AGNT, Inc. (AGNT) Q1 2021 Earnings Call Transcript

I believe we are at the top of the hour. Jen, are we recording? Are we broadcasting yet? Hello, Greg. Hello, everyone. Thank you for joining us this morning, or rather, this afternoon. The first quarter of the year has been truly exciting, and those of you who are here in-person are currently at the new EXPI campus, where we will soon hold our eXp Shareholder Summit in under two weeks. This campus is open for access until then and is equipped with various breakout spaces for activities planned during the summit. We encourage everyone to return and participate in the meetings and events scheduled. It's set to be a significant event here at the EXPI campus in VirBELA. You have the opportunity to review the quarterly report. I hope you are familiar with the company's core value proposition, as we have pioneered the first fully cloud-based nationwide residential real estate brokerage in the U.S. and beyond. We have expanded into 13 additional countries and plan to be in 20 countries by the year’s end. Michael Valdes, who has previously spoken at our events, is driving growth into multiple markets. Last week, we launched in Colombia and held an eXp launch event in Cabo San Lucas, marking one of the first in-person events since COVID. Notably, that event was entirely led by agents, with over 700 real estate agents and brokers from across the U.S. and Mexico attending to discuss business growth and improvement. All three of us executives were invited to the event as well, which was not officially an eXp Realty event. We also have another agent-led event next week in Scottsdale, followed by a larger gathering in Dallas in August, which will include thousands of attendees and feature Tony Robbins, also an agent-led initiative. Our model flips the traditional real estate brokerage model on its head since agents are motivated to help expand the brokerage. Instead of a large internal recruiting team, we have a substantial concierge staff focused on supporting agents and brokers throughout their business lifecycle. We have created financial incentives for attracting and onboarding agents, including innovative compensation structures that combine cash and equity. We're seeing positive momentum with various service offerings, particularly the Express Offers platform, which allows for transactions in the iBuyer realm without capital risk for us. More importantly, this initiative is generating thousands of listing leads for agents to market homes effectively. I'm proud of our team's collaboration and support, leading to numerous innovations within the company. Our focus on Net Promoter Score (NPS) and agile management empowers us to innovate and deliver what agents need without a strictly top-down approach. We encourage innovation and collaboration among our self-organized teams to help agents build their businesses and create retirement opportunities in real estate. Our nationwide health care option for independent contractors, developed in partnership with Clearwater Benefits, is another example of our innovation. Leveraging our enabling technology, VirBELA, has allowed us to adapt and collaborate globally, forming teams across countries. This flexibility sets us apart from companies that operate solely within a single country. We have successfully transformed existing enterprises into virtual models, as seen with the SUCCESS Enterprises acquisition last year, which is now fully virtual. We recently launched a co-working brand called SUCCESS Space, which you can learn about at successfranchise.com. Furthermore, SUCCESS Coaching is now revenue-generating, and we have a speaker’s bureau, digital magazine, and numerous apps entering the app stores related to SUCCESS Enterprises. Our team at VirBELA, now 185 members strong, is also engaged in creating innovative platforms such as FrameVR.io, from the ground up. Please take note of these initiatives, and I encourage you to check them out for their potential. With so much innovation in the XR and VR spaces, these technologies are central to our growth and scale. Now, I’ll hand it over to our CFO and Chief Collaboration Officer, Jeff Whiteside.

