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, 2022
December 31, 2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 134,545
$ 108,237
Restricted cash
52,652
67,673
Accounts receivable, net of allowance for credit losses of $ 2,786 and $ 2,198 , respectively
119,822
133,489
Prepaids and other assets
13,167
9,916
TOTAL CURRENT ASSETS
320,186
319,315
Property, plant, and equipment, net
17,689
15,902
Operating lease right-of-use assets
2,217
2,482
Other noncurrent assets
1,614
2,827
Intangible assets, net
8,975
7,528
Deferred tax assets
63,672
52,827
Goodwill
26,514
12,945
TOTAL ASSETS
$ 440,867
$ 413,826
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable
$ 9,911
$ 7,158
Customer deposits
52,652
67,673
Accrued expenses
117,605
111,672
Current portion of lease obligation - operating lease
202
311
TOTAL CURRENT LIABILITIES
180,370
186,814
Long-term payable
2,714
2,714
Long-term lease obligation - operating lease, net of current portion
720
765
TOTAL LIABILITIES
183,804
190,293
EQUITY
Common Stock, $ 0.00001 par value 900,000,000 shares authorized; 168,562,464 issued and 152,702,078 outstanding in 2022; 155,516,284 issued and 148,764,592 outstanding in 2021
2
1
Additional paid-in capital
567,594
401,479
Treasury stock, at cost: 15,860,386 and 6,751,692 shares held, respectively
( 344,844 )
( 210,009 )
Accumulated earnings
34,616
30,510
Accumulated other comprehensive income (loss)
( 1,474 )
188
Total eXp World Holdings, Inc. stockholders' equity
255,894
222,169
Equity attributable to noncontrolling interest
1,169
1,364
TOTAL EQUITY
257,063
223,533
TOTAL LIABILITIES AND EQUITY
$ 440,867
$ 413,826
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,
2022
2021
2022
2021
Revenues
$ 1,238,975
$ 1,110,480
$ 3,664,766
$ 2,694,200
Operating expenses
Commissions and other agent-related costs
1,145,853
$ 1,030,937
3,380,930
$ 2,481,254
General and administrative expenses
89,460
64,615
256,173
171,636
Sales and marketing expenses
3,636
3,761
11,546
8,701
Total operating expenses
1,238,949
1,099,313
3,648,649
2,661,591
Operating income
26
11,167
16,117
32,609
Other (income) expense
Other (income) expense, net
( 78 )
239
394
159
Equity in (income) losses of unconsolidated affiliates
329
( 2 )
1,213
5
Total other (income) expense, net
251
237
1,607
164
Income (loss) before income tax expense
( 225 )
10,930
14,510
32,445
Income tax benefit
( 4,627 )
( 12,884 )
( 8,115 )
( 33,258 )
Net income
4,402
23,814
22,625
65,703
Net income attributable to noncontrolling interest
-
7
18
14
Net income attributable to eXp World Holdings, Inc.
$ 4,402
$ 23,821
$ 22,643
$ 65,717
Earnings per share
Basic
$ 0.03
$ 0.16
$ 0.15
$ 0.45
Diluted
$ 0.03
$ 0.15
$ 0.14
$ 0.42
Weighted average shares outstanding
Basic
151,826,315
146,862,978
150,622,845
145,610,008
Diluted
155,915,307
157,345,924
156,434,440
157,838,134
Comprehensive income:
Net income
$ 4,402
$ 23,814
$ 22,625
$ 65,703
Comprehensive loss attributable to noncontrolling interests
-
7
18
14
Net income attributable to eXp World Holdings, Inc.
4,402
23,821
22,643
65,717
Other comprehensive income:
Foreign currency translation gain (loss), net of tax
( 521 )
( 131 )
( 1,662 )
( 60 )
Comprehensive income attributable to eXp World Holdings, Inc.
