Item 2. Management’s Discussion and Analysis
Item 2.
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 Quarterly Report and consolidated financial statements and related notes appearing in our 2025 Annual Report. This MD&A contains forward-looking statements. See the Cautionary Note Regarding Forward-Looking Statements at the beginning of this Quarterly Report for important information regarding such statements, including risks and uncertainties that could cause actual results to differ materially from those expressed or implied. We undertake no obligation to publicly update or revise any forward-looking statements except as may be required by law.
All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.
OVERVIEW
The Company operates a diversified portfolio of service-based businesses whose operations benefit substantially from utilizing our enabling technology platform. A substantial portion of our revenue is derived from commissions received by our residential real estate brokerages which provide a full suite of brokerage and adjacent services (such as mortgage, title, and content creation) to our real estate agents and brokers. Our real estate agents and brokers affiliate their real estate licenses with us and operate their businesses utilizing our cloud-based technology platform to enhance their real estate businesses and optimize efficiencies. On May 6, 2026, we expanded our portfolio through the acquisition of NextHome, representing our initial entry into the franchised real estate brokerage model. Through NextHome, we now also serve independent real estate professionals and brokerages who operate under the NextHome franchise system, broadening the range of affiliation models through which agents and brokers can access our ecosystem of services and support. Our enabling and innovative technology platform is a robust suite of cloud-based applications and software services tailored for our real estate agents, brokers, and professionals and targets business operations such as customer relationship management, marketing, client services, and brokerage functionalities. We succeed when our real estate professionals succeed, and we remain focused on being the most agent-centric business on the planet – built by agents, built for agents.
MARKET CONDITIONS AND INDUSTRY TRENDS
Our performance is closely tied to housing market activity, which is influenced by economic conditions such as employment, consumer confidence, mortgage availability, interest rates, and the balance of supply and demand. Periods of economic growth and lower interest rates generally support higher home sales activity, while rising rates, affordability constraints, increased unemployment, or broader economic slowdowns may reduce transaction volumes and pricing. Regulatory developments, geopolitical events, and shifts in consumer sentiment can also affect housing demand.
In the first quarter of 2026, U.S. home sales declined 1% compared to the first quarter of 2025, and home sales prices increased 1.4%, according to the National Association of Realtors (“NAR”). Inventory levels remain constrained, at 4.1 months of supply, consistent with inventory levels in March 2025. These conditions may continue to limit transaction volumes in the near term.
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Despite these challenges, we believe the Company is positioned for growth with a strong base of agents, an efficient cloud-based operating model, and low fixed costs. This structure allows us to adapt quickly to market changes while supporting long-term productivity and retention.
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, cash flows or financial condition.
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 to track the Company’s performance:
Three Months Ended March 31,
2026
2025
Performance:
Agent NPS
67
78
Agent count
82,332
81,904
Real estate sales transactions
91,598
89,643
Real estate sales volume
$ 40,747,782
$ 38,641,084
Other real estate transactions
18,820
18,015
Real estate per transaction cost
$ 699
$ 734
Revenues
$ 1,005,541
$ 954,906
Gross profit
$ 75,347
$ 76,135
Operating income (loss)
($ 8,788)
($ 10,376)
Consolidated adjusted EBITDA (1)
$ 4,053
$ 2,157
(1) Consolidated adjusted EBITDA is a non-U.S. GAAP financial measure. For a definition, reconciliation to net income (loss), and discussion of why management believes this measure is useful, see “Non-U.S. GAAP Financial Measures”.
Agent net promoter score (“aNPS”)
The Company utilizes aNPS as a key metric to measure agent satisfaction. We believe an aNPS above 50 is indicative of excellent agent satisfaction. For the three months ended March 31, 2026, our aNPS was 67, compared to 78 for the same period in 2025. We remain committed to our agent-centric model by enhancing productivity and maintaining high levels of engagement across our global networks.
Agent count
We believe our ability to attract and retain a diverse and professional agent base is a key driver of our long-term success. While our total agent count has experienced recent declines amidst a challenging macroeconomic environment, we remain deeply focused on the retention and support of our agents and teams across all levels of production. The scale of our agent base remains subject to factors beyond our control, including elevated mortgage rates, suppressed transaction volumes, and evolving industry practices. Despite these headwinds, we continue to prioritize a comprehensive value proposition that supports agent productivity, operational efficiency, and long-term professional growth for our entire network.
