AGNT, Inc. (AGNT) Q4 2023 Earnings Call Transcript

Good afternoon, everyone and welcome to the eXp World Holdings Fourth Quarter and Full Year Earnings fireside chat via live stream and our Metaverse on the web Frame. My name is Denise Garcia and I'm managing Investor Relations for eXp World Holdings. Today, we'll begin our earnings fireside chat with prepared remarks from Glenn Sanford, Founder, Chairman and CEO of eXp World Holdings and CEO eXp Realty; and Leo Pareja, Chief Strategy Officer, eXp Realty; followed by a review of the fourth quarter and full year 2023 financial highlights presented by Kent Cheng, Principal Financial Officer and Chief Accounting Officer of eXp World Holdings. Following our prepared remarks, we’ll open the call to a Q&A session with eXp World Holdings covering analysts and questions submitted to eXp. First, let me begin with a review of our 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 recently filed annual report on Form 10-K and quarterly reports 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, and we'll get started. For those of you joining us in Frame today to zoom into a specific screen, you can click on that screen and then click zoom in. If the content on the screen disappears or if you lose audio, simply refresh your page. While in Frame, if you need help, just use the help button on the bottom right-hand to link with tech support. Should you wish to ask a question during our presentation, you can enter your questions by scanning the QR code presented on this 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 would like that question to be asked. This screen will remain up on the left-hand side of the stage. Now I'll turn the fireside chat over to our speakers before opening the call to questions. Glenn, you may begin.