$ 3,881
$ 23,690
$ 20,981
$ 65,657
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,
2022
2021
2022
2021
Common stock:
Balance, beginning of period
$ 2
$ 1
$ 1
$ 1
Agent equity stock compensation
-
-
1
-
Balance, end of period
2
1
2
1
Treasury stock:
Balance, beginning of period
( 289,829 )
( 126,906 )
( 210,009 )
( 37,994 )
Repurchases of common stock
( 59,815 )
( 53,191 )
( 139,635 )
( 142,103 )
Issuance of treasury stock, for acquisition
4,800
-
4,800
-
Balance, end of period
( 344,844 )
( 180,097 )
( 344,844 )
( 180,097 )
Additional paid-in capital:
Balance, beginning of period
509,476
295,035
401,479
218,492
Shares issued for stock options exercised
1,443
938
2,220
2,695
Agent growth incentive stock compensation
8,523
6,483
21,793
15,184
Agent equity stock compensation
44,395
41,838
131,230
101,691
Stock option compensation
3,757
3,376
10,872
9,608
Balance, end of period
567,594
347,670
567,594
347,670
Accumulated earnings (deficit):
Balance, beginning of period
37,007
2,734
30,510
( 39,162 )
Net income
4,402
23,821
22,643
65,717
Dividends declared and paid
( 6,793 )
( 5,755 )
( 18,537 )
( 5,755 )
Balance, end of period
34,616
20,800
34,616
20,800
Accumulated other comprehensive income (loss):
Balance, beginning of period
( 953 )
318
188
247
Foreign currency translation gain (loss)
( 521 )
( 131 )
( 1,662 )
( 60 )
Balance, end of period
( 1,474 )
187
( 1,474 )
187
Noncontrolling interest:
Balance, beginning of period
1,169
1,015
1,364
1,003
Net loss
-
( 8 )
( 18 )
( 15 )
Transactions with noncontrolling interests
-
-
( 177 )
19
Balance, end of period
1,169
1,007
1,169
1,007
Total equity
$ 257,063
$ 189,568
$ 257,063
$ 189,568
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,
2022
2021
OPERATING ACTIVITIES
Net income
$ 22,625
$ 65,703
Reconciliation of net income to net cash provided by operating activities:
Depreciation expense
5,699
3,572
Amortization expense - intangible assets
1,455
939
Loss on dissolution of consolidated affiliates
361
-
Allowance for credit losses on receivables/bad debt on receivables
588
22
Equity in loss of unconsolidated affiliates
1,213
5
Agent growth incentive stock compensation expense
22,828
18,129
Stock option compensation
10,872
9,608
Agent equity stock compensation expense
131,230
101,691
Deferred income taxes, net
( 10,845 )
( 36,020 )
Changes in operating assets and liabilities:
Accounts receivable
13,603
( 52,913 )
Prepaids and other assets
( 3,003 )
( 1,510 )
Customer deposits
( 16,135 )
41,625
Accounts payable
1,952
4,597
Accrued expenses
4,770
44,561
Long term payable
-
( 150 )
Other operating activities
111
( 1,446 )
NET CASH PROVIDED BY OPERATING ACTIVITIES
187,324
198,413
INVESTING ACTIVITIES
Purchases of property, plant and equipment
( 9,222 )
( 9,159 )
Acquisition of businesses, net of cash acquired
( 9,668 )
( 1,500 )
Investments in unconsolidated affiliates
-
( 3,004 )
NET CASH USED IN INVESTING ACTIVITIES
( 18,890 )
( 13,663 )
FINANCING ACTIVITIES
Repurchase of common stock
( 139,635 )
( 142,103 )
Proceeds from exercise of options
2,221
2,695
Transactions with noncontrolling interests
( 425 )
19
Dividends declared and paid
( 18,537 )
( 5,755 )
NET CASH USED IN FINANCING ACTIVITIES
( 156,376 )
( 145,144 )
Effect of changes in exchange rates on cash, cash equivalents and restricted cash
( 771 )
( 60 )
Net change in cash, cash equivalents and restricted cash
11,287
39,546
Cash, cash equivalents and restricted cash, beginning balance
175,910
127,924
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE
$ 187,197
$ 167,470
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes
$ 2,933
$ 1,060
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Termination of lease liabilities
$ -
$ 346
Issuance of treasury stock, for acquisition
4,800
-
Lease liabilities arising from obtaining right-of-use assets
-
2,381
Property, plant and equipment purchases in accounts payable
20
150
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. (“eXp,” or, collectively with its subsidiaries, the “Company,” “we,” “us,” or “our”) owns and operates a cloud-based real estate brokerage and a technology platform business that enables a variety of businesses to operate remotely. Our real estate brokerage is now one of the largest and fastest-growing real estate brokerage companies in the United States and is rapidly expanding internationally. Our technology platform business develops and uses immersive technologies that enable and support virtual workplaces. This unique enabling platform helps businesses increase their effectiveness and reduce costs from operating in traditional “brick and mortar” office spaces. Through various operating subsidiaries, the Company primarily operates a cloud-based real estate brokerage operating throughout the United States, most of the Canadian provinces, the United Kingdom (U.K.), Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, The Dominican Republic, Greece, New Zealand, Chile, and Poland.
