Item 1. Financial Statements
Item 1.
FINANCIAL STATEMENTS (UNAUDITED)
EXP WORLD HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(UNAUDITED)
September 30, 2021
December 31, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 98,064
$ 100,143
Restricted cash
69,406
27,781
Accounts receivable, net of allowance for credit losses of $ 1,901 and $ 1,879 , respectively
129,843
76,951
Prepaids and other assets
8,828
7,350
TOTAL CURRENT ASSETS
306,141
212,225
Property, plant, and equipment, net
13,186
7,848
Operating lease right-of-use assets
2,639
819
Other noncurrent assets
3,009
-
Intangible assets, net
7,693
8,350
Deferred tax assets
36,020
-
Goodwill
12,945
12,945
TOTAL ASSETS
$ 381,633
$ 242,187
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable
$ 8,555
$ 3,957
Customer deposits
69,406
27,781
Accrued expenses
110,268
62,750
Current portion of long-term payable
906
1,416
Current portion of lease obligation - operating lease
345
746
TOTAL CURRENT LIABILITIES
189,480
96,650
Long-term payable, net of current portion
1,736
2,876
Long-term lease obligation - operating lease, net of current portion
849
74
TOTAL LIABILITIES
192,065
99,600
EQUITY
Common Stock, $ 0.00001 par value 900,000,000 shares authorized; 153,549,867 issued and 147,537,072 outstanding in 2021; 146,677,786 issued and 144,143,292 outstanding in 2020
1
1
Additional paid-in capital
347,670
218,492
Treasury stock, at cost: 6,012,795 and 2,534,494 shares held, respectively
( 180,097 )
( 37,994 )
Accumulated earnings (deficit)
20,800
( 39,162 )
Accumulated other comprehensive income
187
247
Total eXp World Holdings, Inc. stockholders' equity
188,561
141,584
Equity attributable to noncontrolling interest
1,007
1,003
TOTAL EQUITY
189,568
142,587
TOTAL LIABILITIES AND EQUITY
$ 381,633
$ 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
(In thousands, except share amounts and per share data)
(UNAUDITED)
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Revenues
$ 1,110,480
$ 564,017
$ 2,694,200
$ 1,188,963
Operating expenses
Commissions and other agent-related costs
1,030,937
517,169
2,481,254
1,079,739
General and administrative expenses
64,615
30,130
171,636
82,145
Sales and marketing expenses
3,761
1,495
8,701
3,326
Total operating expenses
1,099,313
548,794
2,661,591
1,165,210
Operating income
11,167
15,223
32,609
23,753
Other expense
Other expense, net
239
80
159
129
Equity in losses of unconsolidated affiliates
( 2 )
-
5
34
Total other expense, net
237
80
164
163
Income before income tax expense
10,930
15,143
32,445
23,590
Income tax (benefit) expense
( 12,884 )
225
( 33,258 )
295
Net income
23,814
14,918
65,703
23,295
Net loss attributable to noncontrolling interest
7
52
14
115
Net income attributable to eXp World Holdings, Inc.
$ 23,821
$ 14,970
$ 65,717
$ 23,410
Earnings per share
Basic
$ 0.16
$ 0.11
$ 0.45
$ 0.17
Diluted
$ 0.15
$ 0.10
$ 0.42
$ 0.16
Weighted average shares outstanding
Basic
146,862,978
138,513,465
145,610,008
135,207,101
Diluted
157,345,924
150,917,721
157,838,134
147,091,720
Comprehensive income:
Net income
$ 23,814
$ 14,918
$ 65,703
$ 23,295
Comprehensive loss attributable to noncontrolling interests
7
52
14
115
Net income attributable to eXp World Holdings, Inc.
23,821
14,970
65,717
23,410
Other comprehensive income:
Foreign currency translation (loss) gain, net of tax
( 131 )
( 76 )
( 60 )
( 129 )
Comprehensive income attributable to eXp World Holdings, Inc.
