What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-11 compared with 2020-03-12 · 46 added, 385 removed, 10 unchanged (98% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the NASDAQ Global Market operated by NASDAQ, Inc.

under the trading symbol “EXPI”.

As of February 20, 2020, there are 65,619,860 issued and outstanding shares of our common stock held by a total of approximately 17,900 stockholders of record.

Trading in our common stock quoted on the NASDAQ Global Market is often thin and is characterized by wide fluctuations in trading prices due to many factors, some of which may have little to do with our company’s operations or business prospects.

We cannot assure you that there will be a market for our common stock in the future.

The common stock of eXp World Holdings, Inc.

(“eXp”, or, collectively with its subsidiaries, the “Company”, “we”, “us”, or “our”) is traded on the NASDAQ Global Market operated by NASDAQ, Inc.

under the trading symbol “EXPI”.

Trading in our common stock quoted on the NASDAQ Global Market is characterized by wide fluctuations in trading prices due to many factors, some of which may have little to do with our Company’s operations or business prospects.

We cannot assure investors that there will be a market for our common stock in the future.

Holders of Record

As of February 22, 2021, there were approximately 60,000 stockholders of record.

The Company has not paid cash dividends on its common stock in previous periods, including during the year ended December 31, 2020.

Payment of cash dividends is at the discretion of the Company’s Board of Directors in accordance with applicable law after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for growth.

Under Delaware law, we can only pay dividends either out of surplus or out of the current or the immediately preceding year’s earnings.

Therefore, no assurance is given that we will pay any dividends to our common stockholders, or as to the amount of any such dividends.

Common Stock Split

On January 15, 2021, the Company’s Board of Directors approved a two-for-one stock split in the form of a stock dividend to shareholders of record as of January 29, 2021 (the “Stock Split”).

The Stock Split was effected on February 12, 2021.

All shares, restricted stock units (“RSU”), stock options, and per share information have been retroactively adjusted to reflect the stock split.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about repurchases of our common stock through the quarter ended December 31, 2019:

We may repurchase shares of our common stock from time to time at prevailing market prices, depending on market conditions, through open market or privately negotiated transactions.

No date has been established for the completion of the share repurchase program, and we are not obligated to repurchase any shares.

Subject to applicable corporate securities laws, repurchases may be made at such times and in such amounts as management deems appropriate.

Repurchases under the program can be discontinued at any time management feels additional repurchases are not warranted.

Refer to Note 11 – Stockholders’ Equity to the consolidated financial statements herein for more details regarding our stock repurchase program.

The following table provides information about repurchases of our common stock during the quarter ended December 31, 2020:

Total number of shares purchased

5 unchanged sentences

11/1/20 - 11/30/20

On December 27, 2018 the Company announced that our board of directors approved a stock repurchase program authorizing us to purchase up to $25 million of our common stock.

The repurchase program began on January 2, 2019.

On November 26, 2019, the Company announced the approval to increase the authorization limits of the Company’s stock repurchase program by its Board of Directors (the “Board”).

The Board agreed to extend the stock repurchase program through the fourth quarter of 2020 and increase the authorization for the stock repurchase program from $25 million to $75 million of the Company’s common stock.

The stock repurchase program is more fully disclosed in Note 12, Stockholders’

Equity, to our Consolidated Financial Statements.

As of December 31, 2019, we repurchased an aggregate of 2,743,637 shares of our common stock in the open market pursuant to our share repurchase program.

SELECTED FINANCIAL DATA

The following table summarizes our consolidated financial data, which has been derived from the Consolidated Financial Statements for each of the five years in the period ended December 31, 2019.

The selected consolidated financial data presented below should be read in conjunction with our annual consolidated financial statements and

accompanying notes and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report.

Year Ended December 31,

Statement of Operations Data:

Total expenses

Operating loss

Other expense (income)

Income tax expense

Net loss attributable to noncontrolling interest in subsidiary

Net loss attributable common shareholders of eXp World Holdings, Inc.

