AGNT, Inc. (AGNT) Q2 2021 Earnings Call Transcript

Excellent. Good morning, and welcome to the eXp World Holdings Second Quarter 2021 Earnings Fireside Chat via live stream in eXp World. My name is Courtney Chakarun and I am the CMO of eXp World Holdings. Today, we will begin our Q2 earnings fireside with a conversation between Glenn Sanford, Founder and CEO of eXp World Holdings; and John Campbell, Managing Director of Stephens Inc. John joins from Stephens Inc. where he has built and currently leads the firm's real estate services practice. Welcome back, John, as you hosted the 2020 Q2 earnings about a year ago, so it's good to have you. After that conversation, we will move into a review of the Q2 financial highlights presented by Jeff Whiteside, CFO and Chief Collaboration Officer of eXp World Holdings, who will be followed by me, Courtney Chakarun, and I will share eXp agent and consumer insights. We will then move on to Seth Siegler, our VP of Innovation, pardon me, Technology Innovation, who will cover our innovative approach in areas of opportunity. And finally, we'll return to John Campbell for a continuation of the Q&A. Let's begin with the earnings fireside forward-looking statements. There will be a number of forward-looking statements made today that should be considered in conjunction with the cautionary statements contained in the company's SEC filings. Forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Please see our filings with the SEC, including our most recent annual report, Form 10-Q for a discussion of specific risks that may affect our business, performance and financial condition. We assume no obligation to update or revise any forward-looking statements or information. As a reminder, today's call will be recorded, and a replay will also be made available on expworldholdings.com. A few logistics before we get started. To see all 3 screens hit the stage zoom button to the right of your chatbox, Zoom into a specific screen, you can hit the plus icon above that screen. If you happen to see no sides or a gray side, hit the refresh button icon at the top right-hand corner of the screen to correct. While in eXp virtual campus, should you need any help or have questions, please enter your comments into the chat box at the bottom left, and a member of the team will contact you. This time, I would like to turn the fireside chat over to Glenn Sanford and John Campbell to start the earnings conversation.

Hey, Courtney, thank you very much for the intro. And again, welcome John Campbell. First and foremost, I just want to say thank you to all of our agents, brokers and staff for another amazing quarter. We really did continue to grow exponentially during the quarter and obviously continue to grow very quickly. So John, I'm going to just kind of turn it over to you for a few of the questions, and I'll jump into answering from my perspective, and then we'll continue on. So thanks again, Courtney. And John, over to you.

Yes. Thanks, Glenn. It's a thrill to be here with you guys, especially in the light of such an impressive quarter. It's good to host this again. We picked up coverage of you guys back in 2018. I think we saw something special underway for you guys. But I will say, I never imagined you would get to the point you have as quickly as you did, and it's been pretty remarkable to see. Going back to that launch of coverage, I mean, if you look backwards, it took you nearly a decade to get to 15,000 agents, and you just posted the net adds of 17,000 over the last 2 quarters. Clearly, you've got the flywheel spinning. Overall, the agents as a percent of NAR or U.S. agents is 3% or 4%, and internationally, you're just brushing the surface. It feels like you're still bottom of the first inning, so there’s a lot of opportunity there. Last time I moderated this call, I talked about the valuation for your stock and whether investors have given you credit for it and compared that to Redfin's revenue multiple, removing the iBuying revenue, which is significant. If you put that on the EXPI stock, it's about $131 stock today. Last time I moderated this call, I said $125 stock. But accounting for the recent 2-for-1 stock split, that's more like a $262 stock for you guys. So needless to say, there’s a lot of opportunity to continue building the agent base and obviously a lot of opportunity for the stock as well. My first question relates to the dividend. This morning, I saw that news and scratched my head a little bit. It seemed like a move that you wouldn’t typically see from a growth company early on, but the more I thought about it, the more it seems like a brilliant move. So can you talk to us about what that means for agents and the overall EXPI value proposition?

Yes. So thanks, John. The dividend, and I think a lot of people weren't expecting it for the same reasons you mentioned — high-growth companies typically aren’t dividend companies. But as an agent-oriented real estate brokerage, we’ve been building out our equity programs for our agents and brokers since really 2014. Over time, we want this additional potential stream of income to flow to our agents, brokers, and shareholders alike. The key for us is to continue to iterate on the agent value proposition. Whether we think about how we develop revenue share, equity, or healthcare options for agents, the dividend was a natural next step because we've been profitable since late 2019, quarter after quarter consistently. We’re now solidly over $100 million in cash on the books. It just makes sense to start paying out a dividend. The Board will review this quarterly, but my goal is to make this a relatively permanent part of the structure of eXp going forward. It’ll create a situation where agents can achieve income, not only from sales but as an additional stream.

Yes, makes sense. Looking at this relative to competition, you've got a lot of copycats out there, and more are likely to come since you continue to experience great success. What are your views on their ability to pay a dividend? It seems like this is one of the major advantages you face right now, your ability to scale in order to create consistent free cash flow to be profitable. Please talk about how that looks relative to competition.