$ 23,690
$ 14,894
$ 65,657
$ 23,281
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 September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Common stock:
Balance, beginning of period
$ 1
$ 1
$ 1
$ 1
Balance, end of period
1
1
1
1
Treasury stock:
Balance, beginning of period
( 126,906 )
( 20,610 )
( 37,994 )
( 8,623 )
Repurchases of common stock
( 53,191 )
( 9,343 )
( 142,103 )
( 21,330 )
Balance, end of period
( 180,097 )
( 29,953 )
( 180,097 )
( 29,953 )
Additional paid-in capital:
Balance, beginning of period
295,035
160,643
218,492
130,682
Shares issued for stock options exercised
938
2,244
2,695
4,710
Agent growth incentive stock compensation
6,483
2,980
15,184
8,878
Agent equity stock compensation
41,838
19,929
101,691
39,226
Stock option compensation
3,376
1,879
9,608
4,179
Balance, end of period
347,670
187,675
347,670
187,675
Accumulated earnings (deficit):
Balance, beginning of period
2,734
( 61,853 )
( 39,162 )
( 70,293 )
Net income
23,821
14,970
65,717
23,410
Dividends declared and paid
( 5,755 )
-
( 5,755 )
-
Balance, end of period
20,800
( 46,883 )
20,800
( 46,883 )
Accumulated other comprehensive income:
Balance, beginning of period
318
147
247
200
Foreign currency translation loss
( 131 )
( 76 )
( 60 )
( 129 )
Balance, end of period
187
71
187
71
Noncontrolling interest:
Balance, beginning of period
1,015
204
1,003
161
Net loss
( 8 )
( 52 )
( 15 )
( 115 )
Contributions by noncontrolling interests
-
-
19
106
Balance, end of period
1,007
152
1,007
152
Total equity
$ 189,568
$ 111,063
$ 189,568
$ 111,063
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)
Nine Months Ended September 30,
2021
2020
OPERATING ACTIVITIES
Net income
$ 65,703
$ 23,295
Reconciliation of net income to net cash provided by operating activities:
Depreciation expense
3,572
2,403
Amortization expense - intangible assets
939
382
Amortization expense - long-term payable
-
152
Allowance for credit losses on receivables
22
1,209
Equity in loss of unconsolidated affiliates
5
34
Agent growth incentive stock compensation expense
18,129
10,476
Stock option compensation
9,608
4,179
Agent equity stock compensation expense
101,691
39,226
Deferred income taxes
( 36,020 )
Changes in operating assets and liabilities:
Accounts receivable
( 52,913 )
( 66,490 )
Prepaids and other assets
( 1,510 )
494
Customer deposits
41,625
15,128
Accounts payable
4,597
16
Accrued expenses
44,561
58,702
Long-term payable
( 150 )
-
Other operating activities
( 1,446 )
-
NET CASH PROVIDED BY OPERATING ACTIVITIES
198,413
89,206
INVESTING ACTIVITIES
Purchases of property, plant and equipment
( 9,159 )
( 3,691 )
Acquisition of businesses
( 1,500 )
( 1,362 )
Intangible assets acquired
-
( 573 )
Investments in unconsolidated affiliates
( 3,004 )
( 25 )
NET CASH (USED IN) INVESTING ACTIVITIES
( 13,663 )
( 5,651 )
FINANCING ACTIVITIES
Repurchase of common stock
( 142,103 )
( 21,330 )
Proceeds from exercise of options
2,695
4,710
Transactions with noncontrolling interests
19
106
Dividends declared and paid
( 5,755 )
-
NET CASH (USED IN) FINANCING ACTIVITIES
( 145,144 )
( 16,514 )
Effect of changes in exchange rates on cash, cash equivalents and restricted cash
( 60 )
( 129 )
Net change in cash, cash equivalents and restricted cash
39,546
66,912
Cash, cash equivalents and restricted cash, beginning balance
127,924
47,074
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE
$ 167,470
$ 113,986
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes
$ 1,060
$ 676
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Termination of lease liabilities
$ 346
$ 200
Lease liabilities arising from obtaining right-of-use assets
2,381
33
Property, plant and equipment purchases in accounts payable
150
111
Liabilities incurred associated with a business acquisition
-
1,500
Liabilities assumed in business acquisition
-
140
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 expanded operations into the United Kingdom (U.K.), Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Germany and Panama. 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 is continuing to expand internationally. The Company focuses on a number of cloud-based technologies in order to grow a global 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 and nine month periods ended September 30, 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
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and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for credit losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Reclassifications
When necessary, the Company will reclassify certain amounts in prior-period financial statements to conform to the current period’s presentation. No 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
Balance, September 30, 2020
$ 91,871
$ 22,115
$ 113,986
Balance, December 31, 2020
$ 100,143
$ 27,781
$ 127,924
Balance, September 30, 2021
$ 98,064
$ 69,406
$ 167,470
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 uncollectible 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 $ 125,490 and $ 73,838 as of September 30, 2021 and December 31, 2020 respectively. As of September 30, 2021 and December 31, 2020 agent non-commission based fees receivable and short-term advances totaled $ 6,254 and $ 4,992 , of which the Company recognized expected credit losses of $ 1,901 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 and nine months ended September 30, 2021.
