What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-04 · 119 added, 76 removed, 196 unchanged (50% of the section changed)

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All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.

eXp World Holdings empowers the new economy through its people, platforms and personal and professional development solutions.

eXp World Holdings empowers the new economy through its people, technology platforms and personal and professional development solutions.

Through our brokerage, eXp Realty, we operate one of the world’s fastest-growing real estate brokerages.

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By building partnerships and strategically deploying capital, we seek to grow the business and enter into attractive verticals and associated businesses.

Throughout 2021, and during the first quarter of 2022, we continued to make progress in achieving our strategic goals, including an 55% increase in our agent count, going from 50,333 agents as of March 31, 2021 to 78,196 agents as of March 31, 2022.

Throughout 2021, and during the first half of 2022, we continued to make progress in achieving our strategic goals, including a 42% increase in our agent count, going from 58,263 agents as of June 30, 2021 to 82,856 agents as of June 30, 2022.

The expected outcome of these activities will be to better position us to deliver on our full potential, to provide a platform for future growth opportunities, and to achieve our long-term financial goals.

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Additionally, regulations imposed by local, state, and federal government agencies, and geopolitical instability, can also negatively impact the housing markets for which we operate.

For the period ended March 31, 2022, the effects of the COVID-19 pandemic on business worldwide lessened, however the full magnitude and duration of the impact from COVID-19 are not fully known and cannot be reasonably estimated as the global economy continues to recover and adapt.

The impact to the Company for the period ended March 31, 2022 has been minimal to date.

We believe that once COVID-19 is further contained, the economy will continue to rebound depending on the continued pace, rate, and effectiveness of lifting public health restrictions on businesses and individuals and how quickly people become comfortable engaging in public activities.

According to the National Association of Realtors (“NAR”), as of 2021, the housing market is the strongest it has been in 15 years, however as of the first quarter of 2022, activity in the housing market has slowed.

Due to a rise in interest rates and home prices, the demand has begun to decrease.

According to the NAR housing statistics, existing home sales, adjusted for seasonality, decreased in the first quarter of 2022, while the average home sale price increased to $387.1 (preliminary).

As of March 31, 2022, housing inventory continued to decline to 0.95 million and a 2.0-month supply, which are both historic lows.

The NAR reported that pending home sales fell 4.1% for the fourth consecutive month, indicating a slowing in contract activity, mostly impacted by inventory levels and rising interest rates.

For the period ended June 30, 2022, the effects of the COVID-19 pandemic on business worldwide have lessened, however the global economy continues to recover from and adapt to the COVID-19 pandemic.

As COVID-19 continues to be contained and the impact of the pandemic wanes, the economy is expected to rebound as public health restrictions on businesses and individuals are lifted and as people become comfortable engaging in public activities.

According to the National Association of Realtors (“NAR”), as of 2021, the housing market was the strongest it had been in 15 years, however during the first six months of 2022, activity in the housing market has slowed.

Due to a rise in interest rates and home prices in a short span of time, housing affordability continues to impact potential home buyers.

According to the NAR housing statistics, existing home sales, adjusted for seasonality, further decreased in June 2022 to an adjusted annual rate of 5.1 million, down 14.2% from one year ago while the median home sale price increased to $416.0 (preliminary), or 13.4% from June 2021.

As of June 30, 2022, housing inventory increased to 1.26 million, a 3.0-month supply, compared to a 2.5-month supply a year ago.

The NAR reported that pending home sales declined 8.6% from May to June.

Year over year, however, contract activity has also decreased, primarily related to rising interest rates.

The pending home sales index measures housing contract activity and is based on signed real estate contracts for existing single-family homes and condos.

The Company is positioned to grow in light of a series of fluctuations in economic activity.

The Company continued its growth trajectory through the first quarter of 2022 with a year-over-year increase in revenue of 73% and an increase in agent count of 55%.

The Company is positioned to grow during fluctuations in economic activity.

The Company continued its growth trajectory during the first six months of 2022 with a year-over-year increase in revenue of 53% and an increase in agent count of 42%.

However, the Company continues to monitor the overall economic climate, specifically in key areas of operations, affecting the real estate market through the end of 2022.

Regardless of whether the housing market continues to grow or slows, we believe that we are positioned to leverage our low-cost, high-engagement model, affording agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to survive and thrive in a series of fluctuations in economic activity.