Yes. We developed a unique agent-centric real estate brokerage model starting in 2009. For a long time, people said it wouldn’t work, but in the last few years, it’s become quite clear that it does. There are companies that are copying what we’re doing, but at the end of the day, companies ultimately have to build themselves to be profitable. If they don’t, then the equity may not be worth much in the long run. We thought this was a way to draw attention to the scalability of our model and how it has become consistently profitable. We recast our revenue share model about 1.5 years ago, committing to 50% of company dollar payouts, and that helped us moderate expenses to remain profitable. We can put our financial statements against any company in the industry and we look great on practically every metric.

Absolutely. I know Jeff will dive into the details of the quarter, but from your CEO perspective, what stood out as the most impressive aspect from this quarter?

Well, it’s probably less from a financial perspective but more so in how our agents and brokers stepped up in relation to real-life events. Last year was interesting because we didn’t have shareholders at EXPCON in person due to COVID. This year, we plan to have EXPCON in Las Vegas, marking our first real-life event. Agents and brokers really stepped up to fill the gap in community, collaboration, and coaching with many agent-led events happening around the country. We also supplemented that with sponsorships for smaller, more intimate groups to help connections and growth. Another significant change we made was in how we count frontline qualifying agents; we adjusted our credit system to better attract individuals to our company. The productivity increase has been impressive. Agents want others to succeed and are willing to help any way they can. We’ve established initiatives such as the eXp family tree, where leading agents are helping all agents level up. The training we're offering is translating into something special.

Makes sense. It’s evident that what you’re offering agents is very attractive. I’ve seen a positive trend in larger agent teams joining the platform. Is that still happening? What’s driving that growth?

Yes, indeed. We continue to track this. The longer we prove our ability to provide infrastructure for agents and brokers to build unique organizations, the more top teams recognize the value of operating beyond just their local geography. eXp is the only platform that offers many benefits for expansion—both nationally and internationally. We’re opening 15 more countries and we’re looking at how to leverage talents developed over many years in business allowing agents to monetize effectively.

Alright. Thank you, Glenn and John, for being here. Just a quick story before I start. In 2018, the company did $500 million in revenue for the entire year. I started saying — it's not $500 million, it's half a billion, right? We have to think bigger. Fast forward a couple of years, believing is seeing. Our Q2 revenue was $1 billion, up 183% year-over-year. Our Q2 gross profit reached $79.9 million, also up 133% year-over-year, with our net income at $37 million, which is an increase of 350%. Since this quarter also includes a $20.6 million tax provision benefit by releasing our valuation allowance due to previously recognized operating losses. Our diluted earnings per share is $0.24, reflecting a 300% increase and adjusted EBITDA of $27 million, which is a major internal metric. Focusing on our Q2 metrics, we have to highlight our agent NPS score, which is critical for our business. We’ve reached an NPS of 70 in Q2 2021. To provide context: Bain defines NPS scores: plus 0 is good, plus 20 is favorable, plus 50 is excellent, and plus 80 is world-class. We’re proud of our 70 score, which indicates we prioritize our agents’ experience significantly. Our agent count ended at 58,263, up 87% year-over-year. Our units reached 115,431, reflecting a 164% year-over-year increase. The market price per unit is also up 17% at $349,000, a significant leap from earlier averages. Our volume increased to $40 billion compared to $13 billion in Q2 of last year, up 210%. Reviewing financial metrics, Q2 revenue was $1 billion versus $354 million last year, gross margin at $80 million versus $34 million, our operating income reached $17 million versus $8 million, and net income of $37 million is up from $8 million in the previous year. Overall, we see a healthy condition for growth, investment, and profitability. We’ve declared our first cash dividend due to the positive accumulated earnings and shareholder equity we've achieved. The $0.04 per share is expected to be paid on August 30 to shareholders on record as of August 16. We also established SUCCESS Lending, a new joint venture with Kind Lending, and we want to make this the best possible value proposition for our agents. Our share buyback aimed to offset dilution from our agent equity plans, and we’ve successfully done that on both a quarterly and year-to-date basis. Major areas for our growth investments include marketing, real estate technology innovation, and a focus on our international markets. We're actively expanding our international presence, currently in 17 countries, and we continue seeing a significant network effect developing.

Excellent. Thank you, Jeff. I will focus today on the insights we've gained regarding agents and consumers that drive our marketing and innovation strategy. These insights are based on proprietary research from both internal and external sources, laying the groundwork for our understanding of agent value propositions, brand perceptions, and consumer sentiment toward homeownership—especially in the context of the pandemic. Our findings inform marketing investments and help us co-create services that empower agent technology for customer service. The top benefits our agents value range from tangible factors like ownership and compensation, to more emotional factors such as personal freedom. The equity component remains highly valued among agents. Looking into our brand perception, innovation resonates strongly with our agents, showing a 10-point lift over the previous year—81% of agents now associate our brand with innovation. We're witnessing a significant association with virtual collaboration, which has seen resiliency throughout the pandemic. Our consumer insights reflect an increased importance of homeownership, driven largely by the pandemic, with about 70% of new homeowners expressing heightened regard for owning a home.

