What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-28 · 189 added, 181 removed, 249 unchanged (60% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about material information relevant to an assessment of the financial condition and results of operations of eXp World Holdings, Inc.

Holdings, Inc.

and its subsidiaries for the three-year period ended December 31, 2023.

The following discussion should be read together with our consolidated financial statements and related notes included elsewhere within this report.

The following discussion should be read together with our consolidated financial statements and related notes included elsewhere within this Annual Report.

This discussion contains forward-looking statements that constitute our estimates, plans and beliefs.

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Discussions of 2021 items and comparisons between 2022 and 2021 financial results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 MD&A”).

The 2021 MD&A is incorporated by reference herein from Part II, Item 7 of our Annual Report on Form 10-K dated February 25, 2022 (Commission File No.

The 2022 MD&A is incorporated by reference herein from Part II, Item 7 of our annual report on Form 10-K filed on February 28, 2023 (Commission File No.

This MD&A is divided into the following sections:

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eXp is a diversified portfolio of service-based businesses whose operations benefit substantially from utilizing our enabling technology platform.

Effective in December 2022, the Chief Operating Decision Maker (“CODM”) began managing the business and allocating resources as four separate operating segments.

The change to business segments aligns with how the CODM assesses performance and allocates resources for the Company’s business segments.

Information provided herein reflects the impact of this change for all periods presented.

See additional information in Note 14 –Segment Information .

The Chief Operating Decision Maker (“CODM”) manages the business and allocates resources as four separate operating segments.

See additional information in Note 10 –Segment Information to the consolidated financial statements included elsewhere in this Annual Report.

eXp manages its operations in four operating business segments:

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By building partnerships and strategically deploying capital, we seek to grow the business and enter attractive vertical and adjacent markets.

During 2022, we believe that we made progress towards achieving our strategic goals, including a 21% increase in our agent base year over year and an increase of 15% of real estate transactions year over year, as well as opening new business operations in six countries.

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.

In 2023, our primary emphasis was on achieving operational excellence, which we monitor using agent Net Promoter Score (“aNPS”).

aNPS plays a crucial role in attracting and retaining agents and teams, especially during a period marked by market contraction, due to lower transaction volumes and higher mortgage rates.

To counter these challenges, we instituted a series of strategic initiatives including Boost, Thrive, Accelerate, and Masterminds, with a sustained emphasis on agent productivity.

Through these initiatives, we were able to increase our agent count by 2% compared to the prior year, despite difficult market conditions.

Furthermore, we were able to increase our market share of total transactions.

Additionally, we implemented cost savings initiatives that we believe will better position us to grow as real estate market conditions improve.

We remain focused on optimizing our operating costs to match our revenue trends.

One critical area of capital deployment is our Sustainable Revenue Share Plan (the “Revenue Share Plan”), whereby we pay real estate professionals affiliated with the Company a portion of eXp Realty’s commission for their contribution to Company growth.

We launched the Revenue Share Plan when the Company was in its infancy as a competitive differentiator that has since disrupted the residential real estate brokerage model.

Participants in the Revenue Share Plan are eligible to receive additional income from the Company’s closed real estate transactions based on the participant’s number of frontline qualifying active (“FLQA”) agents.

An FLQA agent is an agent or broker that a participant (“sponsor”) has personally attracted to the Company and who has met specific real estate transaction volume requirements.

Revenue share is paid to the sponsor from the commission earned by the Company on transactions closed by the sponsor’s FLQAs.

Additionally, all sponsors must adhere to eXp’s policies and procedures and may not, among other things:

(i) take actions that result in criminal liability;

(ii) engage in activities constituting harassment;

or (iii) interfere with, coerce, or otherwise unethically convince a prospective or current agent’s choice of sponsorship declaration.

The supplementary income distributed to the sponsor under the Revenue Share Plan is exclusively derived from the Company's portion of the transaction commission and is not earned on transactions for which the Company does not receive a commission (e.g., when an FLQA has capped and earns 100% of commission on its closed transactions).

The Revenue Share Plan does not impact or reduce the commission earned by the FLQA on the transaction.

The Company’s costs incurred under the Revenue Share Plan are included as commissions and other agent-related costs in the consolidated statements of comprehensive income.

The revenue share program is integral to our growth strategy, fostering a collaborative brokerage that aligns with our core values of sustainability and collaborative success.

Regular evaluations are conducted to ensure the plan’s continued alignment with the Company's overarching objectives and for regulatory compliance.

MARKET CONDITIONS AND INDUSTRY TRENDS

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

Our business is dependent on the levels of home sales transactions and prices, which can vary based on 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.

In 2022, the existing home sales market declined 16%, according to the National Association of Realtors (“NAR”), which is the lowest the market has been since 2014.

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

According to NAR housing statistics, existing home sales continued to decline for the 11 th straight month to a seasonally adjusted rate of 4.02 million in 2022, down 34.0% from the same period in 2021.

NAR reported that pending home sales increased by 2.5% in December 2022 compared to November 2022, after six consecutive months of decreases.

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

In periods of economic growth, rising consumer confidence and lower interest rates, demand typically increases resulting in higher home sales transactions and home sales prices.

Conversely, in periods of economic recession, declining consumer confidence and higher interest rates, demand typically decreases, resulting in lower home sales transactions and home sale prices.

