What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-11-02 · 115 added, 175 removed, 143 unchanged (67% of the section changed)

8 unchanged sentences

● Key Business Metrics

● Recent Business Developments

● Results of Operations

● Business Segment Disclosures

GAAP Financial Measures

1 unchanged sentence

● Critical Accounting Policies and Estimates

GAAP Financial Measures

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

2 unchanged sentences

We are focused on being the most agent-centric company on the planet and offer our agents a generous commission model, and a thriving community built on our proprietary and unique cloud-based brokerage and collaboration suite.

eXp manages its operations in four operating business segments:

North American Realty;

International Realty;

and Other Affiliated Services.

While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions.

2 unchanged sentences

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 nine months of 2022, we continued to make progress in achieving our strategic goals, including a 30% increase in our agent count, going from 65,269 agents as of September 30, 2021 to 84,911 agents as of September 30, 2022.

Throughout 2022, and during the first three months of 2023, we continued to make progress in achieving our strategic goals, including a 12% increase in our agent count, going from 78,196 agents as of March 31, 2022 to 87,327 agents

as of March 31, 2023.

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.

MARKET CONDITIONS AND INDUSTRY TRENDS

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

Changes in these conditions can have a positive or negative impact on our business.

The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability and supply and demand.

In periods of economic growth, demand typically increases resulting in higher home sales transactions and home sales prices.

Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand.

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

For the period ended September 30, 2022, the effects of the COVID-19 pandemic on business worldwide have lessened, and the global economy continues to recover from the COVID-19 pandemic and has begun to experience elements of inflation.

As the impact of the COVID-19 pandemic wanes, the U.S.

economy has experienced inflationary pressures and has begun to slowdown, including contraction in certain real estate markets.

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 nine 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 Fannie Mae data, existing home sales, adjusted for seasonality, further decreased in the third quarter of 2022 to an adjusted annual rate of 4.7 million, down 22.1% from one year ago while the median home sale price increased to $319.5 (preliminary), or 13.6% from September 2021.

As of August 31, 2022, housing inventory increased to 1.28 million, a 3.1-month supply, compared to a 2.4-month supply a year ago.

The NAR reported that pending home sales declined 2.0% from July to August.

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 during fluctuations in economic activity.

The Company continued its growth trajectory during the first nine months of 2022 with a year-over-year increase in revenue of 36% and an increase in agent count of 30%.

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 during fluctuations in economic activity.

In March of 2023, the existing home sales market declined 22%, compared to March of 2022 according to the National Association of Realtors (“NAR”).

Due to the increasing interest rates and increasing inflation, the market began a contraction trend in the second quarter of 2022.

The Company believes it continues to be well positioned to grow in the current economic climate.

We have a strong base of agent support, which should drive organic market share growth, retention and productivity.

Additionally, we have an efficient operating model with lower fixed costs driven by our cloud-based model, with no brick-and-mortar locations.

Regardless of whether the housing market continues to slow or begins to recover, 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 during fluctuations in economic activity.

National Housing Inventory

Throughout 2022, increased mortgage interest rates and higher home prices have caused inventory levels (as measured in months of supply) to rise.

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

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

was 3.1 months as of September 2022 (preliminary) compared to 2.4 months at the end of September 2021.

was 980,000 as of March 2023 (preliminary) compared to 930,000 at the end of March 2022.

Mortgage Interest Rates

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

Based on Freddie Mac data, the average rate for a 30-year, conventional, fixed rate mortgage was 6.7% in September 2022 vs 3.0% in September 2021.

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

Based on Freddie Mac data, the average rate for a 30-year, conventional, fixed rate mortgage was 6.3% in March 2023 vs 4.7% in March 2022.

Housing Affordability Index

According to NAR, the composite housing affordability index decreased to 104.4 for August 2022 (preliminary) from 145.6 for August 2021.

The housing affordability index levels are continuing to decline on a year over year basis, but increased month over month in July and August 2022 (preliminary).

According to NAR, the composite housing affordability index decreased to 103.9 for February 2023 (preliminary) from 129.4 for February 2022.

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 has been declining year over year 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 Fannie Mae data, seasonally adjusted existing home sale transactions decreased to an annual rate of 4.7 million in September 2022 (preliminary) compared to 6.1 million in September 2021.

According to Fannie Mae data, the nationwide existing home sales median price for 2022 (preliminary) was $319.5 compared to $281.3 in September 2021.

The favorable housing affordability index has been declining year over year due to increasing mortgage rates.