Net loss per share

Weighted average shares outstanding

Year Ended December 31,

Operating Statistics

Brokerage Services

Close homesale sides (d)

Homesales volume (e)

12/1/20 - 12/31/20

19,844,237,031

6,083,479,207

1,994,624,240

Average homesale price (f)

As of December 31,

Balance Sheet Data:

Cash and cash equivalents

Total liabilities (c)

As of December 2019, the Company entered into an agreement with First Cloud Investment Group, LLC and was determined to be the primary beneficiary.

The Company consolidates First Cloud Investment Group, LLC and records a noncontrolling interest for the portion of equity not attributable to the Company.

Total assets include $10,607,800 of the acquired identifiable assets and goodwill resulting from the acquisition of substantially all of the assets of VirBELA.

Includes the long-term portion of future deliveries of the Company’s common stock valued at $832,946, calculated using a discount rate of 10% as consideration paid resulting from the acquisition of substantially all of the assets of VirBELA.

Represents homesales sides on either the “buy”

side or the “sell”

side of a homesales transaction.

Represents the volume of closed homesales transactions.

Represents the average selling price of closed homesales transactions.

The Company calculates the average selling price by dividing the volume of closed homesale transactions by the number of closed homesale transactions.

As of December 31, 2016, the Company acquired previously outstanding noncontrolling interest in First Cloud Mortgage, Inc., resulting in a 100% interest.

Upon obtaining 100% interest, the Company inactivated First Cloud Mortgage, Inc.

Homesale units and volume are used as key metrics to determine the Company’s growth and profitability.

We compare this data to competitors and historical data to measure business strategies and enhance business practices.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about matters affecting the financial condition and results of operations of eXp World Holdings, Inc.

(the “Holding Company”) and its subsidiaries (collectively, “we,”

“us”, “our”

or the “Company”) for the two-year period ended December 31, 2019.

The following discussion should be read together with our consolidated financial statements and related notes included elsewhere within this report.

The 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 “Forward-Looking Statements”

and “Item 1A.

Risk Factors”

included elsewhere within this Annual Report on Form 10-K for a discussion of certain risks, uncertainties and assumptions associated with these statements.

MARKET CONDITIONS AND INDUSTRY TRENDS

Our business is dependent on the economic conditions within the markets for which we operate.

Changes in the economy 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 increasing home sale prices.

Similarly, a decline in economic growth generally decreases demand.

Increasing interest rates and decreasing consumer confidence also 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.

According to the National Association of Realtors Summit in December 2019, home buyers continue to be sensitive to interest rates given the higher cost of homes.

Throughout 2019, homes sales increased as interest rates decreased.

Also throughout 2019, home ownership has continued to increase.

Economists have forecasted that interest rates will stay below 4% in fiscal 2020.

Homebuyer demand has increased substantially because of the low interest rate environment.

Buyers are still faced with low inventory and a competitive market, particularly for entry level and mid-market buyers.

With intensified competition, home prices will continue to increase, however this is offset by favorable interest rates.

As of December 31, 2019 , we believe that these factors are generally favorable.

However, significant changes to one or more of these drivers could cause the demand for housing to slow, negatively affecting all real estate brokerage firms, including eXp Realty.

Regardless of whether the housing market continues to grow or slows, the Company is positioned to leverage its 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.

Home Inventory

According to National Association of Realtors (NAR), the inventory of existing homes for sale in the U.S.

was 1.6 million as of January 2019 and decreased to 1.4 million at the end of December 2019 (preliminary).

As a result, inventory has decreased from 3.9 average months of supply as of January 2019 to 3.0 average months’

supply as of December 2019 (preliminary).

Mortgage Rates

According to the Federal Housing Finance Agency, mortgage rates on commitments for 30-year, conventional, fixed-rate mortgages averaged 3.9% for 2019 compared to 4.5% for 2018.

Mortgage rates reached a high of 4.5% in January 2019.

Mortgage rates are forecasted to decrease to 3.8% for 2020 and increase to 4.1% in 2021.

To the extent mortgage rates increase, consumers have financing alternatives such as adjustable rate mortgages or shorter-term mortgages which can be utilized to obtain a mortgage rate that is lower than a 30-year fixed-rate mortgage.