Thank you, Denise, and thank you, everyone. This is our first public event for Frame VR, a platform we've been developing since 2019. Frame is the first platform compatible with desktop, mobile, and immersive devices like the Meta Quest 3 and the Apple Vision Pro; it operates similarly to Squarespace for the spatial web. We're enthusiastic about the technology, which was presented by Microsoft's CTO at Microsoft Build 2023. Frame now powers exp.world, our new browser-based immersive collaboration platform, making it faster and easier for staff and agents to collaborate online. eXp agents can create their own spaces, meet with clients, and conduct remote home tours. They can review 360 photos of properties, walk through Matterport scans, and navigate Google Street views with others. In terms of AI, Frame employs it for real-time translations and closed captioning, as well as assisting users in creating custom spaces and 3D bots. There's more to come in AI and 3D, and we're just getting started. Moving on to our fourth-quarter earnings call information, I will start with an overview of our business strategy before discussing our performance for 2023 and the fourth quarter. As many of you know, 2023 has been challenging with U.S. home sales at their lowest level in nearly 30 years. Despite this industry slowdown, North American Realty has been gaining market share, which I will elaborate on shortly. First, I want to touch on our business strategy. We started sharing business segment information on this call a year ago to demonstrate how eXp North America’s profitability allows us to invest in other growth opportunities, and this dynamic continued into 2023. Our North American Realty segment generated $91 million of adjusted EBITDA, enabling us to advance our overall business growth initiatives. We are also EBITDA positive for the year without stock-based compensation adjustments. Our success in North America has allowed us to expand into international markets where we operate in 24 markets, including South Africa, where I am currently located. Notably, we are now the fastest-growing real estate agency in South Africa and the seventh largest overall. It’s impressive to see the impact we've made in just a few years. Recently, we held an event where many agents came together. One of our 2023 goals is to increase our international visibility, with our first eXp convention scheduled in Lisbon, Portugal, for June. We view International Realty as a significant driver of future growth. We have set records in our International segment, with a 50% revenue growth to $53.9 million in 2023. In the fourth quarter, we increased revenues by 67% year-over-year to $16 million while reducing our adjusted EBITDA losses by 14% year-over-year. Although revenues from affiliate services remain small, they are gaining traction and represent opportunities for meaningful incremental revenue and margins per transaction in the future. eXp Realty in North America and International represents our pathway to overall revenue growth, supported by our cloud-based asset-light model that allows us to enhance our agent value proposition continually. The business areas I will discuss next represent our key differentiators, and we are constantly improving the agent value proposition by developing a holistic ecosystem that includes personal development, health resources, and media like SUCCESS Magazine. Additionally, Bryon Ellington has recently been appointed as Chief Learning Officer at eXp Realty, which I mentioned last quarter. We have exciting training and education initiatives that Leo will elaborate on shortly. Our enabling technology platforms support our cloud-based brokerage model, and we utilize AI and machine learning to streamline our transaction management workflow while planning to develop a new way of conducting business through technology. We will continue to invest in these resources to enhance the agent value proposition and ultimately increase agent satisfaction, which we measure through agent NPS. We prioritize NPS, having added Fred Reichheld, the creator of the Net Promoter System, to our Board last year. NPS is crucial for us since we believe it indicates our future success. I’m happy to report that our agent NPS improved throughout 2023, reaching 73 for the year, with a notable 77 in the fourth quarter, which was an outlier, showcasing the strength of our model and its resonance with our agents and brokers. This reflects our ongoing improvements to the agent value proposition and differentiation. Also, last year, our operations team made several enhancements to reduce the time agents spend on non-revenue generating tasks, helping them become more productive. We notably improved onboarding and transaction support with applications like Luna, launched eXpress Pay and the eXpert Care Desk, and expanded our benefits within eXp Agent Healthcare to provide access to leading health plans for agents and their families. Now over 2,000 agents and their families receive affordable quality healthcare through eXp Agent Healthcare. We revamped our marketing center in the U.S. and expanded it to other countries. We have also established agent advisory councils in additional jurisdictions. These operational improvements have successfully supported agents in getting assistance, receiving payments, and growing their businesses. Our goal is to enhance our agents' lives through ongoing operational improvements. Leo will discuss further operational enhancements and new products shortly. Now I'd like to highlight some recognition awards we've received for eXp and our agents. Both eXp and our agents have been widely recognized for our collective achievements. One notable award, likely a reflection of our high NPS scores, is Glassdoor's Best Places to Work, where we've made the list six years running in the U.S. and climbed from 15 to 7 in Canada. Additionally, in 2023, our agent teams received various industry recognition, and eXp was noted as the number one growth leader in terms of agent count, volume, and transactions by RealTrends T3 and Power Broker. We have been updating this performance table for over a year now, and the data continues to demonstrate that our platform is increasingly appealing to productive agents even during market downturns. Consistent with previous quarters, most of our attrition comes from lower-producing agents within the 0 to 2 transactions per year category. With U.S. and Canadian home sales at record lows, we proactively off-boarded non-productive agents in the fourth quarter, including those who closed no transactions in the past year and those who hadn’t paid their fees. We concluded the year with 87,515 agents, a 2% increase over 2022 but a 1.8% decline from the third quarter. This marks the first time in our history that our agent count has dropped quarter-over-quarter. However, our agent volume remains robust, attracting large teams and agents globally, with the highest agent NPS we've seen. I believe our high NPS scores will further enhance retention among eXp's top agents, who are increasingly likely to recruit additional agents to our company. Our focus remains on shaping the future of real estate with the most productive agents in the industry, positioning us favorably to capture a larger share of transactions when the market rebounds. The next slide compares eXp U.S. residential sales transactions with those of the broader U.S. residential real estate industry in terms of transaction sides on the left and our market share on the right. eXp Realty's U.S. residential transactions decreased by less than 2% year-over-year in the fourth quarter, and approximately 8% for the full year. In contrast, the U.S. residential real estate industry overall declined over 10% year-over-year and around 17% in 2023's fourth quarter. As a result, we grew our transaction side market share from 3.9% in 2022 to 4.2% in 2023, reflecting more than 8% year-over-year growth. Before passing it to Leo, I want to highlight several key takeaways from 2023 and express my optimism about eXp's potential in 2024. We are entering 2024 with significant momentum. To summarize, our value proposition remains solid with an agent NPS score of 73 for 2023 and 77 for Q4. We are welcoming big teams and agents globally while retaining our most productive agents. Our market share has grown from 3.9% in 2022 to 4.2% in 2023, marking over 8% growth year-over-year. We are leveraging technology to boost our operational efficiencies. With 2023 behind us, we are stepping into 2024 from a position of strength and momentum, with a clear vision ahead. I will now turn it over to Leo to discuss our 2024 goals.