National Housing Inventory

Throughout 2021 and into 2022, increased demand and low mortgage interest rates caused inventory levels to decline to record lows.

With continued overall uncertainty of the overall economy, fewer individuals are listing their homes.

Additionally, construction of new homes has slowed due to increased costs of raw materials, tight labor market, and delays in the supply chains as the global economy continues to recover.

Due to these factors, and others, year-over-year inventory has decreased further.

Throughout 2022, increased mortgage interest rates and higher home prices have caused inventory levels to rise.

Construction of new homes continues to slow also due to rising mortgage rates, and the strained availability of labor and materials.

Despite these factors, and others, year-over-year inventory has increased.

According to NAR, inventory of existing homes for sale in the U.S.

was 0.95 million as of March 2022 (preliminary) compared to 1.05 million at the end of March 2021.

NAR indicated the need for new home construction due to the high demand of homes and the record-low inventory levels.

was 1.3 million as of June 2022 (preliminary) compared to 1.2 million at the end of June 2021.

Mortgage Interest Rates

According to NAR, mortgage interest rates on commitments for 30-year, conventional, fixed-rate mortgages averaged 3.8% for the first quarter of 2022 compared to 2.9% for the first quarter of 2021.

Mortgage rates are forecasted to increase to 4.9% throughout 2022, with an expected increase in interest rates in 2023 to 5.4%.

Increases in mortgage rates are expected to contribute to a decline in demand for homebuying.

The sharp increase in mortgage rates have begun to negatively impact the demand for homebuying.

As stated in a recent NAR publication, the average rate for a 30-year, conventional, fixed rate mortgage was 5.5% in June vs 3.0% in all of 2021 based on Freddie Mac data.

Housing Affordability Index

According to NAR, the composite housing affordability index decreased to 135.4 for February 2022 (preliminary) from 170.4 for February 2021.

The housing affordability index continues to be at favorable levels.

According to NAR, the composite housing affordability index decreased to 102.5 for May 2022 (preliminary) from 148.2 for May 2021.

The housing affordability index levels are continuing to decline.

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% down payment and ability to qualify for a mortgage.

The favorable housing affordability index is due to favorable mortgage rate conditions.

However, the steady year-over-year decline is attributable to the increase in the average home price due to low inventory levels driving up demand.

The favorable housing affordability index has been declining over the last several months due to increasing mortgage rates and low inventory levels driving increases in the average home price.

Home Sales Transactions

According to NAR, seasonally adjusted existing home sale transactions decreased to 5.8 million 2022 (preliminary) compared to 6.0 million for 2021.

NAR anticipates transactions to continue with current pace;

however, due to low inventory levels, current transaction volume may not be sustainable.

According to NAR, the nationwide existing home sales median price for March 2022 (preliminary) was $375.3 compared to $326.3 in March 2021.

Due to low supply and high demand, the average sale price is expected to continue to increase through the remainder of 2022.

According to NAR, seasonally adjusted existing home sale transactions decreased to an annual rate of 5.1 million in June 2022 (preliminary) compared to 6.0 million for 2021.

According to NAR, the nationwide existing home sales median price for June 2022 (preliminary) was $416.0 compared to $367.0 in June 2021.

This marks 124 consecutive months of year-over-year increases, the longest-running streak on record.

KEY BUSINESS METRICS

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The following table outlines the key business metrics that we periodically review:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except transactions and agent count)

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During 2020 and 2021, we expanded operations to the South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany.

In 2022, the Company has expanded into Greece and the Dominican Republic.

In 2022, the Company has expanded into The Dominican Republic, Greece, and New Zealand.

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 macroeconomic factors affecting the real estate industry in general.

With the favorable economic outlook and our unique business model, we anticipate to continuously grow for the remainder of the year.

With our unique business model, we anticipate being able to continue to grow for the remainder of the year, despite the less favorable economic outlook.

Settled home sales transactions and volume resulted from closed real estate transactions and typically change directionally with changes in the market’s existing home sales transactions as reported by NAR, as disproportionate variances are representative of company-specific improvements or shortfalls to the norm.

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Gross profit is based on the information provided in our results of operations or our consolidated statements of comprehensive income and is an important measure of our potential profitability and brokerage performance.

For the three months ended March 31, 2022 and 2021, gross profit was $83.5 million, and $53.5 million, respectively.

The gross profit increased year-over-year due to significant growth of real estate transaction volumes.