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

In 2023, the existing home sales market declined 18.7%, according to preliminary data from the National Association of Realtors (“NAR”), the lowest level in nearly 30 years.

Due to increasing interest rates and continued low inventory of homes for sale, the market contraction that began in the second quarter of 2022 continued through 2023.

According to preliminary NAR housing statistics, existing home sales continued to decline to 4.09 million for the year ended December 31, 2023, down 18.7% from 2022.

NAR reported that the preliminary pending home sales index increased 1.3% in December 2023 compared to December 2022, and decreased 16.8% for the full-year ended December 31, 2023, compared to the full-year of 2022.

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

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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 grow, we continue to 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 prosper in a series of fluctuations in economic activity.

Regardless of whether the housing market continues to decline or growth returns, we continue to believe that we are positioned to leverage our low-cost, high-engagement model, which affords agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to prosper amidst 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.

In 2023, the continued increase of mortgage rates and higher home prices have caused inventory levels, as measured in months of supply, to rise.

According to the United States Census Bureau, new construction housing starts decreased by 9% in 2023, compared to 2022;

however, new construction housing completions increased 4.5% in 2023 compared to 2022.

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

was 970,000 at the end of December 2022 compared to 910,000 at the end of December 2021.

was one million.

Mortgage Rates

The sharp increase in mortgage rates is negatively impacting the demand for homebuying.

Based on Freddie Mac data, the average rate for a 30-year, conventional fixed rate mortgage was 6.42% in December 2022 compared to 3.1% in 2021.

As inflation continues to moderate into 2023, mortgage rates are expected to decline, which we expect to boost homebuyer demand and homebuilder sentiment.

Persistently high mortgage rates continue to negatively impact the demand for homebuying.

Based on Freddie Mac data, the average rate for a 30-year, conventional fixed-rate mortgage was 6.61% in December 2023 compared to 6.42% in December 2022.

Mortgage rates are expected to decline in 2024 due to continued moderate levels of inflation, which we expect to boost homebuyer demand and homebuilder sentiment.

Housing Affordability Index

According to NAR, the composite housing affordability index decreased to 95.5 for December 2022 (preliminary) from 142.2 for December 2021.

According to NAR, the composite housing affordability index decreased to 94.2 for November 2023 (preliminary) from 109.3 for December 2022.

As home prices and interest rates have increased, the housing affordability index has become unfavorable.

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 percent down payment and ability to qualify for a mortgage.

The unfavorable housing affordability index is due to increased mortgage rate conditions and low inventory levels, driving increases in the average home price.

The unfavorable housing affordability index is due to increased mortgage rate conditions and higher average home prices driven by inventory levels.

Existing Home Sales Transactions and Prices

According to NAR, seasonally adjusted existing home sale transactions for the year ended December 2022 (preliminary) decreased to 4.02 million compared to 6.09 million for the year ended December 2021.

NAR anticipates transactions to decrease slightly in 2023 due to higher mortgage rates.

According to NAR, nationwide existing home sales average price for December 2022 (preliminary) was $366,900, up 2.3% from $358,000 December 2021.

Historically, management made operating decisions and assessed performance based on product lines with three operating segments and one single reportable segment.

Effective in December of 2022, as a result of the growth in international operations and changes in the North American markets, the Company revised the presentation of segment information to align with changes to how the CODM manages the business and allocates resources as four operating segments.

The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues

and incurs expenses, (ii) has discrete financial information and is (iii) regularly reviewed by the CODM, who is Glenn Sanford, Chief Executive Officer, eXp World Holdings and eXp Realty, to make decisions regarding resource allocation for the segment and assess its performance.

Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable.

This determination is based upon a quantitative analysis of the current and historic revenues and profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics.

Based on this analysis, in December 2022, we determined that there are four operating segments and three reportable segments.

The CODM uses Adjusted Segment EBITDA as a key metric to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions.

According to NAR, existing home sale transactions for the year ended December 2023 (preliminary) decreased to 4.09 million compared to 5.03 million for the year ended December 2022.

NAR believes that December 2023 represented the bottom of the housing market during the current cycle and expects a return to growth in 2024.

According to NAR, nationwide existing home sales average price for December 2023 (preliminary) was $382,600, up 4.4% from $366,500 in December 2022, the sixth consecutive month of year-over-year price increases.

For full-year 2023 (preliminary) the nationwide existing home sales average price was $389,800, up 0.9% from $386,400 for full-year 2022.

The Company has four operating segments and four reportable segments.

The Company has four reportable segments as follows:

North American Realty, International Realty and Virbela and Other Affiliated Services.

North American Realty, International Realty, Virbela and Other Affiliated Services.

We report corporate expenses, as further detailed below, as “Corporate expenses and other.” All segments follow the same basis of presentation and accounting policies.

See Note 2 of the Notes included herein for the Company’s significant accounting policies.

Corporate expenses include costs incurred to operate the corporate parent of eXp, including expenses incurred in connection with strategic resources provided to the agents, as well as certain other centrally managed expenses that are not allocated to the operating segments, including administrative, brokerage operations and legal functions.

See Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report for additional information about the Company’s significant accounting policies.