Thank you, Glenn. If I were to characterize 2023, I would call it the year of operational excellence. No doubt it was a rough year and a tough one for the market. It's literally the worst year we've had since 1995, even worse than 2008. So what we've been focused on is what we can control with increased support for eXp agents during these times. By helping our agents reduce the time they spend on non-revenue generating tasks, we can increase their productivity so they can do what they do best, which is sell real estate. In terms of operations, while we focus our efforts on three key areas, faster onboarding, faster access to services, faster payments that Glenn mentioned earlier. We're obsessed with supporting our agents and making incremental improvements that will make a big difference in their lives as we continue to do so in 2024. In an evolving real estate commission landscape, we launched eXp exclusives, an initiative that could become increasingly important in this environment. Exclusives was literally launched last quarter, and we've had over 7,000 agents use the application. We're creating hundreds of unique listings only specific to our ecosystem. We launched eXp luxury with astounding results. Already, we've had over 1,100 agents in the program, and we began expanding globally. We've launched in five countries in 2023, with a plan to expand to every country in 2024. We've already expanded to Portugal, Spain, France, Italy, Germany, and Greece so far this year. We created a first-of-its-kind collaboration with Open North. I'm very excited about it for a true instant offer for our agents and their sellers in the 50 plus markets they serve across the United States. Revenues have increased the number of leads we've delivered to agents by 250% compared to '22 delivering over 22,800 leads that led to over $1.1 billion in closed volume in 2023. We also doubled down on our commitment to do more training and coaching programs by hiring Bryon Ellington as our first-ever Chief Learning Officer as Glenn mentioned earlier. We launched several programs that have been super well received, including Accelerate for new agents, Boost to attract independent brokers to eXp, which has already attracted some of the largest brokerages in the country to eXp, including the Bean Group in Boston and Justin Havre & Associates in Calgary, Canada that I discussed last quarter, and Thrive, a program focused on incentivizing teams to join eXp, partly through an equity incentive program. And we initiated a very important profitability improvement plan in the fourth quarter to reduce operational costs by approximately $20 million and identify new revenue opportunities in 2024, which I'll discuss in the next slide. In 2024, we will continue to innovate and drive efficient growth through a number of initiatives starting with technology. We will continue to leverage our technology to improve operational efficiency and productivity. A great example is My eXp app. Currently in beta, it will become the center of the universe for our agents with easy access to their commissions, settlements, revenue share, and all of eXp's technology services. We expect to see dramatic improvements as we launch My eXp app in the next few months with our goal to continue to make technology simple, mobile, and easily accessible in one place for our agents. We will be working with many more software deals, lead partners at no additional cost for agents, including providing tracking information that our agents have been asking for. The success of the luxury division encourages us to launch additional divisions this year, Farm & Ranch, Sports and Entertainment, and Green to help our agents further differentiate themselves from our competitors in all markets. While we expanded and hired Chief Learning Officer, Bryon Ellington, you can expect to see more announcements in training and coaching, including some familiar faces that we partnered within our eXp ecosystem. We're also launching a live streaming real estate radio station to further establish our agents as thought leaders in the space. This station will feature podcast channels, content creators, and industry experts to discuss news trends, strategies, and tactics to grow agent businesses and is expected to be live soon. And last but not least, I'm personally focused on continuing to help our agents increase their productivity and operate their businesses more efficiently in 2024. We will be paying close attention to unit economics through an SG&A to unit cost as a new KPI to measure efficiencies in 2024. On that note, I'll pass it along to Kent to provide additional insight into Q4 and 2023 financial results.

