Item 1. Financial Statements
Item 1.
FINANCIAL STATEMENTS (UNAUDITED)
EXP WORLD HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(UNAUDITED)
March 31, 2021
December 31, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 104,392
$ 100,143
Restricted cash
66,105
27,781
Accounts receivable, net of allowance for credit losses of $ 2,264 and $ 1,879 , respectively
88,475
76,951
Prepaids and other assets
7,791
7,350
TOTAL CURRENT ASSETS
266,763
212,225
Property, plant, and equipment, net
9,042
7,848
Operating lease right-of-use assets
731
819
Intangible assets, net
8,121
8,350
Goodwill
12,945
12,945
TOTAL ASSETS
$ 297,602
$ 242,187
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable
$ 5,119
$ 3,957
Customer deposits
66,105
27,781
Accrued expenses
79,392
62,750
Current portion of long-term payable
916
1,416
Current portion of lease obligation - operating lease
361
746
TOTAL CURRENT LIABILITIES
151,893
96,650
Long-term payable, net of current portion
1,726
2,876
Long-term lease obligation - operating lease, net of current portion
370
74
TOTAL LIABILITIES
153,989
99,600
EQUITY
Common Stock, $ 0.00001 par value 220,000,000 shares authorized; 147,934,768 issued and 144,899,364 outstanding in 2021; 146,677,786 issued and 144,143,292 outstanding in 2020
1
1
Additional paid-in capital
248,634
218,492
Treasury stock, at cost: 3,035,404 and 2,534,494 shares held, respectively
( 72,003 )
( 37,994 )
Accumulated deficit
( 34,316 )
( 39,162 )
Accumulated other comprehensive income
294
247
Total eXp World Holdings, Inc. stockholders' equity
142,610
141,584
Equity attributable to noncontrolling interest
1,003
1,003
TOTAL EQUITY
143,613
142,587
TOTAL LIABILITIES AND EQUITY
$ 297,602
$ 242,187
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EXP WORLD HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except share amounts and per share data)
(UNAUDITED)
Three Months Ended March 31,
2021
2020
Revenues
$ 583,833
$ 271,421
Operating expenses
Commissions and other agent-related costs
530,347
243,406
General and administrative expenses
46,300
26,860
Sales and marketing expenses
2,257
944
Total operating expenses
578,904
271,210
Operating income
4,929
211
Other expense
Other (income) expense, net
( 134 )
38
Equity in losses of unconsolidated affiliates
6
21
Total other (income) expense, net
( 128 )
59
Income before income tax expense
5,057
152
Income tax expense
211
11
Net income
4,846
141
Net loss attributable to noncontrolling interest
-
24
Net income attributable to eXp World Holdings, Inc.
$ 4,846
$ 165
Earnings per share
Basic
$ 0.03
$ 0.00
Diluted
$ 0.03
$ 0.00
Weighted average shares outstanding
Basic
144,354,991
133,241,235
Diluted
158,722,126
144,647,818
Comprehensive income (loss):
Net income
$ 4,846
$ 141
Comprehensive loss attributable to noncontrolling interests
-
24
Net income attributable to eXp World Holdings, Inc.
4,846
165
Other comprehensive income (loss):
Foreign currency translation (loss) gain, net of tax
47
( 297 )
Comprehensive income (loss) attributable to eXp World Holdings, Inc.