Corporate expenses include costs incurred to operate eXp World Holdings, Inc., including expenses incurred in connection with strategic resources provided to the agents, as well as certain other centrally managed expenses that are not allocated to the operating segments, including administrative, brokerage operations and legal functions.

The following discussion focuses on the operating performance of the Company for the years ended December 31, 2023 and 2022 and the financial condition of the Company as of December 31, 2023.

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Year Ended December 31,

Real estate sales transactions

Other real estate transactions

$ 169,202,948

$ 187,252,204

$ 156,101,836

Gross margin (%)

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

GAAP Financial Measures”.

Our strength is attracting real estate agent and broker professionals that contribute to our growth.

Brokerage real estate transactions are recorded when our agents and brokers represent buyers and/or sellers in the purchase or sale, respectively, of a home.

The number of real estate transactions are key drivers of our revenue and profitability.

Real estate transaction volume represents the total sales value for all homes bought and sold by our agents and brokers and is influenced by several market factors, including, but not limited to, the pricing and quality of our services and market conditions that affect home sales, such as macroeconomic factors, local inventory levels, mortgage interest rates and seasonality.

One of our key strengths is attracting real estate agent and broker professionals that contribute to our growth.

Real estate sales transactions are recorded when our agents and brokers represent buyers and/or sellers in the purchase or sale, respectively, of a home.

Other real estate transactions are recorded for leases, rentals and referrals.

The number of real estate transactions is a key driver of our revenue and profitability.

Transaction volume represents the total sales value for all transactions and is influenced

by several market factors, including, but not limited to, the pricing and quality of our services and market conditions that affect home sales, such as macroeconomic factors, economic growth, local inventory levels, mortgage interest rates, and seasonality.

Real estate transaction revenue represents the commission revenue earned by the Company for closed brokerage real estate transactions.

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

We are continuing to expand our agent base internationally, as well.

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 actions taken by our competitors and macroeconomic factors affecting the real estate industry in general.

Settled home purchases and 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.

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

We continue to increase our agents and brokers in the United States and Canada through execution of our growth strategies despite a challenging market.

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

Our real estate sales transaction decline was directly related to the decline in existing home sales in the U.S.

in 2023 compared to 2022 as reported by the NAR.

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

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For the years ended December 31, 2023, 2022 and 2021, gross profit was $324.1 million, $366.9 million and $296.0 million, respectively.

Gross profit increased year-over-year primarily due to growth in agent base, an increase of real estate transactions and increased home sales prices compared to 2021 For the years ended December 31, 2022, 2021 and 2020, gross margin was 8.0%, 7.8% and 8.9%, respectively.

Gross margin in 2022 increased narrowly from 2021 was primarily due to a slightly more favorable company commission of real estate transactions.

Gross margin decreased from 2020 to 2021 primarily due to rising home prices and increased demand which resulted in agents reaching their transactions capping requirements sooner, entitling them to a higher percentage of the home sale commission.

Reported gross profit decreased year-over-year primarily due to a decrease in real estate transactions and an increase in reported agent-related stock-based compensation expense, compared to 2022.

For the years ended December 31, 2023, 2022 and 2021, gross margin was 7.6%, 8.0% and 7.8%, respectively.

Gross margin in 2023 decreased from 2022 primarily due to a lower volume of real estate transactions and an increase in agent-related stock-based compensation.

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

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

For the year ended December 31, 2022, Adjusted EBITDA declined due to increased general and administrative costs resulting from the Company’s increase in employee count to continue to support our agent growth strategy and increased costs related to entering international markets.

Adjusted EBITDA has grown significantly for the years ended December 31, 2021 and 2020 due to our revenue growth and higher leverage of our cost structure.

For the year ended December 31, 2023 adjusted EBITDA declined due to lower revenue, and increased operating costs.

RECENT BUSINESS DEVELOPMENTS

North American Realty Initiatives

The Company continues to also focus on growth in the United States and in Canada.

On July 1, 2022, the Company acquired Zoocasa.

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

This acquisition enables eXp to further its presence in Canadian markets.

The United States and Canada operations are aggregated together to be reported as the North American Realty segment, due to similarities in markets and management strategies.

The Company continues to focus on growth in the United States and Canada.

During 2023, the Company announced various new agent incentive programs to enhance the agent experience and to attract culturally aligned agents, teams and independent brokerages to the Company.

New incentive programs include Boost, Accelerate, and Thrive, which offer unique financial incentives.

During 2023, the Company also launched various new ancillary programs and services to support the development and success of its agents, brokers and customers, including the global expansion of eXp Luxury™, Military Rewards Program, Listing Kits, Bundle Select™, eXp Exclusives™, My Link My Lead™, and affiliate relationships like HomeHunter™.

International Realty Initiatives

Throughout 2022, we commenced operations in the Dominican Republic, Greece, New Zealand, Chile and Poland.

In addition, in 2022 we announced operations in Dubai, which is expected to be fully operational in 2023.

In previous years, the Company expanded internationally into France, India, Mexico, Portugal, South Africa, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany.

We have operations in the U.K., Australia, France, India, Mexico, Portugal, South Africa, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, the Dominican Republic, Greece, New Zealand, Chile, Poland and Dubai.

The Company continues to pursue growth opportunities and increase market share in the countries where operations began in recent years.

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.