Thank you, Glenn and Greg. Welcome to our first quarter 2021 earnings discussion. On this first page, you'll see a summary of our performance, where we achieved very strong results in Q1. Our revenue for Q1 was $583.8 million, reflecting a growth of 115% compared to the same period last year. Our gross profit was $53.5 million, up 91%. Our net income was $4.8 million, representing over 3,000% growth year-over-year. Adjusted EBITDA stood at $14.8 million, a 159% year-over-year increase. Finally, our operating cash flow reached $40.6 million, an increase of 184% compared to the previous year. Moving to the next slide, I'll provide more details on our key metrics. You'll see two categories here: operating metrics and financial metrics, where our operating metrics drive our financial results. Our operating metrics include agent count, units sold, price per unit, and total sales volume. By the end of Q1 2021, we had 50,333 agents, a 77% increase from last year. Units sold totaled 73,878, up 95% from 37,882. Our average price per unit was $332,000, up 14% from $290,000. Our total sales volume reached $25 billion compared to $11 billion in Q1 2020, representing a 123% increase. Currently, most of our agents are in the U.S., and Dave will elaborate on the U.S. performance. Global expansion is also underway, which will drive future agent growth outside the U.S. Today, we observed exceptionally strong U.S. performance, particularly in the latter half of last year and into this year. Looking at our financial metrics, revenue was $584 million compared to $271 million, marking a 115% growth. Our cost of revenue was $530 million versus $243 million, leading to a gross margin of $53 million in Q1, up from $28 million last year. Although the gross margin percentage decreased to 9.2% from 10.3%, the dollar value of our gross margin reached a record high. Typically, Q1 sees lower volumes, but we experienced unexpected increases, resulting in higher capping and some pressure on gross margin percentages. Our SG&A expenses totaled $49 million, compared to $28 million last year. In terms of productivity, SG&A as a percentage of revenue decreased to 8.3% from 10.2% last year, indicating improved efficiency as we scale. Our operating income was $4.9 million versus $0.2 million last year, and we reported a net income of $4.8 million compared to $0.2 million prior, maintaining positive net income for each quarter since Q4 2019. Our adjusted EBITDA was $15 million, up from $6 million, indicating a 167% year-over-year increase, with positive EBITDA recorded since Q3 of 2018. Finally, our operating cash flow was $41 million compared to $14 million last year, with cash at the end of the period totaling $104 million versus $44 million. This positive cash flow, after accounting for expenses, investments, and our stock buyback, is significant for our business. We repurchased approximately $34 million in stock this quarter and have no debt on our balance sheet. In conclusion, despite being comparable to national averages, our agent productivity increased by 13% year-over-year.

Great. Thanks, Jeff. All right. Welcome again to everyone. We're really thrilled about our accelerating agent growth. We've now outpaced prior quarters for 3 straight quarters. Coming off a record year in 2020 with over 5,500 agents added in Q1 alone, we carried that momentum into Q1 2021, and we doubled our gross agent adds, exceeding 11,000. We focus on attracting independent brokerages and top teams to maximize revenue. We added to our base agent growth, 51 brokerages and 63 teams for more than $4.9 billion additional transaction volume in Q1. So let's cover the primary drivers for our growth. The value we provide as a brokerage increases as we scale and attract more agents. Our agent growth model is also exponential in nature, which allows us to continually scale larger year after year. This network effect is driving our growth and increasing the value that we can deliver to our agents. As more agents join, the collaboration and knowledge sharing has been incredible. We're also committed to success at the highest level. Attracting producers and ensuring that their satisfaction every step of the way, from their initial onboarding to helping them build their businesses here at eXp. I spoke with one of our agents yesterday, who shared his path from closing $8 million when he joined eXp back in 2018 to closing over $100 million last year, and he's on track to double that this year. He credits access to other top producers through our platform as the key to his phenomenal business growth. Lastly, our agent-centric value proposition focuses on collaboration, compensation and cloud-based tools, attracting some of the best agents in the country. Our steadfast commitment to our agents is really one of our strongest differentiators. At eXp, we're very proud to be the most agent-centric brokerage on the planet. Our unique value proposition and cloud-based environment enable agents to work from anywhere, any time, freeing agents from geographical constraints and empowering them to collaborate with and learn from other top producers around the globe. This innovative platform allows eXp to deliver a multifaceted compensation model and generous commission structure, which differentiates eXp from other brokerages and empowers our agents with multiple ways to earn income and achieve their personal goals as they build their business. And our community is unparalleled. The nature of our collaboration and compensation models encourages agents to actively support each other and share best practices, challenges, and successes. Through eXp World, our agents connect daily with their peers, and they develop relationships that transcend that virtual environment. We know that a brokerage is more than just a place to hang your license. At eXp, our agents and our staff are family, and we're proud of the strong and diverse community that continues to grow here.