The number of agents increased in the first three months of 2026, compared to the same period in 2025. We remain committed to retaining our agents in the U.S., Canada, and internationally through the execution of our growth strategies and the end-to-end suite of services we offer our agents.
Real estate sales transactions and volume
Real estate sales transactions are based on the side (buyer or seller) of each real estate transaction and are recorded when our agents and brokers represent buyers 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. 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, economic growth, or contraction, local inventory levels, mortgage interest rates, and seasonality.
Our real estate sales transactions and volume typically fluctuate with changes in the market’s existing home sales transactions as reported by NAR; however, company-specific initiatives influence the transaction volume and productivity
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of our agents. For the three months ended March 31, 2026, compared to the same period in 2025, our real estate sales transactions increased 2.2%. For the three months ended March 31, 2026, compared to the same period in 2025, transaction volume increased 5.5%. The improvements in transactions and volume are due to increased agent productivity and increased home sale prices.
Other real estate transactions
Other real estate transactions are recorded for leases, rentals and referrals that are undertaken by our agents and brokers. The increase in other real estate transactions for the three months ended March 31, 2026 compared to the same period in 2025.
Real estate per transaction cost
Real estate per transaction cost is measured as selling, general and administrative, sales and marketing and technology and development expenses resulting from our services that directly support our agents and brokers, divided by total transactions (real estate sales and other). Real estate per transaction cost decreased (5)% for the three months ended March 31, 2026, compared to the same period in 2025, primarily due to operational efficiency gains from higher transaction units and reduced personnel expenses, employee stock compensation, and marketing expenses.
Revenues
Revenues represent the commission revenue earned by the Company for closed brokerage real estate transactions. The Company’s revenues increased 5% for the three months ended March 31, 2026, compared to same period in 2025, primarily due to higher home sales prices in North America, increased international production, and improved productivity in North America for the first quarter of 2026.
Gross profit
Gross profit in the first quarter of 2026 was $75.3 million compared to $76.1 million in the first quarter of 2025. Gross profit decreased in 2026 due to increased agent commissions, productivity awards, and other agent-related costs due to sales commission capping and lower fees from the reduced number of agents.
Operating Income (Loss)
Operating loss in the first quarter of 2026 was ($8.8) million compared to ($10.4) million in the first quarter of 2025. The decrease in the operating loss in 2026 reflects actions taken to reduce operating costs in the second half of 2025, partially offset by increased legal expenses in connection with the Company’s ongoing efforts to resolve legacy litigation matters, including the NAR settlement and other claims.
Consolidated Adjusted EBITDA
Management reviews consolidated adjusted EBITDA, which is a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. For the three months ended March 31, 2026, consolidated adjusted EBITDA increased by $1.9 million, compared to the same period in 2025. The increase in consolidated adjusted EBITDA reflects an improvement in operating results related to actions taken to reduce operating costs in 2025, which offset increased agent capping and lower agent fees.
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RESULTS OF OPERATIONS
The following table reflects the results of each of our operations during the three months ended March 31, 2026 and 2025:
Three Months Ended
Three Months Ended
Change 2026
March 31, 2026
March 31, 2025
vs. 2025
Statement of Operations Data:
Revenues
$ 1,005,541
$ 954,906
5%
Commissions and other agent-related costs
930,194
878,771
6%
Gross profit
75,347
76,135
(1)%
Operating expenses
General and administrative expenses
64,213
66,871
(4)%
Technology and development expenses
17,595
16,805
5%
Sales and marketing expenses
2,327
2,835
(18)%
Total operating expenses
84,135
86,511
(3)%
Operating income (loss)
(8,788)
(10,376)
15%
Other (income) expense
Other (income) expense, net
(268)
(943)
(72)%
Equity in (income) losses of unconsolidated affiliates
130
(80)
(263)%
Total other (income) expense, net
(138)
(1,023)
(87)%
Income (loss) before income tax expense
(8,650)
(9,353)
8%
Income tax (benefit) expense
(3,552)
1,671
313%
Net income (loss)
(5,098)
(11,024)
54%
Commissions and Other Agent-Related Costs
For the three months ended March 31, 2026 and 2025, commissions and other agent-related costs increased primarily due to increased sales commissions capping and lower agent fees from the lower number of agents. Commissions and other agent-related costs include sales commissions, revenue share and stock-based compensation paid to our agents.
