Item 2. Management’s Discussion and Analysis
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with our condensed consolidated financial statements and related notes included elsewhere in this report. Management’s Discussion and Analysis of Financial Conditions and Results of Operations contain forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements. See “Item 1 A. – Risk Factors” in our 2023 Annual Report and “Item 1 A. – Risk Factors” in this Quarterly Report for a discussion of certain risks, uncertainties and assumptions associated with these statements.
This MD&A is divided into the following sections:
● Operational Highlights for the Three and Six Months Ended June 30, 2024
● Overview
● Market Conditions and Industry Trends
● Key Business Metrics
● Results of Operations
● Business Segment Disclosures
● Non-U.S. GAAP Financial Measures
● Liquidity and Capital Resources
● Critical Accounting Policies and Estimates
All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.
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OPERATIONAL HIGHLIGHTS FOR THE THREE MONTHS ENDED JUNE 30, 2024
● eXp ended the second quarter of 2024 with a global agent Net Promoter Score (“aNPS”) of 76.
● Agents and brokers on the eXp Realty platform decreased (1)% year-over-year to 87,111.
● Transactions increased 4% year-over-year to 143,318.
● Transaction volume increased 7% year-over-year to $51.9 billion.
OPERATIONAL HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 2024
● eXp ended the six months ended June 30, 2024 with a global aNPS of 75.
● Agents and brokers on the eXp Realty platform decreased (1)% year-over-year to 87,111.
● Transactions increased 6% year-over-year to 254,294.
● Transaction volume increased 9% year-over-year to $89.1 billion.
OVERVIEW
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; International Realty; and Other Affiliated Services. While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions and believe we are well-positioned to capture additional revenue from such solutions.
Discontinued Operations
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.
Strategy
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 attractive verticals and adjacent markets.
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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
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.
Over the last several quarters, 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.
In April 2019, the National Association of REALTORS® (“NAR”) and certain brokerages and franchisors were named as defendants in a class action complaint alleging a conspiracy to violate federal antitrust laws by, among other things, requiring residential property sellers in Missouri to pay inflated commission fees to buyer brokers (the “NAR Class Action”). The Company has been named as one of several defendants in similar class action suits, as discussed further in Note 12 – Commitments and Contingencies to these unaudited consolidated financial statements. In March 2024, NAR entered a settlement agreement to resolve on a class wide basis the claims against NAR in the NAR Class Action (the “NAR Settlement”). In addition to a monetary payment, NAR agreed to change certain business practices, including changes to cooperative compensation and buyer agreements, which business practice changes go into effect on August 17, 2024. eXp is proactively preparing its agents for the effective date of the NAR Settlement by offering comprehensive training sessions focused on compliance and best practices, addressing the clarifications in commission transparency and buyer representation agreements, providing resources such as buyer-representation agreement forms, and providing trainings to agents so that they understand the new guidelines and can integrate them into their operations.
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.
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National Housing Inventory
During the second 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 1,320,000 as of June 2024 (preliminary) compared to 1,070,000 at the end of June 2023. This represents 4.1 months of inventory in 2024 compared to 3.1 months of inventory in the prior year.
Mortgage Interest Rates
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 6.86% in June 2024 compared to 6.71% in June 2023.
Housing Affordability Index
According to NAR, the composite housing affordability index decreased to 93.1 for May 2024 (preliminary) from 99.6 for May 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 mortgage rate conditions and higher average home prices driven by constrained inventory levels.
Existing Home Sales Transactions and Prices
According to NAR, existing home sale transactions decreased to an annual rate of 3.89 million in June 2024 (preliminary) compared to 4.11 million in June 2023, a decrease of 5.4%.
According to NAR, the nationwide existing home sales average price for June 2024 (preliminary) was $426,900 compared to $410,100 in June 2023, an increase of 4.1%.