For the three months ended March 31, 2022, and 2021, gross margin was 8.3% and 9.2%, respectively.

Gross margin decreased year-over-year primarily due to rising home prices and increased demand which resulted in agents reaching their commission capping requirements sooner, entitling them to a higher percentage of the home sale commission.

For the three months ended June 30, 2022 and 2021, gross profit was $107.3 million, and $79.9 million, respectively.

For the three months ended June 30, 2022, and 2021, gross margin was 7.6% and 8.0%, respectively.

For the six months ended June 30, 2022 and 2021, gross profit was $190.7 million, and $133.4 million, respectively.

For the six months ended June 30, 2022, and 2021, gross margin was 7.9% and 8.4%, respectively.

For the three months and six months ended June 30, 2022, gross profit increased year-over-year due to significant revenue growth related to increases in real estate transactions.

However, for the three months and six months ended June 30, 2022, gross margin decreased year-over-year primarily due to rising home prices and increased demand which resulted in agents reaching their commission capping requirements sooner, entitling them to a higher percentage of the home sale commission.

Management also reviews Adjusted EBITDA, which is a non-U.S.

GAAP financial measure, to understand and evaluate our core operating performance.

Adjusted EBITDA has grown significantly for the three months ended March 31, 2022 and 2021 due to our revenue growth and improved leverage of our cost structure.

Adjusted EBITDA has grown significantly for the six months ended June 30, 2022 compared to the same period in 2021 due to our revenue growth and improved leverage of our cost structure.

RECENT BUSINESS DEVELOPMENTS

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Throughout 2021, the Company initiated operations in Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany.

During the first quarter of 2022 we have commenced operations in Greece and the Dominican Republic.

During the first and second quarter of 2022 we have commenced operations in The Dominican Republic, Greece, and New Zealand.

The Company continues to pursue growth opportunities into new global markets.

In addition to the international expansion, the Company continues to also focus on growth in the United States and in Canada.

In addition to the international expansion, the Company continues to focus on growth in the United States and in Canada.

Agent and Employee Experience

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An NPS above 50 is considered excellent.

The Company’s agent NPS was 71 in the first quarter of 2022.

The Company’s agent NPS was 68 in the second quarter of 2022.

Whether it be the overall question "How likely are you to recommend eXp to your colleagues, friends, or family?"

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Under our equity incentive program, agents and brokers who qualify may be issued awards of shares of the Company’s common stock, and it continues to be another element in creating a culture of agent-ownership.

Our agent compensation plans represent a key lever in our strategy to attract and retain independent agents and brokers.

Our agent compensation plans represent a key level in our strategy to attract and retain independent agents and brokers.

The costs attributable to these plans are also a significant component of our commission structure and results of operations.

Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock.

Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock at a discount.

Technology Products and Services

We continue developing the core Virbela enterprise metaverse technology through our subsidiary, eXp World Technologies, LLC (“World Tech”), to accommodate for the increasing use and scale required to support all eXp subsidiaries and a growing number of

enterprise customers worldwide.

Virbela has seen increased interest from Fortune 2000 enterprises looking to become both customers and partners as they invest in metaverse technologies and build out their own strategies.

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Results of Operations

Three Months Ended March 31, 2022 compared to the Three Months Ended March 31, 2021

Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021

Three Months Ended

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

(In thousands, except share amounts and per share data)

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Operating income

Other (income) expense

Other expense

Other (income) expense, net

Equity in losses of unconsolidated affiliates

Other expense, net

Income before income tax expense

Income tax (benefit) expense

Net loss attributable to noncontrolling interest

Net income attributable to eXp World Holdings, Inc.

Adjusted EBITDA (1)

Earnings 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 Measures.”

Our total revenues were $1,415.1 million for the three months ended June 30, 2022 compared to $999.9 million for the same period in 2021, an increase of $415.2 million, or 42%.

Total revenues increased for the second quarter of 2022 primarily as a result of an increase in real estate brokerage commissions, which is directly attributable to increases in our agent count, closed transactions and rising home price compared to the same period in 2021.

Commission and Other Agent Related Costs

Commission and other agent-related costs were $1,307.8 million for the three months ended June 30, 2022 compared to $920.0 million for the same period in 2021, an increase of $387.8 million, or 42%.

Commissions and other agent related costs increased as a result of an increase in our agent count and closed transactions compared to the same period in 2021.

