AGNT, Inc. (AGNT) Q4 2021 Earnings Call Transcript

Tom, we're happy to have you back as our moderator. In this initial segment, we will be talking and moving into a presentation. That is a review of the 2021 financial highlights presented by Jeff Whiteside, CFO and Chief Collaboration Officer of eXp World Holdings; followed by Jason Gesing, our CEO of eXp Realty, who will share our accelerated growth as well as operational excellence and agent-employee satisfaction. Finally, we returned to Tom White and our leadership team for a 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-K 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 and we’ll get started. For those of you on the eXp World, if you wish to see all three screens, 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 eXp campus, should you need any help or have 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 Q&A. We want to talk quickly about Slido; to ask a question during our presentation, you can enter questions by scanning the QR code presented on the screen with your phone, or go to slido.com and type in the event code, EXPI. From there, you can submit a question or vote up an existing question by giving a thumbs up. If you see a question you like, that screen will remain up on the left-hand side of the stage. At this time, I would like to turn the fireside chat over to Glenn Sanford and Tom White to start the earnings conversation.

Hey, Tom, are you there?

Yeah, I'm here, Glenn. Do you want me to kick things off here?

Yeah, why don't you go ahead and kick things off.

Terrific, great. Good morning, everyone. Thanks for joining us. And thanks to the folks at EXPI for inviting me to host. I'm a research analyst at D.A. Davidson. I cover disruptive companies in the residential real estate space. And I've had the pleasure of covering eXp World Holdings since early 2018. I'm going to ask a question here of Glenn to get things going, and then we'll go through a couple of presentations from Jeff and Jason. Then we'll circle back and do some more Q&A. But first off, Glenn, congrats on a really strong end to the year. Maybe just comment on your high-level thoughts about how you thought the business performed last year, how you've managed to sustain the growth that you've put up, and manage your overall growth rate. I'd just be curious to hear your high-level thoughts?

Thanks, Tom, for being here. It’s been great having you follow us for quite some time, and the journey has been enjoyable. I want to highlight a few key statistics. We recently surpassed 76,000 agents, showing our rapid growth. In the United States, 125 realtors are now eXp agents, which reflects our swift expansion. The crux of our growth is our strong mission focus. This is essential to our identity as the most agent-centric real estate brokerage globally, guiding our efforts to build market share and create an industry that is truly led by agents. We aim to provide excellent opportunities for agents and brokers. We are also enhancing our already compelling value proposition for agents, which you will hear more about later this year. Currently, we are improving our revenue share program, which distributes 50% of our company dollar. With profits from our affiliated company services, we aim to exceed this percentage in 2022 for agents and brokers who have supported our growth. In 2021, we distributed nearly $170 million in revenue share and around $50 million in equity to productive agents who chose to receive equity instead of commission. Overall, we provided approximately $220 million in additional benefits beyond standard agent production, significantly surpassing any other brokerage or brand in agent compensation. In 2022, we anticipate sharing even more than our competitors in the revenue share program. We are eager to continue extending these benefits, which play a significant role in attracting and retaining agents. Additionally, we aim to enhance agent productivity through partnerships and introduce more competitive advantages. Before handing it over to Jeff for financial details, I want to emphasize our commitment to being agile and reimagining how a brokerage can function with 500,000 agents. We are focused on developing support philosophies that offer a higher touch experience over time with our staff. This is crucial for our cloud-based brokerage, and we utilize NPS to guide our decision-making. In 2022, we will concentrate on becoming an even more attentive brokerage for the agents and brokers around the world who join us. I’m really excited about this. Now, I’ll turn it over to Jeff to discuss our financials.