4. PLANT, PROPERTY AND EQUIPMENT, NET
Plant, property and equipment, net consisted of the following:
September 30, 2021
December 31, 2020
Computer hardware and software
$ 19,358
$ 13,828
Furniture, fixture, and equipment
20
20
Total depreciable property and equipment
19,378
13,848
Less: accumulated depreciation
( 10,308 )
( 6,738 )
Depreciable property, net
9,070
7,110
Assets under development
4,116
738
Property, plant, and equipment, net
$ 13,186
$ 7,848
For the three months ended September 30, 2021 and 2020, depreciation expense was $ 1,376 and $ 852 , respectively. For the nine months ended September 30, 2021 and 2020, depreciation expense was $ 3,572 and $ 2,403 , respectively.
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill was $ 12,945 and $ 12,945 as of September 30, 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 and nine months ended September 30, 2021, no events occurred that indicated it was more likely than not that goodwill was impaired.
Definite-lived intangible assets were as follows:
September 30, 2021
December 31, 2020
Gross
Accumulated
Net Carrying
Gross
Accumulated
Net Carrying
Amount
Amortization
Amount
Amount
Amortization
Amount
Trade name
$ 2,868
($ 482 )
$ 2,386
$ 2,868
($ 267 )
$ 2,601
Existing technology
1,678
( 1,005 )
673
1,396
( 415 )
981
Non-competition agreements
125
( 118 )
7
125
( 87 )
38
Customer relationships
1,895
( 314 )
1,581
1,895
( 170 )
1,725
Licensing agreement
210
-
210
210
( 41 )
169
Intellectual property
2,836
-
2,836
2,836
-
2,836
Total intangible assets
$ 9,612
($ 1,919 )
$ 7,693
$ 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 September 30, 2021 and 2020 was $ 318 and $ 152 , respectively. Amortization expense for definite-lived intangible assets for the nine months ended September 30, 2021 and 2020 was $ 939 and $ 382 , 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 September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Other information
Operating lease expense
$ 147
$ 103
$ 358
$ 328
Short-term lease expense
13
2
37
12
Cash paid for operating leases
1,397
103
1,858
327
Weighted-average remaining lease term (years) – operating leases (1)
7.0
3.8
7.0
3.8
Weighted-average discount rate – operating leases
5.043 %
4.851 %
5.043 %
4.851 %
(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 September 30, 2021, expirations of lease obligations by fiscal year were as follows:
Period Ending December 31,
Remaining 2021
$ 84
2022
281
2023
166
2024
90
2025
90
2026 and thereafter
495
Total lease payments
1,206
Less: interest
( 12 )
Total operating lease liabilities
$ 1,194
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 no t result in a gain or loss on early extinguishment.
8. STOCKHOLDERS’ EQUITY
The following table represents a share reconciliation of the Company’s common stock issued for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
(Shares of Common Stock)
2021
2020
2021
2020
Common stock:
Balance, beginning of quarter
151,146,986
141,160,576
146,677,786
132,398,616
Shares issued for stock options exercised
337,234
1,306,046
2,682,142
5,706,624
Agent growth incentive stock compensation
990,147
937,768
1,615,173
1,607,204
Agent equity stock compensation
1,075,500
1,241,594
2,574,766
4,933,540
Balance, end of quarter
153,549,867
144,645,984
153,549,867
144,645,984
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 real estate transaction in the form of common stock (the “Agent Equity Program” or “AEP”). If agents and brokers elect to receive portions of their commissions in common stock, they are entitled to receive the equivalent number of shares of common stock, based on the fixed monetary value of the commission payable. The Company recognizes a 10 % discount on these issuances as an additional cost of sales charge during the periods presented.
During the three months ended September 30, 2021 and 2020, the Company issued 1,075,500 and 1,241,594 shares of common stock, respectively, to agents and brokers with a value of $ 41,838 and $ 19,929 , respectively, inclusive of discount. During the nine months ended September 30, 2021 and 2020, the Company issued 2,574,766 and 4,933,540 shares of common stock, respectively, to agents and brokers with a value of $ 101,691 and $ 39,226 , respectively, inclusive of discount.
Agent Growth Incentive Program
The Company administers an equity incentive program whereby agents and brokers become eligible to receive awards of the Company’s common stock through agent attraction and performance benchmarks (the “Agent Growth Incentive Program” or “AGIP”). The incentive program encourages greater performance and awards agents with common stock based on achievement of performance milestones. Awards typically vest after performance benchmarks are reached and three years of subsequent service is provided to the Company. Share-based performance awards are based on a fixed-dollar amount of shares based on the achievement of performance metrics. As such, the awards are classified as liabilities until the number of share awards becomes fixed once the performance metric is achieved.