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, 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 to track the Company’s performance:
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
(in thousands, except transactions and agent count)
Performance:
Agent NPS
76
72
75
71
Agent count
87,111
88,248
87,111
88,248
Real estate sales transactions
120,613
119,277
212,393
206,378
Real estate sales volume
$ 51,915,639
$ 48,570,132
$ 89,070,389
$ 81,811,749
Other real estate transactions
22,705
17,922
41,901
33,126
Real estate per transaction cost
$ 488
$ 533
$ 559
$ 567
Revenues
$ 1,295,244
$ 1,231,116
$ 2,238,298
$ 2,079,569
Operating profit (loss)
$ 18,537
$ 12,836
$ 363
$ 12,838
Adjusted EBITDA (1)
$ 32,814
$ 26,847
$ 43,858
$ 41,470
(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 (loss) from continuing operations, operating income, or any other measures derived in accordance with U.S. GAAP. 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”.
Revenue and adjusted EBITDA are key financial measures, and we review these measures to evaluate and drive our core operating performance.
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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 76 and 75 for the three and six months ended June 30, 2024, respectively compared to 72 and 71 for the same periods of 2023, respectively, due to our continuous investment in agent onboarding, expert care, transaction processing process and technology.
Agent count
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 (1)% in the first six months of 2024, compared to the same period 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, 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. For the three months and six months ended June 30, 2024, compared to the same periods of 2023, our real estate sales transactions increased 1% and 3%, respectively, due to our agents’ productivity, which more than offset the decline in existing home sales in the U.S. as reported by the NAR. For the three months and six months ended June 30, 2024, compared to the same periods of 2023, transaction volume increased 7% and 9%, respectively, due to increased transactions and home sale 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 decreased (8)% and (1)% for the three months and six months ended June 30, 2024, respectively, primarily due to increased transactions and lower costs due to cost containment initiatives, partially offset by legal expenses related to the antitrust lawsuits.
Revenues
Revenues represent the commission revenue earned by the Company for closed brokerage real estate transactions. For the three months and six months ended June 30, 2024, compared to same periods 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
The operating profit in the second quarter of 2024 of $18.5 million compared to operating profit of $12.8 million in the second quarter of 2023, reflects increased revenues, net of agent commissions and other agent-related costs, and lower operating costs in 2024, partially offset by increased legal expenses related to the antitrust lawsuits. The operating profit for the six
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months ended June 30, 2024 of $0.4 million compared to operating profit of $12.8 million in the same period of 2023 reflects the litigation contingency accrual of $16 million, and increased legal expenses related to the antitrust lawsuits, and 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, for the three months ended June 30, 2024 was $32.8 million compared to $26.8 million for the three months ended June 30, 2023. The increase in adjusted EBITDA reflects increased revenues, net of agent commissions and other agent-related costs, and lower operating costs, partially offset by legal expenses related to the antitrust lawsuits. Adjusted EBITDA for the six months ended June 30, 2024 was $43.9 million compared to $41.5 million for the same period of 2023. The increase in adjusted EBITDA reflects increased revenues, net of agent commissions and other agent-related costs, partially offset by legal expenses related to the antitrust lawsuits, as well as increased severance and employee-related expenses.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2024 compared to the Three Months Ended June 30, 2023
Three Months Ended
Three Months Ended
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except share amounts and per share data)
Statement of Operations Data:
Revenues
$ 1,295,244
$ 1,231,116
$ 64,128
5%
Operating expenses
Commissions and other agent-related costs
1,197,668
1,135,615
62,053
5%
General and administrative expenses
61,160
64,917
(3,757)
(6)%
Technology and development expenses
14,848
14,888
(40)
-%
Sales and marketing expenses
3,031
2,860
171
6%
Total operating expenses
1,276,707
1,218,280
58,427
5%
Operating income
18,537
12,836
5,701
44%
Other (income) expense
Total other (income) expense, net
(1,749)
(1,294)
(455)
(35)%
Equity in losses of unconsolidated affiliates
374
143
231
162%
Total other (income) expense, net
(1,375)
(1,151)
(224)
(19)%
Income before income tax expense
19,912
13,987
5,925
42%
Income tax expense
8,146
2,632
5,514
209%
Net income (loss) from continuing operations
11,766
11,355
411
4%
Adjusted EBITDA (1)
$ 32,814
$ 26,847
$ 5,967
22%
(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 (loss) from continuing operations, operating income or any other measures derived in accordance with U.S. GAAP. 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.”
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Revenues
$ 1,295,244
$ 1,231,116
$ 64,128
5%
Total revenues increased 5% as a result of an increase in real estate transactions compared to the same period in 2023, because of the superior productivity of our agents, which more than offset declines in the U.S. real estate market in the second quarter of 2024. Our revenue also increased due to increased home sales prices.