Existing Home Sales Transactions and Prices

According to NAR, seasonally adjusted existing home sale transactions decreased to an annual rate of 4.4 million in March 2023 (preliminary) compared to 5.7 million in March 2022.

According to NAR, the nationwide existing home sales median price for March of 2023 (preliminary) was $375,700 compared to $379,300 in March 2022, a decline of 0.9%.

Housing inventory was also up to 2.6 months of inventory compared to 2.0 months last year.

KEY BUSINESS METRICS

1 unchanged sentence

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except transactions and agent count)

$ 149,666,700

$ 111,248,926

Three Months Ended March 31,

Gross margin (%)

11 unchanged sentences

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

During 2020 and 2021, we expanded operations to 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 The Dominican Republic, Greece, New Zealand, Chile, and Poland.

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.

1 unchanged sentence

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.

Our home sale transaction growth was directly related to the growth of our agent base over the prior comparative period.

Our home sale transaction performance was directly related to the performance of our agent base over the prior comparative period.

We utilize gross profit and gross margin, financial statement measures based on generally accepted accounting principles in the U.S.

6 unchanged sentences

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 September 30, 2022 and 2021 gross profit was $93.1 million, and $79.5 million, respectively.

For the three months ended September 30, 2022, and 2021, gross margin was 7.5% and 7.2%, respectively.

For the nine months ended September 30, 2022 and 2021, gross profit was $283.8 million, and $212.9 million, respectively.

For the nine months ended September 30, 2022 and 2021, gross margin was 7.7% and 7.9%, respectively.

For the three months and nine months ended September 30, 2022, gross profit continued to increase year-over-year due to significant revenue growth related to increases in real estate transactions.

However, for the three months ended September 30, 2022, gross margin increased year-over-year primarily due to increased transactions with a lower increase in commissions and agent-related costs due to a lower percentage of agents reaching their commission capping requirements, entitling them to a lower percentage of the home sale commission.

For the nine months ended September 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 agents to a higher percentage of the home sale commission.

For the three months ended March 31, 2023 and 2022 gross profit was $73.1 million, and $83.5 million, respectively.

For the three months ended March 31, 2023, and 2022, gross margin was 8.6% and 8.3%, respectively.

Gross profit in the first quarter of 2023 reflects lower revenue related to the slowdown in the housing market in early 2023.

However, for the three months ended March 31, 2023, gross margin increased year-over-year primarily due to a lower increase in commissions and agent-related costs due to a lower percentage of agents reaching their commission capping requirements, entitling them to a lower 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 declined for the nine months ended September 30, 2022 compared to the same period in 2021 due to higher operating costs partially offset by increased revenue.

RECENT BUSINESS DEVELOPMENTS

Real Estate Brokerage Initiatives

Global Expansion of Our Real Estate Cloud Brokerage

In 2020, the Company continued its international expansion into France, India, Mexico, Portugal and South Africa.

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

During the first nine months of 2022, we have commenced operations in The Dominican Republic, Greece, New Zealand, Chile, and Poland.

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

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

Recent Acquisition

On July 1, 2022, the Company acquired Zoocasa Realty Inc.

Zoocasa is a consumer real estate research portal that offers proprietary home search tools, market insights and a connection to local real estate experts.

Adjusted EBITDA has declined for the three months ended March 31, 2023 ended compared to the same period in 2022 due to lower revenue partially offset by lower operating costs.

Agent and Employee Experience

3 unchanged sentences

An NPS above 50 is considered excellent.

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

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

or more granular inquiries as to specific workflows or service offerings, we believe this will ensure we are delivering on the most important values to our agents and employees.

In turn, this often leads to enthusiastic fans of eXp who will promote our Company and continue leading us through strong organic growth.

The Company’s agent NPS was 70 in the first quarter of 2023.

The NPS measure is an important vehicle for delivering on our core value of transparency.

2 unchanged sentences

We then take that information and translate it into action with an effort to remediate the specific root cause(s) driving the lower score.

This fast and iterative approach has already led to improvements in parts of our business such as agent onboarding, commission transaction processing, and employee benefits.

Agent Ownership

The Company maintains an equity incentive program whereby agents and brokers of eXp Realty can become eligible to receive awards of the Company’s common stock through the achievement of production and agent attraction benchmarks.

Under our equity incentive program, agents and brokers who qualify 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 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 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.

Enterprise readiness was a core product focus in 2021 (e.g., scale, reliability, security, and privacy).