For the three months ended September 30, 2021, the Company’s stock compensation attributable to the Agent Growth Incentive Program was $ 6,817 of which the total amount of stock compensation attributable to liability classified awards was $ 1,830 . For the nine months ended September 30, 2021, the Company’s stock compensation attributable to the Agent Growth Incentive Program was $ 18,129 of which the total amount of stock compensation attributable to liability classified awards was $ 4,453 . 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 at March 31, 2021
1,221
Stock grant liability increase at June 30, 2021
1,402
Stock grants reclassified from liability to equity at September 30, 2021
( 1,496 )
Stock grant liability increase at September 30, 2021
1,830
Balance, September 30, 2021
$ 5,050
Stock Option Awards
During the three months ended September 30, 2021, and 2020, the Company granted 176,263 and 2,255,416 stock options, respectively, to employees with an estimated grant date fair value of $ 23.26 and $ 9.07 per share, respectively. For the nine months ended September 30, 2021, and 2020, the Company granted 370,594 and 3,441,772 stock options, respectively, to employees with an estimated grant date fair value of $ 24.05 and $ 10.67 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.
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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 September 30,
Nine Months Ended September 30,
(Shares of Treasury Stock)
2021
2020
2021
2020
Treasury stock:
Balance, beginning of quarter
4,725,296
2,047,778
2,534,494
925,364
Repurchases of common stock
1,287,499
321,974
3,478,301
1,444,388
Balance, end of quarter
6,012,795
2,369,752
6,012,795
2,369,752
9. EARNINGS PER SHARE
Basic earnings per share is computed based on net income attributable to eXp stockholders divided by the basic weighted-average shares outstanding during the period. Dilutive earnings per share is computed consistently with the basic computation while giving effect to all dilutive potential common shares and common share equivalents that were outstanding during the period. The Company uses the treasury stock method to reflect the potential dilutive effect of unvested stock awards and unexercised options. The 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 September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Numerator:
Net income attributable to common stock
$ 23,821
$ 14,970
$ 65,717
$ 23,410
Denominator:
Weighted average shares - basic
146,862,978
138,513,465
145,610,008
135,207,101
Dilutive effect of common stock equivalents
10,482,946
12,404,256
12,228,126
11,884,619
Weighted average shares - diluted
157,345,924
150,917,721
157,838,134
147,091,720
Earnings (loss) per share:
Earnings per share attributable to common stock- basic
$ 0.16
$ 0.11
$ 0.45
$ 0.17
Earnings per share attributable to common stock- diluted
0.15
0.10
0.42
0.16
For the three months ended September 30, 2021 and 2020 total outstanding shares of common stock excluded 132,704 and 154,870 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.
For the nine months ended September 30, 2021 and 2020 total outstanding shares of common stock excluded 75,680 and 162,063 shares, respectively, 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. Our provision for (benefit from) income taxes amounted to ($ 12.9 ) million and $ 0.2 million for the three months ended September 30, 2021 and 2020, respectively, and ($ 33.3 ) million and $ 0.3 million for the nine months ended September 30, 2021 and 2020, respectively. The increase in income tax benefit was primarily attributable to the release of the valuation allowance and higher deductible stock-based compensation.
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 June 30, 2021, based on our assessment of the realizability of our net deferred tax assets, we reached the conclusion that our valuation allowance on our US federal and state net deferred tax assets was no longer needed and therefore we recorded a valuation allowance release of $ 13 million, as a discrete item. As of September 30, 2021, the valuation allowance release discrete item amounted to $ 22 million due to the change in the annual forecast of the pre-tax income.
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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 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 September 30, 2021 and December 31, 2020, the fair value of the Company’s money market funds was $ 43,385 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 99.2 % and 99.6 % of the total revenue of the Company for the three months ended September 30, 2021 and 2020, respectively. The real estate brokerage business represents 99.3 % and 99.7 % of the total revenue of the Company for the nine months ended September 30, 2021 and 2020, respectively. The real estate brokerage business represents 99.2 % and 98.9 % of the total assets of the Company as of September 30, 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 or total assets as of September 30, 2021 and 2020, respectively.
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, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany.
The Company’s management analyzes geographical locations on a forward-looking basis to identify growth opportunities. For the three months ended September 30, 2021 and 2020, approximately 8 % and 6 %, respectively, of the Company’s total revenue was generated outside of the U.S. For the nine months ended September 30, 2021 and 2020, approximately 8 % and 5 %, respectively, of the Company’s total revenue was generated outside of the U.S. Assets held outside of the U.S. were 9 % and 7 % as of September 30, 2021 and December 31, 2020
The Company’s technology services and affiliated services are currently provided primarily in the U.S.
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13. SUBSEQUENT EVENTS
On October 26, 2021 , the Company’s Board of Directors declared a dividend of $ 0.04 per share which is expected to be payable on November 29, 2021 , to stockholders of record as of the close of business on November 15, 2021 . The ex-dividend date is November 12, 2021. The dividend will be paid in cash.
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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.