$ 4,893
($ 132 )
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EXP WORLD HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(UNAUDITED)
Three Months Ended March 31,
2021
2020
Common stock:
Balance, beginning of quarter
$ 1
$ 1
Balance, end of quarter
1
1
Treasury stock:
Balance, beginning of quarter
( 37,994 )
( 8,623 )
Repurchases of common stock
( 34,009 )
( 10,305 )
Retirement of treasury stock
-
Balance, end of quarter
( 72,003 )
( 18,928 )
Additional paid-in capital:
Balance, beginning of quarter
218,492
130,682
Shares issued for stock options exercised
1,373
1,828
Agent growth incentive stock compensation
4,258
2,551
Agent equity stock compensation
21,402
8,794
Stock option compensation
3,109
1,073
Balance, end of quarter
248,634
144,928
Accumulated deficit:
Balance, beginning of quarter
( 39,162 )
( 70,293 )
Net income (loss)
4,846
165
Balance, end of quarter
( 34,316 )
( 70,128 )
Accumulated other comprehensive income (loss):
Balance, beginning of quarter
247
200
Foreign currency translation gain (loss)
47
( 297 )
Balance, end of quarter
294
( 97 )
Noncontrolling interest:
Balance, beginning of quarter
1,003
161
Net loss
-
( 24 )
Contributions by noncontrolling interests
-
87
Balance, end of quarter
1,003
224
Total equity
$ 143,613
$ 56,000
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EXP WORLD HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
Three Months Ended March 31,
2021
2020
OPERATING ACTIVITIES
Net income (loss)
$ 4,846
$ 141
Reconciliation of net income (loss) to net cash provided by operating activities:
Depreciation expense
1,007
757
Amortization expense - intangible assets
303
103
Amortization expense - long-term payable
-
64
Allowance for credit losses on receivables/bad debt on receivables
385
193
Equity in loss of unconsolidated affiliates
6
21
Agent growth incentive stock compensation expense
5,472
3,519
Stock option compensation
3,109
1,073
Agent equity stock compensation expense
21,402
8,794
Changes in operating assets and liabilities:
Accounts receivable
( 11,907 )
( 6,626 )
Prepaids and other assets
( 459 )
( 476 )
Customer deposits
38,324
3,219
Accounts payable
1,161
1,336
Accrued expenses
15,420
5,371
Long term payable
( 150 )
-
NET CASH PROVIDED BY OPERATING ACTIVITIES
78,919
17,489
INVESTING ACTIVITIES
Purchases of property, plant and equipment
( 2,257 )
( 1,355 )
Acquisition of businesses, net of cash acquired
( 1,500 )
-
NET CASH (USED IN) INVESTING ACTIVITIES
( 3,757 )
( 1,355 )
FINANCING ACTIVITIES
Repurchase of common stock
( 34,009 )
( 10,305 )
Proceeds from exercise of options
1,373
1,828
Transactions with noncontrolling interests
-
87
NET CASH (USED IN) FINANCING ACTIVITIES
( 32,636 )
( 8,390 )
Effect of changes in exchange rates on cash, cash equivalents and restricted cash
47
( 710 )
Net change in cash, cash equivalents and restricted cash
42,573
7,034
Cash, cash equivalents and restricted cash, beginning balance
127,924
47,074
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE
$ 170,497
$ 54,108
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes
$ 3
$ 30
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Lease liabilities arising from obtaining right-of-use assets
$ -
$ -
Termination of lease liabilities
-
43
Property, plant and equipment purchases in accounts payable
141
109
The accompanying notes are an integral part of these condensed consolidated financial statements.
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eXp World Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
(UNAUDITED)
(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. (collectively with its subsidiaries, the “Company” or “eXp”) was incorporated in the State of Delaware on July 30, 2008. Through various operating subsidiaries, the Company primarily operates a cloud-based real estate brokerage operating throughout the United States and most of the Canadian provinces. Since the fourth quarter of 2019, the Company commenced operations in the United Kingdom (U.K.), Australia, South Africa, Portugal, France, India, Mexico, Puerto Rico, Brazil, Italy, and Hong Kong. Our real estate brokerage is now one of the largest and fastest growing real estate brokerage companies in the United States by agent count, and recently began to expand internationally. The Company focuses on a number of cloud-based technologies in order to grow an international brokerage without the burden of physical bricks and mortar or redundant staffing costs.
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, 2020, filed with the SEC on March 11, 2021 (“2020 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. 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 stockholders 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. Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of eXp World Holdings, Inc., its wholly-owned subsidiaries, and 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 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 Estimate s
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,
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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
The Company has reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation. No material reclassifications occurred during the current period.
Restricted cash
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.