General and Administrative Expenses
For the three months ended March 31, 2026, general and administrative expenses decreased compared to the same period in 2025, due to decreased employee-related expenses, partially offset by increased litigation expenses. General and administrative expenses include costs related to wages, employee stock-based compensation, and other general overhead expenses.
Technology and Development Expenses
For the three months ended March 31, 2026, technology and development expenses increased compared to the same period in 2025, primarily due to increased technology expenses related to agent support. These expenses include employee-related costs and other expenses for the maintenance and development of the technology used by both our agents and our employees.
Sales and Marketing Expenses
For the three months ended March 31, 2026, sales and marketing expenses decreased compared to the same period in 2025 due to efficiencies gained from our CRM of choice program in the U.S. and Canada residential real estate market.
Other (Income) Expense, Net
For the three months ended March 31, 2026, total other (income) expense, net decreased primarily due to decreased interest income when compared to the same period in 2025. Total other (income) expense, net includes interest income earned on cash and cash equivalents, and (earnings) losses related to equity investments.
Income Tax (Benefit) Expense
The Company’s provision for income taxes was a benefit of $(3.6) million and an expense of $1.7 million for the three months ended March 31, 2026 and 2025, respectively. The benefit for the three months ended March 31, 2026 was primarily driven by the pre-tax loss for the quarter, partially offset by stock-based compensation shortfalls and non-deductible executive compensation.
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BUSINESS SEGMENT DISCLOSURES
See Note 7 – Segment Information to the unaudited condensed 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 March 31, 2026 and 2025:
March 31, 2026
March 31, 2025
Change 2026 vs. 2025
Statement of Operations Data:
Revenues
North American Realty
$ 965,103
$ 923,048
5%
International Realty
40,152
31,657
27%
Other Affiliated Services
859
827
4%
Corporate expenses and other
(573)
(626)
8%
Total Consolidated Revenues
$ 1,005,541
$ 954,906
5%
Segment Adjusted EBITDA (1)
North American Realty
$ 9,963
$ 7,736
29%
International Realty
(2,421)
(1,615)
(50)%
Other Affiliated Services
(130)
(1,455)
91%
Corporate expenses and other
(3,359)
(2,509)
(34)%
Total Segment Adjusted EBITDA (1)
$ 4,053
$ 2,157
88%
Operating Income (Loss)
North American Realty
($ 1,611)
($ 3,824)
58%
International Realty
(3,016)
(1,921)
(57)%
Other Affiliated Services
(194)
(1,643)
88%
Corporate expenses and other
(3,967)
(2,988)
(33)%
Total Consolidated Operating Income (Loss)
($ 8,788)
($ 10,376)
15%
(1) Segment adjusted EBITDA is a non-U.S. GAAP financial measure. Management evaluates segment performance based on revenue, segment adjusted EBITDA, and operating income (loss). For a definition, reconciliation to net income (loss), and discussion of why management believes this measure is useful, see “Non-U.S. GAAP Financial Measures”.
North American Realty revenue increased 5% in the first quarter of 2026 compared to the same period in 2025, primarily due to an increase in agent productivity and home sale prices in the U.S. and partially offset by lower transactions in Canada. North American Realty adjusted EBITDA as well as operating income (loss) improved in the first quarter of 2026 compared to the same period 2025 due to increased revenues, and lower operating costs, which offset increased commissions and other agent-related costs as a result of increased capping and lower agent fees.
International Realty revenue increased 27% in the first quarter of 2026 compared to the same period in 2025, primarily due to increased real estate transactions driven by increased productivity in previously launched markets, as well as the strategic launch of several new markets during 2025. International Realty adjusted EBITDA and operating income (loss) decreased by 50% and 57%, respectively, in the first quarter of 2026 compared to the same period in 2025 primarily due to higher costs of entering new countries and increased costs to support the continued growth.
Other Affiliated Services revenue increased 4% in the first quarter of 2026 compared to the same period in 2025, due to increased SUCCESS ® Magazine revenues. Other Affiliated Services adjusted EBITDA and operating loss improved in the first quarter of 2026 compared to the same period in 2025 due to increased revenues and lower costs.
