10.8) million compared to the same period in 2022. The change resulted primarily from decreased real estate transactions.
For the nine months ended September 30, 2023, cash used in our investing decreased primarily due to cash used for acquisitions in 2022, as well as fewer capital expenditures.
For the nine months ended September 30, 2023 and 2022 cash flows used in financing activities primarily were related to stock repurchases and the payment of cash dividends. The decrease in cash flows used in financing activities for the nine months ended September 30, 2023 is due to fewer share repurchases.
Acquisitions
While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions, access new revenue streams, or otherwise complement or accelerate the growth of our existing operations. We may fund acquisitions or investments in complementary businesses with various sources of capital including existing cash balances and cash flow from operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022, which provides a
description of our critical accounting policies. There were no changes to critical accounting policies or estimates as reflected in our 2022 Annual Report. For additional information regarding our critical accounting policies and estimates, see the Critical Accounting Policies and Estimates section of MD&A included in our 2022 Annual Report.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposures to market risk since December 31, 2022. For details on the Company's interest rate and foreign currency exchange, see “Item 7A. Quantitative and Qualitative Information About Market Risks” in our 2022 Annual Report.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (as the principal executive officer) and Chief Financial Officer (as the principal financial officer), to allow timely decisions regarding required disclosures.
As of September 30, 2023, an evaluation was conducted by the Company under the supervision and with the participation of its management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably believed to be likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
LEGAL PROCEEDINGS
See Note 10 - Commitments and Contingencies and Note 12 – Subsequent Events to the condensed consolidated financial statements for additional information regarding the Company’s legal proceedings, which is incorporated herein by reference.
From time to time, we are involved in ordinary routine litigation incidental to the conduct of our business, including matters that may be certified as class or collective actions. The Company believes that it has adequately and appropriately accrued for legal matters. We recognize expense for legal claims when payments associated with the claims become probable and can be reasonably estimated.
Additionally, the below captioned matter addresses certain current antitrust litigation involving the Company. Antitrust laws generally provide for joint and several liability and treble damages. We believe that additional antitrust litigation may be possible. We cannot provide any assurances that results of such litigation will not have a material adverse effect on our business, results of operations or financial condition.
Litigation and other legal matters are inherently unpredictable and subject to substantial uncertainties and adverse resolutions could occur. In addition, litigation and other legal matters, including class action lawsuits, government investigations and regulatory proceedings can be costly to defend and, depending on the class size and claims, could be costly to settle. As such, the Company could incur judgments, penalties, sanctions, fines or enter into settlements of claims with liability that are materially in excess of amounts accrued and these settlements could have a material adverse effect on the Company’s financial condition, results of operations or cash flows in any particular period.
Gibson v. National Association of Realtors was filed on October 31, 2023 in the United States District Court for the Western District of Missouri, Western Division, naming the National Association of Realtors (“NAR”), the Company, Compass, Inc., Redfin Corporation, Weichert Realtors, United Real Estate, Howard Hann Real Estate Services, and Douglas Elliman, Inc. as defendants. The plaintiffs allege that the defendants engaged in a continuing contract, combination, or conspiracy to unreasonably restrain trade and commerce in violation of Section 1 of the Sherman Act because defendant NAR allegedly established mandatory anticompetitive policies and rules for the multiple listing services and its member brokers that require listing brokers to make an offer of buyer-broker compensation when listing a property. The plaintiffs argue that “but for” the challenged NAR policies and rules, these offers of buyer-broker compensation would not be made and plaintiffs seek the recovery of full commissions paid to buyers’ brokers as to brokerage and franchised operations, as applicable, in the relevant geographic area.
The plaintiffs further allege that commission sharing, which provides for the broker representing the seller sharing or paying a portion of its commission to the broker representing the buyer, is anticompetitive and violates the Sherman Act, and that the brokerage/franchisor defendants, including the Company, conspired with NAR by requiring their respective brokerages/franchisees to comply with NAR’s policies, rules, and code of ethics, and engaged in other allegedly anticompetitive conduct including, but not limited to, steering and agent education that allegedly promotes the practice of paying buyer-broker compensation and discourages commission negotiation.
The antitrust claims in this matter are limited both in allegations and relief sought to home sellers who, from October 31, 2019 to the present, used a listing broker affiliated with one of the brokerage/franchisor defendants in multiple listing services that primarily serve the State of Missouri, purportedly in violation of federal and Missouri antitrust laws. 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 damages and/or restitution for the period, attorneys’ fees and costs of suit. Plaintiffs allege joint and several liability and seek treble damages.
