AGNT, Inc. (AGNT) Q3 2020 Earnings Call Transcript

Awesome. Well, good morning, everyone, and thank you for joining us for the eXp virtual fireside chat. Today, we're going to be discussing third quarter 2020 results, the overall trends we're seeing in the market for eXp and really walk through some of the key updates and growth initiatives underway here at eXp. My name is Greg Falesnik. I'm CEO of MZ Group, the Investor Relations firm for eXp World Holdings and your moderator for today's call. Joining me today, I have Glenn Sanford, the Founder, Chairman and CEO of eXp World Holdings; Jeff Whiteside, CFO and Chief Collaboration Officer; and Michael Valdes, President of International Growth for eXp. I've had the distinct pleasure to follow the company closely and watch it grow tremendously over the last 5 years. I think just while it's been a pretty phenomenal ride, agent count since I followed it several years ago is up almost 10x. Hats off to the entire eXp team and all the agents; it's really phenomenal to see how resilient you have been, not only resilient but actually thriving and continuing to innovate even during the global pandemic. Your agent additions have come at a rapid pace, and you've had your strongest quarter ever in terms of agent additions in the last quarter. This is particularly impressive given some of the comparisons you faced from 2019. Your agents are obviously more productive, your EBITDA flow-through is improving, and there are a lot of opportunities from what we can see today. That should add to the top and bottom line as you grow, including international, commercial real estate, mortgage title, and VirBELA, just to name a few. To kick things off, I'd love to hand it over to Glenn to maybe just touch on some of the key highlights from the quarter and some of the highlights from your perspective.

Thanks, Greg, and it's great to have you and the rest of the MZ team as part of the extended eXp family. I know we just recently announced that, and you've been great to work with in the past. I'm really excited to continue to work with you all. Certainly, this last quarter was a crazy quarter, especially given the backdrop of the pandemic. In Q2, we had to put the brakes on some things just because we didn't know how bad things would be. However, Q3 was a total leap forward in terms of everything happening in the market. There was a lot of strong housing demand, and eXp really grew at an impressive rate. One of our key metrics has always been agent count, and it serves as a leading indicator of what's going to happen in the future. In Q3, we had the highest number of agents join and the best retention we've experienced in a while. Given the backdrop of COVID, Glassdoor recently ranked eXp in the top 20 companies for work-life balance, which is incredible considering where we stand now with the VirBELA platform. This platform has allowed us to build an organization that is completely geographically distributed without the need for physical office space. As a result, we didn't face the stress of figuring out how to go back to work or navigate other challenges created by COVID. This has created an excellent work-life balance. In this last quarter, we also acquired a platform called Showcase IDX, which we're in the process of rolling out. We believe this will create a national portal for us, allowing us to compete against national players like Zillow, Redfin, and realtor.com. We are looking forward to dusting off the SEO playbook over the next 12 to 18 months to compete at a national level. We hear more about international growth from Michael later, but our iBuyer platform is gaining traction as well. We have a platform called Express Offers that is starting to generate consistent lead flow for agents seeking listing opportunities as well as partners looking to buy through our platform. We're not in a position to lose money on every transaction like some of our competitors are. We're working directly with buyers who genuinely want to purchase homes, ensuring they pay the value they see. We're thrilled about the Express Offers platform. The growth of VirBELA is also exciting. Although it's still a small part of eXp's overall value proposition, it's a fantastic enabling technology that has allowed us to scale up quickly. Today, we're hosting a massive real estate industry event using a virtual world for business platform, with thousands of attendees participating in various breakouts inside our version of eXp World. VirBELA has significantly increased our customer base, and the platform usage is skyrocketing. We are seeing interesting customers stepping up for private campuses and becoming strategic resellers, which is cool. Lastly, I'm excited to highlight our innovation project with FrameVR.io. It’s a fully immersive web-based platform, and we are looking forward to monetizing it in the near future. Overall, I'm super proud of everything we've accomplished this last quarter. I’m looking forward to sharing more details with you, Jeff.

