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Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2023-11-02 · 191 added, 237 removed, 127 unchanged (77% of the section changed)

7 unchanged sentences

This MD&A is divided into the following sections:

● Operational Highlights for the Three Months Ended March 31, 2024

● Market Conditions and Industry Trends

6 unchanged sentences

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

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

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

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

eXp manages its operations in four operating business segments:

OPERATIONAL HIGHLIGHTS FOR THE THREE MONTHS ENDED MARCH 31, 2024

● eXp ended the first quarter of 2024 with a global agent Net Promoter Score (“aNPS”) of 73.

● Agents and brokers on the eXp Realty platform decreased 2% year-over-year to 85,780.

● Transactions increased 8% year-over-year to 110,976.

● Transaction volume increased 12% year-over-year to $37.2 billion.

eXp World Holdings, Inc.

(the “Company”) was incorporated in Delaware on July 30, 2008 and launched the first cloud-based real estate brokerage offering agent-centric commission structure, revenue sharing, and agent equity opportunities in 2009.

Today, the Company operates a diversified portfolio of service-based businesses whose operations benefit substantially from utilizing our enabling technology platform.

A substantial portion of our revenue is derived from commissions received by our residential real estate brokerages which provide a full suite of brokerage and adjacent services (such as mortgage, title, and content creation) to our real estate agents and brokers.

Our residential real estate agents and brokers affiliate their real estate licenses with us and operate their businesses utilizing our cloud-based technology platform to enhance their real estate business and optimize efficiencies.

Our enabling and innovative technology platform is a robust suite of cloud-based applications and software services tailored for our real estate agents and brokers and targets business operations such as customer relationship management, marketing, client services, and brokerage functionalities.

We succeed when our real estate professionals succeed and we remain focused on being the most agent-centric business on the planet.

Beginning in the first quarter of 2024, following the discontinuation of Virbela, eXp manages its operations in three operating business segments:

North American Realty;

1 unchanged sentence

and Other Affiliated Services.

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

While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions and believe we are well-positioned to capture additional revenue from such solutions.

Update Relating to Reportable Segments

In the first quarter of 2024, we determined that there has been a significant change to the Virbela business model.

We have begun the process of winding down the Virbela business, which includes closing out current contracts and reducing our external customers.

Further, the technology is being replaced with Virbela Frame ® technology that will be initially utilized internally within the Company.

We expect the process to wind down the Virbela business to be completed by the fourth quarter of 2024.

As a result of this change, the Company has determined that Virbela qualifies for reporting as discontinued operations and will be reported as discontinued operations in our consolidated balance sheet and condensed consolidated statements of comprehensive income.

Prior year segment and financial statement information has been reclassified to reflect Virbela as discontinued operations.

See Note 3 – Discontinued Operations to the condensed consolidated financial statements for additional information regarding the discontinuation of Virbela.

Our strategy is to grow organically in North America and certain international markets by increasing our independent agent and broker network.

Through our cloud-based operations and technology platform, we strive to achieve customer-focused efficiencies that allow us to increase market share and attain strong returns as we scale our business within the markets in which we operate.

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 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.

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

The Company’s primary emphasis is on achieving operational excellence for our real estate agents, which we monitor using the aNPS.

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

One critical area of capital deployment during the first quarter of 2024 remained 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.

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

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.

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 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.

Beginning in the second quarter of 2022, several macroeconomic conditions have been contributing to the slowdown in the U.S.

residential real estate market, which directly impacts our business and financial results.

These conditions include, but are not limited to rising inflation, rising mortgage interest rates driven by the Federal Reserve Board increasing federal funds rate, volatility in the U.S.

equity markets and continued unrest around the world.

The Company believes it is well positioned to grow its market share in the current market conditions.

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

Additionally, we offer agents a low-cost, high-engagement model, which affords agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners who want to survive and thrive during market fluctuations.

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

National Housing Inventory

In the first quarter of 2024, the continued increase of mortgage rates and higher home prices have contributed to a rise in inventory levels, as measured in months of supply.