Rising home prices and increased demand also contributed to agents reaching their commission capping requirements sooner, entitling them to a higher percentage of the home sale commission.

General and Administrative Expense

General and administrative expenses were $91.4 million for the three months ended June 30, 2022 compared to $60.7 million for the same period in 2021, an increase of $30.7 million or 51%.

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 $19.6 million in compensation and personnel related expenses including salaries, employee benefits, and payroll taxes and, an increase of $3.9 million in expenses, primarily driven by agent related seminars and conferences, an increase of $1.7 million in computer and software expenses, and an increase of $3.9 million in stock compensation expense.

These increased costs are a result of the Company’s growth in agent count and real estate transaction volumes, and the investment in employees and technology to support continued growth.

Sales and Marketing

Sales and marketing expenses increased to $4.2 million for the three months ended June 30, 2022 compared to $2.7 million the same period in 2021.

The increase of $1.5 million is due to increased advertising as we continue to expand our real estate operations and software services.

Other Expense

There were no significant changes in other expense for the three months ended June 30, 2022 compared to the same period in 2021.

Income Tax Benefit (Expense)

The Company’s provision for income taxes amounted to $1.66 million expense and ($20.6) million benefit for the three months ended June 30, 2022 and 2021, respectively, which represent an effective tax rates of positive 15.16% and negative 125.8%, respectively.

The decrease in income tax benefit was primarily attributable to release of the valuation allowance in 2021.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

Six Months Ended

June 30, 2022

June 30, 2021

(In thousands, except share amounts and per share data)

Statement of Operations Data:

Operating expenses

Commissions and other agent-related costs

General and administrative expenses

Sales and marketing expenses

Total operating expenses

Operating income

Other (income) expense, net

Equity in losses of unconsolidated affiliates

Total other (income) expense, net

Income before income tax expense

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GAAP Financial Measures.”

Our total revenues were $1.0 billion for the three months ended March 31, 2022 compared to $583.8 million for the same period in 2021, an increase of $426.9 million, or 73%.

Total revenues increased for the first quarter of 2022 primarily as a result of an increase in real estate brokerage commissions, which is directly attributable to increases in our agent count, closed transactions and rising home price compared to the same period in 2021.

Our total revenues were $2,425.8 million for the six months ended June 30, 2022 compared to $1,583.7 million for the same period in 2021, an increase of $842.1 million, or 53%.

Total revenues increased for the first six months of 2022 primarily as a result of an increase in real estate brokerage commissions, which is directly attributable to increases in our agent count, closed transactions and rising home price compared to the same period in 2021.

Commission and Other Agent Related Costs

Commission and other agent-related costs were $927.3 million for the three months ended March 31, 2022 compared to $530.3 million for the same period in 2021, an increase of $396.9 million, or 75%.

Commission and other agent-related costs were $2,235.1 million for the six months ended June 30, 2022 compared to $1,450.3 million for the same period in 2021, an increase of $784.8 million, or 54%.

Commissions and other agent related costs increased as a result of an increase in our agent count and closed transactions compared to the same period in 2021.

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General and Administrative Expense

General and administrative expenses were $75.3 million for the three months ended March 31, 2022 compared to $46.3 million for the same period in 2021, an increase of $29.0 million or 63%.

General and administrative expenses were $166.7 million for the six months ended June 30, 2022 compared to $107.0 million for the same period in 2021, an increase of $59.7 million or 56%.

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 $18.2 million in compensation and personnel related expenses including salaries, employee benefits, and payroll taxes and payroll processing fees, an increase of $2.6 million in computer and software expenses, and an increase of $2.7 million in stock compensation expense.

These increased costs are a result of the Company’s growth in agent count and real estate transaction volumes, and the investment of employee and technology in supporting the growth in 2022.

General and administrative expenses increased primarily as a result of an increase of $37.8 million in compensation and personnel related expenses including salaries, employee benefits, and payroll taxes and, an increase of $4.7 million in expenses, primarily driven by agent related seminars and conferences, an increase of $4.3 million in

computer and software expenses, and an increase of $6.6 million in stock compensation expense.

These increased costs are a result of the Company’s growth in agent count and real estate transaction volumes, and the investment in employee and technology to support continued growth

Sales and Marketing

Sales and marketing expenses increased to $3.7 million for the three months ended March 31, 2022 compared to $2.3 million the same period in 2021.

This is due to an increase of $1.4 million in advertising as we continue to expand our real estate operations and software services.

