EXP WORLD HOLDINGS, INC. 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 2021 Annual Report for a discussion of certain risks, uncertainties and assumptions associated with these statements.
This MD&A is divided into the following sections:
? Overview
? Market Conditions and Industry Trends
? Key Business Metrics
? Recent Business Developments
? Results of Operations
? Non-
? Liquidity and Capital Resources
? Critical Accounting Policies and Estimates
All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.
OVERVIEW
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
Throughout 2021, and during the first quarter of 2022, we continued to make
progress in achieving our strategic goals, including an 55% increase in our
agent count, going from 50,333 agents as of
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MARKET CONDITIONS AND INDUSTRY TRENDS
Our business is dependent on the economic conditions within the markets for which we operate. Changes in these conditions can have a positive or negative impact on our business. The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability and supply and demand.
In periods of economic growth, demand typically increases resulting in higher home sales transactions and home sales prices. Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand. Additionally, regulations imposed by local, state, and federal government agencies, and geopolitical instability, can also negatively impact the housing markets for which we operate.
For the period ended
According to the
The Company is positioned to grow in light of a series of fluctuations in economic activity. The Company continued its growth trajectory through the first quarter of 2022 with a year-over-year increase in revenue of 73% and an increase in agent count of 55%. However, the Company continues to monitor the overall economic climate, specifically in key areas of operations, affecting the real estate market through the end of 2022.
Regardless of whether the housing market continues to grow or slows, 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 in a series of fluctuations in economic activity.
National Housing Inventory
Throughout 2021 and into 2022, increased demand and low mortgage interest rates
caused inventory levels to decline to record lows. With continued overall
uncertainty of the overall economy, fewer individuals are listing their homes.
Additionally, construction of new homes has slowed due to increased costs of raw
materials, tight labor market, and delays in the supply chains as the global
economy continues to recover. Due to these factors, and others, year-over-year
inventory has decreased further. According to NAR, inventory of existing homes
for sale in the
Mortgage Interest Rates
According to NAR, mortgage interest rates on commitments for 30-year, conventional, fixed-rate mortgages averaged 3.8% for the first quarter of 2022 compared to 2.9% for the first quarter of 2021. Mortgage rates are forecasted to increase to 4.9% throughout 2022, with an expected increase in interest rates in 2023 to 5.4%. Increases in mortgage rates are expected to contribute to a decline in demand for homebuying.
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Housing Affordability Index
According to NAR, the composite housing affordability index decreased to 135.4
for
Home Sales Transactions
According to NAR, seasonally adjusted existing home sale transactions decreased to 5.8 million 2022 (preliminary) compared to 6.0 million for 2021. NAR anticipates transactions to continue with current pace; however, due to low inventory levels, current transaction volume may not be sustainable.
According to NAR, the nationwide existing home sales median price for
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:
Three Months Ended March 31,
2022 2021
(in thousands, except transactions and agent count)
Performance:
Agent count 78,196 50,333
Transactions 114,305 73,878
Volume $ 41,379,500 $ 24,507,856
Revenue $ 1,010,731 $ 583,833
Gross profit 83,464 53,486
Gross margin (%) 8.3% 9.2%
Adjusted EBITDA(1) 17,709 14,820
(1) Adjusted EBITDA is not a measurement of our financial performance under
generally accepted accounting principles in the U.S. and should not be
considered as an alternative to net income, operating income, or any other
measures derived in accordance with U.S. GAAP. For a definition of Adjusted
EBITDA and a reconciliation of Adjusted EBITDA to net income, see "Non-U.S.
GAAP Financial Measures".
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. Brokerage real estate transactions are recorded when our agents and brokers represent buyers and/or sellers in the purchase or sale, respectively, of a home. The number of real estate transactions is a key driver of our revenue and profitability. Real estate transaction volume represents the total sales value for all homes sold by our agents and brokers 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 significantly in
Settled home sales transactions and volume resulted from closed real estate transactions and typically change directionally with changes in the market's existing home sales transactions as reported by NAR, as disproportionate variances are representative of company-specific improvements or shortfalls to the norm. Our home sale transaction growth was directly related to the growth of our agent base over the prior comparative period.