Housing Affordability Index

Also, according to the NAR, the composite housing affordability index increased to 163.8 for November 2019 (preliminary) from 153.9 for January 2019.

The housing affordability index continues to be at historically favorable levels.

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 percent down payment and ability to qualify for a mortgage.

The favorable housing affordability index is due in part to favorable mortgage rate conditions and low overall unemployment.

Home Sales Transactions

According to the NAR, existing home sale transactions for December 2019 (preliminary) increased to 5.5 million compared to 4.9 million for January 2019.

During 2019, eXp Realty settled home sales units was 135,322 resulting in sales volume of $38.2 billion.

Our home sale transactions growth was directly related to the growth of our agent base, which increased 63.3% in 2019.

Existing Home Sales Price

Existing home sales average price for December 2019 (preliminary) was $274,500 compared to $249,300 in January 2019 During this same period, eXp Realty homes sales price averaged $289,849 in December 2019 compared to $266,059 in January 2019.

Continued Accelerated Growth

Our strength is attracting real estate agent and broker professionals that have contributed to our growth.

As of December 31, 2019, we have grown our agent and broker base 63.3% to 25,423 agents and brokers compared to 15,570 as of the December 31, 2018.

The following table sets forth the number of transactions, sales volume and commission revenue earned on real estate transactions:

December 31, 2019

December 31, 2018

$ 38,215,997,704

$ 979,937,241

$ 19,844,237,031

$ 500,147,681

$ 18,371,760,673

$ 479,789,560

We continue to increase our presence in the United States and Canada through the execution of our growth strategies.

And in the fourth quarter of 2019, we expanded operations to the United Kingdom and Australia.

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 actions taken by our competitors and macroeconomic factors affecting the real estate industry in general.

We can provide no assurance that the Company will be able to maintain our agent growth rate or that our agent and broker base will continue to increase in future periods.

Agent Ownership

The Company maintains an equity incentive program whereby agents and brokers of eXp Realty can become eligible for 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 are issued shares of the Company’s common stock.

The Company also administers a program whereby agents and brokers can establish a direct ownership interest in the Company as a shareholder.

Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock which is issued at a 20% discount to market on the date of issuance.

In 2019, approximately 9,600 eXp Realty agents and brokers took advantage of this program resulting in the issuance of 3,801,603 shares of common stock.

This agent equity program continues to be another element in creating a culture of agent-ownership.

RECENT BUSINESS DEVELOPMENTS

Real Estate Brokerage Initiatives

Global Real Estate Cloud Brokerage

The Company announced its first international expansions outside of North America into Australia and the U.K.

This is part of the Company’s initiative to operate as a Global Real Estate Cloud Brokerage.

We look forward to our cloud campus being populated by real estate professionals from around the globe as they conduct business, collaborate with each other and develop meaningful personal and professional relationships across borders and cultures.

In addition to these new countries, the Company continues to also focus on growth in the United States.

We continue to expand in Canada, with recent openings in Saskatchewan, Newfoundland and Labrador, Quebec, and future openings planned in Novia Scotia throughout the rest of 2020.

Agent and Employee Experience

The Company has embarked on an initiative to better understand both its agents and employee experience.

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.

A NPS above 50 is considered excellent.

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.

This also ties into one of our core values, transparency.

While we strive for high satisfaction, a low or trending lower NPS is equally important to identify.

The Company’s fourth quarter cumulative agent NPS was 64.

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 such parts of our business such as agent onboarding, commission transaction processing, and employee benefits.

Agile at Scale

The Company continues to focus and refine its efforts on our engagement strategy to build a positive employee experience to advance creativity, productivity and service quality to retain top performing talent with the overall goal of growing and improving overall profitability.

We have been and will continue to form more and more smaller functional teams across the entire organization.

This allows for faster identification of challenges and opportunities, autonomy and decision making, and execution affecting our agents and employees.

This is tied together by ensuring all teams are aligned and working towards outcomes consistent with our vision, goals, and key results.

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.

Prior to 2020, we issued share-based compensation to our agents and brokers at a 20% discount, which will change to a 10% discount for issuances beginning in January 2020.