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Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Commissions and other agent-related costs
$ 1,197,668
$ 1,135,615
$ 62,053
5%
Commissions and other agent-related costs increased 5% 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.
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
General and administrative expenses
$ 61,160
$ 64,917
($ 3,757)
(6)%
General and administrative expenses decreased (6%) due to cost containment initiatives, reflected in lower expenses related to the shareholders summit in 2024, since it was conducted virtually, partially offset by increased legal expenses related to the antitrust lawsuit. General and administrative expenses include costs related to wages, employee stock compensation, and other general overhead expenses.
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Technology and development expenses
$ 14,848
$ 14,888
($ 40)
0%
Technology and development expenses were relatively flat with prior year and include employee and other costs related to the maintenance and development of the technology used by our agents and our employees.
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Sales and marketing expenses
$ 3,031
$ 2,860
$ 171
6%
Sales and marketing expenses increased 6% due to increased advertising in the U.S. and Canada residential real estate market.
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Total other (income) expense, net
($ 1,375)
($ 1,151)
($ 224)
(19)%
Other (income) increased (19%) primarily due to increased interest income when compared to the second quarter of 2023. Other (income) expense includes interest income earned on cash and cash equivalents, and (earnings) losses related to equity investments.
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Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Income tax expense
$ 8,146
$ 2,632
$ 5,514
209%
The Company’s provision for income tax expense from continuing operations amounted to $8.1 million and $2.6 million for the three months ended June 30, 2024 and 2023, respectively, which represented effective tax rates of positive 40.9% and 18.8%, respectively. The provision for income tax expense was primarily attributable to deductible stock-based compensation shortfalls, research and development credit and non-deductible executive compensation.
Six Months Ended June 30, 2024 compared to the Six Months Ended June 30, 2023
Six Months Ended
Six Months Ended
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands)
Statement of Operations Data:
Revenues
$ 2,238,298
$ 2,079,569
$ 158,729
8%
Operating expenses
Commissions and other agent-related costs
2,062,414
1,912,453
149,961
8%
General and administrative expenses
123,742
119,543
4,199
4%
Technology and development expenses
29,609
28,948
661
2%
Sales and marketing expenses
6,170
5,787
383
7%
Litigation contingency
16,000
-
16,000
-%
Total operating expenses
2,237,935
2,066,731
171,204
8%
Operating income
363
12,838
(12,475)
(97)%
Other (income) expense
Total other (income) expense, net
(2,937)
(2,168)
(769)
(35)%
Equity in losses of unconsolidated affiliates
523
485
38
8%
Total other (income) expense, net
(2,414)
(1,683)
(731)
(43)%
Income before income tax expense
2,777
14,521
(11,744)
(81)%
Income tax expense
4,841
1,174
3,667
312%
Net income (loss) from continuing operations
(2,064)
13,347
(15,411)
(115)%
Adjusted EBITDA (1)
$ 43,858
$ 41,470
$ 2,388
6%
(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 (loss) from continuing operations, operating income or any other measures derived in accordance with U.S. GAAP. 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.”
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Revenues
$ 2,238,298
$ 2,079,569
$ 158,729
8%
Total revenues increased 8% as a result of an increase in real estate transactions compared to the same period in 2023, because of the superior productivity of our agents, which more than offset declines in the U.S. real estate market in the first half of 2024. Our revenue also increased due to increased home sales prices.
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Commissions and other agent-related costs
$ 2,062,414
$ 1,912,453
$ 149,961
8%
Commissions and other agent-related costs increased 8% 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.
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Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
General and administrative expenses
$ 123,742
$ 119,543
$ 4,199
4%
General and administrative expenses increased 4% due to increased severance and employee-related expenses and increased legal expenses related to the antitrust lawsuits, such increases were partially offset by lower costs related to the shareholders summit in 2024, since it was conducted virtually. General and administrative expenses include costs related to wages, employee stock compensation, and other general overhead expenses.
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Technology and development expenses
$ 29,609
$ 28,948
$ 661
2%
Technology and development expenses increased 2% and include employee and other costs related to the maintenance and development of the technology used by our agents and our employees.