Upon Facebook's announcement to shift its name to Meta, 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.

In 2021, we enhanced scale, reliability, security and privacy of our core product to improve the Enterprise readiness.

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

The Company has focused on increasing productivity throughout our international entities.

Our operations in the U.K and South Africa, in particular are seeing meaningful agent and transaction growth.

During 2023, the eXp Luxury program expanded into Puerto Rico, the United Kingdom, Australia, New Zealand and South Africa.

We continue to develop the core Virbela enterprise virtual world technology and the newer WebXR FrameVR (“Frame”) platform through our subsidiary, eXp World Technologies, LLC.

Frame is a metaverse collaboration technology that is accessible from any device with a browser such as mobile, personal computer, virtual reality device and tablet.

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.

As the post-COVID return-to-office trend continues, there's a clear surge in demand for on-the-go technology solutions.

While the application-based Virbela platform has seen a decrease in demand, the web-accessible Frame platform is gaining traction.

Keeping these market trends in mind, we continue to evaluate our capital deployments between our various platform offerings, while continuing to service existing and new contracts for both platforms.

As a result of the changing market conditions, in the fourth quarter of 2023, the Company determined that the goodwill and certain intangible assets associated with Virbela were impaired.

As a result of the impairment test, the Company recognized impairment charges of $9.2 million for goodwill and intangible assets for the year ended December 31, 2023.

Other Affiliated Services

On December 4, 2020, the Company acquired the equity ownership interests in SUCCESS Enterprises LLC (“Success”) and its related media properties, including SUCCESS ® print magazine, SUCCESS.com, SUCCESS ® newsletters, podcasts, digital training courses and affiliated social media accounts across platforms, for cash consideration.

With the addition of Success, the Company intends to blend its technology and content to enhance the personal development platform for entrepreneurs and sales professionals.

The Company continues to invest in Success to create a better experience for our agents and other entrepreneurs.

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, 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 2023;

however, actual performance will depend directly on utilization by eXp Realty agents.

SUCCESS Enterprises LLC (“SUCCESS”) is a multi-media company which includes SUCCESS® print magazine, SUCCESS.com, SUCCESS® newsletters, SUCCESS® podcasts, SUCCESS® plus (digital training courses), SUCCESS® speakers bureau, and SUCCESS coaching.

In 2023, SUCCESS made strategic investments in leadership and established cross-functional departments dedicated to content creation, media relations, and business development.

A streamlined strategy unified the entire ecosystem to capitalize on the brand’s strength, attract renowned personalities as cover talent such as Chance The Rapper, Tamron Hall, Steve Aoki, and others, and substantially enhance media exposure through successful appearances on programs like "The View" and "The Tamron Hall Show," reaching an audience of over four million viewers.

Strategic partnerships brought new programs and content and expanded our customer offerings and reach.

The organization continues to invest in robust sales and marketing initiatives and funnels, with a focus on expanding membership, subscribers, and clients across diverse industries and global sectors.

Several new customer-centric offerings are being rolled out including:

a cutting-edge digital magazine, immersive virtual and live events, new online courses, comprehensive whole-life coaching services, and the inauguration of The SUCCESS Magazine Podcast.

We expect these new initiatives will attract and engage new audiences and contribute to the growth of the organization.

Company-Wide Initiatives

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A NPS above 50 is considered excellent.

The Company’s agent NPS was 73 in the fourth 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.

The Company’s aNPS was 73 for 2023 and 77 in the fourth quarter.

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

The NPS process is an important vehicle for delivering our core values of transparency.

While we strive for high satisfaction, it is equally important to investigate a low or unfavorable trending of NPS.

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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.

The Company continues to expand agent growth opportunities in this uncertain market and has introduced programs such as Boost, Accelerate, and Thrive.

Boost is a program that provides a financial incentive for culturally aligned independent brokerages to join our global platform.

Accelerate is a program for individual agents who join the Company to experience enhanced revenue share capabilities with their second and third lines open for an initial amount of time.

Thrive is a program for culturally aligned teams that provides a stock incentive to the team leader to relocate his or her team to the Company.

Agent Ownership

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

The Company maintains an agent growth incentive program (“AGIP”) whereby agents and brokers of eXp Realty can become eligible for 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 are issued shares of the Company’s common stock and it continues to be another element in creating a culture of agent-ownership.

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

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.

Effective January 1, 2020, we issued share-based compensation to our agents and brokers at a 10% discount to the market price of our common stock.

Our operational strategy and the importance of the agent compensation plans to our strategy have not changed.

Our stock repurchase program and agent growth incentive program are more fully disclosed in Note 10 – Stockholders’ Equity to the consolidated financial statements.

Our agent equity program (“AEP”) represents a key lever in our strategy to attract and retain independent agents and brokers.

Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock at a 10% discount to the market price of our common stock .

Our operational strategy and the importance of the AEP and AGIP to our strategy have not changed.

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

Additional information for our AGIP and AEP programs are more fully disclosed in Note 9 – Stockholders’ Equity to the consolidated financial statements included elsewhere in this Annual Report.