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, 2021, filed with the SEC on February 25, 2022 (“2021 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. Operating results for the three and nine month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying condensed 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, goodwill, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts,
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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 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, 2020
$ 100,143
$ 27,781
$ 127,924
Balance, September 30, 2021
$ 98,064
$ 69,406
$ 167,470
Balance, December 31, 2021
$ 108,237
$ 67,673
$ 175,910
Balance, September 30, 2022
$ 134,545
$ 52,652
$ 187,197
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 November 2021, the FASB issued ASU 2021-08 – Business Combinations (Topic 805) (“ASU 2021-08”). ASU 2021-08 addresses diversity and inconsistencies related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination. The amendments in this update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company has reviewed the amendments of ASU 2021-08 and will apply the guidance upon its effective date should the Company have future business combinations.
3. ACQUISITIONS
On July 1, 2022, the Company acquired Zoocasa Realty Inc. (“Zoocasa”) in a stock purchase transaction. The total consideration paid was $ 17,458 including net cash of $ 9,668 (net of cash acquired of $ 2,772 ), stock issued from treasury of $ 4,800 and the anticipated working capital adjustment. The Zoocasa acquisition has been accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the total purchase price to the tangible and identifiable intangible assets acquired, and assumed liabilities based on their estimated fair values as of the acquisition date, as determined by management. The purchase price included goodwill of $ 14,459 and identified intangible assets of $ 1,281 . The excess of the purchase price over the aggregate fair values of the identifiable assets was recorded as goodwill, which is not deductible for tax purposes. Goodwill generated from the acquisition includes an assembled workforce. Zoocasa is a consumer real estate research portal that offers proprietary home search tools, market insights and a connection to local real estate experts. The Company is in the process of completing the purchase price allocation and the final analysis of working capital adjustments which will be completed within one year from the date of acquisition.
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4. 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. As of the first quarter of 2022, the Company provided an allowance for potential credit losses of real estate transactions.
The Company analyzed uncollectible accounts for the three categories of receivables. Receivables from real estate property settlements totaled $ 110,239 and $ 128,499 of which the Company recognized expected credit losses of $ 823 and nil , respectively as of September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021 agent non-commission based fees receivable and short-term advances totaled $ 12,369 and $ 7,188 , of which the Company recognized expected credit losses of $ 1,963 and $ 2,198 , 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 nine months ended September 30, 2022 and the year ended December 31, 2021.
5. PLANT, PROPERTY AND EQUIPMENT, NET
Plant, property and equipment, net consisted of the following:
September 30, 2022
December 31, 2021
Computer hardware and software
$ 32,148
$ 20,824
Furniture, fixture, and equipment
26
26
Total depreciable property and equipment
32,174
20,850
Less: accumulated depreciation
( 17,363 )
( 11,711 )
Depreciable property, net
14,811
9,139
Assets under development
2,878
6,763
Property, plant, and equipment, net
$ 17,689
$ 15,902
For the three months ended September 30, 2022 and 2021, depreciation expense was $ 2,129 and $ 1,376 , respectively. For the nine months ended September 30, 2022 and 2021, depreciation expense was $ 5,699 and $ 3,572 , respectively.
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill was $ 26,514 as of September 30, 2022 and $ 12,945 as of December 31, 2021. In the third quarter of 2022, the Company recorded cumulative translation adjustment of ($ 890 ) related to the Canadian goodwill in the Zoocasa transaction. 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, 2022, no events occurred that indicated it was more likely than not that goodwill was impaired. During the third quarter of 2022 the Company received Goodwill in an acquisition. For information regarding the Company’s recent acquisitions, see Note 3 – Acquisitions .
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Definite-lived intangible assets were as follows:
September 30, 2022
December 31, 2021
Gross
Accumulated
Net Carrying
Gross
Accumulated
Net Carrying
Amount
Amortization
Amount
Amount
Amortization
Amount
Trade name
$ 3,453
($ 769 )
$ 2,684
$ 2,868
($ 554 )
$ 2,314
Existing technology
3,827
( 2,144 )
1,683
1,846
( 1,102 )
744
Non-competition agreements
458
( 125 )
333
125
( 125 )
-
Customer relationships
1,895
( 503 )
1,392
1,895
( 361 )
1,534
Licensing agreement
210
( 163 )
47
210
( 110 )
100
Intellectual property
2,836
-
2,836
2,836
-
2,836
Total intangible assets
$ 12,679
($ 3,704 )
$ 8,975
$ 9,780
($ 2,252 )
$ 7,528
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, 2022 and 2021 was $ 638 and $ 318 , respectively. Amortization expense for definite-lived intangible assets for the nine months ended September 30, 2022 and 2021 was $ 1,455 and $ 939 , respectively. The Company has no indefinite-lived assets.