Our operational strategy and the importance of the agent compensation plans to it have not changed, but the financial impact of the change in discount is expected to have a meaningful effect on our results of operations going forward.

Our stock repurchase program and agent growth incentive program are more fully disclosed in Note 12 –

Stockholders’

Equity, of the Notes to the Condensed Consolidated Financial Statements.

Technology Products and Services

We continue developing the core VirBELA software platform and its underlying infrastructure to accommodate for the ever-increasing use and scale required to support our eXp Realty division.

Also, we recently released a new product centered on the concept of an open campus whereby small and independent organizations may utilize sub spaces as part of a larger campus similar to collaborative environments that currently exist in the physical brick and mortar world.

Lastly, we expect to continue to service existing and new business-to-business enterprise level contracts in the coming year.

Affiliated Services

Recent acquisitions and partnerships have allowed us to begin offering to customers more products and services complimentary to our real estate brokerage business.

These affiliated 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 in 2020;

however, actual performance will depend directly on utilization by eXp Realty agents and brokers .

Results of Operations

Year ended December 31, 2019 vs.

Year ended December 31, 2018

Percentage of

December 31, 2019

December 31, 2018

Statement of Operations Data:

Commission and other agent-related costs

General and administrative

Sales and marketing

Total expenses

Operating loss

Other expense (income)

Other expense (income), net

Equity in (earnings) losses of unconsolidated affiliates

Total other expense (income), net

Loss before income tax expense

Income tax expense

Net loss attributable to noncontrolling interest

Net loss attributable to common shareholders of eXp World Holdings, Inc.

Adjusted EBITDA (1)

Net loss per share

Weighted average shares outstanding

(1) Adjusted EBITDA is not a measurement of our financial performance under U.S.

GAAP and should not be considered as an alternative to net income, operating income or any other measures derived in accordance with U.S.

For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see “Non-U.S.

GAAP Financial Measure.”

Our total revenues were $979.9 million for the year ended December 31, 2019 compared to $500.1 million for the same period in 2018, an increase of $479.8 million, or 95.9%.

Total revenues increased primarily as a result of an increase in real estate brokerage commissions, which is directly related to our increase in agent count of 63.3% compared to the same period in 2018.

Commission and Other Agent Related Costs

Commission and other agent-related costs were $895.9 million for the year ended December 31, 2019 compared to $459.7 million for the same period in 2018, an increase of $436.2 million, or 94.9%.

Commission and other agent related costs include sales commissions paid and are reduced by agent related fees.

Commission and other agent related costs increased primarily as a result of an increase in settled real estate transactions and growth in our agent base.

General and Administrative Expense

General and administrative expenses were $89.0 million for the year ended December 31, 2019 compared to $59.9 million for the same period in 2018, an increase of $29.2 million or 48.8%.

General and administrative expenses include costs related to wages, including stock compensation, and other general overhead expenses.

General and administrative expenses increased primarily as a result of an increase of $24.3 million in compensation related expenses including salaries, contract labor, employee benefits, and payroll taxes and processing.

These increases are a direct result of the Company’s increase in employee and agent count.

Employees increased from 354 in 2018 to 634 in 2019, an increase of 79%.

The Company’s agent base increased by 63.3%.

Additionally, $3.2 million of the increase in general and administrative expenses is related to professional fees including accounting, legal, and other consulting.

These increases are directly related to the Company’s continued revenue growth, international expansion and new business ventures.

Sales and Marketing

Sales and marketing expenses were $3.8 million for the year ended December 31, 2019 compared to $3.0 million for the same period in 2018, an increase of $0.8 million, or 28.3%.

Sales and marketing costs include lead capture costs and promotional materials.

Sales and marketing expenses increased primarily as a result of an increase in lead capture costs of $0.7 million.

Other Income (Expense)

Other income (expense) includes amortization expense of the present value adjustment to our stock payable and start-up costs.

There were no significant changes in other income (expense) for the year ended December 31, 2019 compared to the same period in 2018.

Income Tax Benefit (Expense)

Income tax expense increased $0.4 million, or 539% ,for the year ended December 31, 2019 compared to the same period in 2018.

