AGNT, Inc. (AGNT) Q3 2021 Earnings Call Transcript

Hello and welcome to the eXp World Holdings' Third Quarter 2021 Earnings Fireside Chat via live stream in eXp World or Metaverse. My name is Courtney Chakarun and I am the CMO of eXp World Holdings. Today we will begin our Q3 earnings fireside chat with a conversation between Glenn Sanford, Founder and CEO of eXp World Holdings; and Justin Ages, an analyst at Berenberg Capital Markets, covering the intersection of technology and real estate. Following this initial 10 to 15 minutes segment, we're going to move into a 20 minute presentation, which includes a review of the Q3 financial highlights presented by Jeff White, CFO and Chief Collaboration Officer of eXp World Holdings. Following that, Jason Gesing, our CEO of eXp Realty, will share the drivers of our accelerated growth and unique value proposition. Finally, we'll return to Justin Ages and our leadership for a 10 minute continuation of the Q&A. Let's begin the earnings fireside chat with a review of the 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 quarterly report on 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 is being recorded and a replay will also be made available on expworldholdings.com. Now for a few logistics as we get started. For those of you joining an eXp World Holdings or virtual campus, what you will see here is all three screens. If you want to see those, you can hit the stage zoom button to the right of your chat box to zoom to a specific screen. You can hit the plus icon button above that screen. If you happen to see no slides or a gray slide hit the refresh icon at the top of the right hand corner of that screen to correct. While in EXPI virtual campus, should you need any help or have any questions, please enter your comments in the chat box at the bottom on the left and a member of the team will contact you. As mentioned the last segment of our fireside chat is a continuation of our Q&A. Should you wish to ask any questions during our presentation, you can enter your questions by scanning the QR code presented on the screen with your phone, or go to slideo.com and type in the event code, EXPI Q3. From there, you can submit a question or even vote up an existing question by giving a thumbs up to indicate that you would also like that question to be asked. This screen will remain up on the left hand side of the stage so that you can see the questions. At this time, I would like to turn the fireside chat over to Glenn Sanford and Justin Ages to start the earnings conversation.

Hi, Courtney, thank you very much for that introduction. And Justin who comes to eXp – our eXp World, Justin is one of our covering analysts from Berenberg Capital. And Justin, I'm going to kind of turn it over to you to ask some questions and then we'll continue on with the various other presenters.

Great, thanks, Glenn and to the introduction, Courtney. So it's great to be here with you and the rest of management in this world that you created. And congratulations on what I describe as a strong quarter: agent count up over 80%, transaction volume up almost 100% and importantly fueled by within transactions, which is especially impressive considering what some of your competitors are experiencing and total revenue up over 90% as well. So I think just another quarter of solid results really speaks to what you're doing in terms of enabling and incentivizing agents and growing the brokerage. I think that all resonates in the industry and attracts more talent, which drives even more success. But onto the first question, as we start here on the EXPI Campus, I think it bears mentioning that EXPI has been kind of operating this Metaverse for years and recently there has been a lot of attention on virtual reality where people are interacting with each other, but how has EXPI's virtual campus benefited the customers just because you guys seem to be at the forefront of that.

Yes. So back in 2009, we looked at how to run a profitable real estate brokerage in good times and bad times, and the biggest cost to run a brokerage typically is the bricks-and-mortar costs, i.e. costs that come out of technology. So what we looked at was virtual worlds for business. We've been operating effectively now since 2009, we've operated on a number of different platforms and we started on the VirBELA platform, the one we're now in 2016 and we actually bought the company in late 2018. We've got customers from universities to large enterprises to consulting companies et cetera that have adopted or used the platform especially since COVID really impacted the marketplace last year. For us, we've continued to mature it. We also have another platform called framevr.io, an entirely web-based accessible platform, which we're really excited about as well. We think there's a lot of future potential there, but it's been certainly the enabling technology that's allowed eXp to grow as rapidly and as ubiquitously across the world as it has.

Yes, great. That makes a lot of sense. And then on to the quarter specifically, can you just give us a high-level overview about Q3 and the drivers of the financial and operational performance?

For us, we always come back to the agent value proposition. Back in 2009, the big thing was to think about agents as the most important part of the real estate brokerage, not the broker owner, not the franchise or not the brand but the real estate agent. By retooling our comp model to recognize the agent as central to everything that goes on in real estate brokerage, that's really created the drivers that have continued to propel us forward: our revenue sharing model where we're sharing tens of millions of dollars every month, our equity plan where we've shared based on today's valuation well in excess of $1 billion worth of equity to our agents and brokers. That has been a huge driver of attraction, retention and also creates opportunities for agents to help us grow the business. We believe these will continue to be huge drivers for the future.

Yes, I agree with you about that agent proposition model and how it's driving growth. In terms of the housing market, can you give us a flavor of your view for the near term and over the longer term, both in terms of home price appreciation and transactions?