Thank you, Dave. Appreciate it, everyone. Let me just pop up here. I'd like to kick it off with a couple of questions. And maybe the first one can be directed at Dave and the other speakers can jump in as they'd like. So the first question, I'll kick it off with is, what are you hearing from agents in terms of what they are experiencing with the continued supply-demand imbalance? I know that the market's been red hot. But just curious to know if you have any thoughts there, Dave.

Yes, every kind of market represents its own challenges, right? Our agents are incredibly creative, and they're connected within their communities. So they really have been resourceful in identifying sellers that are not yet on the market. They're creating opportunities to match buyers with homes in their chosen neighborhoods and communities. Multiple offers and escalation clauses continue to be the norm in this market currently. So the market really requires agents to be skilled and prepared. Fortunately, our platform provides over 50 hours of training every week. Now they have access to it 24/7. So our agents really are prepared to continue serving their clients and meet those challenges.

Great. Thank you, Dave. And this question is directed at Glenn. I know there's a really serious focus on Net Promoter Scores at eXp. So Net Promoter Score looks like it's continued to increase during the first quarter, up from last year. You guys have done a great job there. So can you maybe talk to us about why this has tracked so closely internally? And what does it tell us about the agent base as the NPS improves?

For me, the key metric I focus on is Net Promoter Score. A few years ago, I read Stephen Denning's The Leader's Guide to Radical Management and The Ultimate Question 2.0. Once I understood the power of this tool, it became clear that it allows us to more closely meet the needs of our agents through a fundamental question: on a scale of 0 to 10, how likely are you to refer a friend or colleague to join eXp Realty? We ask this question at various stages in the agent experience, such as during transactions, training, and onboarding. This provides us with real-time data that we can use to enhance the experience for future agents. It gives us valuable insights and lets us engage with our agents rather than just selling to them. By offering them good service, we increase our value to them, making eXp more appealing. In the beginning, I saw myself as a focus group of one, which worked well while starting the company. However, it became important to listen closely to our agents. As you've seen from the published numbers, we are now in the 70s, and historically, when our score is above 70, we experience rapid growth, low attrition, and it benefits both our agents and staff. This approach is effective for running the company.

Good stuff. Yes. You guys have done an awesome job there. And maybe a question for Jeff, and then I'll pull a few from the Slido Q&A. Jeff, I think we were looking at this, and you bought back $34 million of stock during the first quarter, which is actually larger than the total authorization of the buyback program when it was first initiated. So clearly, you guys have stepped that up as you've grown. This is maybe a good opportunity to walk people through and remind us on what your philosophy is around managing the repurchases, and how you're thinking about that going forward?

Yes, we have received significant feedback from investors about stock dilution since my arrival, and I'm sure Glenn has as well. A key aspect of our value proposition for agents is to offer them equity ownership in the company, which is critically important to us. Investor concerns have focused on dilution. Our strategy with the buyback program is aimed at offsetting the dilution caused by agent equity awards. By the end of this year, we aim to achieve no dilution from the awards we've distributed as part of our business model. This approach benefits both parties, and we are pleased with it. We view this as a sound investment of our cash. We constantly monitor our cash reserves to ensure we have enough to support the company's growth while meeting our financial thresholds. Any excess cash will be directed towards the buyback program. The primary aim is to counteract dilution, and that's our focus for this year.

Great. Really helpful. And Dave, I have a couple more questions for you as well. What are we seeing now that we're over a month into the second quarter? Have you been surprised by some of the dynamics of the U.S. residential real estate industry? What do you foresee happening as we look out through the rest of 2021?