Thank you, Leo. In the fourth quarter, our Net Promoter Score rose to 77, reflecting the positive impact of our operational excellence investments in 2023. We saw a 2% year-over-year increase in our agent count due to our strong agent value proposition. Although we off-boarded many unproductive agents in the fourth quarter, resulting in a decline from the third quarter, we maintained our most effective agent groups. Our real estate transaction unit saw a 6% increase year-over-year, surpassing industry performance. This achievement is attributed to the hard work of our top-performing agents and dedicated staff. Our primary financial goals are revenue and adjusted EBITDA. In the fourth quarter, we generated $983 million in revenue, marking a 5% increase from the previous year. Adjusted EBITDA was $0.5 million, down from $3.6 million in the same quarter last year. Reported gross profit dropped to $71 million, which is a 15% decrease. As a reminder, we started reporting agent growth incentive stock compensation as part of the cost of sales in 2023, whereas it was previously included in SG&A expenses. If we exclude this expense for both years, 2023's gross profit would be consistent with last year. Our SG&A expenses in the fourth quarter were $89.4 million, reflecting a 5% decrease from the previous year, mainly due to the aforementioned reallocation of stock compensation. Additionally, the fourth quarter incurred about $8 million in one-time costs associated with eXp Con and workforce reductions. We recorded a net loss of $21.2 million in Q4 2023, compared to a net loss of $7.2 million in Q4 2022, largely due to a $9.2 million impairment charge concerning the Virbela segment and an $8 million one-time SG&A expense. Adjusted operating cash flow was $42.3 million, and we repurchased $25.9 million of shares during the quarter. Looking further into the revenue changes from 2022 to 2023, 2022 revenue stood at $933.4 million, and this increased to $983 million in 2023. The 5% increase, equating to $50 million, was largely driven by a $45 million boost in the North America Realty segment and a $6.5 million rise in the International Realty segment. In a deeper analysis of the North America Realty segment, our agent base growth of 2% contributed $21 million, but the U.S. residential home sales volume decreased around 8%, exerting downward pressure on agent productivity. We estimate that this decline in home sales negatively impacted our revenue by $62.6 million. Conversely, improvements in agent productivity contributed an additional $42 million in revenue, and rising home sale prices combined with a favorable commission mix resulted in another $30.8 million in revenue. Lastly, growing our leases, rentals, and other ancillary services also added $13.5 million. Now moving on to the fourth quarter financials by segment, our North America Realty segment led the company in both revenue and profit, achieving $965 million, a 5% increase year-over-year, with adjusted EBITDA of $8.6 million. The International Realty segment's revenue climbed 67% to $16.3 million, though it recorded an adjusted EBITDA loss of $3.6 million. The Virbela segment contributed a small amount to revenue with an adjusted EBITDA of $1.9 million, while the other segment, primarily SUCCESS, generated a modest revenue and a small adjusted EBITDA loss. To summarize our full year performance, agent NPS rose to 73 from 71 in 2022. We completed nearly 0.5 million transaction units in 2023, with a full year revenue of $4.3 billion, a 7% decrease from the previous year. Adjusted EBITDA was $57.5 million, down 5% year-over-year, but we maintained a relatively stable adjusted EBITDA despite a significant market decline. Gross profit for the year was recorded at $324 million, a 5% drop. Again, with the inclusion of stock compensation in the cost of sales, our gross profit comparisons would show consistency with 2022. SG&A expenses totaled $331.3 million, down 8% from the prior year attributable to the reallocation of stock expenses. The net loss for 2023 was $9 million, mainly influenced by a $9.2 million non-cash impairment charge in the Virbela segment. Throughout the year, we repurchased $161 million of shares, which amounted to 10.1 million shares, representing 91% of the shares released through our agent growth incentive and agent equity plans. Now, to illustrate the revenue changes from 2022 to 2023, 2022 revenue was $4.498 billion while 2023 revenue was $4.281 billion, marking a year-over-year decline of $370 million—$333 million of which was from the North America Realty segment, lessened by an $18 million increase in the International Realty segment. In the North America Realty segment for 2023, the $4.2 billion revenue reflected a 7% drop year-over-year, with adjusted EBITDA at $91.1 million. The International Realty revenue saw a significant 50% increase to a record $53.4 million, though adjusted EBITDA loss was $13.7 million due to our investment there. The Virbela revenue fell 14%, but its adjusted EBITDA loss improved significantly by 41% thanks to our cost-cutting measures. In our other segment, revenue decreased 6% to $4.8 million, leading to an adjusted EBITDA loss of $3.8 million. In conclusion, our strong agent value proposition, combined with the diligence of our agents and staff, allowed us to achieve revenue growth that outperformed the industry. I'll now turn it over to Denise to take your questions.

Great. Thanks, Kent. I'll kick it off with a question for each speaker before we open the call to our analysts and questions from the audience. First, starting with you, Glenn, agent count grew 2% year-over-year, but it declined slightly from the third quarter. Can you discuss what happened to your agent count from the third quarter to the fourth quarter?