My view and the collective view is that real estate has been and continues to be very much affected by monetary policy, whether it be interest rates or quantitative easing or whatever those actions are that the FED and others have taken. As long as interest rates stay low, we think that real estate prices and real estate transactions will continue to be significant. I have a personal view that there is an inherent need to keep interest rates low for a whole variety of macro-level reasons. From that perspective, I'm confident we will continue to see a robust housing market going into 2022 and potentially beyond that.

Yes, I agree with that sentiment, and it'll be interesting to see what the FED will do over a timeline. I see you guys continuing to take share, and part of taking share is really related to your ability to attract agents as you touched on briefly. Can you speak to what the competitive environment has been and how you continue to find success?

Well, competitively we kind of invented this new model, a cloud-based real estate brokerage. We innovated on several different factors. We first created a meaningful revenue-sharing program. We're the first to provide an equity plan and to make those publicly traded shares. We're still the only company operating in the metaverse, allowing us to organize, collaborate, and build community in unique ways without the costs and constraints of physical bricks and mortar. We've built a model that has been profitable since at least Q4 2019. We think that our first-mover advantage will continue to play out well for us.

I think the dividend plays a role in attracting agents as part of the agent incentive compensation. Along those lines, could you comment on what EXPI is doing to ensure that competitors cannot copy your business model and success? I mean, you do have the first-mover advantage and no physical presence, but what are you doing to ensure that moat continues to stay?

We've done a number of things. Last year was interesting in terms of acquisitions that we did, like SUCCESS magazine and SUCCESS Enterprises, the longest-standing personal development brand which ties well with real estate professionals. We're creating opportunities for agents and brokers to potentially own SUCCESS co-work franchises, providing co-working environments for connecting with other businesspeople in their local communities. We're continuing to innovate and try new things. We believe putting agents first while being a long-term profitable company is the best way to build a moat in the industry.

That has played out, and it seems like you are taking steps and building on your innovative DNA to continue to grow and defend the company. You mentioned Success Lending. Could you touch on that for a second, because I know it's still early days, but you're seeing positive signs there? Also, could you touch upon your iBuyer model and how it differs, especially in juxtaposition to today's news at Zillow?

Yes. We're technically open in about five or six states and have more states in the process of opening. We have our first loan officer; the President of the division has accepted an offer. We plan to announce that shortly at EXPCON. Regarding Zillow's exit from the iBuyer space, it’s interesting; during COVID downturn, Zillow, Redfin, and OpenDoor all stopped buying homes. In contrast, we had a platform called Express Offers that allowed us to continue to transact business without taking balance sheet risk. Our iBuyer platform is profitable as we connect sellers with instant buyers and provide agents with the opportunity to market fully marketed listings as a better option than instant sales.

That makes a lot of sense. The marketplace right now seems to be one of the better ways to operate in terms of the iBuyer model, and being profitable in that sector is definitely something that will make competitors envious. Lastly, can you comment on the commercial segment? Are you seeing the model resonate in the same way as in the residential segment?

Yes. The commercial model has a smaller number of agents across the country. We have over 1,000 agents selling residential properties who also sell commercial. We're nearing 500 agents on the commercial side, and it's a growing segment of the business that we believe will cross-pollinate between residential and commercial. We've been doing this for a little over a year now, and we believe significant potential lies in this area for the future.

Great! So you're confident in the growing segment. With that, we can turn it over to the rest of the team to present on the quarter.

Okay. I think next up is Jeff Whiteside.

Thanks very much, Glenn. Thank you, Justin for joining us today. Good morning, all, and thank you for joining our third quarter 2021 virtual fireside chat. Courtney, I think it’s getting a little hot here. Could you turn the fireplace down? Appreciate that. We had another strong quarter of growth and I’m proud on behalf of the EXPI team to share our third quarter results with you today. Starting with revenue, Q3 revenue is $1.1 billion. If you’ve been following us, we really like the word billion. At eXp a 97% year-over-year. So incredible growth continues here. Gross profit in Q3 was $79.5 million, an increase of 70% year-over-year. Our Q3 net income was $23.8 million, up 60% year-over-year. That included a $12.9 million benefit from the income tax provision, primarily driven by the stock-based compensation deduction we went through this last quarter. Since we’ve shown consistent profitability in our company, we now have deductions in a major cost area of our business, which is stock compensation, a positive for our net income. Diluted earnings per share was $0.15 or $0.10 per share, plus 50% versus last year. Our adjusted EBITDA was $23.1 million, up 6% year-over-year. And lastly, our Q3 operating cash was $55.4 million, an increase of 44% from the same period last year. If we look at our key operating metrics and financial metrics, this chart is broken into two categories, operating metrics and financial metrics. Our agent and employee net promoter scores are how we run our business. From our experience, measuring agent and employee feedback scores allows us to focus our resources on improving key areas critical to our business success. Our third-quarter agent net promoter score was 69, slightly lower than our goal of 73 year-over-year, but on a year-to-date basis, we’re at 71. Overall, we feel pretty good there. Our third-quarter employee net promoter score was 79 versus 70 year-over-year. Year-to-date, we’re at 80 versus 72. You can see the results on the metric page. In our Realty business model, adding productive agents to our platform drives unit sales volume and revenue. In Q3, our agent count ended at 65,269 versus 35,877, a growth rate of 82%. This is a great positive growth perspective for the company. Q3 unit sales were 130,029 up 72% year-over-year, and price per unit is up 15%. Our average price per unit is $358,600. Q3 volume was $46.6 billion versus $23.6 billion, up 97% year-over-year. In terms of our financial metrics, our revenue of $1.1 billion versus $564 million reflects a 97% increase. Gross margin was $79.5 million in Q3, a 70% growth year-over-year. Our SG&A was $68.4 million versus $31.6 million in the quarter, which is up 116% year-over-year. While we saw a downward pressure on operating income, it’s driven by our investments in growth areas. Our Q3 operating income was $11.2 million versus $15.2 million. Year-to-date, we've invested around $25 million to support our growth areas. We have positive adjusted EBITDA since Q3 of 2018, with continued positive net income since Q4 2019. We're also at zero debt on the balance sheet. Our cash equivalent number is $98.1 million, and we want to keep that number around $100 million. The growth of our U.S. Realty business has allowed us to invest in key future growth areas including global residential and commercial expansion, technology investments, and success affiliated service investments. Recent highlights also include paying our first cash dividend in Q3 and declaring one for Q4, which has to be approved by the board. We have achieved positive accumulated earnings and shareholders’ equity. Our share buyback efforts have continued, repurchasing $53.2 million of common stock in Q3. Overall, we are very happy with our results and our future growth potential.