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

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

was 1.1 million as of March 2024 (preliminary) compared to 970,000 at the end of March 2023.

This represents 3.2 months of inventory in 2024 compared to 2.7 months of inventory in the prior year.

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 7.3% in September 2023 vs 6.7% in September 2022.

Persistently high mortgage rates during the first quarter of 2024 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 6.8% in March 2024 compared to 6.3% in March 2023.

Housing Affordability Index

According to NAR, the composite housing affordability index decreased to 91.7 for August 2023 (preliminary) from 110.5 for August 2022.

According to NAR, the composite housing affordability index decreased to 103.0 for February 2024 (preliminary) from 109.3 for February 2023.

When the index is above 100, it indicates that a family earning the median income has sufficient income to purchase a median-priced home, assuming a 20% down payment and ability to qualify for a mortgage.

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

The housing affordability index has been declining year over year due to mortgage rate conditions and higher average home prices driven by constrained inventory levels.

Existing Home Sales Transactions and Prices

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.

According to NAR, existing home sale transactions decreased to an annual rate of 4.2 million in March 2024 (preliminary) compared to 4.4 million in March 2023, a decrease of 3.7%.

According to NAR, the nationwide existing home sales average price for March of 2024 (preliminary) was $393,500 compared to $375,300 in March 2023, an increase of 4.8%.

The declining home sales transactions and increased prices in the U.S.

have negatively impacted our transaction and volume metrics.

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.

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, cash flows or financial condition.

KEY BUSINESS METRICS

Management uses our results of operations, financial condition, cash flows, and key business metrics related to our business and industry to evaluate our performance and make strategic decisions.

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except transactions and agent count)

The following table outlines the key business metrics that we periodically review to track the Company’s performance:

Three Months Ended March 31,

Real estate sales transactions

Real estate sales volume

Other real estate transactions

$ 130,337,913

$ 149,666,700

Gross margin (%)

Real estate per transaction cost

Operating profit (loss)

Adjusted EBITDA (1)

(1) Adjusted EBITDA is not a measurement of our financial performance under generally accepted accounting principles in the U.S.

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.

and should not be considered as an alternative to net income (loss) from continuing operations, 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 (loss) from continuing operations, see “Non-U.S.

GAAP Financial Measures”.

We periodically evaluate trends in certain metrics to track the Company’s performance.

Our strength 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.

Revenue and adjusted EBITDA are key financial measures, and we review these measures to evaluate and drive our core operating performance.

Agent net promoter score (aNPS)

aNPS is a scale-based measure of customer satisfaction and an aNPS above 50 is considered excellent.

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.

Despite the challenging market conditions, the Company’s aNPS was 73 in the first quarter of 2024 compared to 70 in the first quarter of 2023, due to our continuous investment in agent onboarding, expert care, transaction processing process and technology.

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

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 including rising interest rates and declining transaction volume in the U.S.

The number of agents declined 2% in the first quarter of 2024, compared to the first quarter of 2023, as we continue to off board less productive agents.

However, we are committed to retaining our most productive agents in the United States and Canada through the execution of our growth strategies and the end-to-end suite of services we offer our agents.

Real estate sales transactions and volume

Real estate sales transactions are based on the side (buyer or seller) of each real estate transaction and 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 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, 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 in the United States, Canada, and certain international locations through the execution of our growth strategies.

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.

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 the Company’s financial performance from period to period.

Gross profit is calculated from U.S.

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.

The cost of sales does not include depreciation or amortization expenses as the Company’s assets are not directly used in the production of revenue.

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

For the three months ended September 30, 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.

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.

Our real estate sales transactions and volume typically fluctuate with changes in the market’s existing home sales transactions as reported by NAR;

however, company-specific initiatives influence the transaction volume and productivity of our agents.

In the first quarter of 2024, compared to the first quarter of 2023, our real estate sales transactions increased 5% due to our agents’ productivity, which more than offset the decline in existing home sales in the U.S.

as reported by the NAR.