Awesome. All right. Thank you very much, Glenn. Courtney, really appreciate it. Thank you, Tom for moderating today. Good morning all, and thanks for joining us at our fourth quarter 2021 virtual fireside chat. The EXPI had another phenomenal quarter in the fourth quarter of 2021 and full year 2021 of growth. I'm proud, on behalf of our team to share results today. We'll be talking about the fourth quarter and the full year 2021. Starting with the revenue in Q4, our revenue was $1.1 billion, up 77% year over year. Our gross profit in Q4 was $83.1 million, an increase of 65% year over year. And our net income in Q4 was $15.5 million, which was an increase of 101% year over year. This includes a $14.2 million income tax provision benefit, primarily driven by our stock-based compensation deduction and the fact that we showed sustainable profitability. From a diluted share standpoint, earnings per share was $0.10 and that was up 100% year over year. Now, if I look at the adjusted EBITDA, as reported, it was $13.1 million, which was down 21%. However, we did have a one-time legal settlement cost that we booked in Q4 and that was $10 million. After that adjustment, our adjusted EBITDA would be at $23.1 million, which was up 39%. Lastly, on the fourth quarter summary page, our property cash flow was $48.5 million, an increase of 59% year over year, quarter over quarter. Now just going back to the same highlights for the full year of 2021, starting again with revenue. Our revenue for the full year was $3.8 billion, which was 110% year over year. A gross profit in 2021 was $296 million, which reflects an increase of 85% year over year. Our net income was $81.2 million in 2021, an increase of 162%. We do have a tax benefit in that number and in the $81.2 figure, there's a tax benefit of $47.5 million, primarily a benefit from our stock-based compensation deduction. For the full year, our diluted earnings per share was $0.51, which is 143% year over year. Just hold on that last chart, please. The full year numbers. And then our adjusted EBITDA was $78 million, up 35%. If you back that $10 million one-time extraordinary charge or adjusted EBITDA for the year, it will be $88 million, up 52% year over year. Lastly, our full year property cash flow was $247 million, which was an increase of 106% year over year. Now, I'll go over some highlights regarding our business. We have two sections: key metrics, classified into operating metrics and financial metrics. For Q4 and the full year 2021, we operate based on agent and employee net promoter scores, known as AMPS and EMPs. Our aim is to achieve a score of 70 or higher, which indicates world-class performance. Achieving this score is linked to our agent and employee retention and satisfaction. In the fourth quarter, our AMPS score was 69 compared to 73, with a full year score of 71. Our fourth quarter ENPS was 78 versus 75, with a full year score of 79. I am very proud of these scores. In our Realty model, adding productive agents to our platform increases unit sales, volume, and revenue, thereby enhancing our gross margin. Our agent count in Q4 was 71,137, representing a 72% year-over-year growth rate. As Glenn mentioned, we currently have over 75,000 agents. Regarding pricing, we have roughly 11% of our agents based internationally and 89% domestically. In Q4, our unit sales amounted to 125,029, marking a 52% increase quarter-over-quarter, while for the full year, unit sales grew by 86%. The price per unit was $359, rising 90% quarter-over-quarter and 60% year-over-year for the full year. Our volume reached $44.9 billion, up 82% quarter-over-quarter, and $156 billion for 2021, reflecting a 16% year-over-year growth. Moving on to our financial metrics, I've already covered some, so I won’t repeat those results. A few additional metrics: our ending cash balance for 2021 was $108.2 million. Our target is to maintain around $100 million in cash after covering expenses, operating costs, investments, and stock buybacks. We continue to have positive operating cash flow with no debt on the balance sheet and have achieved consecutive quarters of positive EBITDA since Q3 2018. Some other highlights that I'll take you through. We ended 2021 on a strong note, and this is a real big deal for us. If you understand ANPS 70 scores, that is very much world-class, and we are very proud of that. I think that has a lot to do with our success in 2021. Before that, we achieved positive accumulated earnings and shareholder equity. This has enabled us to pay more money back to our investors in the form of a cash dividend. We declared another cash dividend that will be paid on March 31. Finally, to offset dilution for our shareholders and our agents, we repurchased $30 million in common stock in Q4 and $172 million year-to-date in 2021. Our domestic business is hitting what we can call a network effect, meaning that several years ago, there was a much smaller group of people influencing and growing the company. Now we literally have hundreds of fantastic leadership agent leaders across the US. That's driving the numbers. Global expansion encompasses 20 countries and growing. We recently announced New Zealand, Greece, and the Dominican Republic. As we look at this, we are changing the commercial real estate brokerage model via technology, data, and services. Our technology innovations and investments continue to expand the utilization of frameVR, MLS coverage, and plus 9% in realty. Last time I looked, it was about 1 million listings. Finally, affiliated services at SUCCESS: We hired Jairek Robbins to run the SUCCESS business as president with a focus on building a coaching business. We are really excited about that. Success Lending is licensed in 23 states. Overall, that's the progress we've had in the last quarter and some great stuff that will positively affect our operating margins down the road. Our 10-K will be released pre-market tomorrow.