Yes, I mentioned it in my prepared remarks, but we are facing a challenging housing market, which has led to fewer real estate transactions by agents. This has contributed to some industry turnover. Additionally, we had several nonproductive agents on our rosters who were not contributing and incurred costs related to technology, support, and other resources. We removed those agents since they hadn't sold any real estate in over a year and often hadn’t paid fees for a similar duration. This process was essentially about maintaining a focus on our productive agents who are committed to working with us. Looking ahead, we anticipate that our agent count will gradually increase as we continue to retain our highly productive agents, supported by strong agent satisfaction. We are also re-evaluating several initiatives that we are eager to work on and hopefully announce soon, which we believe will be beneficial.

And now I'll ask Leo a question. You mentioned a lot of initiatives that eXp kicked off in 2023 that would improve agents' lives and your plans for 2024. Is there anyone that truly differentiates eXp's value proposition from the competition?

Yes. One of the strongest value propositions that gives us an advantage over everybody is scale. We've achieved scale and profitability consistently, which allows us to reinvest and take advantage of new opportunities. And we're hyper-focused on initiatives that are unique and unreplicable due to our size and scale, whether that's technology that's proprietary and/or substantially cheaper than retail, all the way to just advantages like eXp exclusives due to size. A lot of our copycat competitors have undercut our economic model and have yet to prove any net profitability with no path forward.

And then I'll wrap up with one for Kent. Can you discuss the components of the $20 million profit improvement plan you mentioned?

Yes. We're very excited about it. The $20 million profit improvement is really including impacts on operating costs, which impact our cost of selling and SG&A, and also generate some additional revenue opportunity.

I'll move over to our covering analysts and open up the call for John Campbell from Stephens.

Glenn, I have a few questions regarding the decision to off-board the unproductive agents. First, why is this happening now? Do you see this as a one-time cleanup effort, or will there be further iterations over the next few months or quarters? Additionally, from a broader perspective, does this suggest that you're considering a minimum for agents over the next year? Is there a specific timeframe or minimum number that you're exploring?

No, we have made significant improvements to our operations over the past year. One key observation was that we cleaned up a substantial amount of our accounts receivable, which means there were many outstanding collections that needed to be addressed. This process highlighted that we had a number of agents who were essentially inactive on our roster. Although we provided various tools and technologies, many of them simply didn’t engage with us, and communication was minimal. Consequently, we off-boarded some agents in the fourth quarter and a few more in the first quarter. I believe we are nearly finished with this process. Moving forward, we shouldn't encounter large groups of agents being off-boarded for this reason because we aim to maintain a more accurate count of active and productive agents with eXp.

And then maybe this is a question for Kent, but on the gross margin, hopefully, we get a solid rebound in U.S. housing this year. I mean, it feels like that would maybe apply a little bit of an underlying pressure on gross margin with more capping. You've got the incentive programs in place like Boost. Seems like that's going to provide a little bit of an impact, at least this year and then you'll lap that and it kind of goes away. So maybe, Kent, I don't know if you want to put a fine-tuned comb on it and give us some direction on where you think gross margin goes exactly, or maybe this is high level. Would you think it's up or down relative to '23?

If you maybe talk about 2023, it's look on a full year basis as I talk about as we in 2023, we started to report the agent growth incentive expense in the cost of sale. If you take that out, you learn a like-to-like comparison on the full year basis actually, our gross margin percentage is higher in '23 versus '22. I would say is going forward, I mean, our number difficult to forecast. Because a lot of variables, when is your cap, yes, agent stock compensation. But in general, what we would expect our gross margin percentage more like similar this level like 2024 similar to 2023 level.

And then also just to help pinpoint this for us, I guess, in what quarter was it 3Q where you started adding the agent growth incentive into gross margin and cost of goods?

That started at Q1 2023.

We'll take our second question from Matt Filek from William Blair.

You have Matt Filek on for Stephen Sheldon. Thank you for taking my questions and the opportunity to experience the Frame platform. I wanted to start with one on agent growth. How are you thinking about the agent growth potential in 2024? And how should we be thinking about the agent growth between the United States and international markets? And it's kind of a second part to that question. Also curious if you feel agent growth trends are being impacted by any sort of changes in the competitive landscape.