Transaction volume increased 12% due to increased transactions and increased home sales prices.

Other real estate transactions

Other real estate transactions are recorded for leases, rentals and referrals that are undertaken by our agents and brokers.

The increase in other real estate transactions reflects the productivity of our agents and brokers.

Real estate per transaction cost

Real estate per transaction cost is measured as selling, general and administrative, sales and marketing and technology and development expenses resulting from our services that directly support our agents and brokers, divided by total transactions (real estate and other).

Real estate per transaction cost increased 6% in the first quarter of 2024 compared to the first quarter of 2023, primarily due to strategic investments in personnel to support increased transaction volumes and agent NPS, and increased severance and employee-related expenses and legal expenses related to the antitrust lawsuits.

Revenues represent the commission revenue earned by the Company for closed brokerage real estate transactions.

In the first quarter of 2024, compared to the first quarter of 2023, the Company’s revenue increased due to increased real estate transactions driven by increased agent productivity and higher home sales prices, which more than offset declines in the U.S.

real estate markets.

Our revenues also increased due to increased international production in previously launched markets.

Operating profit (loss)

The operating loss in the first quarter of 2024 of $18.2 million compared to operating profit of $0.2 million in the first quarter of 2023, reflects the litigation contingency accrual of $16 million, and increased legal expenses related to the antitrust lawsuits, as well as increased severance and employee-related expenses, partially offset by increased revenues, net of agent commissions and other agent-related costs.

Adjusted EBITDA

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

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

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

The Company has embarked on an initiative to better understand both its agents’ and employees’ experiences.

In doing so, we have adopted many of the principles of the Net Promoter Score® (“NPS”) across many aspects of our organization.

NPS is a measure of customer satisfaction and is measured on a scale between -100 and 100.

An NPS above 50 is considered excellent.

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.

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

As NPS scores are often leading indicators to agents’ and employees’ future actions, we are able to learn quickly what may be a ‘pain point’ or product that is not meeting its desired objective.

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

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

Adjusted EBITDA, for the three months ended March 31, 2024 was $11.0 million compared to $14.6 million at March 31, 2023.

The decrease in adjusted EBITDA reflects increased legal expenses related to the antitrust lawsuits, as well as increased severance and employee-related expenses, partially offset by increased revenues, net of agent commissions and other agent-related costs.

RESULTS OF OPERATIONS

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

Three Months Ended March 31, 2024 compared to the Three Months Ended March 31, 2023

Three Months Ended

September 30, 2023

September 30, 2022

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

March 31, 2024

March 31, 2023

(In thousands)

Statement of Operations Data:

2 unchanged sentences

General and administrative expenses

Technology and development expenses

Sales and marketing expenses

Litigation contingency

Total operating expenses

Operating income

Operating (loss) income

Other (income) expense

Other (income) expense, net

Total (income) expense, net

Equity in losses of unconsolidated affiliates

Other (income) expense, net

Total other (income) expense, net

Income (loss) before income tax expense

Income tax expense

Net loss attributable to noncontrolling interest

Net income attributable to eXp World Holdings, Inc.

Income tax benefit

Net (loss) income from continuing operations

Adjusted EBITDA (1)

Earnings per share

Weighted average shares outstanding

(1) Adjusted EBITDA is not a measurement of our financial performance under U.S.

GAAP and should not be considered as an alternative to net income, operating income or any other measures derived in accordance with U.S.

For a definition of Adjusted EBITDA, 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 and should not be considered as an alternative to net income (loss) from continuing operations, operating income or any other measures derived in accordance with U.S.

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

GAAP Financial Measures.”

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.

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.

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 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(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.

Regulatory developments from the U.S.

or international tax reform legislation could result in an impact to the Company's effective tax rate.

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.

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)

Statement of Operations Data:

Operating expenses

March 31, 2024

March 31, 2023

(In thousands, except percentages)

Total revenues increased 11% as a result of an increase in real estate transactions compared to the same period in 2023, because of the unique productivity of our agents, which more than offset declines in the U.S.

real estate market in the first quarter of 2024.