Sure. Yes. Greg, we're seeing the usual seasonality of the market. It's strengthened by a general shuffling of homeownership in many markets as a result of the work-from-home opportunities caused by the COVID pandemic. After last year, everything is a little bit different. But first of all, we continue to be really impressed by the resiliency of our agents. They've really responded well to the changes in the market. A combination of historically low rates and increasing home equity is really continuing to create demand. So we anticipate the market will remain strong.

There's a significant market share opportunity in the U.S. We discussed the growth in both the U.S. and internationally. Could you share your thoughts on how you balance entering new markets while also focusing on increasing your market share in the U.S.? Additionally, please comment on your efforts to expand into more urban and densely populated areas.

Sure. Yes, I mean fortunately, with our model, it really allows us to expand into the other new markets internationally, with speed and comparatively low capital investment. So it really doesn't impinge on our ability to grow here domestically. Our model is different from a franchise model or a larger-structured model or even an independent brokerage model where there has to be economies of scale in order for it to work. They have to have a certain agent count and a certain production amount to drive the revenue to make it worthwhile to have the physical space, the staffing, the leadership, and the management, et cetera, all of the costs that go along with that. Where we can drop into virtually any market in the United States, large or small and pick up a single realtor, there may be a spot in a more remote area where maybe there are cattle farms, valuable land, but not enough space to have a lot of realtors in that area. And we're able to go in there and find the top agents and the agents doing business there and have them be on our platform without having to invest large amounts of money and resources and staff to be able to serve that. This really opens up the entire United States to us. It's easy for us to go into any city or any rural area and everywhere in between. Really, our growth is unlimited for those spots.

Thank you, Dave. Yes. And Glenn, a couple of questions directed at you from myself and from the Slido presentation. The SUCCESS acquisition was really interesting in that you've continued to focus on personal development, especially for your agent base. Would you mind talking a little bit about kind of how that's folded into the eXp ecosystem? And then maybe sort of what's changed in a major way since coming under the umbrella of eXp?

We have been sending the magazine to all of our agents since 2019, although we may have started earlier in 2018. The intent was to provide something tangible from eXp that demonstrated our care for our agents. This initiative, funded by us, aimed to highlight the significance of personal development in sales and life. This led us to the opportunity to acquire the magazine. Since then, Ted Latz and others have been working to expand the brand beyond just the magazine and its digital content into aspects that can positively impact the real estate industry. One exciting development is the SUCCESS co-work franchise. As broker-owners in residential real estate transition their offices to a cloud-based eXp model, they often wonder what to do with their physical space. The SUCCESS Space co-work opportunity allows those with appropriate locations to transform them into a 125-year-old personal development brand that redefines the co-working experience by offering coaching and training to entrepreneurs. This creates a unique ecosystem. We’ve also talked about the Speaker's Bureau and other core initiatives of SUCCESS. Furthermore, we are exploring ways to strengthen the eXp brand, looking into connections with luxury, rewards, and recognition, which have many overlaps. Additionally, we have begun to foster relationships with prominent influencers due to our association with SUCCESS, including Grant Cardone and his projects. The eXp Realty model's appeal lies in the fact that we now own SUCCESS Magazine, which opens doors to collaborations with major influencers in residential real estate that would typically require significant financial investment. This gives us a subtle marketing advantage to bring influential figures into the eXp ecosystem for providing coaching and support to our agents and brokers worldwide.

That's great, Glenn. Thank you. And a question from Slido, as we're talking about other segments within the eXp umbrella. What other clients is VirBELA working with right now? Any notable that have sort of popped up? And how is it helping to bridge the gap as more companies, schools and day-to-day activities are still remote?