Cash and cash equivalents
Restricted cash
Total
Balance, December 31, 2019
$ 40,087
$ 6,987
$ 47,074
Net activity
4,192
2,842
7,034
Balance, March 31, 2020
$ 44,279
$ 9,829
$ 54,108
Balance, December 31, 2020
$ 100,143
$ 27,781
$ 127,924
Net activity
4,249
38,324
42,573
Balance, March 31, 2021
$ 104,392
$ 66,105
$ 170,497
Recently Adopted Accounting Principles and Change in Accounting Principle
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12 – Income Taxes (Topic 740) (“ASU 2019-12”). ASU 2019-12 removes certain exceptions for investments, intraperiod allocations and interim calculations and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020; early adoption is permitted. The adoption of ASU 2019-12 had no material impact on the Company’s condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This guidance is optional for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. This guidance is effective from March 12, 2020 through December 31, 2022. Entities may elect to adopt the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. In January 2021, the FASB amended this Update to clarify certain optional expedients and exceptions for contract modifications and hedge accounting that apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The Company does not have any material contracts, hedging or other transactions that reference LIBOR, and we do not expect to utilize the expedients and exceptions provided in this guidance.
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.
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The Company analyzed uncollectable accounts for the three categories of receivables and concluded that only agent non-commission based fees receivables and agent short-term advances carry any risk of expected credit losses. Current economic conditions and forecasts of future economic conditions do not affect expected credit losses of uncollectable real estate property settlements. The collection of these payments is in-substance guaranteed because they represent commission payments on closed transactions, and the Company has no historical experience or expectation of losses related to these receivables. Receivables from real estate property settlements totaled $ 85,412 and $ 73,838 as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, agent non-commission based fees receivable and short-term advances totaled $ 5,327 and $ 4,992 , of which the Company recognized expected credit losses of $ 2,264 and $ 1,879 , respectively.
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.
Changes in the allowance were not material for the three months ended March 31, 2021.
4. PLANT, PROPERTY AND EQUIPMENT, NET
Fixed assets, net consisted of the following:
March 31, 2021
December 31, 2020
Computer hardware and software
$ 15,431
$ 13,828
Furniture, fixture, and equipment
20
20
Total depreciable property and equipment
15,451
13,848
Less: accumulated depreciation
( 7,749 )
( 6,738 )
Depreciable property, net
7,702
7,110
Assets under development
1,340
738
Property, plant, and equipment, net
$ 9,042
$ 7,848
For the three months ended March 31, 2021 and 2020, depreciation expense was $ 1,007 and $ 757 , respectively.
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill was $ 12,945 as of March 31, 2021 and December 31, 2020. 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 months ended March 31, 2021, no events occurred that indicated it was more likely than not that goodwill was impaired.
Definite-lived intangible assets were as follows:
March 31, 2021
December 31, 2020
Gross
Accumulated
Net Carrying
Gross
Accumulated
Net Carrying
Amount
Amortization
Amount
Amount
Amortization
Amount
Trade name
$ 2,868
($ 339 )
$ 2,529
$ 2,868
($ 267 )
$ 2,601
Existing technology
1,470
( 571 )
899
1,396
( 415 )
981
Non-competition agreements
125
( 97 )
28
125
( 87 )
38
Customer relationships
1,895
( 218 )
1,677
1,895
( 170 )
1,725
Licensing agreement
210
( 58 )
152
210
( 41 )
169
Intellectual property
2,836
-
2,836
2,836
-
2,836
Total intangible assets
$ 9,404
($ 1,283 )
$ 8,121
$ 9,330
($ 980 )
$ 8,350
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 March 31, 2021 and 2020 was $ 303 and $ 103 , respectively. The Company has no indefinite-lived assets.
6. LEASES
The Company’s lease portfolio consists of office leases with lease terms ranging from less than one year to seven years , with the weighted average lease term being three years .
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Certain leases provide for increases in future lease payments once the term of the lease has expired, as defined in the lease agreements. These leases generally also include real estate taxes.
Short term leases, having a lease term at commencement of 12 months or less, are not capitalized and the expenses are recognized in the period incurred.
Included below is other information regarding leases for the periods presented:
Three Months Ended March 31,
2021
2020
Other information
Operating lease expense
$ 96
$ 117
Short-term lease expense
96
5
Cash paid for operating leases
16
117
Weighted-average remaining lease term (years) – operating leases (1)
3.8
4
Weighted-average discount rate – operating leases
4.481 %
4.850 %
(1) The Company’s lease terms include options to extend the lease when it is reasonably certain the Company will exercise its option. Additionally, the Company considered any historical and economic factors in determining if a lease renewal or termination option would be exercised.