Thank you very much, Jeff, and good morning, everybody. I just want to start by saying thank you, and congratulations to all of our agents, brokers, and staff, who really make this possible, make 2021 possible, and who are driven by the mission right alongside us. As Jeff noted, we've continued to grow at a really rapid and accelerated pace, with a 72% increase in agent growth year-over-year and total revenues of $3.8 billion. Today, we've built a metaverse community of more than 76,000 agents, brokers, and staff who work together daily across geographies and in our eXp World. We can attribute our growth, as we have in recent quarters, to a couple of different factors. The first is really strong growth and performance inside the United States. Jeff discussed the network effect. We continuously bring on top performers in all markets, and they come with more individuals. Every time someone joins, people take notice, they inquire about the company and learn about it, leading to more joining. This trend continues to grow. Additionally, we have expanded globally by utilizing our platform. In 2021, we added nine countries to our footprint and already this year, we've opened operations in the Dominican Republic, Greece, and New Zealand. We've done this without needing to get on any planes or visit these markets. As Jeff noted, we also continue to expand the commercial division, and I think with great success. We have many agents practicing on both residential and commercial sides, which provides great opportunities for them on the realty side of the business. We're really focusing on the pure commercial players, and we couldn’t be happier with the results. My primary focus is going to be on operational excellence. Going back to 2016, when we crossed 1,000 agents for the first time, we recognized that, as important as any other factor, what really would drive and sustain growth is ensuring that we deliver excellent experiences for our agents. I should point out, by the way, that the current agent count in the United States puts us above brands like RE/MAX. We are now the third-largest brand in the residential market in the US and also the single largest brokerage by agent count in the US as well. But all of that is a result of delivering better and industry-leading experiences for our agents. You'll hear NPS come up often. Another theme in my remarks is really elevating our level of service to a concierge level across multiple areas critical to agent success. We are tracking NPS at the agent level to ensure their satisfaction from the moment they onboard to the time they grow their business, developing new approaches, and achieving success throughout their careers. Our NPS for agents is 71 for the full year, reflecting our commitment to them, and it continues to be one of our strongest differentiators in the marketplace. Significant operational improvements made in 2021 contribute to this score, and we’re excited about additional opportunities we’re working on for increased efficiency and support in the coming year. Our focus has always been on supporting our agents and finding ways to simplify their lives to concentrate on their business. To facilitate this, we have enhanced our agents' support with what we call our expert care concierge service. This team, our expert care team, provides fast and efficient support services for any ESP or work-related inquiries. This doesn't just refer to onboarding or payment but includes inquiries like verifying icon eligibility or wanting to know how to sign up for eXp agent healthcare. It addresses the needs of our agents. In 2021, we introduced several new support channels. Our agents can now connect with us through phone, email, texting, our intranet, workplace, and a newly constructed eXp world hub center here in the metaverse. Through all these channels and efforts, our Concierge Team in 2021 managed nearly 300,000 inquiries from our agents, resolving nearly one-third inside eXp world. As a result, that team helps retain millions of dollars in revenue through its efforts and represents an important retention and engagement tool. Additionally, for streamlining our programs and processes, we've enhanced support, resulting in a 64% decrease in response times to agent issues and a 33% decrease in issue resolution times. We have also introduced a concierge level of service for onboarding agents, allowing us to guide them through all elements of joining eXp, which dramatically increased our onboarding NPS, which more than doubled in 2021. At the state level, we’ve introduced the concierge level of service into our broker state rooms, providing a localized support level that saves our managing brokers as well as administrative support coordinators considerable time as they help agents navigate questions. Additionally, it's essential we focus on payments, and we have achieved excellence in that regard. We pay our agents timely and accurately, and we are excited about the progress made in 2021. We added resources and capabilities to simplify and speed up payments and transaction processing. Through our overall staffing efficiencies, we’ve decreased agent commission payment turnaround time by 45% year-over-year. Our agent NPS specific to transaction support in the United States now stands at 80 for 2021. Coming up this year in 2022, we plan to offer transaction coordination services across all states in the US. Last year, we piloted the service in 27 states. We are pleased with our position and our future trajectory. Additionally, we see this as a revenue opportunity for the company while freeing agents from distracting tasks that could otherwise redirect their focus from building their business and serving their customers. We also think that this service can help mitigate compliance risk for the agent, broker, and company by ensuring that the requisite paperwork is complete, accurate, and present in the transaction folder. We introduced a concierge level of service in our transaction department. This team managed 12,000 transaction-related inquiries in 2021. Significant from my perspective is that last year we introduced a platform capability that enables our agents in the United States to deposit earnest money checks and other escrow checks directly and digitally without needing to travel to a bank or their office. We discovered delays, particularly in Canada with Royal Mail. In Canada, we also made the platform available to cooperating brokers, agents, and vendors, so they too can benefit by being paid faster once payments are issued. This has been a considerable achievement over the last 12 months. As we look forward to this year, we are excited about launching a pre-onboarding solution for agents, teams, and brokerages that will speed up the process by providing advanced information, access to tools, and consultations. This will allow new agents, brokers, and teams to hit the ground running on day one with familiarization on our tools and technologies. Given the massive volume of business at the seams, we need to equip those individuals accordingly without business interruption. We also plan to recognize efficiencies by utilizing our existing teams and talent in critical functional areas to provide great support to our global markets while avoiding redundancies and preserving the local flavor of each country. Lastly, I want to address employee NPS, which Jeff mentioned. We believe that you can have good agent NPS only if you have good employee NPS. We are particularly proud of our score of 79, which we believe correlates directly with both scores. We made significant advancements in our employee program, as reflected in our NPS score and in external recognitions from organizations like Glassdoor. Last year, we achieved 15th place on Glassdoor's Best Places to Work list for large companies with an overall rating of 4.6. It was our fifth consecutive year recognized by Glassdoor. Our current rating has improved to 4.8. We also ranked 15th out of 25 on Glassdoor's Best Places to Work in Canada list with an overall rating of 4.1. We've offered significant growth and development opportunities to our employees as we continue to expand globally and into new lines of business by providing leadership opportunities for staff. We launched our ONE ESP leadership development program, bringing cohorts together to tackle company issues over a two-week program. Additionally, we continue to cultivate our culture in the metaverse, making our organizational work collaborative and connected. Our all-hands meetings draw over 1,300 employees globally, where we discuss updates, wins, and strategy monthly. Finally, we are committed to providing world-class benefits that attract and retain top talent. In 2021, this included expanded paid parental leave in the US and improved medical plans that now offer wellness resources like meditation apps and group yoga classes in eXp world. In closing, we are proud to have the most agent-centric brokers on the planet backed by a highly satisfied, engaged workforce. Thank you, Tom, for allowing me a few minutes; I’ll turn it back to you.