LIQUIDITY AND CAPITAL RESOURCES

Year ended December 31, 2019 vs.

Year ended December 31, 2018

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 shares, and meet obligations as they become due,

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 capital 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 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, however, we may need or seek advantageously to obtain additional funding through equity or debt financing.

We currently do not hold any bank debt.

If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would likely suffer.

At December 31, 2019, our cash and cash equivalents totaled $40.1 million.

Cash equivalents are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily money market funds.

We hold no marketable securities.

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 ended December 31, 2019 and 2018:

December 31, 2019

December 31, 2018

Current assets

Current liabilities

Net working capital

For the year ended December 31, 2019, net working capital increased $18.7 million, or 103%, compared to the comparable prior year period, primarily due to an increase in cash and cash equivalents of $19.5 million and commissions receivable of $8.6 million resulting from pending real estate transactions.

In correlation to the number of pending real estate transactions, accrued expenses, which includes commissions payable and revenue share, increased $9.9 million.

The following table presents our cash flows for the years ended December 31, 2019 and 2018:

Cash provided by operating activities

Cash used in investment activities

Cash provided by (used in) financing activities

For the year ended December 31, 2019, cash provided by operating activities increased $30.9 million compared to the same period in 2018.

The change resulted primarily from the increased volume in our sales transactions, decrease in net losses, increase in customer deposits and participation by our agents and brokers in our Agent Equity Program and Agent Growth Incentive Program.

See Note 12 –

Stockholders’

Equity, of the Notes to the Consolidated Financial Statements, for further details related to this program.

For the year ended December 31, 2019, cash used in our investing activities decreased primarily due to lower cash used for business acquisitions of approximately $5.2 million compared to the prior year, partially offset by an increase of $2.9 million in capital expenditures.

As we continue to develop and refine our cloud-based platforms and continue to

accelerate our business in innovative ways, we expect to continue to use our existing cash resources on similar expenditures for the next twelve months.

For the year ended December 31, 2019, the increase in cash flows used in financing activities primarily related to the repurchase of common stock in the amount of $27.1 million offset by $2.3 million in proceeds from exercise of options.

See Note 12 –

Stockholders’

Equity, of the Notes to the Condensed Consolidated Financial Statements, for further details related to our Share Repurchase Program.

As we continue to scale our Company in the future and increase market share, we aspire to realize gross margins at or near low double digits, resulting in Adjusted EBITDA margins in the lower single digits.

Though we have reported decreasing gross margins over the last few fiscal years we expect to continue developing and offering additional services to our agents and brokers in addition to existing programs in an effort to increase margins.

See “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures”

for additional information and a reconciliation of net loss to Adjusted EBITDA.

These operating ambitions are not forecasts and do not reflect our expectations, but rather are aspirational targets for future performance that may never be realized.

These statements involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in them.

Factors include, among others, (i) changes in demand for the Company’s services and changes in consumer behavior;

(ii) macroeconomic conditions beyond our control;

(iii) the Company’s ability to effectively maintain its infrastructure to support its operations and initiatives;

(iv) the impact of governmental regulations related to the Company’s operations;

and other factors, as described in this Annual Report on Form 10‑K in Part II, Item 1A, “Risk Factors.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with U.S.

GAAP requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in the preparation of the statements.

Our significant accounting policies are described in Note 2 –

Summary of Significant Accounting Policies of the Consolidated Financial Statements.

Accounting estimates are considered critical if the estimate requires us to use judgments and/or make assumptions about matters that were uncertain at the time the accounting estimate was made and if different accounting estimates could have been used in the reporting period or changes in the accounting estimates are likely to occur that would have a material impact on our financial condition, results of operations or cash flows.

Stock-based Compensation

Our stock-based compensation is comprised of agent growth incentive programs, agent equity program, and stock option awards.

Our stock-based compensation is more fully disclosed in Note 12 - Stockholders’

Equity, to our Consolidated Financial Statements.

The Company accounts for stock-based compensation granted to employees and non-employees using a fair value method.

Stock-based compensation awards are measured at the grant date fair value and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures.

The Company reduces recorded stock-based compensation for forfeitures when they occur.