Yes. We are now in a position where last year's offering, VirBELA, was just one of many technologies that companies were trying to adopt quickly to address the challenges of remote work and the need for virtual events. Last year was focused on brainstorming solutions for remote organizations and determining the tools to use. While Zoom remains the primary platform for meetings, we have matured our offerings and built strong partnerships with PwC and HTC. Stanford has also been a long-standing collaborator, and we are now hosting significant events with major tech companies that are considering using our platform for various departments within their organizations. Our client base is becoming more established, evolving from a temporary fix to a solution with lasting value and potential. We're beginning to see larger contracts materializing, and discussions are advancing toward completion. We've focused heavily on information security, which has been crucial, especially in conversations with large organizations undergoing thorough security audits. This has been a significant area of development for us. We are also creating new technology to enhance deployability as we scale. Currently, we have a sizable group of about 50 clients. You can visit VirBELA.com to explore some of the case studies. Progress continues to be made, and Jeff, you may also want to share insights on other clients.

Yes. I mean one thing that's really interesting is that a large percentage of their customers are coming from overseas, all right? So we have people in Japan; we’ve got people in Korea; we've got people all over Europe, actually, and now we're in Asia. That was really interesting because a lot of those countries are really moving towards this type of work. What I'm seeing, Glenn, is as we talk through bigger customers and we talk more and more about this, this is still the only platform that exists end-to-end where you can run your entire business and scale it globally, like we do at eXp. I think the other thing I'd mention, too, is as we form new partnerships in our companies, SUCCESS is an example, but there's a lot more on the horizon. They start looking at this and saying, 'Wow, this is a great way to work.' So we're building it out that way, too.

Right. Really helpful. And this is actually a really interesting segue into the next set of questions, and I'm not sure who this would be directed at. But I'll say it and let maybe Dave jump in or Glenn. The question is, how do you decide which country to enter in eXp Global? And then as a follow-up, how are you ensuring that the agents in new markets get the same support as agents in the U.S.?

Yes, I can address that. Michael Valdes, who has extensive experience in international growth, is responsible for selecting countries. Interestingly, he joined us just as COVID began, which meant he didn’t have to travel as he typically did in his previous role. He has successfully opened all the countries since joining without needing to visit them in person. Thanks to our virtual environment, we can collaborate in real time as if we were physically present in those locations. He identifies countries that align with our model, ensures we have the right leadership and staff in those areas, and collaborates with our legal team to handle all legal requirements, which is relatively low cost given the potential benefits. While we have a lot of work to do, it’s truly a team effort to find strong leaders and confirm that the countries are substantial enough to justify our efforts. This helps him determine which countries will have the greatest impact quickly. Our goal is to eventually operate in 100 countries. This year we’re in 20, and next year we aim to add an additional 10 to 20 countries. Within the next 4 to 5 years, we could reach that 100-country target. Our ability to scale is facilitated by our use of collaborative technologies. The main challenge is the language barrier, so we need effective translation and cultural understanding to align our systems with the local real estate processes.

That's incredible and very helpful. A question related to G&A for you, Jeff. One of the analysts wants to know just a sense of what G&A expense dollar growth is likely to be for calendar year 2021.

Yes, when we consider 2021 and the percentages, we're estimating an overall percentage of about 6.5% for the year, which we discussed earlier. We're seeing revenue growth and previously, we were at 10.3%. The company was at a higher percentage for valid reasons. We're achieving productivity, and we anticipate the SG&A number to be around 6.6% of revenue this year. It's important to note that if we have opportunities for growth, particularly in international and commercial sectors, we'll pursue it. We're currently doing that. If we can invest now for greater future returns, we will. However, we are gaining leverage, and it appears we will reach approximately 6.6% of revenue this year.

That's a really good point, Jeff. I've seen the company strategically invest over the last several years, and it has ultimately paid off, helping us achieve the growth we see today and continue to experience. This leads well into the next question. From an M&A perspective, Glenn, are there specific areas you are prioritizing? Are there opportunities you are looking for that could arise in the next 12 to 24 months?