7. 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)
2022
2021
2022
2021
Common stock:
Balance, beginning of quarter
163,286,569
151,146,986
155,516,284
146,677,786
Shares issued for stock options exercised
681,139
337,234
2,044,193
2,682,142
Agent growth incentive stock compensation
1,184,446
990,147
2,098,770
1,615,173
Agent equity stock compensation
3,410,310
1,075,500
8,903,217
2,574,766
Balance, end of quarter
168,562,464
153,549,867
168,562,464
153,549,867
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.
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, 2022 and 2021, the Company issued 3,410,310 and 1,075,500 shares of common stock, respectively, to agents and brokers with a value of $ 44,395 and $ 41,838 , respectively, inclusive of discount. During the nine months ended September 30, 2022 and 2021, the Company issued 8,903,217 and 2,574,766 shares of common stock, respectively, to agents and brokers with a value of $ 131,230 and $ 101,691 , 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, 2022, the Company’s stock compensation expense attributable to the Agent Growth Incentive Program was $ 5,800 , of which the total amount of stock compensation expense attributable to liability classified awards was ($ 985 ). For the nine months ended September 30, 2022, the Company’s stock compensation expense attributable to the Agent Growth Incentive
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Program was $ 22,828 of which the total amount of stock compensation expense attributable to liability classified awards was $ 3,466 . 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.
The following table illustrates changes in the Company’s stock compensation liability for the periods presented:
Amount
Stock grant liability balance at December 31, 2021
$
4,341
Stock grant liability increase year to date
3,466
Stock grants reclassified from liability to equity year to date
( 2,430 )
Balance, September 30, 2022
$ 5,377
Stock Option Awards
During the three months ended September 30, 2022, and 2021, the Company granted 394,657 and 176,263 stock options, respectively, to employees with an estimated grant date fair value of $ 8.50 and $ 23.26 per share, respectively. During the nine months ended September 30, 2022 and 2021, the Company granted 1,167,042 and 370,594 stock options, respectively, to employees with an estimated grant date fair value of $ 11.21 and $ 24.05 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.
Repurchase Plan Amendment
On May 3, 2022, the Board authorized an increase to the Company’s stock repurchase program from $ 400 million of its common stock up to $ 500 million and approved a form of amendment to its Issuer Repurchase Plan, dated January 10, 2022, by and between the Company and Stephens Inc., (the “Issuer Repurchase Plan”) to increase monthly repurchases from $ 10 million of its common stock per month up to $ 20 million which amendment was signed May 6, 2022. On September 27, 2022, the Board approved, and the Company entered into, a form of second amendment to the Issuer Repurchase Plan, to decrease the monthly repurchases from $ 20 million of its common stock per month to $ 13.3 million, in anticipation of volume decreases in connection with the contraction in the real estate market .
For accounting purposes, common stock repurchased under the stock repurchase programs is recorded based upon the transaction 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. During the third quarter of 2022 the Company issued treasury shares in an acquisition. For information regarding the Company’s recent acquisitions, see Note 3 – Acquisitions .
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)
2022
2021
2022
2021
Treasury stock:
Balance, beginning of quarter
11,487,691
4,725,296
6,751,692
2,534,494
Repurchases of common stock
4,716,026
1,287,499
9,452,025
3,478,301
Issuance of treasury stock for acquisition
( 343,331 )
-
( 343,331 )
-
Balance, end of quarter
15,860,386
6,012,795
15,860,386
6,012,795
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8. 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 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,
2022
2021
2022
2021
Numerator:
Net income attributable to common stock
$ 4,402
$ 23,821
$ 22,643
$ 65,717
Denominator:
Weighted average shares - basic
151,826,315
146,862,978
150,622,845
145,610,008
Dilutive effect of common stock equivalents
4,088,992
10,482,946
5,811,595
12,228,126
Weighted average shares - diluted
155,915,307
157,345,924
156,434,440
157,838,134
Earnings per share:
Earnings per share attributable to common stock- basic
$ 0.03
$ 0.16
$ 0.15
$ 0.45
Earnings per share attributable to common stock- diluted
$ 0.03
$ 0.15
$ 0.14
$ 0.42
For the three months ended September 30, 2022 and 2021 total outstanding shares of common stock excluded 1,315,861 and 132,704 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.