Corporate expenses and other contain the costs incurred to operate the Company.
NON-U.S. GAAP FINANCIAL MEASURES
To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use consolidated adjusted EBITDA and segment adjusted EBITDA, non-U.S. GAAP financial measures, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are 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.
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We define consolidated adjusted EBITDA as net income, excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, stock-based compensation expense, stock option expense, and other items not core to the operating activities of the Company. Segment adjusted EBITDA is defined consistently, excluding depreciation and amortization, interest expense, income taxes, stock compensation expense, stock option expense, and other non-core items. We believe these measures provide useful information about our financial performance, help identify underlying trends that could otherwise be masked by excluded expenses, and allow for greater transparency with respect to key metrics used by management for financial and operational decision-making. 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.
Consolidated adjusted EBITDA and segment adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. Limitations of these measures compared to net income include:
● Consolidated adjusted EBITDA and segment adjusted EBITDA exclude stock-based compensation expenses 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
● Consolidated adjusted EBITDA and segment adjusted EBITDA exclude 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 table presents a reconciliation of consolidated adjusted EBITDA to net income (loss), the most comparable U.S. GAAP financial measure, for each of the periods presented:
Three Months Ended March 31,
2026
2025
Net income (loss)
($ 5,098)
($ 11,024)
Total other (income) expense, net
(138)
(1,023)
Income tax (benefit) expense
(3,552)
1,671
Depreciation and amortization
2,322
2,561
Stock-based compensation expense (1)
9,073
8,119
Other stock-based compensation expense
1,446
1,853
Consolidated adjusted EBITDA
$ 4,053
$ 2,157
(1) This includes agent growth incentive stock-based compensation expense.
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.
Currently, our primary use of cash on hand is to sustain and grow our business operations, including, but not limited to, making 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 March 31, 2026 relating to capital expenditures, commitments, or human capital (except as passthrough commissions to agents and brokers concurrent with settled real estate transactions). The Company intends to use available cash to pay the remaining $17 million antitrust litigation settlement amount.
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, industry practice changes in light of the NAR settlement relating to the antitrust litigation, 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
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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 March 31, 2026 and December 31, 2025:
March 31, 2026
December 31, 2025
Current assets
$ 328,677
$ 304,868
Current liabilities
(211,266)
(199,701)
Net working capital
$ 117,411
$ 105,167
As of March 31, 2026, net working capital increased by $12.2 million, compared to net working capital as of December 31, 2025 due to an increase in net accounts receivable, due to the timing of receivable collections, partially offset by an increase in accruals for customer deposits.
Cash Flows
The following table presents our cash flows for the three months ended March 31, 2026 and 2025:
Three Months Ended March 31,
2026
2025
Net cash provided by operating activities
$ 20,571
$ 39,838
Net cash used in investing activities
(2,089)
(14,247)
Net cash used in financing activities
(7,949)
(12,284)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash
(1,637)
329
Net change in cash, cash equivalents and restricted cash
$ 8,896
$ 13,636
For the three months ended March 31, 2026, net cash provided by operating activities decreased ($19.3) million compared to the same period in 2025. The decrease in cash provided by operating activities was primarily driven by lower agent equity compensation and changes in working capital. As of March 31, 2026, the Company has accrued the remaining $17.0 million installment of the antitrust litigation settlement, which it intends to pay from available cash on or before June 27, 2026.
For the three months ended March 31, 2026, net cash used in investing activities decreased due to lower cash used for investments in affiliates and other assets and purchases of property and equipment compared to the same period in 2025.
For the three months ended March 31, 2026, net cash flows used in financing activities decreased compared to the same period in 2025, due to no stock repurchases in the first quarter of 2026.
Acquisitions
Acquisitions have not been a material element of our ongoing business, but we continue to 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 2025 Annual Report, which provides a description of our critical accounting policies. There were no changes to critical accounting policies or estimates as reflected in our 2025 Annual Report. For additional information regarding our critical accounting policies and estimates, see the Critical Accounting Policies and Estimates section of Part II, Item 7 Management’s Discussion and Analysis of Financial Conditions and Results of Operations included in our 2025 Annual Report.
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