Our revenue also increased due to increased home sales prices.

March 31, 2024

March 31, 2023

(In thousands, except percentages)

Commissions and other agent-related costs

Commissions and other agent-related costs increased 11% primarily because of the increase in real estate transactions and increased home sales prices.

Commissions and other agent-related costs include sales commissions, revenue share and stock-based compensation paid to our agents.

March 31, 2024

March 31, 2023

(In thousands, except percentages)

General and administrative expenses

General and administrative expenses increased 15% due to increased severance and employee-related expenses and increased legal expenses related to the antitrust lawsuits.

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

March 31, 2024

March 31, 2023

(In thousands, except percentages)

Technology and development expenses

Technology and development expenses increased 5% and include employee and other costs related to the maintenance and development of the technology used by our agents and our employees.

March 31, 2024

March 31, 2023

(In thousands, except percentages)

Sales and marketing expenses

Total operating expenses

Operating income

Other (income) expense

Other (income) expense, net

Equity in losses of unconsolidated affiliates

Sales and marketing expenses increased 7% due to advertising in the U.S.

and Canada residential real estate market.

March 31, 2024

March 31, 2023

(In thousands, except percentages)

Total other (income) expense, net

Income (loss) before income tax expense

Income tax (benefit) expense

Net loss attributable to noncontrolling interest

Net income attributable to eXp World Holdings, Inc.

Other (income) increased 95% primarily due to increased interest income when compared to the first quarter of 2023.

Other (income) expense include interest income earned on cash and cash equivalents, and (earnings) losses related to equity investments.

Income Tax Benefit

The Company’s provision for income tax (benefit) amounted to ($3.4) million and ($2.6) million for the three months ended March 31, 2024 and 2023, respectively, which represented effective tax rates of positive 18% and 238%, respectively.

The provision for income tax (benefit) expense was primarily attributable to income (loss) from continuing and discontinuing operations, deductible stock-based compensation shortfalls and research and development credit.

March 31, 2024

March 31, 2023

(In thousands, except percentages)

Operating (loss) income

The operating loss in the first quarter of 2024 reflects the litigation contingency accrual of $16 million, and increased legal expenses related to the antitrust lawsuits, as well as increased severance and employee-related expenses, partially offset by increased revenues.

March 31, 2024

March 31, 2023

(In thousands, except percentages)

Adjusted EBITDA

Earnings per share

Weighted average shares outstanding

(2) Adjusted EBITDA is not a measurement of our financial performance under U.S.

GAAP and should not be considered as an alternative to net income, operating income or any other measures derived in accordance with U.S.

For a definition of Adjusted EBITDA, 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.”

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.

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.

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 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 (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.

Regulatory developments from the U.S.

or international tax reform legislation could result in an impact to the Company's effective tax rate.

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.

Adjusted EBITDA decreased 24% and reflects increased legal expenses related to the antitrust lawsuits, as well as increased severance and employee-related expenses, partially offset by increased revenues, net of commissions and other agent-related costs.

BUSINESS SEGMENT DISCLOSURES

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

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

See Note 8 – Segment Information to the unaudited condensed consolidated financial statements for additional information regarding our business segments.

The following table reflects the results of each of our reportable segments during the three months ended March 31, 2024 and 2023:

Three Months Ended

September 30, 2023

September 30, 2022

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

March 31, 2024

March 31, 2023

(In thousands)

Statement of Operations Data:

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Other Affiliated Services

Total Segment Adjusted EBITDA

Corporate expenses and other

Total Reported Adjusted EBITDA(1)

(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.

(1) Adjusted Segment EBITDA and Adjusted EBITDA are not measurements of our financial performance under U.S.

GAAP and should not be considered as alternatives to net income (loss) from continuing operations, operating income, or any other measures derived in accordance with U.S.

For a definition of Adjusted Segment EBITDA and Adjusted EBITDA and a reconciliation of such measures to operating profit and net income (loss) from continuing operations, respectively, 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 decreased 31% due to lower SUCCESS® print media, partially offset by expansion of SUCCESS® Coaching.