Recognition of compensation cost for an award with a performance condition is based on the probable outcome of that performance condition being met.

The Company estimates the share-based liability based on estimated performance probabilities based on our most recent estimates on probable achievement of the performance measures established under the Agent Growth Incentive Program.

These estimates calculated based on the agent’s historical performance for each award type.

Also, the requisite service period at the grant date of performance awards is estimated based on the probability of the period of time it will take an agent to meet the performance metric.

The value of the stock award is amortized over this period and recognized as stock compensation expense starting on the grant date.

Revenue Recognition

The Company generates substantially all of its revenue from real estate brokerage services and generates a de minimis portion of its revenues from software subscription and professional services.

Real Estate Brokerage Services

The Company serves as a licensed broker in the areas in which it operates for the purpose of processing real estate transactions.

The Company is contractually obligated to provide services for the fulfillment of transfers of real estate between buyers and sellers.

The Company provides these services itself and controls the services necessary to legally represent the transfer of the real estate.

Correspondingly, the Company is defined as the Principal.

The Company, as principal, satisfies its obligation upon the closing of a real estate transaction.

As Principal, and upon satisfaction of our obligation, the Company recognizes revenue in the gross amount of consideration to which we expect to be entitled to.

Revenue is derived from assisting home buyers and sellers in listing, marketing, selling and finding real estate.

Commissions earned on real estate transactions are recognized at the completion of a real estate transaction once we have satisfied our performance obligation.

Agent related fees are currently recorded as a reduction to commissions and other agent related costs.

At each reporting period, w e estimate revenue for closed transactions for which we have not yet received the closing documents due to timing of when a transaction settles.

Additionally, provisions for anticipated differences between consideration due and amounts expected to be received are estimated and recorded, in most instances, as a reduction to revenue.

Software Subscription and Professional Services

The Company earns a de minimis amount of subscription revenue that is derived from fees from our customers to access the Company’s virtual reality software platform.

The terms of our subscriptions do not provide customers the right to take possession of the software.

Subscription revenue is generally recognized ratably over the contract term.

Professional services revenue is derived from implementation and consulting services.

Professional services revenue is typically recognized over time as the services are rendered, using an efforts-expended (labor hours) input method.

Software subscription and professional services revenue accounts for less than 1% of all revenue for the year ended December 31, 2019.

Accounts Receivable and Allowance for Doubtful Accounts

The majority of the Company’s accounts receivable is derived primarily from non-commission based fees.

These accounts receivable are typically unsecured.

The allowance for doubtful accounts is our estimate based identified potentially uncollectible amounts and consideration of historical experience of losses incurred.

We periodically perform detailed reviews to assess the adequacy of the allowance.

We exercise significant judgment in estimating the timing, frequency and severity of losses.

The Company typically does not experience material uncollectible accounts.

However, future experience could materially differ from historical results and could have an adverse impact to the Company’s results of operations, financial condition, and cash flows.

We review goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that would more likely than not indicate that the fair value of the goodwill is below its carrying value.

An impairment loss for goodwill would be recognized based on the difference between the carrying value and its estimated fair value, which would be determined based on either discounted future cash flows or another

appropriate fair value method.

The evaluation of goodwill for impairment requires management to use significant judgments and estimates in accordance with U.S.

GAAP, including, but not limited to, economic, industry, and company-specific qualitative factors, projected future net sales, operating results, and cash flows.

Although we currently believe the estimates used in the evaluation of goodwill are reasonable, differences between actual and expected net sales, operating results, and cash flows and/or changes in the discount rates used could cause these assets to be deemed impaired.

If this were to occur, we would be required to record a non-cash charge to earnings for the write-down in the value of the goodwill, which could have a material adverse effect on our results of operations and financial position but not our cash flows from operations.

During the fourth quarter of 2019, we utilized a qualitative assessment of the fair value of goodwill.

To perform this assessment, we identified and analyzed macroeconomic conditions, industry and market conditions, and company-specific factors.

Taking into consideration these factors, we estimated the potential change in the fair value of goodwill compared with our most recent quantitative impairment test.