In 2021, Virbela also released a new product called Frame into beta.

Frame is a metaverse collaboration technology that is accessible from any device with a browser (e.g., mobile, personal computer, virtual reality device, tablet).

In 2022, we expect to continue to service existing and new business-to-business enterprise level contracts, solidify channel partnerships, and bring the Frame product out of beta.

Affiliate and Media Services

Acquisitions and partnerships have allowed us to begin offering to customers more products and services complementary to our real estate brokerage business.

These affiliate and media services include mortgage origination, title, escrow, and settlement services, which we can now provide as a more inclusive offering in addition to our brokerage services.

We anticipate continued growth and investment in these service offerings through 2022;

however, actual performance will depend largely on utilization by eXp and non eXp Realty agents.

Our fast and iterative approach has already led to improvements in parts of our business such as agent onboarding, commission transaction processing, and employee benefits.

Results of Operations

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

Three Months Ended March 31, 2023 compared to the Three Months Ended March 31, 2022

Three Months Ended

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

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

5 unchanged sentences

Total operating expenses

Operating income

Other expense

Other expense, net

Equity in (income) losses of unconsolidated affiliates

Other expense, net

Income (loss) before income tax expense

Operating (loss) income

Other (income) expense

Other (income) expense, net

Equity in losses of unconsolidated affiliates

Other (income) expense, net

(Loss) income before income tax expense

Income tax benefit

Net (loss) income

Net loss attributable to noncontrolling interest

Net income attributable to eXp World Holdings, Inc.

Net (loss) income attributable to eXp World Holdings, Inc.

Adjusted EBITDA (1)

5 unchanged sentences

GAAP Financial Measures.”

Our total revenues were $1,239.0 million for the three months ended September 30, 2022 compared to $1,110.5 million for the same period in 2021, an increase of $128.5 million, or 12%.

Total revenues increased for the third 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.

First Quarter 2023 consolidated financial highlights as compared to the same year-ago quarter:

● Revenue decreased 16% to $850.6 million.

● Gross profit decreased 12% to $73.1 million.

● Net income of $1.5 million.

Earnings per diluted share of $0.01 compared to earnings per diluted share of $0.06 in the year ago quarter.

● Adjusted EBITDA (a non-GAAP financial measure) of $13.3 million.

● As of March 31, 2023, cash and cash equivalents totaled $122.8 million.

The company repurchased approximately $29.9 million of common stock during the first quarter of 2023.

● The Company paid a cash dividend for the first quarter of 2022 of $0.045 per share of common stock on March 31, 2023.

On April 27, 2023, the Company’s Board of Directors declared a cash dividend of $0.045 per share of common stock for the second quarter of 2023, expected to be paid on May 31, 2023 to stockholders of record on May 12, 2023

Our total revenues were $850.6 million for the three months ended March 31, 2023 compared to $1,010.7 million for the same period in 2022, a decrease of ($160.1) million, or (16)%.

Total revenues decreased in the first quarter of 2023 as a result of a decrease in real estate transactions and home prices compared to the same period in 2022 due to the decline of the US and Canada residential real estate market.

Commission and Other Agent-Related Costs

Commission and other agent-related costs were $1,145.9 million for the three months ended September 30, 2022 compared to $1,030.9 million for the same period in 2021, an increase of $114.9 million, or 11%.

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.

Commission and other agent-related costs were $777.6 million for the three months ended March 31, 2023 compared to $927.3 million for the same period in 2022, a decrease ($149.7) million, or (16)%.

Commissions and other agent-related costs decreased as a result of a decrease in real estate transactions and home prices compared to the three months ended March 31, 2022 due to the decline of the U.S.

and Canada residential real estate market.

General and Administrative Expense

General and administrative expenses were $89.5 million for the three months ended September 30, 2022 compared to $64.6 million for the same period in 2021, an increase of $24.8 million or 38%.

General and administrative expenses were $71.8 million for the three months ended March 31, 2023 compared to $75.3 million for the same period in 2022, a decrease of ($3.6) million or (5)%.

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 $18.8 million in compensation and personnel related expenses including salaries, employee benefits, and payroll taxes and, an increase of $1.9 million in expenses, primarily driven by agent-related seminars and conferences, and an increase of $2.5 million in computer and software expenses.

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.

General and administrative expenses decreased as a result of lower stock-based compensation, partially offset by increased personnel expenses due to the Company’s increase in employee count to continue to support our agent growth strategy.

Sales and Marketing

Sales and marketing expenses decreased to $3.6 million for the three months ended September 30, 2022 compared to $3.8 million the same period in 2021.

The decrease of ($0.1) million is due to decreased advertising to offset the beginning of the contraction in the real estate market.

Other Expense

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

Sales and marketing expenses decreased to $3.0 million for the three months ended March 31, 2023 compared to $3.7 million the same period in 2022.

The decrease of ($0.7) million is due to decreased advertising to offset the contraction in the real estate market.

Other (Income) Expense

Other (income) in the first quarter of 2023 relates primarily to increased interest income when compared to the first quarter of 2022.

Income Tax Benefit

The Company’s provision for income taxes amounted to ($4.63) million expense and ($12.89) million benefit for the three months ended September 30, 2022 and 2021, respectively, which represent an effective tax rates of positive 2,055.8% and negative 117.9%, respectively.

The decrease in income tax benefit was primarily attributable to lower tax benefit from operations and lower deductible stock-based compensation in 2022.

Nine Months Ended September 30, 2022 compared to the Nine Months Ended September 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

The Company’s provision for (benefit from) income taxes amounted to ($2.59) million and ($5.15) million for the three months ended March 31, 2023 and 2022, respectively, which represented effective tax rates of positive 237.56% and negative 137.97%, respectively.

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

BUSINESS SEGMENT DISCLOSURES

See Note 11 – Segment Information to the consolidated financial statements for additional information regarding our business segments.

The following table reflects the results of each of our reportable segments during the three months ended March 31, 2023 and 2022:

Three Months Ended

March 31, 2023

March 31, 2022

(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 expense

Other expense, net

Equity in (income) losses of unconsolidated affiliates

Total other (income) expense, net

Income (loss) before income tax expense

Income tax benefit

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 $3,664.8 million for the nine months ended September 30, 2022 compared to $2,694.2 million for the same period in 2021, an increase of $970.6 million, or 36%.

Total revenues increased for the first nine months of 2022 primarily because 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 $3,380.9 million for the nine months ended September 30, 2022 compared to $2,481.3 million for the same period in 2021, an increase of $899.7 million, or 36%.

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.

General and Administrative Expense

General and administrative expenses were $256.2 million for the nine months ended September 30, 2022 compared to $171.6 million for the same period in 2021, an increase of $84.5 million or 49%.

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 $56.6 million in compensation and personnel related expenses including salaries, employee benefits, and payroll taxes and, an increase of $6.6 million in expenses, primarily driven by agent-related seminars and conferences, an increase of $6.8 million in

computer and software expenses, and an increase of $6.0 million in stock compensation expense.

These increased costs are a result of the Company’s investment in employee and technology to support continued growth of our agents and real estate transaction volume.

Sales and Marketing

Sales and marketing expenses increased to $11.5 million for the nine months ended September 30, 2022 compared to $8.7 million the same period in 2021.

The increase of $2.8 million in sales and marketing was due to continued expansion of our real estate operations and software services, however, we tempered our marketing expenses in the third quarter of 2022, due to the slow-down in real estate transactions.

Other Expense

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

Income Tax Benefit

The Company’s 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 rate of negative 56.2% and 102.5%, respectively.

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

North American Realty

International Realty

Other Affiliated Services

Segment eliminations

Total Consolidated Revenues

Adjusted Segment EBITDA (1)

North American Realty

International Realty

Other Affiliated Services

Corporate expenses and other

Total Reported Adjusted EBITDA

North American Realty revenue decreased 16% in the first quarter of 2023 compared to the same period in 2022 primarily due to decreased real estate transactions and home prices driven by the slowdown in the real estate markets.

Adjusted EBITDA decreased 26% due to lower revenue, as well as increased general and administrative costs primarily related to increased compensation and personnel related expenses.

International Realty revenue increased 52% in the first quarter of 2023 compared to the same period in 2022 primarily due to increased real estate transactions driven by a higher agent count and increased productivity in previously launched markets.

Adjusted EBITDA (loss) increased 88% in the first quarter of 2022 compared to the same period in 2022 due to growing selling, general and administrative expenses to support the incremental production in existing operations.

Virbela revenue increased 19% due to additional enterprise customer base.

Adjusted EBITDA (loss) decreased 53% primarily due to workforce reductions and decrease in marketing and advertising expenses.

Other Affiliated Services revenue increased 100% due to expansion of SUCCESS® Coaching and SUCCESS® Media, primarily SUCCESS® magazine.

The increases in revenue directly contributed to Adjusted EBITDA (loss) decrease of 18%.

Corporate expenses and other contain the costs incurred to operate the corporate parent of eXp Realty.

The decrease in these costs (decrease in Adjusted EBITDA (loss) of 60% in the first quarter of 2023 compared to the same period of 2022) reflect decreased costs primarily due to cost containment initiatives.

GAAP FINANCIAL MEASURES

4 unchanged sentences

We define the non-U.S.

GAAP financial measure of Adjusted EBITDA to mean net income (loss), excluding other income (expense), income tax benefit (expense), depreciation, amortization, and impairment charges, stock-based compensation expense, and stock option expense.

We believe that Adjusted EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making.

We believe that Adjusted EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted EBITDA.

GAAP financial measure of Consolidated Adjusted EBITDA to mean net income, excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, stock-based compensation expense and stock option expense.

Adjusted Segment EBITDA is defined as operating profit plus depreciation and amortization and stock-based compensation expenses.

We believe that Consolidated Adjusted EBITDA and Adjusted Segment EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making.

We believe that Adjusted Segment EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted Segment EBITDA.

In particular, we believe the exclusion of stock and stock option expenses, provides a useful supplemental measure in evaluating the performance of our underlying operations and provides better transparency into our results of operations.

9 unchanged sentences

GAAP financial measure, for each of the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Other expense, net

Three Months Ended March 31,

Other (income) expense, net

Income tax benefit

3 unchanged sentences

Adjusted EBITDA

(1) Amortization of stock liability is included in the “Other expense (income)” line item.

(1) This includes agent growth incentive stock compensation expense and stock compensation expense related to business acquisitions.

3 unchanged sentences

At present, our cash and cash equivalents balances and cash flows from operations have strengthened primarily due to transaction volume growth and improved cost leverage over the prior five years, attributable to the expansion of our independent agent and broker network and, to a lesser extent, increased average prices of home sales.

Currently, our primary use of cash on hand is to sustain and grow our business operations, including, but not limited to, commission and revenue share payments to agents and brokers and cash outflows for operating expenses.

In addition, in July 2022, the Company used $9.7 million of cash, net of cash acquired, to purchase Zoocasa.

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 September 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 September 30, 2022, relating to capital expenditures, commitments, or human capital (except as passthrough commissions to agents and brokers concurrent with settled real estate transactions).

In addition, the Company has no known material cash requirements as of March 31, 2023, 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 settlement costs, see Note 10 – Commitments and Contingencies .

6 unchanged sentences

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 September 30, 2022 and December 31, 2021:

September 30, 2022

The following table presents our net working capital as of March 31, 2023 and December 31, 2022:

March 31, 2023

December 31, 2022

2 unchanged sentences

Net working capital

For the nine months ended September 30, 2022, net working capital increased $7.3 million, or 6%, 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 nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

For the three months ended March 31, 2023, net working capital increased $0.9 million, or 1%, compared to December 31, 2022.

The following table presents our cash flows for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Cash provided by operating activities

3 unchanged sentences

Net change in cash, cash equivalents and restricted cash

For the nine months ended September 30, 2022, cash provided by operating activities decreased ($11.1) 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 as well as increases in our general and administrative expenses, partially offset by decrease in customer deposits.

Excluding the impact of the changes in customer deposits, operating cash flows improved in the first nine months of 2022, primarily due to increased revenue and agent equity stock compensation.

For the nine months ended September 30, 2022, cash used in our investing activities increased primarily due to increased acquisitions and capital expenditures.

For the nine months ended September 30, 2022, the increase in cash flows used in financing activities primarily were related to an increase in the payment of cash dividends from 2021 to 2022.

For the three months ended March 31, 2023, cash provided by operating activities decreased ($55.4) million compared to the same period in 2022.

The change resulted primarily from decreased real estate transactions.

For the three months ended March 31, 2023, cash used in our investing activities decreased primarily due to fewer capital expenditures.

For the three months ended March 31, 2023, the increase in cash flows used in financing activities primarily were related to an increase in the payment of cash dividends from 2022 to 2023.

While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions, access new revenue streams, or otherwise complement or accelerate the growth of our existing operations .

We may fund acquisitions or investments in complementary businesses with various sources of capital including existing cash balances and cash flow from operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021, which provides a description of our critical accounting policies.

description of our critical accounting policies.

There were no changes to critical accounting policies or estimates as reflected in our 2022 Annual Report.

5 unchanged sentences

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