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We utilize gross profit and gross margin, financial statement measures based on
generally accepted accounting principles in the
Gross profit is calculated from
Management also reviews Adjusted EBITDA, which is a non-
RECENT BUSINESS DEVELOPMENTS
Real Estate Brokerage Initiatives
Global Expansion of Our Real Estate
In 2020, the Company continued its international expansion into
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 71 in the first quarter of 2022. Whether it be the overall question "How likely are you to recommend eXp to your colleagues, friends, or family?" or more granular inquiries as to specific workflows or service offerings, we believe this will ensure we are delivering on the most important values to our agents and employees. In turn, this often leads to enthusiastic fans of eXp who will promote our Company and continue leading us through strong organic growth.
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. This fast and iterative approach has already led to improvements in parts of our business such as agent onboarding, commission transaction processing, and employee benefits.
Agent Ownership
The Company maintains an equity incentive program whereby agents and brokers of eXp Realty can become eligible to receive awards of the Company's common stock through the achievement of production and agent attraction benchmarks. Under our equity incentive program, agents and brokers who qualify may be issued awards of shares of the Company's common stock, and it continues to be another element in creating a culture of agent-ownership.
Our agent compensation plans represent a key lever in our strategy to attract and retain independent agents and brokers. The costs attributable to these plans are also a significant component of our commission structure and results of operations. Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock.
Technology Products and Services
We continue developing the core Virbela enterprise metaverse technology through
our subsidiary, eXp
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enterprise customers worldwide. Virbela has seen increased interest from Fortune 2000 enterprises looking to become both customers and partners as they invest in metaverse technologies and build out their own strategies. Enterprise readiness was a core product focus in 2021 (e.g., scale, reliability, security, and privacy). In 2021, Virbela also released a new product called Frame into beta. Frame is a metaverse collaboration technology that is accessible from any device with a browser (e.g., mobile, personal computer, virtual reality device, tablet). In 2022, we expect to continue to service existing and new business-to-business enterprise level contracts, solidify channel partnerships, and bring the Frame product out of beta.
Affiliate and Media Services
Acquisitions and partnerships have allowed us to begin offering to customers more products and services complementary to our real estate brokerage business. These affiliate and media services include mortgage origination, title, escrow, and settlement services, which we can now provide as a more inclusive offering in addition to our brokerage services. We anticipate continued growth and investment in these service offerings through 2022; however, actual performance will depend largely on utilization by eXp and non eXp Realty agents.
In July of 2021, the Company formed
Results of Operations
Three Months EndedMarch 31, 2022 compared to the Three Months EndedMarch 31, 2021 Three Three Months Months Change Ended % of Ended % of 2022 vs. 2021 March 31, March 31, 2022 Revenue 2021 Revenue $ % (In thousands, except share amounts and per share data) Statement of Operations Data: Revenues$ 1,010,731 100%$ 583,833 100%$ 426,898 73% Operating expenses Commissions and other agent-related costs 927,267 92% 530,347 91% 396,920 75% General and administrative expenses 75,322 7% 46,300 8% 29,022 63% Sales and marketing expenses 3,700 -% 2,257 -% 1,443 64% Total operating expenses 1,006,289 100% 578,904 99% 427,385 74% Operating income 4,442 -% 4,929 1% (487) (10)% Other (income) expense Other (income) expense, net 410 -% (134) -% 544 (406)% Equity in losses of unconsolidated affiliates 317 -% 6 -% 311 5183% Other (income) expense, net 727 -% (128) -% 855 (668)% Income before income tax expense 3,715 -% 5,057 1% (1,342) (27)% Income tax (benefit) expense (5,149) (1)% 211 -% (5,360) (2,540)% Net income 8,864 1% 4,846 1% 4,018 83% Add back: Net loss attributable to noncontrolling interest 18 -% - -% 18 -% Net income attributable to eXp World Holdings, Inc. 8,882 1% 4,846 1% 4,036 83% Adjusted EBITDA(1)$ 17,709 2%$ 14,820 3%$ 2,889 19% Earnings per share Basic$ 0.06 $ 0.03 $ 0.03 100% Diluted$ 0.06 $ 0.03 $ 0.03 100% Weighted average shares outstanding Basic 149,226,166 144,354,991 Diluted 156,842,721 158,722,126
(1) Adjusted EBITDA is not a measurement of our financial performance under
GAAP and should not be considered as an alternative to net income, operating
income or any other measures derived in accordance with U.S. GAAP. For a
definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net
income, see "Non-U.S. GAAP Financial Measures."