As of March 31, 2021, expirations of lease obligations by fiscal year were as follows:
Period Ending December 31,
Remaining 2021
$ 274
2022
320
2023
165
2024
5
2025
5
2026 and thereafter
1
Total lease payments
770
Less: interest
( 39 )
Total operating lease liabilities
$ 731
7. DEBT
The Company issued unsecured promissory notes in the aggregate principal amount of $ 1.5 million in connection with the acquisition of Showcase Web Sites, L.L.C. (“Showcase”) in July 2020. The promissory notes accrue interest of 8 % per annum, and interest is payable monthly beginning six months after the closing date.
On March 2, 2021, the Company repaid all outstanding promissory notes issued to the previous owners of Showcase and notes payable assumed as part of the acquisition. The repayments totaled approximately $ 1.7 million representing the principal balance plus accrued interest and unpaid fees. The repayments of the notes payable did not result in a gain or loss on early extinguishment.
8. STOCKHOLDERS’ EQUITY
The following table represents a reconciliation of the Company’s common stock for the periods presented:
Three Months Ended March 31,
2021
2020
Common stock:
Balance, beginning of quarter
146,677,786
132,398,616
Shares issued for stock options exercised
547,776
3,570,096
Agent growth incentive stock compensation
285,122
254,212
Agent equity stock compensation
424,084
1,833,306
Balance, end of quarter
147,934,768
138,056,230
The Company’s stockholder approved equity plans described below are administered under the 2013 Stock Option Plan and the 2015 Equity Incentive Plan. Although a limited number of awards under the plan remain outstanding, no awards have been granted under the 2013 Stock Option Plan since 2015. The purpose of the equity plans 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.
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Agent Equity Program
The Company provides agents and brokers the opportunity to elect to receive 5 % of commissions earned from each completed residential 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 March 31, 2021 and 2020, the Company issued 424,084 and 1,833,306 shares of common stock, respectively, to agents and brokers with a value of $ 21,402 and $ 8,794 , 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 March 31, 2021, the Company’s stock compensation attributable to the Agent Growth Incentive Program was $ 5,472 of which the total amount of stock compensation attributable to liability classified awards was $ 3,314 . Stock compensation expense related to the Agent Growth Incentive Program is included in general and administrative expense in the condensed consolidated statements of comprehensive income (loss).
The following table illustrates changes in the Company’s stock compensation liability for the periods presented:
Amount
Balance, December 31, 2020
$ 2,093
Stock grant liability increase year to date
1,221
Balance, March 31, 2021
$ 3,314
Stock Option Awards
During the three months ended March 31, 2021, and 2020, the Company granted 127,265 and 303,164 stock options, respectively, to employees with an estimated grant date fair value of $ 26.01 and $ 4.41 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 and again in June 2020 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. 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 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.
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 not retired and are considered issued but not outstanding. The following table shows the changes in treasury stock for the periods presented:
Three Months Ended March 31,
2021
2020
Treasury stock:
Balance, beginning of quarter
2,534,494
925,364
Repurchases of common stock
500,910
991,241
Balance, end of quarter
3,035,404
1,916,605
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9. EARNINGS PER SHARE
Basic earnings (loss) per share is computed based on net income (loss) 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 Company uses the if-converted method to reflect the potential dilutive effect of a $ 1.0 million payment obligation relating to the November 2018 acquisition of Virbela, LLC, that may be paid in cash or common stock in November 2021.
The following table sets forth the calculation of basic and diluted earnings per share attributable to common stock during the periods presented:
Three Months Ended March 31,
2021
2020
Numerator:
Net income (loss) attributable to common stock
$ 4,846
$ 165
Denominator:
Weighted average shares - basic
144,354,991
133,241,235
Dilutive effect of common stock equivalents
14,367,135
11,406,583
Weighted average shares - diluted
158,722,126
144,647,818
Earnings (loss) per share:
Earnings (loss) per share attributable to common stock- basic
$ 0.03
$ 0.00
Earnings (loss) per share attributable to common stock- diluted
0.03
0.00
For the three months ended March 31, 2021, total outstanding shares of common stock excluded 6,506 shares from the computation of diluted earnings per share because their effect would have been anti-dilutive.