Thank you very much, Jeff. Good morning, everybody. I’ll provide some insights into our growth trajectory that Jeff shared. We’re up 82% year-over-year in agent count, with more than 67,000 agents globally. Our primary growth drivers include U.S. residential performance, attracting top producing agents and teams. Every time we add an influencer or a successful agent, it triggers network effects which promote further growth. This is amplified by our innovative platform that enables us to expand globally, adding 10 countries in the last year, including Panama and Germany. Commercial agents tend to lag behind residential in innovation, but we are seeing a great future there. Our iBuyer platform is thriving, with over 6,700 agents providing offers on the platform. Agent ownership has been a significant driver of our growth. The more agents feel invested as owners, the more they are driven to build the best company. We have a strong culture that supports collaboration, with events in our virtual platform engaging our agents. Ultimately, that culture, combined with our innovative model and revenue-sharing setup, makes us confident in future growth.

Great, thanks for the presentation. I just want to start on the financial side; very impressive, Jeff. Can you dig into what's driving the top line? We've talked about attracting agents, and how do you see that tracking going forward?

Thanks, Justin. The agent count and productivity of agents absolutely drive revenue. On a year-to-date basis, we're up to $2.7 billion in revenue. The strong value proposition for agents will enable this growth trajectory to continue, both domestically and globally.

That's great. The combination of U.S. and international growth sounds promising. However, can you discuss trends related to gross margin and what you expect moving forward?

Traditionally, we'd have higher margins in Q1 and Q4, but we’ve been seeing vast volumes across the industry. The gross margin percentage has experienced some downward pressure from the agent success due to increased volumes. We're seeing more normalization currently, and I expect margins to rise in Q4 as a result.

Can you provide us with what percent of agents are capping? Where do you see that figure staying?

We don’t currently break that out, but I can tell you 30% more agents are capping due to the increased volumes in the market. The growth we’re experiencing makes it tough for us to establish a stable number.

What investments excite you the most? Is it productivity or empowering agents to learn from one another?

From an agent attraction perspective, our lead generation initiatives are critical. We're investing in Showcase IDX and the Express Offers platform. From a company perspective, my biggest excitement is Success Lending. If we succeed in our in-house lending opportunity, it will significantly impact our gross margin and profitability.

That makes sense. Along with the lead gen initiatives, I think they have substantial value. Concerning agents, what are the significant drivers of agent traction and retention?

The key drivers are agent ownership and the immediate golf-net promoter scores. Our team tracks feedback and ensures that we address concerns. Our revenue-sharing model has great power in establishing long-term relationships with agents, creating a strong sense of ownership and motivation.

I think that ties back to the returns for everyone. The more agents we bring on board, the better overall success for the company.

We organically grow through word of mouth without traditional advertising. Support in terms of marketing and training efforts helps agents attract others, enhancing our brand in events where relationships form and often result in new recruits.

At present, we operate in 18 countries, internationally. Expansion is strategic, aimed at supporting agent growth and enhancing the global footprint.

Different commission structures nationally allow us to adapt our model. In markets like the UK, we bring estate agents accustomed to lower commissions and help them realize a better potential through our model.

The decision to enter the relocation business arose from finding the right opportunity and team. As we've learned, building relationships drives success, and that trend is likely to continue.

That's all very helpful. I appreciate the insights. I'll turn it back over to you for closing remarks.

Thanks, Justin. Courtney, do you have any last words?

Thank you for joining us today. This concludes the eXp World Holdings Q3 2021 Earnings.