We will keep exploring products and services that can assist agents in selling more real estate. On an international level, numerous tools, technologies, and companies exist that might be used across various countries. However, due to the distinct ways countries operate, they may lack an understanding of the different markets compared to our experience operating in multiple countries. I can envision us acquiring technology platforms that could help us establish a system similar to an MLS in these other countries. For instance, in Mexico, along with many other countries, the real estate sector is rather fragmented and not well organized in terms of personnel. In various regions of Mexico, there are no licensing requirements for real estate professionals. We see potential benefits from certain technologies that could enhance the organization of real estate, making it more accessible to consumers and helping to bring more structure to the professional side as well. There are several technologies we are considering; CRMs are always a priority for me. I am consistently on the lookout for innovative CRM solutions. We aim to integrate with all the other systems we are developing internally. We are making significant investments in automating the transaction management workflow, and we hope to roll out automation by the first quarter of 2022 that would support agents through AI, image recognition, data processing, and machine learning. We believe this could streamline much of the sales process. We are also exploring opportunities in the tight escrow space and the mobile notary market, considering the entire vertical chain in the residential real estate sector.

Right. Okay. And obviously, everything you're looking at is to accelerate growth or increase margin in some capacity. That's helpful. So really the last question, I'd like to sort of leave things off with, and this is for anyone to comment, but sort of long-term goalposts. I think a lot of people are wondering, and I've gotten this question a bunch of times here. What do you expect the company to look like in 5 to 10 years? This could be related to profitability, revenues, agents on the platform, countries you're in. Just sort of an open floor and curious to know what you think about that.

We believe we could have hundreds of thousands of agents globally. Our vision for eXp is to develop into a full-fledged platform, akin to a city, offering a wide range of products and services for agents and their clients. This platform is designed to support real estate professionals and facilitate their engagement in various capacities. While saying we could reach 500,000 people in five years might be ambitious, I truly believe that within the next 10 years, we will achieve something close to that. We see numerous opportunities for innovation within our value chain, including areas like coaching, training, lead generation, relocation services, unique title and escrow solutions, and mortgage offerings. We are on the brink of significant developments. In the next couple of quarters, we anticipate seeing these initiatives take shape and start yielding results. For instance, Express Offers represents one of our pioneering efforts to provide a unique buyer aggregation experience. We also have various components related to SUCCESS and integrating tools like Frame VR, enabling the establishment of virtual offices for mortgage and title escrow companies, among other assets in residential real estate. This will lead to a transformed ecosystem in a few years.

Great. I'll stop there and make a general comment that I believe it's amazing what you have accomplished. Your agent-first approach has created significant opportunities, not only for the agents but for the company as a whole. Congratulations to the entire eXp team on the company's continued explosive growth. Now, Glenn, I'll turn to you for some closing comments.

Sure, I received a direct question regarding the upcoming shareholder vote about the increase in authorized shares to 900 million. This topic comes up frequently, with concerns about dilution of the company. However, this simply reflects the number of shares available for various uses. When we executed the stock split a few months ago, we were limited to a 2-for-1 split due to our authorized shares. Although the stock was trading at around $70, the split effectively reduced it to $35. Internally, we preferred to range it closer to $20, but our authorized limit restricted us. The extra flexibility we gain is not dilutive, except if we were to acquire someone using equity, and that would be from a business standpoint rather than a dilution perspective. A stock split does not dilute ownership on a percentage basis; it merely increases the number of shares, benefiting our stock programs for agents and brokers. I wanted to clarify this since it was brought directly to me. To conclude, I appreciate everyone joining today. We are honored at eXp to grow this company for our agents, brokers, staff, and consumers. If we perform well, it will benefit all of us as shareholders. Our aim is to develop a great company, which will yield favorable results for everyone involved. This effort centers around enhancing the agent value proposition. Our goal is to make eXp Realty the most agent-centric real estate broker globally, where agents would find it unwise not to have their license with us. This is not only for financial reasons but also because of the support we offer through our innovative approach. This philosophy extends to our other companies that synergistically work together to deliver this value and expand into other sectors. Our primary objective is to build the largest real estate brokerage brand by focusing on creating the best experience for agents, thus attracting them through innovation around their value proposition.

Thank you, Jeff. Thanks, Dave. Thanks, everyone, for being here.

Thank you, guys. Thanks, everyone, for being here.

Thanks, everyone.

Thank you.