Other Expense (Income)

There were no significant changes in other expense for the three months ended March 31, 2022 compared to the same period in 2021.

Sales and marketing expenses increased to $7.9 million for the six months ended June 30, 2022 compared to $4.9 million the same period in 2021.

The increase of $3.0 million is due to increased advertising as we continue to expand our real estate operations and software services.

Other Expense

There were no significant changes in other expense for the six months ended June 30, 2022 compared to the same period in 2021.

Income Tax Benefit (Expense)

The Company’s provision for (benefit from) income taxes amounted to ($5.15) million and $0.21 million for the three months ended March 31, 2022 and 2021, respectively, which represented effective tax rates of negative 137.97% and positive 4.17%, respectively.

The increase in income tax benefit was primarily attributable to the deductible stock-based compensation windfalls.

The Company’s provision for (benefit from) income taxes amounted to ($3.49) million and ($20.4) million for the six months ended June 30, 2022 and 2021, respectively, which represent an effective tax rate of negative 23.81% and 95.1%, respectively.

The decrease in income tax benefit was primarily attributable to the release of the valuation allowance in 2021 and lower deductible stock based compensation in 2022.

GAAP FINANCIAL MEASURES

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GAAP financial measure, for each of the periods presented:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Other (income) expense, net

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Our current capital deployment strategy for 2022 is to utilize excess cash on hand to support our growth initiatives into select markets and enhance our technology platforms and for repurchases of our common stock.

As of March 31, 2022, the Company is party to off-balance sheet arrangements, see Note 11 – Commitments and Contingencies for details of these arrangements.

In addition, the Company has no known material cash requirements as of March 31, 2022, relating to capital expenditures, commitments, or human capital (except as passthrough commissions to agents and brokers concurrent with settled real estate transactions).

As of June 30, 2022, the Company is party to off-balance sheet arrangements, see Note 11 – Commitments and Contingencies for details of these arrangements.

In addition, the Company has no known material cash requirements as of June 30, 2022, relating to capital expenditures, commitments, or human capital (except as passthrough commissions to agents and brokers concurrent with settled real estate transactions).

For information regarding the Company’s expected cash requirement related to leases, see Note 6 – Leases to the condensed consolidated financial statements.

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Our capital requirements may be affected by factors which we cannot control such as the changes in the residential real estate market, interest rates, and other monetary and fiscal policy changes to the manner in which we currently operate.

In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through

equity or debt financing.

In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing.

We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next twelve months.

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Net working capital is calculated as the Company’s total current assets less its total current liabilities.

The following table presents our net working capital as of March 31, 2022 and December 31, 2021:

March 31, 2022

The following table presents our net working capital as of June 30, 2022 and December 31, 2021:

June 30, 2022

December 31, 2021

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Net working capital

For the three months ended March 31, 2022, net working capital increased to $146.2 million, or 10%, compared to December 31, 2021 primarily due to an increase in agent and commission receivables directly related to the increase in revenue.

The following table presents our cash flows for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

For the six months ended June 30, 2022, net working capital increased to $24.0 million, or 18%, compared to December 31, 2021 primarily due to an increase in agent and commission receivables directly related to the increase in revenue.

The following table presents our cash flows for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

Cash provided by operating activities

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Net change in cash, cash equivalents and restricted cash

For the three months ended March 31, 2022, cash provided by operating activities increased $32.6 million compared to the same period in 2021.

The change resulted primarily from the increased real estate transactions volume, increase in customer deposits, and higher participation by our agents and brokers in our agent stock compensation programs.

For the three months ended March 31, 2022, cash used in our investing activities increased due to higher capital expenditures.

For the three months ended March 31, 2022, the increase in cash flows used in financing activities primarily were related to repurchases of our common stock and payment of cash dividend, partially offset by proceeds received from the exercise of stock options.

For the six months ended June 30, 2022, cash provided by operating activities decreased ($2.1) million compared to the same period in 2021.

The change resulted primarily from the increased real estate transactions volume, and higher participation by our agents and brokers in our agent stock compensation programs, offset by decrease in customer deposits.

For the six months ended June 30, 2022, cash used in our investing activities increased due to higher capital expenditures.

For the six months ended June 30, 2022, the increase in cash flows used in financing activities primarily were related to the payment of cash dividends in the first half of 2022 which was absent in the first half of 2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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-Q

Item 2. Management’s Discussion and Analysis