Domestically, we have certainly experienced some competitive pressures. For the first 11 years of our existence, we were effectively the only cloud-based brokerage model, but now there are many others, including Real LPT, Epic, and several others that are less expensive and similar to our model. We've definitely felt some pressure from these competitors. We've lost some agents to these other models but have also managed to regain agents from them, despite these models being relatively new. So, we expect to see some of this pressure domestically. Internationally, however, we are in a unique position. In South Africa, for example, we have rapidly grown to around 1,200 agents, making us the seventh largest estate agency in the country. We are also experiencing strong growth in France, Dubai, and the UK, which has been a very promising market for us. While we have seen growth in various markets, there are some where we haven't expanded significantly, and we're evaluating leadership adjustments or potential tweaks to our model there. Looking ahead, we anticipate that international expansion will be a major growth driver for us in the coming years, and I am very excited about this potential. While we don't have precise statistics for many of these countries like we do with the NAR in the U.S., we estimate there are around 20 million real estate professionals globally. If we could achieve a market penetration similar to what we have in the U.S. and Canada over the next 10 to 15 years, we could potentially reach 1 million agents under our brand, which is an impressive figure. Given our unique approach, we believe there is significant growth potential, and we are dedicating considerable effort to exploring this opportunity.

A quick clarification, will most of the international growth come from existing markets? I believe last time we spoke, the focus was on ramping profitability and growth within the countries you're already in or do you expect to start entering new countries over the course of 2024?

Yes. We already have at least one or two countries that are fairly mature in the discussions to open up those new countries. One country we expect to start with 100 agents on day one. And so we've got a number of good partners in terms of international market. But one of the things we're doing though is we're actually going back to the drawing board and how we actually operate international markets. We've now got enough experience, open running international markets to go back and retool in a way that we think is going to reduce our expense to run an international market substantially. So, in the early days of eXp, we could operate in a given state in the U.S. with a managing broker and then just the eXp back office stuff. But we could operate $10,000 a month or so, with no transactions. We think that there's a way to do some an analog to that when we grow internationally, so that our expense load is substantially lower so we can keep these markets open while the initial momentum in those countries takes place. And so, we're excited to kind of regroup on a lot of that and that's actually been part of our strategic discussions late last year and going into this year. And we think we've got a good path to really operate these more efficiently with a more entrepreneurial mindset, country leaders.

And then one more, if I may. I was wondering if you could elaborate on the technical advantages of Frame compared to Virbela, and maybe how those advantages enhance the value proposition for eXp agents. I know you talked about 3D home tours, which sounds interesting, but any additional color there would be helpful when we think about Frame compared to Virbela?

So Frame is essentially your do-it-yourself Metaverse. Unlike Virbela, which required downloading a heavy application that often faced issues with info security and firewalls in large enterprises like investment banks, Frame works through the web, making it much more accessible. You can easily connect rooms, create doors, and build portals to other spaces. You can visit framevr.io and start experimenting with it today. You can set up your own space and choose from over 50 areas, including offices and larger campuses. There is a lot happening in the Metaverse, and Mozilla Hubs is also making progress right now. Since eXp is using Frame extensively, it has become what I consider enterprise-ready, which is why we are highlighting it at this point. While Virbela is a solid platform and has clients, it did not achieve the enterprise appeal we anticipated back in 2020 after COVID. Our initial investment mostly served our own purposes, though clients eventually adopted it. Frame, on the other hand, has already developed a natural fan base among various users, from educators to museums, due to its greater accessibility. We anticipate launching many premium services through Frame, and we see a promising opportunity to develop a substantial SaaS-based platform over time with it.

And next, we'll go to Tom White from D.A. Davidson.

Glenn, you mentioned an expectation to return to agent growth at some point here. Could you maybe talk a little bit about your expectations around domestic agents in the next couple of quarters? If you look at, like, NAR member roles over the years, there tends to be kind of an uplift in licensed agents in the spring. Just curious if you're seeing any signs that maybe your business will exhibit some of that? And I guess sort of related, just I was hoping you comment a little bit about the success or traction maybe that things like Accelerate and Thrive and those platforms may be getting? I mean, do you feel like they're helping you go back on offense a little bit in domestic agents count, or do you still feel like you're maybe a little bit on the defensive domestically given some of the competition you touched on earlier?