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Sales and marketing expenses
$ 6,170
$ 5,787
$ 383
7%
Sales and marketing expenses increased 7% due to increased advertising in the U.S. and Canada residential real estate market.
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Total other (income) expense, net
($ 2,414)
($ 1,683)
($ 731)
(43)%
Other (income) increased (43%) 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.
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands, except percentages)
Income tax expense
$ 4,841
$ 1,174
$ 3,667
312%
The Company’s provision for income tax expense from continuing operations amounted to $4.8 million and $1.2 million for the six months ended June 30, 2024 and 2023, respectively, which represented effective tax rates of positive 174.3% and 8.1%, respectively. The provision for income tax expense was primarily attributable to deductible stock-based compensation shortfalls, research and development credit and non-deductible executive compensation.
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BUSINESS SEGMENT DISCLOSURES
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 June 30, 2024 and 2023:
Three Months Ended
Three Months Ended
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands)
Statement of Operations Data:
Revenues
North American Realty
$ 1,274,621
$ 1,219,345
$ 55,276
5%
International Realty
20,316
11,991
8,325
69%
Other Affiliated Services
1,467
1,072
395
37%
Segment eliminations
(1,160)
(1,292)
132
10%
Total Consolidated Revenues
$ 1,295,244
$ 1,231,116
$ 64,128
5%
Adjusted Segment EBITDA (1)
North American Realty
38,503
34,122
$ 4,381
13%
International Realty
(2,376)
(3,782)
1,406
37%
Other Affiliated Services
(988)
(1,168)
180
15%
Total Segment Adjusted EBITDA
35,139
29,172
5,967
20%
Corporate expenses and other
(2,325)
(2,325)
(0)
-%
Total Reported Adjusted EBITDA (1)
$ 32,814
$ 26,847
$ 5,967
22%
(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. GAAP. 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 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 5% in the second 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 increased 13% due to improved business efficiencies and reduced costs.
International Realty revenues increased 69% in the second quarter of 2024 compared to the same period in 2023 primarily due to increased real estate transactions driven by improved agent production in previously launched markets. Adjusted EBITDA improved 37% in the second quarter of 2024 compared to the same period in 2023 due to increased revenue and improved business efficiencies and reduced costs.
Other Affiliated Services revenues increased 37% due to Virbela Frame ® revenue, which more than offset lower SUCCESS® revenues. Adjusted EBITDA improved 15% due to increased revenues and cost containment initiatives.
Corporate expenses and other contain the costs incurred to operate the corporate parent of eXp Realty.
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The following table reflects the results of each of our reportable segments during the six months ended June 30, 2024 and 2023:
Six Months Ended
Six Months Ended
Change
2024 vs. 2023
June 30, 2024
June 30, 2023
$
%
(In thousands)
Statement of Operations Data:
Revenues
North American Realty
$ 2,201,758
$ 2,056,459
$ 145,299
7%
International Realty
35,912
22,748
13,164
58%
Other Affiliated Services
3,255
2,749
506
18%
Segment eliminations
(2,627)
(2,387)
(240)
(10)%
Total Consolidated Revenues
$ 2,238,298
$ 2,079,569
$ 158,729
8%
Adjusted Segment EBITDA (1)
North American Realty
56,312
55,325
$ 987
2%
International Realty
(5,731)
(7,458)
1,727
23%
Other Affiliated Services
(1,755)
(1,849)
94
5%
Total Segment Adjusted EBITDA
48,826
46,018
2,808
6%
Corporate expenses and other
(4,968)
(4,548)
(420)
(9)%
Total Reported Adjusted EBITDA
$ 43,858
$ 41,470
$ 2,388
6%
(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. GAAP. 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 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 7% for the six months ended June 30, 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 increased 2% due to increased revenues, net of agent commissions and other agent-related costs, partially offset by increased legal expenses, increased severance and employee-related expenses.
International Realty revenues increased 58% for the six months ended June 30, 2024 compared to the same period in 2023 primarily due to increased real estate transactions driven by improved agent production in previously launched markets. Adjusted EBITDA improved 23% for the six months ended June 30, 2024 compared to the same period in 2023 due to increased revenue and improved business efficiencies and reduced costs.