Thanks a lot, Courtney. It’s great to be here, everyone. I joined eXp about two years ago because it’s clearly the most innovative company with the largest appetite for positive change, keeping agents at the center of everything we do. I’m excited to announce a new initiative called the Innovation Hub, designed to elevate our commitment to innovating for agents. Our approach is about understanding pain points and needs before we start building. Instead of typical innovation departments adding tech for the sake of it, we emphasize solving real problems and adding genuine value to an agent's daily business operations. For example, we've launched ExpressOffers, our iBuying platform, which allows sellers to receive multiple cash offers while still having agents guide them through the process. We maintain a network of cash buyers across all 50 states, facilitating this process distinctly from other iBuyer companies. Our future opportunities involve enhancing agent tech capabilities, consumer portal features for lead generation, and leveraging our joint venture with SUCCESS Lending to benefit both agents and consumers. We’re committed to focusing on Microsoft outcomes that truly make a difference for our agents and their businesses.

Thanks, Seth. Thanks, Courtney. And of course, thanks, Jeff. We have an amazing staff supporting eXp, along with our 60,000 agents. This is a small subsection of the people behind the scenes. We’re dedicated to professionalizing our business, ensuring structure and formality, and it’s fantastic to see those efforts realign with our growth strategy. John, feel free to ask us any further questions!

Thanks and congrats again, you guys. It feels like you’re continuously professionalizing the business. I want to start off by discussing the housing market overall. It seems there’s a lot of competition, bidding wars, and perhaps more inventory is surfacing. What are your thoughts on the current market, any potential turning points? And is there any effect expected later this year from the pandemic?

Regarding the housing market, we’re seeing a slight increase in inventory but not to the point where it's a significant slowdown. The delta variant has introduced uncertainties, but we’ve really pioneered our virtual, non-brick-and-mortar operations and I believe we’re well positioned to adapt. What will be exciting to see is how this affects home offices and whether it changes where people want to live, considering remote work is now more widely accepted. Coupled with low-interest rates, it's likely to keep a positive outlook for housing. I personally don’t believe interest rates will rise significantly for some time.

I’d like to talk about the retention side of things. Given the industry’s tendency to shift, do you have any insights into the retention rates at eXp as you grow? What’s the retention rate like considering you've offered a dividend?

While we don’t break retention rates down extensively, our figures have surged since last year; retention is up significantly. Jeff, can you share more about the numbers you've analyzed?

We don’t break it out specifically, but our retention has increased by at least 30% since last year. There was notable movement after COVID began, but now the value proposition is clearly stronger. The agents have recognized this, and with stronger leadership, the awareness and benefits are becoming undeniable.

Regarding equity compensation, have you seen the stock price influence recruiting and retention, especially as it relates to the recent dividend initiative?

The stock price has some influence on recruiting as our agents use social platforms to promote awareness. When the stock hits new highs, it typically leads to significant social media chatter, driving recruitment efforts. However, I don't believe it negatively affects us when the stock price is lower. Positive happenings in our company—like the recently announced dividend—improve agent attraction.

As we grow, agents feel a genuine sense of ownership, amplifying their willingness to ask questions, engage, and ultimately stay committed to the company. Monthly financial performance reinforces that feeling as they see their participation reflected in growth.

On the international side, can you share what percent of your agent base is international and any growth in key markets?

About 10% of our agents are international, including Canada. Roughly half of those are situated in Canada. We’ve been actively planning strategies to adapt our model for competitiveness in global markets. Our agility as a brokerage offers us substantial advantages and we are keen on capitalizing on these opportunities as we expand into new countries.

So far, we have entered 17 countries, showing solid traction especially in India, Mexico, the United Kingdom, South Africa, Brazil, and Portugal. The unique approach we're taking is enabling an efficient real estate operation in these regions, and we're excited to see traction grow.

Regarding gross margins, I see compression is a concern. Could you provide more insight into what's driving that lower margin and the outlook ahead?

John, as you noticed, the margin compression correlates mainly with agent capping. The price per unit has also contributed to this trend, yet the revenue growth compensates for the dip in margins. Overall, we’re focused on enhancing our affiliated services and finding ways to balance the long-term financial health of the company.

I believe we've historically seen capping agents accounting for about 25% of our agents. Based on our current growth trajectory and elevated price points, this figure might have increased slightly but still tends to hover around that mark. I want to highlight our joint venture with Kind Lending. Glenn Stearns, founder of Stearns Lending, has a remarkable background in the industry. We formed this strategic partnership to create a lending institution with a true commitment to assisting both agents and clients. We want success through launch and growth together, working hard to build a strong brand around SUCCESS Lending.

Thanks for the insights. Feel free to avoid cliches about the flywheel, but it’s evident that you're planting seeds across international markets to grow further. If you would like to share closing comments, it’s appreciated.

Thank you, John, Jeff, Courtney, and Seth— this was a great call. eXp has made incredible strides since 2018 and with your contributions, we'll continue growing globally. Our goal remains clear: to launch several countries per year, expanding our reach while changing agents' and brokers' lives, ultimately benefiting us all as shareholders. Thank you for being a part of this journey.

Thanks everyone for joining us today. We appreciate your time and look forward to our continued progress.

Excellent. And with that, we conclude our Q2 earnings call.