RESULTS OF OPERATIONS

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Sales and marketing expenses

Impairment expense

Total operating expenses

Operating income

Operating (loss) income

Other (income) expense

Other (income) expense, net

Equity in losses of unconsolidated subsidiaries

Equity in losses of unconsolidated affiliates

Total other (income) expense, net

Income before income tax expense

Income (loss) before income tax expense

Income tax (benefit) expense

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)

Earnings per share

(Loss) earnings per share

Weighted average shares outstanding

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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 and a reconciliation of Adjusted EBITDA to net income, and why we believe Adjusted EBITDA is useful to investors see “Non-U.S.

GAAP Financial Measures”.

Our total revenues were $4.6 billion in 2022 compared to $3.8 billion in 2021, an increase of $827.0 million, or 22%.

Total revenues increased primarily as a result of higher volume of real estate brokerage commissions, which is attributable to growth in our agent base, an increase of real estate transactions and increased home sales prices compared to 2021.

Our total revenues were $4.3 billion in 2023 compared to $4.6 billion in 2022, a decrease of ($317.1) million, or (7)%.

Total revenues decreased primarily as a result of lower volume of real estate brokerage commissions, which is attributable to a decrease of overall real estate transactions and lower home sales prices in our markets, partially offset by growth in our agent base, compared to 2022.

Commission and Other Agent-Related Costs

Commission and other agent-related costs were $4.2 billion in 2022 compared to $3.5 billion in 2021, an increase of $756.1 million, or 22%.

Commission and other agent-related costs were $4.0 billion in 2023 compared to $4.2 billion in 2022, a decrease of ($274.2) million, or (6)%.

Commission and other agent-related costs include sales commissions paid and are reduced by agent-related fees.

Commission and other agent-related costs increased primarily as a result of growth in agent base, increased real estate transactions and increased home sales prices compared to 2021.

Commission and other agent-related costs decreased primarily because of a decrease in overall real estate transactions and lower home sales prices, partially offset by growth in our agent base and an increase in agent-related stock-based compensation.

General and Administrative Expense

General and administrative expenses were $346.1 million in 2022 compared to $249.7 million in 2021, an increase of $96.4 million, or 39%.

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 $66.3 million in compensation related expenses including salaries, contract labor, employee benefits and payroll taxes and processing.

The Company had an increase in stock compensation expense of $7.7 million.

These increases are a direct result of the Company’s increase in employee count to continue to support our agent growth strategy.

Employees increased from 1,669 in 2021 to 2,016 in 2022, representing an increase in headcount of 21%.

The Company’s agent base increased by 21%.

Also, in support of the Company’s business operations, computer and software costs increased $9.4 million compared to prior year, mostly consisting of online subscriptions.

Finally, $5.2 million of the increase in general and administrative expenses is related to increased agent-related seminars and conferences.

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

General and administrative expenses were $319.2 million in 2023 compared to $346.1 million in 2022, a decrease of ($27.0) million, or (8)%.

The decrease in general and administrative expenses was due to lower reported stock compensation expense, partially offset by increased employees, increased contract labor wages and compensation and increases in seminars and conferences expenses.

Sales and Marketing

Sales and marketing expenses were $15.4 million in 2022 compared to $12.2 million in 2021, an increase of $3.2 million, or 26%.

Sales and marketing expenses were $12.2 million in 2023 compared to $15.4 million in 2022, a decrease of ($3.2) million, or (21)%.

Sales and marketing costs include lead capture costs and promotional materials.

Sales and marketing expenses increased primarily as a result of an increase in lead costs of $1.7 million and advertising costs of $1.7 million.

Sales and marketing expenses decreased primarily as a result of a decrease in advertising costs of ($1.8) million and internet advertising costs of ($1.3) million.

Impairment expense

2023 includes impairment charges for goodwill and amortizable intangible assets of $9.2 million related to the Virbela segment.

Other (Income) Expense, Net

Other (income) expense in 2022 and 2021 includes interest income, equity in losses of unconsolidated subsidiaries, start-up costs and, amortization expense of the present value adjustment to our stock payable in 2021.

There were no significant changes in other (income) expense in 2022 compared to 2021.

Other (income) expense in 2023 and 2022 includes interest income partially offset by equity in losses of unconsolidated subsidiaries.

Income Tax Benefit (Expense)

The Company's provision for income taxes amounted to a benefit of ($4.5) million, a benefit decrease of $6.4 million for the year ended December 31, 2023.

The decrease in income tax benefit was primarily attributable to the release of the valuation allowance in prior year and lower deductible share-based compensation expenses.

Refer to Critical Accounting Policies and Estimates within the MD&A and Note 12 - Income Taxes to the consolidated financial statement for further information.

The decrease in income tax benefit was primarily attributable to the decrease in excess benefit from stock-based compensation in current year and higher non-deductible executive compensation expenses.

Refer to Critical Accounting Policies and Estimates within the MD&A and Note 13 - Income Taxes to the consolidated financial statements included elsewhere in this Annual Report for further information.

BUSINESS SEGMENT DISCLOSURES

See Note 14 – Segment Information to the consolidated financial statements for additional information regarding our business segments.

See Note 10 – Segment Information to the consolidated financial statements included elsewhere in this Annual Report for additional information regarding our business segments.