Other Affiliated Services revenues increased 18% due to Virbela Frame ® revenue, which more than offset lower SUCCESS® revenues. Adjusted EBITDA improved 5% due to increased revenues, partially offset by 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.
NON-U.S. GAAP FINANCIAL MEASURES
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA, a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S.GAAP.
We define the non-U.S. 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, 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
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amortization and stock-based compensation expenses. We believe that Consolidated Adjusted EBITDA and Adjusted Segment EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted Segment EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted Segment EBITDA. In particular, we believe the exclusion of stock and stock option expenses, provides a useful supplemental measure in evaluating the performance of our underlying operations and provides better transparency into our results of operations.
We are presenting the non-U.S. GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.
Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. 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. Some of these limitations are that:
● Adjusted EBITDA excludes stock-based compensation expense related to our agent growth incentive program and stock option expense, which have been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy; and
● 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 (loss) income from continuing operations, the most comparable U.S. GAAP financial measure, for each of the periods presented:
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
Net (loss) income from continuing operations
$ 11,766
$ 11,355
($ 2,064)
$ 13,347
Total other (income) expense, net
(1,375)
(1,151)
(2,414)
(1,683)
Income tax (benefit) expense
8,146
2,632
4,841
1,174
Depreciation and amortization
2,963
3,143
5,363
5,358
Litigation contingency
-
-
16,000
-
Stock compensation expense (1)
9,329
8,488
18,157
18,148
Stock option expense
1,985
2,380
3,975
5,126
Adjusted EBITDA
$ 32,814
$ 26,847
$ 43,858
$ 41,470
(1) This includes agent growth incentive stock compensation expense and stock compensation expense related to business acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are our cash and cash equivalents on hand and cash flows generated from our business operations. 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.
Currently, our primary use of cash on hand is to sustain and grow our business operations, including, but not limited to, commission and revenue share payments to agents and brokers and cash outflows for operating expenses and dividend payments. In addition, the Company has no known material cash requirements as of June 30, 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. 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 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. In order to support and achieve our future
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growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next twelve months.
Net Working Capital
Net working capital is calculated as the Company’s total current assets less its total current liabilities. The following table presents our net working capital as of June 30, 2024 and December 31, 2023:
June 30, 2024
December 31, 2023
Current assets
$ 335,567
$ 266,475
Current liabilities
(237,105)
(141,640)
Net working capital
$ 98,462
$ 124,835
For the six months ended June 30, 2024, net working capital decreased ($26.4) million, or (21)%, compared to December 31, 2023, primarily due to increased accrued liabilities and accounts receivable, due to the increased revenues in the first half of 2024, compared to the last half of 2023.
Cash Flows
The following table presents our cash flows for the three months ended June 30, 2024 and 2023:
Six Months Ended June 30,
2024
2023
Net cash provided by operating activities
$ 131,801
$ 154,168
Net cash used in investment activities
(10,369)
(9,962)
Net cash used in financing activities
(96,458)
(90,935)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash
(1,346)
620
Net change in cash, cash equivalents and restricted cash
$ 23,628
$ 53,891
For the six months ended June 30, 2024, net cash provided by operating activities decreased ($22.4) million compared to the same period in 2023. The decrease in operating activities was primarily driven by decreased net income, agent equity stock compensation expense, and customer deposits, partially offset by favorable working capital changes.
For the six months ended June 30, 2024, net cash used in investing activities relates to cash used for purchases of property and equipment, acquisition of new business, and investments in affiliates and increased modestly compared to the same period of 2023.
For the six months ended June 30, 2024 and 2023 net cash flows used in financing activities increased $5.5 million compared to the same period in 2023, primarily driven by increased stock repurchases and the payment of cash dividends.
Acquisitions
While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions, access new revenue streams, or otherwise complement or accelerate the growth of our existing operations . We may fund acquisitions or investments in complementary businesses with various sources of capital including existing cash balances and cash flow from operations. Acquisitions during the first six months of 2024 have not had a material impact on cash flow.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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. For additional information regarding our critical accounting policies and estimates, see the Critical Accounting Policies and Estimates section of MD&A included in our 2023 Annual Report.
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Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposures to market risk since December 31, 2023. For details on the Company's interest rate and foreign currency exchange, see “Item 7A. Quantitative and Qualitative Information About Market Risks” in our 2023 Annual Report.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.