Great. That was terrific. Thank you, Jason. Okay, so now I guess, we'll jump back into the Q&A here, Glenn. And I just want to remind folks, if you are listening and want to pose a question, you can submit it via Slido. But Glenn, maybe first a couple of questions just on the state of the housing market. Last year was obviously another strong year for volumes, despite pretty rapid home price appreciation and some pressure on inventory. But how do you think the market is shaping up so far in 2022?

Well, the reality is we have interest rates that are expected to rise next month with the FED increasing rates. We have already seen mortgage rates adjusting in anticipation of some of these increases. I believe there are still many people buying homes. The key question is how much the FED will raise interest rates, which is ironic because I thought we would remain in a lower interest rate environment. My predictions have not been accurate for some time, particularly last year when I assumed low interest rates would persist this year. I think we will likely see fewer transactions starting in the second half of 2022 compared to what we have seen before. Considering interest rates and other factors, that's my forecast. We may see some softening in the latter half of the year, and we’ll have to observe how things unfold in 2023.

Okay. How should we think about or how should investors consider how the eXp model performs in that type of environment where there might be slower industry growth or maybe even contraction in the industry? I feel like your platform might be relatively more appealing to agents given the economic value proposition. I'm curious to hear your view on how you think the business generally performs in the environment you just described.