Great. Well, good morning, everybody. Thank you very much, Glenn. It's fantastic to have you and Michael on the stage with us. As Glenn stated, we are absolutely thrilled to share our results for Q3. We continued strong performance in our eXp Realty business as we scale VirBELA and Showcase IDX. It's all centered around the agent value proposition. Our eXp technologies with VirBELA, eXp Enterprise, and Showcase are driving significant growth opportunities that we've discussed previously, and we're starting to see those opportunities really take off. International growth is likely our biggest opportunity right now, alongside the rollout of commercial real estate services and affiliated services. In summary, revenue increased 100% year-over-year, going from $282 million to $564 million in Q3. Agent growth was up 56%, with a total of 35,877 agents, and productivity was up by 26%. We net added a record-breaking 4,786 agents this quarter, showcasing robust growth. Our gross margin was $46.8 million, compared to $23 million last year, showing increased efficiency. Q3 margins were lower than the first half of 2020, largely due to higher capped agents, which was expected. Our SG&A was 5.6% of revenue, down from 8.7% the previous year, indicating we're leveraging our continued investment in growth and technology. As a result, we achieved net income of $14.9 million compared to a loss of $1.8 million last year, and this marks our fourth consecutive positive GAAP income quarter, which we’re incredibly proud of. Our cash flow has also been strong, with $28.3 million versus $3 million in 2019, and we maintain a cash balance of $92 million after a $9.3 million stock buyback, which is vital for us. We have no debt on our balance sheet and do not foresee taking any on in the near term. Glenn will discuss VirBELA in a bit more detail, and we'll touch on Showcase's integration, but to note, we had a very strong growth trajectory prior to COVID. In 2018, we did $500 million in sales; in 2019, we did $1 billion. We have continued to grow through and beyond COVID, and we expect to see strong results in Q4. I'll hand it back to you, Greg, to invite Michael for the international update.

Sure. Thank you, Jeff, and Glenn, for inviting me to share the stage with you, and thank you, Greg, for being the moderator today and advancing this conversation. It has been an incredible time here with our international focus. We already had operations in the U.S., Canada, Australia, and the United Kingdom. We opened in South Africa last month, and we're set to open in India on Monday, and in Mexico, we’ll also be launching in November. Early December will see our expansion into Portugal and France. These five countries represent 1.6 billion people and a $7.37 trillion GDP, along with a potential agent pool of 3 million. Our growth trajectory in these markets is enormous. As for our global initiatives, we’re working on a global website and a referral platform. Although we’re focusing on entry into new countries, we are also heavily invested in our existing international growth overall. So, Greg, I’ll pass it back to you for any specific questions you might have on these topics.

Sure. Thank you, Michael, and for the insights from both Glenn and Jeff. I would like to begin the Q&A session if that’s okay. Glenn, can you provide some general insights on the strength of the housing market in the third quarter of 2020? Also, as we are now approaching the midpoint of the fourth quarter, how have the trends been in October and November? What are your overall thoughts on eXp's performance in the residential real estate sector in the U.S. for the upcoming months?

Yes. One of the things, and Jeff can certainly comment on this, is that we’re still seeing really strong performance in Q4. We’ve seen volume levels in October that mirror what we saw in Q3. So we’re truly optimistic that this trend will continue into November and December. We attribute this to two big trends. First, people are moving because they are no longer locked into living close to their workplace due to COVID circumstances. Second, historically low interest rates are driving more consumers to consider buying homes since most consumers are payment buyers. Of course, we experienced a great recovery in Q3, which was historic. This creates a lot more internal demand, and across the board, we are witnessing real estate being consumed at an exceptionally high level.

Yes. I'd add to that, Glenn. Based on what’s happening globally, the traditional seasonality when people stop moving for winter does not seem to be occurring. We’re experiencing strong growth in October, which is quite a shift. Also, we see a new generation of agents coming on board who recognize that we’re available 24/7, which has certainly helped our growth.

Yes. If I could just jump in regarding our international trends, we’ve seen strong interest from potential agents in countries we are entering, like India and Mexico. We’re already registering thousands of agents who are waiting to join in various stages of the process, driven by the demand and our unique model, which allows for global connectivity. This is an exciting time for us.

Great. That's really helpful. And if I’m looking around at regional markets, are there any that really stand out as performing the best, and are there markets where you are observing some weaknesses?

It’s relatively uniform across the board. There aren’t distinct markets that are performing poorly. The typical selling season, historically from March to September, is no longer in play, and the current school situation has changed. With COVID impacting traditional living patterns, people are more willing to relocate throughout the year, not just during peak seasons.