For nine months ended September 30, 2022 and 2021 total outstanding shares of common stock excluded 845,162 and 75,680 shares, respectively, from the computation of diluted earnings per share because their effect would have been anti-dilutive.
9. 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 plus discrete tax items arising in the period. Our provision for benefit from income taxes amounted to ($ 8.12 ) million and ($ 33.26 ) million for the nine months ended September 30, 2022 and 2021, respectively, which represent an effective tax rates of negative 56.2 % and 102.5 %, respectively. The decrease in income tax benefit was primarily attributable to the release of valuation allowance in 2021, lower pretax income from operations and lower deductible stock-based compensation in 2022.
10. 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, 2022 and December 31, 2021, the fair value of the Company’s money market funds was $ 43,679 and $ 43,386 , 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 .
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11. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to potential liability under laws and government regulations and various claims and legal actions that may be asserted against us that could have a material adverse effect on the business, reputation, results of operations or financial condition. Such litigation may include, but is not limited to, actions or claims relating to sensitive data, including proprietary business information and intellectual property and that of clients and personally identifiable information of employees and contractors, cyber-attacks, data breaches and non-compliance with contractual or other legal obligations.
On November 19, 2021, the Company agreed to settle a class action lawsuit filed against the Company in 2018 alleging violations under the Telephone Consumer Protection Act. Pursuant to the proposed settlement agreement terms, the Company will grant certain monetary and non-monetary settlements. The Company decided to set aside provisions at the amount of $ 10.0 million to cover current estimated settlement fees and costs. The settlement agreement terms remain subject to judicial review and approval.
There are no matters pending or, to the Company’s knowledge, threatened that are expected to have a material adverse impact on the business, reputation, results of operations, or financial condition.
There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder is an adverse party or has a material interest adverse to the Company’s interest.
In March and April 2022, an indirect subsidiary and unconsolidated joint venture of the Company, SUCCESS Lending, entered into Mortgage Warehouse Agreements and related ancillary agreements (the “Credit Agreements”) with Flagstar Bank FSB and Texas Capital Bank, which each provide SUCCESS Lending with a revolving warehouse credit line of up to $ 25 million. It is customary for mortgage businesses like SUCCESS Lending to obtain warehouse credit lines in order to enable them to close and fund residential mortgage loans for subsequent sale to investors. SUCCESS Lending will use the borrowing capacity under the Credit Agreements exclusively for such purposes and borrowings will generally be repaid with the proceeds received from the sale of mortgage loans.
In connection with the Credit Agreements, the Company has entered into Capital Maintenance Agreements with each of Flagstar Bank FSB and Texas Capital Bank whereby the Company agrees to provide certain funds necessary to ensure that SUCCESS Lending is at all times in compliance with its financial covenants under the Credit Agreements. The Company’s capital commitment liability under the Capital Maintenance Agreement with Flagstar Bank FSB is limited to $ 2.0 million. The Company’s capital commitment liability under the Capital Maintenance Agreement with Texas Capital Bank is limited to $ 1.25 million. The Credit Agreements represent off-balance sheet arrangements for the Company.
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 99.1 % and 99.2 % of the total revenue of the Company for the nine months ended September 30, 2022 and 2021, respectively. The real estate brokerage business represents 96.9 % and 99.0 % of the total assets of the Company as of September 30, 2022 and December 31, 2021, 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, 2022 and 2021, 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 three years, the Company expanded operations into the United Kingdom, Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, the Dominican Republic, Greece, New Zealand, Chile, and Poland.
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The Company’s management analyzes geographical locations on a forward-looking basis to identify growth opportunities. For the nine months ended September 30, 2022 and 2021, approximately 9 % and 8 % respectively, of the Company’s total revenue was generated outside of the U.S. Assets held outside of the U.S. were 5 % and 8 % as of September 30, 2022 and December 31, 2021
The Company’s technology services and affiliated services are currently provided primarily in the U.S.
13. SUBSEQUENT EVENTS
Quarterly Cash Dividend
On October 27, 2022 , the Company’s Board of Directors declared a dividend of $ 0.045 per share which is expected to be payable on November 28, 2022 , to stockholders of record as of the close of business on November 14, 2022 . The ex-dividend date is expected to be November 11, 2022. The dividend will be paid in cash.
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.