The following table reflects the results of each of our reportable segments during the years ended December 31, 2023 and 2022:

Year Ended December 31,

(In thousands)

December 31, 2023

December 31, 2022

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

Statement of Operations Data:

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Other Affiliated Services

Total Segment Adjusted EBITDA

Corporate expenses and other

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

For a definition of Adjusted Segment EBITDA and a reconciliation of Adjusted Segment EBITDA to net income, and a discussion of why we believe Adjusted Segment EBITDA is useful to investors, 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.

Adjusted Segment EBITDA is defined by us as net income before depreciation and amortization, stock-based compensation expense, interest expense, net, income taxes, impairment expense 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.

2023 Compared to 2022

North American Realty revenue increased 22% in 2022 compared to 2021 primarily due to increased real estate transactions driven by higher agent count.

Adjusted EBITDA decreased (12)% due to increases in selling, general and administrative expenses related to the continued expansion of the business, partially offset by an increase in gross profit.

International Realty revenue increased 102% in 2022 vs 2021 primarily due to increased real estate transactions driven by a higher agent count and increased productivity in previously launched markets.

Adjusted EBITDA (loss) increased 50% in 2022 vs 2021 due to continued expansion efforts in new markets and growing selling, general and administrative expenses to support the incremental production in existing operations.

Virbela revenue decreased (2)% due to the post-COVID 19 work environment of return to the office and hybrid work initiatives globally.

Management shifted focus from small- to-medium sized business (“SMB”) market and one-time events to long-term enterprise monthly recurring revenue (“MRR”).

MRR revenue increased 13% from 2021 to 2022.

Adjusted EBITDA (loss) decreased (24)% primarily due to workforce reductions and decrease in marketing and advertising expenses, as we shift our focus to technology improvements and expanding our Software as a Service (“SaaS”) customers.

Other Affiliated Services revenue increased 76% due to expansion of SUCCESS ® Coaching and SUCCESS ® Media, primarily SUCCESS ® magazine.

The increases in revenue directly contributed to Adjusted EBITDA (loss) decrease of (22)%.

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

The increase in these costs (increase in Adjusted EBITDA (loss) of 22% in 2022 compared to 2021) reflect increased insurance costs as we expand our business globally and software investments.

2021 Compared to 2020

North American Realty revenue increased 109% in 2021 compared to 2020 primarily due to increased real estate transactions driven by higher agent count.

Adjusted EBITDA increased 59% due to increases in gross profit, partially offset by increases in selling, general and administrative expenses related to the continued expansion of the business.

International Realty revenue increased 788% in 2021 vs 2020 primarily due to the entrance into nine new markets as well as previously launched markets gaining traction.

Adjusted EBITDA (loss) increased 466% in 2021 vs 2020 due to the continued expansion efforts in these new markets as well as growing selling, general and administrative expenses to support the incremental production in existing operations.

Virbela revenue increased 50% due to the COVID 19 pandemic remote work expansion changes around the world.

Both one-time events and long-term enterprise monthly recurring revenue (“MRR”) grew as a result of the global pandemic.

MRR revenue increased 50% from 2020 to 2021.

Adjusted EBITDA (loss) increased 152% directly related to increased personnel as we support the expansion of our Software as a Service (“SaaS”) customers.

Other Affiliated Services revenue increased 786% due to the acquisition of SUCCESS Enterprises and expansion of the SUCCESS ® Coaching and SUCCESS ® Media, primarily SUCCESS ® magazine.

Increased personnel costs to grow the business to scale directly contributed to Adjusted EBITDA (loss) increase of 774%.

North American Realty revenue decreased (7)% in 2023 compared to 2022 primarily due to a decrease in overall real estate transactions, driven by market conditions, partially offset by growth in our agent base.

Adjusted EBITDA decreased (12)% due to decrease in gross profit related to the decline in real estate transactions, and increases in selling, general and administrative expenses resulting from increased headcount to support our agent growth strategy.

International Realty revenue increased 50% in 2023 compared to 2022 primarily due to increased real estate transactions driven by increased productivity in previously launched markets.

Adjusted EBITDA was relatively flat in 2023 compared 2022 due to gross profit improvements related to increase in revenue, partially offset by increased selling, general and administrative expenses to support the increased production in existing operations.

Virbela revenue decreased (14)% due to softer customer demands for virtual events resulting from the post-COVID 19 work environment of return to the office and hybrid work globally, as well as the increase in the demand for artificial intelligence solutions.

Adjusted EBITDA increased 41% primarily due to workforce reductions and decrease in marketing and advertising expenses.

Other Affiliated Services revenue decreased (6)% due to a decrease of coaching revenue as a result of a reset of the business strategy.

Adjusted EBITDA decreased by (46)% primarily due to an increase in personnel costs and the decrease in revenue.

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

The increase in these costs (increase in Adjusted EBITDA (loss) of 56% in 2021 compared to 2020) reflect additional executive compensation & travel related to the expansion of the business along with legal expenses.

The decrease in these costs reflects the impact of cost cutting initiatives.

LIQUIDITY AND CAPITAL RESOURCES

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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, especially during 2020 and 2021, attributable to the expansion of our independent agent and broker network and, to a lesser extent, increased average prices of home sales.

At present, our cash and cash equivalents balances and cash flows from operations have remained positive, as we have continued to grow our agent count and focus on operational excellence despite the challenging market conditions of 2023.

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.

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.