As a result of the analysis performed, management believes the estimated fair value of the reporting unit continues to exceed its carrying value by a substantial margin and does not represent a more likely than not possibility of potential impairment.

The goodwill analysis did not result in an impairment charge.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities.

A valuation allowance against deferred tax assets would be established if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets are not expected to be realized.

Our assumptions, judgments, and estimates relative to the value of our deferred tax assets take into account predictions of the amount and category of future taxable income.

Since inception, we have incurred operating losses, and accordingly, we have generally not recorded a provision for income taxes.

We generally do not expect any significant changes in the amount of our income tax provision until we are no longer incurring operating losses.

We recognize expense for legal claims when payments associated with the claims become probable and can be reasonably estimated.

Due to the difficulty in estimating costs of resolving legal claims, actual costs could have a material adverse impact on our results of operations and cash flow, if we were to become a party to a material legal action.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

As a “smaller reporting company”, we are not required to provide the information required by this Item.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

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 Adjusted EBITDA to mean net income (loss), excluding other income (expense), income tax benefit (expense), depreciation and amortization;

stock-based compensation expense, and stock option expense.

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-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.

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:

Adjusted EBITDA excludes stock-based compensation expense related to the 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;

Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets and amortization of intangible assets and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future.

The following tables present a reconciliation of Adjusted EBITDA to net loss, the most comparable U.S.

GAAP financial measure, for each of the periods presented:

Year Ended December 31,

Other (income) / expense

Depreciation & Amortization

Stock compensation expense

Stock option expense

Adjusted EBITDA

The primary impact on Adjusted EBITDA is stock compensation expense.

Stock compensation expense decreased $5.1 million and increased $8.1 million for the years ended December 31, 2019 and December 31, 2018, respectively.

Stock compensation expense is affected by awards granted and/or awards forfeited throughout the year.

Awards granted, issued and forfeited are more fully disclosed in Note 12, Stockholders’

Equity, of the Consolidated Financial Statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company”, we are not required to provide the information required by this Item.

(1) The repurchase program began on January 2, 2019 and was set to expire on June 28, 2019.

On June 12, 2019, the Company, under authorization from the Board of Directors, amended the plan.

The amended plan extended the repurchase program through December 31, 2019.

On November 26, 2019, the Company announced the approval to increase the authorization limits of the Company’s stock repurchase program by the Board.

The Board agreed to extend the stock repurchase program through the fourth quarter of 2020 and to increase the authorization for the stock repurchase program from $25.0 million to $75.0 million of the Company’s common stock.

The Company discontinued the repurchase program in March 2020 and subsequently reinstated it in June 2020 with a maximum authorization of $75.0 million.

In December 2020, the Board approved an increase to the total amount of its buyback program from $75.0 million to $400.0 million.

The stock repurchase program is more fully disclosed in Note 11 – Stockholders’ Equity to the consolidated financial statements.

Repurchased shares were not impacted by the Stock Split;

therefore, the number of shares and average price paid per share are reported on a pre-Stock Split basis.

Company Stock Performance

The following stock performance table is not deemed “soliciting material” or subject to Section 18 of the Securities Exchange Act of 1934.

The following graph compares the performance of our common stock to the Standard & Poor’s (“S&P”) 500 Index, the S&P MidCap 400 Index, the S&P Homebuilders Select Industry Index, and the S&P Internet Select Industry Index by assuming $100 was invested in each investment option as of February 28, 2018, which represents the month our common stock began trading on the NASDAQ.

The S&P 500 Index is a capitalization-weighted index of domestic equities of the largest companies traded on the NYSE and NASDAQ.

The S&P MidCap 400 Index measures the performance of the U.S.

middle market capitalization (“midcap”) equities sector.

The S&P Homebuilders Select Industry Index is a diversified group of holdings representing home building, building products, home furnishings and home appliances.

The S&P Internet Select Industry Index is comprised of U.S.

equities of internet and direct marketing retail, internet services and infrastructure, and interactive media and services companies.

S&P 500 Index

Mid Cap 400 Index

S&P Homebuilders Index (XHB)

S&P Internet Index (XWEB)

SELECTED FINANCIAL DATA

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity