What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 132 added, 125 removed, 232 unchanged (53% of the section changed)

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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 2022, and during the first six months of 2023, we continued to make progress in achieving our strategic goals, including a 7% increase in our agent count, going from 82,856 agents as of June 30, 2022 to 88,248 agents as of June 30, 2023.

The increase in our agents occurred even though, according to the National Association of Realtors (“NAR”), real estate industry agents declined 1.1% from June 2022 to June 2023.

Throughout 2022, and during the first nine months of 2023, we continued to make progress in achieving our strategic goals, including a 5% increase in our agent count, going from 84,911 agents as of September 30, 2022 to 89,156 agents as of September 30, 2023.

The increase in our agents occurred even though, according to the National Association of Realtors (“NAR”), real estate industry agents declined 1.3% from September 2022 to September 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

In June of 2023, the existing home sales market declined 18.9%, compared to June of 2022 according to the 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.

In September of 2023, the existing home sales market declined 15.4%, compared to September of 2022 according to the NAR.

Due to reduced affordability driven by higher interest rates and increasing inflation, the market began a contraction trend in the third quarter of 2022, that is continuing into the third quarter of 2023.

The Company believes it continues to be well positioned to gain market share in the current economic climate.

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

Additionally, we have an efficient operating model with lower fixed costs driven by our cloud-based infrastructure, 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.

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

was 1,080,000 as of June 2023 (preliminary) compared to 1,250,000 at the end of June 2022.

was 1,130,000 as of September 2023 (preliminary) compared to 1,230,000 at the end of September 2022.

Mortgage Interest Rates

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 6.7% in June 2023 vs 5.7% in June 2022.

Based on Freddie Mac data, the average rate for a 30-year, conventional, fixed rate mortgage was 7.3% in September 2023 vs 6.7% in September 2022.

Housing Affordability Index

According to NAR, the composite housing affordability index decreased to 93.8 for May 2023 (preliminary) from 98.3 for May 2022.

According to NAR, the composite housing affordability index decreased to 91.7 for August 2023 (preliminary) from 110.5 for August 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.

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Existing Home Sales Transactions and Prices

According to NAR, seasonally adjusted existing home sale transactions decreased to an annual rate of 4.2 million in June 2023 (preliminary) compared to 5.1 million in June 2022 a decrease of 18.9%.

According to NAR, the nationwide existing home sales median price for June of 2023 (preliminary) was $410,200 compared to $413,800 in June 2022, a decline of 0.9%.

According to NAR, seasonally adjusted existing home sale transactions decreased to an annual rate of 3.96 million in September 2023 (preliminary) compared to 4.68 million in September 2022 a decrease of 15.4%.

According to NAR, the nationwide existing home sales median price for September of 2023 (preliminary) was $394,300 compared to $383,500 in September 2022, an increase of 2.8%.

Housing inventory was also up to 3.4 months of inventory compared to 3.2 months last year.

Legal & Regulatory Environment

See Part II., Item 1 of this Quarterly Report for a discussion of the current legal environment and how such environment could potentially impact our business, results of operations, or financial condition.

KEY BUSINESS METRICS

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except transactions and agent count)

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Other real estate transactions

$ 130,337,913

$ 149,666,700

Gross margin (%)

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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 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 result 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.

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

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.

GAAP”) to assess eXp’s financial performance from period to period.

GAAP”) to assess the Company’s financial performance from period to period.

Gross profit is calculated from U.S.

GAAP reported amounts and equals the difference between revenue and cost of sales.

Gross margin is the calculation of gross profit as a percentage of total revenue.

GAAP reported amounts and equals the difference between revenues and cost of sales.

Gross margin is the calculation of gross profit as a percentage of revenues.

Commissions and other agent-related costs represent the cost of sales for the Company.

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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 June 30, 2023 and 2022 gross profit was $96.5 million, and $107.3 million, respectively.

For the three months ended June 30, 2023 and 2022, gross margin was 7.8% and 7.6%, respectively.

For the six months ended June 30, 2023 and 2022, gross profit was $169.6 million, and $190.7 million, respectively.

For the six months ended June 30, 2023 and 2022, gross margin was 8.1% and 7.9%, respectively.

Gross profit decreased in the first six months of 2023 compared to 2022 due to lower revenue related to the slowdown in the housing market.

However, for the first half of 2023 and for the three months ended June 30, 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.

For the three months ended September 30, 2023 and 2022 gross profit was $83.6 million, and $93.1 million, respectively and gross margin was 6.9% and 7.5%, respectively.

For the three months ended September 30, 2023, gross profit and gross margin decreased year-over-year primarily due to decreased revenue related to the slowdown in the housing market and higher agent stock-based compensation costs in 2023.

For the nine months ended September 30, 2023 and 2022, gross profit was $253.2 million, and $283.8 million, respectively and gross margin was 7.7% for each of the nine month periods.

Gross profit decreased in the first nine

months of 2023 compared to 2022 due to lower revenue related to the slowdown in the housing market.

Gross margin was 7.7% for both periods, because of the lower increase in commissions and agent-related costs due to a lower percentage of agents reaching their commissions capping requirements offset by higher agent stock-based compensation expense in 2023.

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 first half of 2023 and for the three months ended June 30, 2023 compared to the same periods in 2022 due to lower revenue partially offset by lower operating costs.

Adjusted EBITDA increased slightly for the first nine months of 2023 and increased for the three months ended September 30, 2023 compared to the same periods in 2022 due to lower operating costs.

Agent and Employee Experience

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An NPS above 50 is considered excellent.

The Company’s agent NPS was 72 in the second quarter of 2023.

The Company’s agent NPS was 74 in the third quarter of 2023.

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

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RESULTS OF OPERATIONS

Three Months Ended June 30, 2023 compared to the Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022

Three Months Ended

June 30, 2023

June 30, 2022

September 30, 2023

September 30, 2022

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

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Other (income) expense, net

Income before income tax expense

Income (loss) before income tax expense

Income tax expense

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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.

For a definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net income and a discussion of why we believe Adjusted EBITDA provides useful information to investors, see “Non-U.S.

GAAP Financial Measures.”

Three months ended June 30, 2023 consolidated financial highlights, including certain comparisons to the same year-ago quarter:

● Revenue decreased (13)% to $1.2 billion.

● Gross profit decreased (10)% to $96.5 million.

● Net income of $9.4 million.

Earnings per diluted share of $0.06 compared to earnings per diluted share of $0.06 in the same period of prior year.

● Adjusted EBITDA (a non-GAAP financial measure) of $24.7 million.

● As of June 30, 2023, cash and cash equivalents totaled $124.7 million.

The company repurchased $48.8 million of common stock during the second quarter of 2023.

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

On July 28, 2023, the Company’s Board of Directors declared a cash dividend of $0.05 per share of common stock for the third quarter of 2023, expected to be paid on September 4, 2023 to stockholders of record on August 18, 2023.

Our total revenues were $1.2 billion for the three months ended June 30, 2023 compared to $1.4 billion for the same period in 2022, a decrease of ($182.1) million, or (13)%.

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

Commission and Other Agent-Related Costs

Commission and other agent-related costs were $1.1 billion for the three months ended June 30, 2023 compared to $1.3 billion for the same period in 2022, a decrease of ($171.4) million, or (13)%.

Commissions and other agent-related costs decreased primarily as a result of a decrease in real estate transactions and home prices compared to the three months ended June 30, 2022 due to the continued decline of the U.S.

In addition to the financial information noted above, the Company had:

● As of September 30, 2023, cash and cash equivalents totaled $120.1 million.

The Company repurchased $55.9 million of common stock during the third quarter of 2023.

● The Company paid a cash dividend for the third quarter of 2023 of $0.05 per share of common stock on September 4, 2023.

On October 25, 2023, the Company’s Board of Directors declared a cash dividend of $0.05 per share of common stock for the fourth quarter of 2023, expected to be paid on November 30, 2023 to stockholders of record on November 16, 2023.

Our total revenues were $1.2 billion for the three months ended September 30, 2023 compared to $1.2 billion for the same period in 2022, a decrease of ($24.5) million, or (2)%.

Total revenues decreased in the third quarter of 2023 as a result of a decrease in real estate transactions compared to the same period in 2022 primarily due to the continued decline of the U.S.

and Canada residential real estate market.

General and Administrative Expense

General and administrative expenses were $82.5 million for the three months ended June 30, 2023 compared to $91.4 million for the same period in 2022, a decrease of ($8.9) million or (10)%.

Commission and Other Agent-Related Costs

Commission and other agent-related costs were $1.1 billion for the three months ended September 30, 2023 compared to $1.1 billion for the same period in 2022, a decrease of ($15.0) million, or (1)%.

Commissions and other agent-related costs decreased primarily as a result of a decrease in real estate transactions compared to the three months ended September 30, 2022 , such decrease is partially offset by increased agent related stock-based compensation.

General and Administrative Expenses

General and administrative expenses were $78.6 million for the three months ended September 30, 2023 compared to $89.5 million for the same period in 2022, a decrease of ($10.9) million or (12)%.

General and administrative expenses include costs related to wages, stock compensation, and other general overhead expenses.

General and administrative expenses decreased as a result of lower stock-based compensation.

Sales and Marketing

Sales and marketing expenses decreased to $2.9 million for the three months ended June 30, 2023 compared to $4.2 million the same period in 2022.

The decrease of ($1.3) million is due to decreased advertising to offset the contraction in the real estate market.

Sales and Marketing Expenses

Sales and marketing expenses decreased to $3.2 million for the three months ended September 30, 2023 compared to $3.6 million the same period in 2022.

The decrease of ($0.4) million is due to decreased advertising to offset the contraction in the U.S.

and Canada residential real estate market.

Other (Income) Expense

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

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

Income Tax Expense (Benefit)

The Company’s provision for income tax expense amounted to $2.8 million and $1.7 million for the three months ended June 30, 2023 and 2022, respectively, which represented effective tax rates of positive 23.20% and 15.16%, respectively.

The provision for income tax expense was primarily attributable to increase in income from operations, lower deductible stock-based compensation windfalls and return to provision true-ups in various jurisdictions.

The Company’s provision for income tax expense(benefit) amounted to $868 and ($4,627) for the three months ended September 30, 2023 and 2022, respectively, which represented effective tax rates of positive 39.02% and 2055.79%, respectively.

The increase in the provision for income tax expense was primarily attributable to income from operations, lower deductible stock-based compensation windfalls and return to provision true-ups in various jurisdictions.

The Company is subject to a wide variety of tax laws and regulations across the jurisdictions where it operates.

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The Company continues to monitor the Base Erosion and Profit Shifting (BEPS) Integrated Framework provided by the Organization for Economic Co-operation and Development (OECD) including the legislative adoption of Pillar II by countries, and all other tax regulatory changes, to evaluate the potential impact on future periods.

Six Months Ended June 30, 2023 compared to the Six Months Ended June 30, 2022

Six Months Ended

June 30, 2023

June 30, 2022

Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022

Nine Months Ended

September 30, 2023

September 30, 2022

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

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Total other (income) expense, net

Income before income tax expense

Income (loss) before income tax expense

Income tax (benefit) expense

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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.

For a definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net income and a discussion of why we believe Adjusted EBITDA provides useful information to investors, see “Non-U.S.

GAAP Financial Measures.”

Six months ended June 30, 2023 consolidated financial highlights, including certain comparisons to the same year-ago period:

● Revenue decreased (14)% to $2.1 billion.

● Gross profit decreased (11)% to $169.6 million.

● Net income of $10.9 million.

Earnings per diluted share of $0.07 compared to earnings per diluted share of $0.12 in the same period of prior year.

● Adjusted EBITDA (a non-GAAP financial measure) of $38.1 million.

● As of June 30, 2023, cash and cash equivalents totaled $124.7 million.

The company repurchased approximately $78.7 million of common stock during the first half of 2023.

● The Company paid cash dividends for the first six months of 2023 of $0.045 per share of common stock on March 31, 2023 and $0.045 per share of common stock on May 31, 2023.

Our total revenues were $2.1 billion for the six months ended June 30, 2023 compared to $2.4 billion for the same period in 2022, a decrease of ($342.2) million, or (14)%.

Total revenues decreased in the first half of 2023 primarily as a result of a decrease in real estate transactions and home prices compared to the same period in 2022 primarily 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 $1.9 billion for six months ended June 30, 2023 compared to $2.2 billion for the same period in 2022, a decrease of ($321.1) million, or (14)%.

Commissions and other agent-related costs decreased primarily as a result of a decrease in real estate transactions and home prices compared to the period ended June 30, 2022 due to the decline of the U.S.

In addition to the financial information above, the Company had:

● As of September 30, 2023, cash and cash equivalents totaled $120.1 million.

The Company repurchased approximately $134.6 million of common stock during the first nine months of 2023.

● The Company paid cash dividends for the first nine months of 2023 of $0.045 per share of common stock on March 31, 2023, $0.045 per share of common stock on May 31, 2023, and $0.05 per share of common stock on September 4, 2023.

Our total revenues were $3.3 billion for the nine months ended September 30, 2023 compared to $3.7 billion for the same period in 2022, a decrease of ($366.7) million, or (10)%.

Total revenues decreased in the first nine months of 2023 primarily as a result of a decrease in real estate transactions compared to the same period in 2022 primarily due to the decline of the U.S.

and Canada residential real estate market.

General and Administrative Expense

General and administrative expenses were $154.3 million for the six months ended June 30, 2023 compared to $166.7 million for the same period in 2022, a decrease of ($12.4) million or (7)%.

Commission and Other Agent-Related Costs

Commission and other agent-related costs were $3.0 billion for nine months ended September 30, 2023 compared to $3.4 billion for the same period in 2022, a decrease of ($336.1) million, or (10)%.

Commissions and other agent-related costs decreased primarily as a result of a decrease in real estate transactions compared to the period ended September 30, 2022 such decrease is partially offset by increased agent related stock-based compensation.

General and Administrative Expenses

General and administrative expenses were $232.9 million for the nine months ended September 30, 2023 compared to $256.2 million for the same period in 2022, a decrease of ($23.3) million or (9)%.

General and administrative expenses include costs related to wages, stock compensation, and other general overhead expenses.

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 $5.8 million for the six months ended June 30, 2023 compared to $7.9 million the same period in 2022.

The decrease of ($2.1) million is due to decreased advertising to offset the contraction in the real estate market.

Sales and Marketing Expenses

Sales and marketing expenses decreased to $9.0 million for the nine months ended September 30, 2023 compared to $11.5 million the same period in 2022.

The decrease of ($2.5) million is due to decreased advertising to offset the contraction in the U.S.

and Canada residential real estate market.

Other (Income) Expense

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

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

Income Tax (Benefit) Expense

The Company’s provision for income tax expense and (benefit from) income taxes amounted to $0.2 million and ($3.5) million for the six months ended June 30, 2023 and 2022, respectively, which represent an effective tax rate of positive 2.20% and negative 23.81%, respectively.

The Company’s provision for income tax expense (benefit) amounted to $1,111 and ($8,115) for the nine months ended September 30, 2023 and 2022, respectively, which represent an effective tax rate of positive 8.31% and negative 56.22%, respectively.

The Company is subject to a wide variety of tax laws and regulations across the jurisdictions where it operates.

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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 June 30, 2023 and 2022:

The following table reflects the results of each of our reportable segments during the three months ended September 30, 2023 and 2022:

Three Months Ended

June 30, 2023

June 30, 2022

September 30, 2023

September 30, 2022

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

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Total Reported Adjusted EBITDA

North American Realty revenues decreased (13)% in the second 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 (14)% due to lower revenue, as well as increased general and administrative costs.

International Realty revenues increased 35% in the second quarter of 2023 compared to the same period in 2022 primarily due to increased real estate transactions driven by increased production in previously launched markets.

Adjusted EBITDA decreased (25)% in the second of 2023 compared to the same period in 2022 due to growing selling, general and administrative expenses to support the incremental production in existing operations.

(1) Adjusted Segment 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 Segment EBITDA and a reconciliation of Adjusted Segment EBITDA to net income, see “Non-U.S.

GAAP Financial Measures”.

Management evaluates the operating results of each of its reportable segments based upon revenue and Adjusted Segment EBITDA.

Adjusted Segment EBITDA is defined by us as net income before depreciation and amortization, interest expense, net, income taxes and other items that are not core to the operating activities of the Company.

The Company’s presentation of Adjusted Segment EBITDA may not be comparable to similar measures used by other companies.

North American Realty revenues decreased (2)% in the third quarter of 2023 compared to the same period in 2022 primarily due to decreased real estate transactions driven by the slowdown in the U.S.

and Canada residential real estate markets.

Adjusted EBITDA increased 21% due to lower general and administrative expenses, partially offset by lower revenue.

International Realty revenues increased 47% in the third quarter of 2023 compared to the same period in 2022 primarily due to increased real estate transactions driven by increased production in previously launched markets.

Adjusted EBITDA improved 43% in the third of 2023 compared to the same period in 2022 due to increased revenue which was offset selling, general and administrative expenses to support the incremental production in existing operations.

Virbela revenues decreased (26)% due to softer customer demands in one-time virtual events.

Adjusted EBITDA improved 59% primarily due to workforce reductions and decrease in marketing and advertising expenses.

Other Affiliated Services revenues were relatively flat due to consistent business operations.

Adjusted EBITDA decreased (56)% due to increases in selling, general and administrative expenses related to adjusting business initiatives.

Other Affiliated Services revenues decreased 31% due to lower SUCCESS® print media, partially offset by expansion of SUCCESS® Coaching.

Adjusted EBITDA decreased (63)% due to increases in selling, general and administrative expenses related to investing in business initiatives.

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

The decrease in these costs (improved Adjusted EBITDA of 50% in the second quarter of 2023 compared to the same period of 2022) reflect decreased costs primarily due to cost containment initiatives.

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 six months ended June 30, 2023 and 2022:

Six Months Ended

June 30, 2023

June 30, 2022

The following table reflects the results of each of our reportable segments during the nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30, 2023

September 30, 2022

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

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Total Reported Adjusted EBITDA

North American Realty revenues decreased (15)% in the first half 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 (19)% due to lower revenue, as well as increased general and administrative costs primarily related to increased compensation and personnel related expenses.

International Realty revenues increased 42% in the first half of 2023 compared to the same period in 2022 primarily due to increased real estate transactions driven by increased production in previously launched markets.

Adjusted EBITDA decreased (50)% in the first half of 2023 compared to the same period in 2022 due to growing selling, general and administrative expenses to support the incremental production in existing operations.

Virbela revenues increased 3% due to increased customer contracts partially offset by a decrease in one-time virtual event revenue.

(1) Adjusted Segment 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 Segment EBITDA and a reconciliation of Adjusted Segment EBITDA to net income, see “Non-U.S.

GAAP Financial Measures”.

Management evaluates the operating results of each of its reportable segments based upon revenue and Adjusted Segment EBITDA.

The Company’s presentation of Adjusted Segment EBITDA may not be comparable to similar measures used by other companies.

North American Realty revenues decreased (10)% in the first nine months of 2023 compared to the same period in 2022 primarily due to decreased real estate transactions driven by the slowdown in the real estate markets.

Adjusted EBITDA decreased (9)% due to lower revenue, partially offset by lower general and administrative costs.

International Realty revenues increased 44% in the first nine months of 2023 compared to the same period in 2022 primarily due to increased real estate transactions driven by increased production in previously launched markets.

Adjusted EBITDA decreased (5)% in the first nine months of 2023 compared to the same period in 2022 due to growing selling, general and administrative expenses to support the incremental production in existing operations.

Virbela revenues decreased (8)% due to a decrease in one-time virtual event revenue.

Adjusted EBITDA improved 56% primarily due to workforce reductions and decreases in marketing and advertising expenses.

Other Affiliated Services revenues increased 46% due to expansion of SUCCESS® Coaching and SUCCESS® Media, primarily SUCCESS® magazine.

Other Affiliated Services revenues increased 13% due to expansion of SUCCESS® Coaching.

Adjusted EBITDA decreased (29)% due to increased selling, general and administrative expenses to support the expansion.

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

The decrease in these costs (improved Adjusted EBITDA of 54% in the first half of 2023 compared to the same period of 2022) reflect decreased costs primarily due to cost containment initiatives.

The decrease in these costs (improved Adjusted EBITDA) in the first nine months of 2023 compared to the same period of 2022 reflect decreased costs primarily due to cost containment initiatives, partially offset by increased employee count to continue to support our agent growth strategy.

GAAP FINANCIAL MEASURES

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We define the non-U.S.

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.

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.

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GAAP financial measure, for each of the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

Other (income) expense, net

Three Months Ended September 30,

Nine Months Ended September 30,

Total other (income) expense, net

Income tax (benefit) expense

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Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, repurchase our common stock, and meet obligations as they become due.

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.

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 and dividend payments.

In addition, the Company has no known material cash requirements as of June 30, 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 .

In addition, the Company has no known material cash requirements as of September 30, 2023, relating to capital expenditures, commitments, or human capital (except as passthrough commissions to agents and brokers concurrent with settled real estate transactions).

We believe that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our operating requirements for at least 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 June 30, 2023 and December 31, 2022:

June 30, 2023

The following table presents our net working capital as of September 30, 2023 and December 31, 2022:

September 30, 2023

December 31, 2022

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Net working capital

For the six months ended June 30, 2023, net working capital increased $4.1 million, or 3%, compared to December 31, 2022.

The following table presents our cash flows for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

For the nine months ended September 30, 2023, net working capital increased $0.1 million, or 0%, compared to December 31, 2022.

The following table presents our cash flows for the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

Cash provided by operating activities

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Net change in cash, cash equivalents and restricted cash

For the six months ended June 30, 2023, cash provided by operating activities decreased ($11.1) million compared to the same period in 2022.

For the nine months ended September 30, 2023, cash provided by operating activities decreased ($10.8) million compared to the same period in 2022.

The change resulted primarily from decreased real estate transactions.

For the six months ended June 30, 2023, cash used in our investing increased primarily due to increased investments in unconsolidated affiliates, partially offset by fewer capital expenditures.

For the six months ended June 30, 2023 and 2022 cash flows used in financing activities primarily were related to stock repurchases and the payment of cash dividends.

For the nine months ended September 30, 2023, cash used in our investing decreased primarily due to cash used for acquisitions in 2022, as well as fewer capital expenditures.

For the nine months ended September 30, 2023 and 2022 cash flows used in financing activities primarily were related to stock repurchases and the payment of cash dividends.

The decrease in cash flows used in financing activities for the nine months ended September 30, 2023 is due to fewer share repurchases.

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 .

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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, 2022, 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.

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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