Yes. We're uniquely positioned where a lot of our brick-and-mortar competitors have had to answer, say, the eXp model, with either reducing the amount they charge to agents or some other action. They haven't been able to impact; they’ve probably seen the opposite happen in terms of their costs related to the brick-and-mortar footprint and the additional overhead. We were actually designed from day one to have a model that could increase or decrease its expenses regardless of what the market throws at us. In prior cases, during Q1 and Q2 of 2020, we were able to reduce expenses substantially, and in fact, had one of our best quarters ever during that time because we could contract many operating costs while still providing a high-quality service for agents. So our value proposition for agents doesn't change at all. In fact, it continues to grow with new growth. So far this year, we have added nearly 5,000 agents in just two months. We project to grow above 50% year-over-year, which is quite predictable based on our value proposition. The potential headwind could be if the housing market declines for some reason during the second half of the year; that might change things, but we believe our market share will continue expanding rapidly. Further, we have always focused on the agent; as a company, we believe everyone benefits when agents are the major focus. Also worth noting is that we are a high-growth company that is consistently profitable, which is quite rare. This balance is vital for both agents and brokers, ensuring long-term sustainability.

Got it. That makes sense. Maybe as a follow-up, how do you think about the performance of the stock concerning the agents' overall value proposition? You've got paid splits, low fees, and revenue share, which you continuously enhance for agents. One question we receive a lot from investors is whether you would ever consider raising the cap or implementing strategies that may not immediately benefit agents but would enhance stock performance, therefore benefiting agents as shareholders in the company. I’m curious how you view stock performance relative to the broader benefits for agents.

Regarding Success Lending, we're now licensed in approximately a dozen states, and we currently have loans being closed through the Success Lending platform. We have effectively been hiring local loan officers. We have hired a team in Illinois, Colorado, and Texas. This is beneficial since we previously focused on refinance. Given the current market conditions, our timing with Success Lending is favorable as there is a lot of talent seeking the type of partnership that eXp provides. So this is shaping up quite well. We're currently working on integrations with our real estate portal, our kvCORE platform. A platform will be rolled out later this year for agents, creating a seamless experience for consumers to get pre-approved during their home search process. We recently acquired data indicating that 38 million consumers use our kvCORE. Of those, 10 million have active search alerts. Integrating Success Lending will create awareness and deal flow. We’re excited about how that will all come together as the year progresses.

Terrific. Maybe we'll switch to some financial questions, Jeff. I guess first on gross margins; they were up sequentially but down a little bit year-over-year. Could you talk about the main drivers of that and how we should think about the trajectory of gross margins in calendar 2022?

The pressure on gross margins is largely driven by volume, coupled with increased pricing resulting in more capping in the business. Our primary focus is on gross margin dollars. In the fourth quarter, we reached $83.1 million, up 65% year-to-date, and our gross profit for the full year was $296 million, reflecting an increase of 85%. From what we are observing, the business seems to have stabilized towards the end of the year, which suggests similar performance as we look into 2022. We believe that the model is designed to return most of the revenue generated by agents, whether through commissions, revenue share, or equity, and we will focus on building affiliate services where we believe significant operational margins are achievable. We anticipate stabilizing gross margins, and if we do return to a more seasonal relationship regarding volume, it should improve in Q1 and Q4 while being lower in Q2 and Q3.

Is 2022 the year where affiliated services like mortgage and title might have a more appreciable impact on gross margins? Or are the main drivers primarily related to growth? You mentioned international growth where you also expect gross margins to improve relative to domestic operations. Will these factors impact margins in 2022, or are margins mainly going to be driven by existing volume and capping dynamics?

In 2022, we anticipate substantial progress in building these business streams, whether it's mortgage, international growth, or coaching and other affiliate services. I don't believe there will be an immediate material impact on gross margins this year; I expect to see that more in 2023. However, I believe we will see very positive developments this year, as I recently hired Jairek Robbins to lead the coaching initiative. We feel optimistic regarding this venture. In terms of mortgages, we are licensed in 23 states. For international growth, as you can see, we are now in over 20 countries. We believe the foundational work is occurring this year, with marginal impacts reflecting further into next year.