For information regarding the Company’s expected cash requirement related to settlement costs, see Note 13 – Commitments and Contingencies.

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 12 months.

Our future capital requirements will depend on many factors, including our level of investment in technology, our rate of growth into new markets and cash used to repurchase shares of the Company’s common stock.

Our current capital deployment strategy for 2024 is to utilize our cash on hand to support our agent productivity, growth initiatives and investment in technology, and to a lesser extent, for repurchases of our common stock and quarterly cash dividends.

There can be no assurance that future cash dividends will be declared by the Board of Directors or that the stock repurchase program will be sustained or proceed at historical levels.

For information regarding the Company’s expected cash requirement related to settlement costs, see Note 13 – Commitments and Contingencies to the consolidated financial statements included elsewhere in this Annual Report .

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 normal operating requirements for at least the next 12 months.

Our future capital requirements will depend on many factors, including the outcome of pending antitrust litigation, our level of investment in technology, our rate of growth into new markets and cash used to pay quarterly cash dividends and repurchase shares of the Company’s common stock.

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

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We currently do not hold any bank debt, nor have we issued any debt instruments through public offerings or private placements.

If we are unable to raise additional capital when desired, our business, results of operations and financial condition would likely suffer.

As of December 31, 2023, our cash and cash equivalents totaled $126.9 million.

Cash equivalents are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily money market funds.

We currently do not possess any marketable securities.

During 2022, our unconsolidated joint venture, SUCCESS Lending, obtained $25 million in revolving warehouse credit lines from each of Flagstar Bank FSB and Texas Capital Bank, which represent off-balance sheet arrangements for the Company.

We currently do not hold any marketable securities.

The Company’s capital liability under the warehouse credit lines is limited to $3.25 million in the aggregate.

We do not believe these off-balance sheet arrangements have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

For information regarding the warehouse credit agreements, see Note 13 – Commitments and Contingencies .

We do not believe these off-balance sheet arrangements have or are reasonably likely to have a current or future material effect on our financial

condition, results of operations, liquidity, capital expenditures, or capital resources.

For information regarding the warehouse credit agreements, see Note 13 – Commitments and Contingencies to the consolidated financial statements included elsewhere in this Annual Report.

Net Working Capital

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Net working capital

As of December 31, 2022, net working capital decreased ($4.7) million, or (4)%, compared to the prior year, primarily due to a decrease in accounts receivable of ($46.2) million, partially offset by an decrease in accrued liabilities of ($32.7) million and an increase in cash and cash equivalents of $13.4 million.

The decrease of accounts receivable and accrued liabilities was due to lower real estate transactions in the fourth quarter 2022 compared to the fourth quarter 2021.

As of December 31, 2023, net working capital decreased ($3.0) million, or (2)%, compared to the prior year, primarily due to a decrease in accounts receivable of ($1.3) million, partially offset by an increase in accrued liabilities of $9.2 million and an increase in cash and cash equivalents of $5.3 million.

The decrease of accounts receivable was due to lower real estate transactions in the fourth quarter 2023 compared to the fourth quarter 2022.

The following table presents our cash flows for the periods presented:

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Net change in cash, cash equivalents and restricted cash

For the year ended December 31, 2022, cash provided by operating activities decreased ($36.4) million compared to the same period in 2021.

The change resulted primarily from increased general and administrative expenses and investment in international markets, partially offset by increased gross profit and favorable working capital.

For the year ended December 31, 2022, cash used in our investing activities decreased primarily due a decrease of ($1.4) million in capital expenditures and a decrease of $2.5 million invested in unconsolidated subsidiaries in the current year offset by an increase in payment for business acquisitions (Zoocasa in 2022) by $7.4 million from prior year.

For the year ended December 31, 2022, cash used in financing activities primarily related to higher repurchases of our common stock of $7.5 million compared to the prior year period and increased dividends paid of $13.7 million compared to 2021.

As we continue to scale our Company by investing in people, systems and processes, we expect to increase market share, agent base and real estate transactions volume in the U.S.

For the year ended December 31, 2023, cash provided by operating activities decreased modestly compared to the same period in 2022.

For the year ended December 31, 2023, cash used in our investing activities decreased primarily due to a decrease of ($6.7) million in capital expenditures and an increase of $5.4 million invested in unconsolidated subsidiaries in the current year offset by $9.9 million Zoocasa business acquisition in 2022.

For the year ended December 31, 2023, cash used in financing activities decreased primarily related to lower repurchases of our common stock of $18.9 million and increased proceeds from stock option exercises $4.3 million compared to 2022 partially offset by an increase in dividend payments of $3.3 million compared to 2022.

As we continue to scale our Company by investing in people, technology and processes, we expect to increase market share, agent base and real estate transaction volume in the U.S.

and Canada and selectively grow in the international markets.

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(iv) the impact of governmental regulations related to the Company’s operations;

and (v) other factors, as described in this Annual Report on Form 10-K in Part II, Item 1A, “Risk Factors.”

(v) the outcome of ongoing antitrust litigation;

and (vi) other factors, as described in this Annual Report in Part II, Item 1A, “Risk Factors.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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GAAP requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in the preparation of the statements.

Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to the consolidated financial statements.

Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report.