The Company has closely monitored ongoing and similar antitrust litigation against our competitors in recent years. The Company is committed to upholding fair and transparent practices compliant with law and has already developed mechanisms and a plan in place that enables buyers and sellers to negotiate commissions.
RISK FACTORS
The business, financial condition and operating results of the Company can be affected by a number of risks, whether currently known or unknown. For a discussion of our potential risks and uncertainties, please see in Part I, Item 1A of the 2022 Annual Report under the heading “Risk Factors”. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations in future periods. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. Except for the risk factors disclosed in Part I, Item 1A of 2022 Annual Report, which are hereby incorporated by reference into this Part II, Item 1A of this Form 10-Q, and the additional risk factor set forth below, there have been no material changes to the Company’s risk factors as disclosed in the 2022 Annual Report.
Risks Related to Legal and Regulatory Matters
Adverse outcomes in litigation and regulatory actions against other companies and agents in our industry could adversely impact our financial results.
Adverse outcomes in legal and regulatory actions against other companies, brokers, and agents in the residential and commercial real estate industry may adversely impact the financial condition of the Company and our real estate brokers and agents when those matters relate to business practices shared by the Company, our real estate brokers and agents, or our industry at large. Such matters may include, without limitation, RESPA, Telephone Consumer Protection Act of 1991 and state consumer protection law, antitrust and anticompetition, and worker classification claims. Additionally, if plaintiffs or regulatory bodies are successful in such actions, this may increase the likelihood that similar claims are made against the Company and/or our real estate brokers and agents which claims could result
in significant liability and be adverse to our financial results if we or our brokers and agents are unable to distinguish or defend our business practices.
As an example, in the matter of Burnett v. National Association of Realtors (U.S. District Court for the Western District of Missouri), a federal jury found NAR and certain other remaining brokerage defendants liable for $1.8 billion in damages, which verdict was appealed on October 31, 2023. Additionally, certain other brokerage defendants settled with the plaintiffs, including both monetary and non-monetary settlement terms. That same day, NAR, the Company, Compass, Inc., Redfin Corporation, Weichert Realtors, United Real Estate, Howard Hann Real Estate Services, and Douglas Elliman, Inc. were named as defendants in Gibson v. National Association of Realtors, alleging a similar fact pattern and antitrust violations. The Company is continuing to review the allegations and intends to vigorously defend the action.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information about repurchases of our common stock through the quarter ended September 30, 2023:
Period
Total number of shares purchased
Average price paid per share
Total number of shares purchased as part of publicly announced plans or programs (1)
Approximate dollar value of shares that may yet be purchased under the plans or programs
7/1/2023-7/31/2023
842,552
22.36
$ 493,857,247
8/1/2023-8/31/2023
863,549
$ 21.78
475,200,323
9/1/2023-9/30/2023
1,055,842
17.73
456,546,523
$ 20.62
DEFAULTS UPON SENIOR SECURITIES
None.
MINE SAFETY DISCLOSURES
Not applicable.
On September 29, 2023, Glenn Sanford, the Company’s Chairman of the Board, Chief Executive Officer and Chief Executive Officer of eXp Realty, LLC, adopted a Rule 10b5–1 trading arrangement (as defined in Item 408 of Regulation S-K). The duration of the trading arrangement is through January 10, 2025. The aggregate number of shares of the Company’s common stock that may be sold pursuant to the trading arrangement is 945,000.
During the three months ended September 30, 2023, and except as set forth in this Item 5, no other directors of officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) informed us the adoption or termination of a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as defined in Item 408 of Regulation S-K.
EXHIBITS
Exhibit
Incorporated by Reference
Number
Description
Form
Filing Date/Period End Date
3.1
Restated Certificate of Incorporation
10-K
2/28/2023
3.2
Restated Bylaws
4.1
Description of Securities
31.1*
Certification of the Chief Executive Officer pursuant to Rule 13a 14(a) under the Securities Exchange Act of 1934
31.2*
Certification of the Chief Financial Officer pursuant to Rule 13a 14(a) under the Securities Exchange Act of 1934
32.1**
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
November 2, 2023
(Registrant)
/s/ Jeff Whiteside
Jeff Whiteside
Chief Financial Officer (Principal Financial Officer)
32