Adjusted Segment EBITDA is defined by us as operating profit (loss) from continuing operations plus depreciation and amortization and stock-based compensation expenses.

Adjusted EBITDA is defined by us as net income (loss) from continuing operations, excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, litigation contingency expenses, stock-based compensation expense, and stock option expense and other items that are not core to the operating activities of the Company.

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

North American Realty revenues increased 11% in the first quarter of 2024 compared to the same period in 2023 primarily due to increased real estate transactions and increased home sales prices, despite the challenging market in the U.S.

residential real estate markets.

Adjusted EBITDA decreased (16)% due to increased legal expenses, increased severance and employee-related expenses, partially offset by increased revenues, net of agent commissions and other agent-related costs.

International Realty revenues increased 45% in the first quarter of 2024 compared to the same period in 2023 primarily due to increased real estate transactions driven by increased production in previously launched markets.

Adjusted EBITDA improved 9% in the first quarter of 2024 compared to the same period in 2023 due to increased revenue which was partially offset by increased selling, general and administrative expenses to support the incremental production in existing operations.

Other Affiliated Services revenues increased 7% due to Virbela Frame ® revenue, which more than offset lower SUCCESS® revenues.

Adjusted EBITDA decreased (13)% 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.

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 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)

Statement of Operations Data:

North American Realty

International Realty

Other Affiliated Services

Segment eliminations

Total Consolidated Revenues

Adjusted Segment EBITDA (1)

North American Realty

International Realty

Other Affiliated Services

Corporate expenses and other

Total Reported Adjusted EBITDA

(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 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) 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

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with U.S.

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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.

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

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

Adjusted Segment EBITDA is defined as operating profit (loss) from continuing operations plus depreciation and amortization and stock-based compensation expenses.

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

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Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S.

There are a number of limitations related to the use of Adjusted EBITDA compared to Net Income (Loss), the closest comparable U.S.

There are a number of limitations related to the use of Adjusted EBITDA compared to net income (loss) from continuing operations, the closest comparable U.S.

GAAP measure.

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● Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets, amortization of intangible assets, and impairment charges related to these long-lived assets, and, although these are non-cash charges, the assets being depreciated, amortized, or impaired may have to be replaced in the future.

The following tables present a reconciliation of Adjusted EBITDA to net income, the most comparable U.S.

The following tables present a reconciliation of Adjusted EBITDA to net (loss) income from continuing operations, the most comparable U.S.

GAAP financial measure, for each of the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net (loss) income from continuing operations

Total other (income) expense, net

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Depreciation and amortization

Litigation contingency

Stock compensation expense (1)

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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.

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 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).

In addition, the Company has no known material cash requirements as of March 31, 2024, 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 September 30, 2023 and December 31, 2022:

September 30, 2023

The following table presents our net working capital as of March 31, 2024 and December 31, 2023:

March 31, 2024

December 31, 2023

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Net working capital

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

Cash used in investment activities

Cash used in financing activities

For the three months ended March 31, 2024, net working capital decreased ($28.8) million, or (23)%, compared to December 31, 2023.

The following table presents our cash flows for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Net cash provided by operating activities

Net cash used in investment activities

Net cash used in financing activities

Effect of changes in exchange rates on cash, cash equivalents and restricted cash

Net change in cash, cash equivalents and restricted cash

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 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.

For the three months ended March 31, 2024, net cash provided by operating activities increased $4.5 million compared to the same period in 2023.

The increase in operating activities was primarily driven by increased customer deposits, partially offset by the decrease in working capital.

For the three months ended March 31, 2024, net cash used in our investing increased primarily due to cash used for investments in our affiliates compared to 2023.

For the three months ended March 31, 2024 and 2023 net cash flows used in financing activities primarily were related to stock repurchases and the payment of cash dividends.

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.

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the 2023 Annual Report, which provides a description of our critical accounting policies.

There were no changes to critical accounting policies or estimates as reflected in our 2023 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