Great. That's helpful. One of the topics I’d like to transition to is discussing agents, transactions, and productivity in relation to your core residential real estate business. Can you share any general commentary on the impacts COVID-19 has had on the agent attraction process? Is it easier to attract agents now, and how has agent retention been affected?

Definitely. The fact that eXp has maintained support for agents listing and selling homes has been a positive. Agents across different locations are navigating various levels of lockdown. Because we remain open and available, it's made agent attraction easier, leading to improved retention as agents see the value in our offerings during times when traditional brick-and-mortar options are not as viable.

Our productivity in the quarter is up 26% compared to the previous year. Our units are up 95%, and volume is up 112%. The growth of our agent count is robust, and productivity continues to increase. The model is working solidly for those who have joined us.

That’s great. Regarding your Net Promoter Score that you mentioned in your opening remarks, could you elaborate on what this score signifies and its importance?

The Net Promoter Score is one of our primary metrics driving internal decisions to support our agents and brokers. It’s based on a standard question: 'On a scale of 0 to 10, how likely are you to refer a friend or colleague to join eXp Realty?' Detractors commonly give us indications of areas needing improvement. By addressing their concerns proactively, we enhance agent satisfaction. This focus is likely why we achieve high Glassdoor scores, and currently, we are one of the only real estate brokers in the top companies on Glassdoor.

Our Net Promoter Score is currently at 73, which is quite impressive in the industry. We measure everything, including onboarding experiences and agent satisfaction. We genuinely believe that having great employees is key to retaining productive agents.

I am curious if you have set any long-term goals for agent additions, particularly for hitting the 100,000-agent marker? When do you envision reaching that milestone?

This is a good question. Initially, I thought we’d reach 100,000 agents by 2023, but with feedback from growth leaders, we seem to be moving it up to potentially 2022. There’s definitely a more ambitious timeline emerging.

We’re actually aiming to reach 100,000 agents by the end of next year, with roughly 25% of those being international. We’re very aggressive about our growth strategy going forward.

That’s phenomenal. Regardless of when you hit that target, it’s an incredible feat and something very few companies have achieved. It’s impressive to think of achieving this faster than other organizations.

Currently, the growth we are experiencing is across the board. We’re not just seeing increased activity from certain groups. Multiple agents are experiencing boosts in volume, which we also observe in the industry as a whole.

That’s insightful. Can you highlight some of the factors contributing to the higher average revenue per agent and per transaction?

One factor, especially from Q2 onwards, is that we have attracted top-producing agents from major cities. Those agents transitioning to eXp during the pandemic highlighted our 24/7 availability, making our model appealing.

I’d also add that our focus on other divisions, such as international growth and commercial real estate, provides our agents multiple avenues to excel. This contributes to increased productivity across the board.

Excellent commentary. Transitioning over to the international opportunities, could you provide insights on what we should expect in the near term and which avenues may take longer term to unfold?

What we have lined up for this year includes opening India, Mexico, Portugal, and France—all before the end of the year. We haven't announced our Q1 countries yet, but we have an incredibly strong pipeline coming.

Interesting. With such rapid growth internationally, it seems we're approaching great potential. Many companies often question why they would expand internationally when they’ve had successful domestic rollouts. How do you view this expansion?

We see this as an evolution, not a disruption. The brand is meant to grow internationally. The proven model allows agents to become the brand without traditional franchise fees, creating a powerful global platform.

When identifying which markets to enter, what specific criteria do you consider important?

When identifying target countries, we seek those with a substantial footprint, revenue potential, and established real estate industry. Our goal is to construct strategic footholds for continued growth.

So you’ve been able to achieve this expansion quickly and effectively. I have to ask about challenges, like language barriers. How are you addressing those?

We’ve partnered with a translation company to bridge language barriers. Also, since many countries lack MLS systems or licensing requirements, our model stands to perform even better in those markets.

That’s fascinating. It appears that strong leadership has enabled successful expansion into these markets. What about the financials? Is the core driver of growth coming from agent count or rising productivity and gross commissions?

In Q3, agent productivity was particularly strong, up 26%. As we attract productive agents, that pushes our numbers higher overall. Our agent count growth is solid, but productivity has been key.

It's impressive that most metrics are up, including transaction volume. Are all agents experiencing growth, or is a specific group rising more significantly?