Accounting estimates are considered critical if the estimate requires us to use judgments and/or make assumptions about matters that were uncertain at the time the accounting estimate was made and if different accounting estimates could have been used in the reporting period or changes in the accounting estimates are likely to occur that would have a material impact on our financial condition, results of operations or cash flows.

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If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period.

See Note 10 – Stockholders’ Equity to the consolidated financial statements for more information regarding the assumptions used in estimating the fair value of our awards.

See Note 9 – Stockholders’ Equity to the consolidated financial statements included elsewhere in this Annual Report, for more information regarding the assumptions used in estimating the fair value of our awards.

Revenue recognition

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The Company, as principal, satisfies its obligation upon the closing of a real estate transaction.

As principal and upon satisfaction of our obligation, the Company recognizes revenue in the gross amount of consideration to which we expect to be entitled to.

Revenue is derived from assisting home-buyers and sellers in listing, marketing, selling and finding real estate.

As principal and upon satisfaction of our obligation, the Company recognizes revenue in the gross amount of consideration to which we expect to be entitled.

Revenue is derived from assisting homebuyers and sellers in listing, marketing, selling and finding real estate.

Commissions earned on real estate transactions are recognized at the completion of a real estate transaction once we have satisfied our performance obligation.

Agent-related fees are currently recorded as a reduction to commissions and other agent-related costs.

At each reporting period, we estimate revenue for closed transactions for which we have not yet received the closing documents due to timing of when a transaction settles.

Additionally, provisions for anticipated differences between consideration due and amounts expected to be received are estimated and recorded to revenue.

At each reporting period, we estimate and accrue revenue for closed transactions for which we are entitled to but have not yet received the closing documents due to timing of when a transaction settles.

The accrual for estimated revenue was immaterial for the years ended December 31, 2023 and 2022.

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These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates and other market factors.

Significant assumptions used

in determining the allocation of fair value include the following valuation techniques:

the cost approach, the income approach and the market approach, which are determined based on cash flow projections and related discount rates, industry indices, market prices regarding replacement cost and comparable market transactions.

Significant assumptions used in determining the allocation of fair value include the following valuation techniques:

the cost approach, the income approach and

the market approach, which are determined based on cash flow projections and related discount rates, industry indices, market prices regarding replacement cost and comparable market transactions.

At the acquisition date, the Company recognizes the identifiable acquired assets, liabilities assumed and contingent liabilities (identifiable net assets) of the acquired company on the basis of fair value.

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During the fourth quarter of 2023, we performed an assessment of goodwill.

Management did not identify any new events or changes in circumstances that would more likely than not indicate that the fair value of the goodwill is below its carrying value.

The Company determined that the goodwill associated with Virbela, the Company’s technology segment, was impaired.

During the impairment evaluation, the Company determined that the projection for future cash flows associated with Virbela had declined significantly resulting from the post-COVID 19 work environment of return to the office and hybrid work initiatives globally, as well as the increase in the demand for artificial intelligence solutions .

Based on this determination, the Company determined that the estimated fair value was significantly lower than the book value of Virbela and the goodwill associated with Virbela should be impaired.

As a result of the impairment test, the Company recognized an impairment charge of $8,248 for goodwill in the fourth quarter of 2023.

To perform these assessments, we identified and analyzed macroeconomic conditions, industry and market conditions and Company-specific factors.

As a result of the analysis performed, management believes the estimated fair value of the reporting units continue to exceed their carrying values and does not represent a more likely than not possibility of potential impairment.

The goodwill analysis did not result in an impairment charge.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities.

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Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions related to income taxes have been recorded, changes in circumstances or unexpected events could adversely affect our financial position, results of operations, and cash flows.

See Note 12 – Income Taxes to the consolidated financial statements for further information related to our income tax positions.

See Note 12 – Income Taxes to the consolidated financial statements included elsewhere in this Annual Report for further information related to our income tax positions.

We recognize expenses for legal claims when payments associated with the claims become probable and can be reasonably estimated.

Due to the difficulty in estimating costs of resolving legal claims, actual costs could have a material adverse impact on our results of operations and cash flow, if we were to become a party to a material legal action.

S ee Note 13 – Commitments and Contingencies to the consolidated financial statements for further information related to our litigation.

Actual costs of resolving legal claims could have a material adverse impact on our results of operations and cash flow.

While the currently pending antitrust litigation presents various reasonably possible outcomes, the financial impact(s) of such litigation is not presently estimable.

S ee Note 13 – Commitments and Contingencies to the consolidated financial statements included elsewhere in this Annual Report for further information related to our litigation.

GAAP FINANCIAL MEASURES

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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.

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

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.

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Year Ended December 31,

Other expense, net

Income tax benefit

Net (loss) income

Total other (income) expense, net

Income tax (benefit) expense

Depreciation and amortization

Impairment expense

Stock compensation expense (1)

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Adjusted EBITDA

The primary driver for the changes in Adjusted EBITDA was lower net income attributable to the increased general and administrative costs resulting from the Company’s increase in employee count to continue to support our agent growth strategy and increased costs related to entering international markets and investments in Virbela.

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

The primary driver for the changes in Adjusted EBITDA was lower net income attributable to lower revenue and impairment charges, partially offset by reduced operating costs.

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-K

Item 7. Management’s Discussion and Analysis