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Revenue
Our total revenues were
Commission and Other Agent Related Costs
Commission and other agent-related costs were
General and Administrative Expense
General and administrative expenses were
Sales and Marketing
Sales and marketing expenses increased to
Other Expense (Income)
There were no significant changes in other expense for the three months ended
Income Tax Benefit (Expense)
The Company's provision for (benefit from) income taxes amounted to
NON-
To supplement our condensed consolidated financial statements, which are
prepared and presented in accordance with
We define the non-
We believe that Adjusted 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 EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted 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-
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Adjusted EBITDA should not be considered in isolation from, or as a substitute
for, financial information prepared in accordance with
Adjusted EBITDA excludes stock-based compensation expense related to our agent ? growth incentive program and stock option expense, which have been, and will
continue to be for the foreseeable future, significant recurring expenses in
our business and an important part of our compensation strategy; and
Adjusted EBITDA excludes certain recurring, non-cash charges such as
depreciation of fixed assets, amortization of intangible assets, and impairment ? charges related to these long-lived assets, and, although these are non-cash
charges, the assets being depreciated, amortized, or impaired may have to be
replaced in the future.
The following tables present a reconciliation of Adjusted EBITDA to net loss, the most comparableU.S. GAAP financial measure, for each of the periods presented: Three Months Ended March 31, 2022 2021 Net income$ 8,864 $ 4,846 Other (income) expense, net 727 (128) Income tax (benefit) expense (5,149) 211 Depreciation and amortization (1) 1,958 1,310 Stock compensation expense (2) 7,798 5,472 Stock option expense 3,511 3,109 Adjusted EBITDA$ 17,709 $ 14,820
(1) Amortization of stock liability is included in the "Other expense (income)"
line item.
(2) This includes agent growth incentive stock compensation expense and stock
compensation expense related to business acquisitions.
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. At present, 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. Our current
capital deployment strategy for 2022 is to utilize excess cash on hand to
support our growth initiatives into select markets and enhance our technology
platforms and for repurchases of our common stock. As of
For information regarding the Company's expected cash requirement related to settlement costs, see Note 11 - Commitments and Contingencies.
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
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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 is calculated as the Company's total current assets less its
total current liabilities. The following table presents our net working capital
as of
March 31, 2022 December 31, 2021
Current assets $ 399,342 $ 319,315
Current liabilities (253,109) (186,814)
Net working capital $ 146,233 $ 132,501 For the three months ended
Cash Flows
The following table presents our cash flows for the three months ended
Three Months Ended March 31,
2022 2021
Cash provided by operating activities $ 111,507 $ 78,919
Cash used in investment activities (4,684) (3,757)
Cash used in financing activities (35,743) (32,636)
Effect of changes in exchange rates on cash, cash
equivalents and restricted cash 41 47
Net change in cash, cash equivalents and restricted cash
$ 71,121 $ 42,573
For the three months ended
For the three months ended
For the three months ended
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
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