10. INCOME TAXES
Our quarterly tax provision is computed by applying the estimated annual effective tax rate to the year-to-date pre-tax income or loss and adjust for discrete tax items in the period. The Company’s provision for income tax expense amounted to $ 0.2 million and $ 0.01 million for the three months ended March 31, 2021 and 2020, respectively, which represented an effective tax rate of 4.17 % and 7.61 %, respectively. The increase in income tax expense was primarily attributable to increased profitability and changes to our geographic mix of earnings, partially offset by higher deductible share-based compensation expenses.
We periodically evaluate the realizability of our deferred tax assets based on all available evidence, both positive and negative. The realization of the net deferred tax assets is dependent on our ability to generate sufficient future taxable income during the periods prior to the expiration of tax attributes to fully utilize these assets. As of March 31, 2021, based on our assessment of the realizability of our net deferred tax assets, we continued to maintain a full valuation allowance against all of our federal and state net deferred tax assets. Management has evaluated our recent profitability trends and believes that, if current trends persist, there is a reasonable possibility that within the current fiscal year, sufficient positive evidence may become available to allow us to reach the conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain DTAs and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance to be released are subject to change based on the positive evidence, including, but not limited to, the level of expected profitability, that we are able to actually achieve in future periods.
On March 11, 2021, The American Rescue Plan Act of 2021 (“ARPA Act”) was signed into law. We evaluated the applicable provisions of the ARPA Act and determined that there is no material impact expected to our financial results. We will continue to monitor future guidance issued regarding the ARPA Act to determine any future impacts to our financial results.
11. 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
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lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
● Level 1 – Inputs are quoted market prices in active markets for identical assets or liabilities (these are observable market inputs).
● Level 2 – Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability (includes quoted market prices for similar assets or identical or similar assets in markets in which there are few transactions, prices that are not current or prices that vary substantially).
● Level 3 – Inputs are unobservable inputs that reflect the entity's own assumptions in pricing the asset or liability (used when little or no market data is available).
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 March 31, 2021 and December 31, 2020, the fair value of the Company’s money market funds was $ 53,382 and $ 53,380 , 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 .
12. SEGMENT INFORMATION
Historically, management has not made operating decisions and assessed performance based on geographic locations. Rather, the chief operating decision-maker makes operating decisions and assesses performance based on the products and services of the identified operating segments. While management does consider real estate and brokerage services, the acquired technology and affiliated services provided to be identified operating segments, the profits and losses and assets of the technology and affiliated services business units are not material.
Operating Segments
The Company primarily operates as a cloud-based real estate brokerage. The real estate brokerage business represents 99.3 % and 99.9 % of the total revenue of the Company for the three months ended March 31, 2021 and 2020, respectively. The real estate brokerage business represents 99.0 % and 98.9 % of the total assets of the Company as of March 31, 2021 and December 31, 2020, respectively.
The Company offers software subscriptions to customers to access its virtual reality software platform. Additionally, the Company offers professional services for implementation and consulting services. However, the operations and assets of the technology segment are not managed by the Company’s chief operating decision-maker as a separate reportable segment.
Services provided through First Cloud and Silverline are in the emerging stages of development as contributing segments and are not material to the Company’s total revenue, total net income (loss) or total assets as of March 31, 2021.
The Company aggregates the identified operating segments for reporting purposes and has one reportable segment.
Geographical Information
The Company primarily operates within the real estate brokerage markets in the United States and Canada. During the previous two years, the Company expanded operations into the U.K., Australia, South Africa, Portugal, France, India, Mexico, Puerto Rico, Brazil, Italy, and Hong Kong.
The Company’s management analyzes geographical locations on a forward-looking basis to identify growth opportunities. For the three months ended March 31, 2021 and 2020, approximately 7 % and 4 %, respectively, of the Company’s total revenue was generated outside of the U.S. Assets held outside of the U.S. were 12 % and 7 % as of March 31, 2021 and December 31, 2020, which primarily consist of cash and cash equivalents and restricted cash held in Canada.
The Company’s technology services and affiliated services are currently provided primarily in the U.S.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.