The current increase in activity is across all agents. We also observe similar trends within other brokerages, indicating that agent productivity is widespread. Certain agents are experiencing more robust gains, but there’s spillover to less active agents as well.

That's insightful. What about your capital allocation strategies? Are you continuing the stock buyback program?

At this time, our plan is to continue our stock buyback program. While market fluctuations and stock price changes may affect that, our immediate aim is to proceed steadily with the buyback.

Philosophically, we have several equity programs for agents. We want to offset those with stock buybacks, considering equity dilution concerns often raise questions. It makes sense to maintain a balanced approach as we grow.

What about potential acquisitions? Are there any notable opportunities in your pipeline?

Continued acquisitions are definitely part of our strategy. We've made several smaller acquisitions to enhance agent productivity without the need for additional funding, and we’ll keep an eye out for opportunities moving forward.

How do affiliated services like mortgage and title affect long-term values for agents and eXp as a company?

Affiliated services represent an opportunity to create a seamless transaction process. When agents can offer mortgage and title services, it simplifies interactions for clients. Every mature brokerage offers these services, but our rapid growth has made it a challenge to layer in those offerings.

Shifting to technology, can you comment on the growth of the VirBELA platform?

The work-from-home sector has drastically shifted this year, accelerating trends by a decade. Our platform usage rose from around 63,000 users in Q2 to over 100,000 in Q3. We were the top user of the virtual world for work across any industry. Companies previously hesitant to adopt similar models are now seeing its necessity.

The key to our VirBELA suite is our international expansion. We’ve effectively scaled without physically opening offices while conducting meetings worldwide. We witnessed high attendance at eXp Con recently, with over 1,500 people interacting in the VR space.

What is your long-term vision for VirBELA, and how significant do you view its growth potential?

We anticipate more significant traction with VirBELA as we engage more early adopters. The technology surrounding remote work is evolving rapidly, and the collaboration between platforms like VirBELA, Zoom, and others will refine how businesses operate. We foresee a point where organizations might replace physical offices with virtual ones for economic efficiency.

How is the commercial side of your business faring, and what should we expect in the coming months?

Our commercial segment is set to launch soon, with James Huang as our new leader. We expect to onboard around 1,000 commercial agents by late next year, leveraging our unique cost structure to drive our success. Preparations are currently in motion for a flourishing launch.

We also see numerous cross-divisional opportunities, especially internationally, as interest in commercial growth mounts. Our model is well-structured to embrace this interest.

What’s the current status regarding the integration of Showcase IDX?

The integration is making strong headway. Showcase IDX provides established IDX services to agents. We aim to build national platforms while retooling internal websites for agents to enhance our user experience. Results will take 12 to 18 months to materialize fully, yet preliminary results show promise.

Excellent insights. To wrap this up, could you explain how your Express Offers platform differentiates from traditional iBuyer models?

We're distinct in that our Express Offers platform connects agents with a network of genuine buyers interested in homes without taking on balance sheet risks as competitors do. This model allows for multiple buyer offers, streamlining the listing process and benefiting those who want quick transactions. Our approach is built on generating agents leads while avoiding losses.

The variety of tools you offer agents certainly enhances their experience. I have a couple of audience questions that have come in. One relates to Michael and asks, which international market is performing the best?

Currently, Canada leads our expansion efforts with about 1,600 agents. We've achieved significant growth, thanks to the commitment of incredible teams. We're gaining traction with top agents joining us, and in newer markets like Mexico and India, early indicators show promising interest.

One more question for Glenn. Will VirBELA eventually stand as its own company?

Yes, we considered spinning out VirBELA as a stand-alone entity, and we believe there's significant potential unlocked for shareholders if that happened. However, tax implications currently hinder that option. We continue to explore possibilities for future separation.

Let’s take one more question, regarding retention trends. What can you quantify about that and the dynamics between gross versus net agent additions?

In Q2 and Q3, we successfully increased our retention rates by 30%. While we don't break down exact monthly additions, overall retention has definitely improved, which we’re excited about.

That’s a solid update. Thank you, Jeff, Michael, and Glenn, for this insightful fireside chat today. Congratulations to everyone on achieving an extraordinary quarter in revenue and profitability. I think we can wrap up this session now.

Thank you, Greg.

Awesome. Thanks, Greg. Thanks, everyone.

Thanks, Greg. Appreciate it.