Yes. Domestically, I believe we are in an industry that is not likely to see a significant number of new licensees like we did in 2021 and possibly in 2022, due to the decline in real estate transactions. There is an ongoing concern about what the industry will look like in the next few years, which affects potential new licensees. As a result, we're experiencing slower growth. However, if the Fed significantly lowers interest rates, that could stimulate interest in the business and attract more agents. The current situation suggests limited industry changes in the number of agents, but tools like Accelerate, Thrive, and Boost are certainly beneficial. We think there are additional strategies we can implement to drive growth. We have meetings scheduled for early March to discuss initiatives we believe will support this. While it’s still early to draw conclusions, we have noticed increased competition and fewer agents in the overall industry, which impacts growth. Nonetheless, we have continued to gain market share, which is crucial as we navigate a challenging market. We believe there are effective ways to boost agent growth by enhancing how agents can monetize their efforts at eXp.

Maybe just one quick follow-up or clarification. The $20 million in annualized benefit to your results that you called out in the press release, it made it sound like it was a combination of cost saves and kind of revenue enhancements. But then did I did you say in the prepared remarks that cost adjustments would kind of be the bulk of that. Can you just maybe just clarify a little bit? I'm just trying to get a sense of, like, what your quarterly G&A might look like starting in the first or second quarter?

I mean, we've got an interesting backdrop of things going on. We've got obviously, we're defending a ton of these commission-based lawsuits, so there's definitely what we call risk management. So there's some risk management fees because our legal costs are going up significantly. So we're working on generating some additional revenue to pay some of that legal cost and then we made adjustment to the discount on the stock comp plan. Again, it's a little bit non-cash, but at the same time, it's still an item that actually plays a role in sort of our cost to operate and everything else. So we made a couple adjustments there, and then we do have new revenues coming down the pike as well. So, we don't break all of it at this point. I think those may be I don't know how much visibility you've had to some of that, but we've got a couple small tweaks, which reducing costs on our stock comp, increasing a little bit of revenue on our risk management fees. And then we've got other business opportunities that are coming in. A lot of that are stuff that Leo's been on underneath the Revenos and agent services, affiliate services even things like our and we've got some revenues that come from places like Clearwater and some partnership type stuff that we've got there, and then we've got others. So I don't know, Leo, if you got any others that you want to touch on, but those are just some that are on top of mind.

I mean, piggybacking on the first last question that was asked, believe it or not, even with the dark clouds ahead, the conversations have sped up with independence that probably would have considered folding into a national company and just maintaining it independently. So, there could be some growth that continues to materialize from the larger companies joining. The single agents have struggled the most and that's where we've seen our most attrition. But on the profit improvement, it's cost plus addition. So we're hyper-focused on unit economics, making sure that we're very efficient from an SG&A to unit standpoint. And just really focusing on, you know, now that we're more of a mature enterprise running it as such. And so we're just being very careful in holding everything accountable.

We've got time for one more question from Soham Bhonsle from BTIG.

I guess first one was just on the agent count up 2%. I was hoping you can maybe help us quantify the impact from the off-boarding of agents in that number. And then sort of where agent count growth has been in North America versus international?

Maybe I can. Glenn, you want me to answer the question?

Yes. I think you've got the more granular data.

Yes. So we don't provide, let's say, our addition and termination. We are not provided. But what we can say is look at 2023 growth, too much all our agent growth is come from United States and Canada.

And then on the gross margin, I think last quarter, you talked about maybe being above 7.5% for this quarter. I think you came in a touch lighter than that. So I'm just wondering what's driving that. Is that sort of any mix shift that's happening within your base, you’re more productive agents doing more or is this sort of we have to pay a higher split in this sort of environment, which we're hearing as well?

Yes. The key factor has been the increase in stock compensation. If we look at the agents' stock compensation alongside last year's gross margin, we see that it was around 8% last year. In Q4 2022, it was 8%, and for Q4 2023, it has decreased to 7.2%, which is a drop of about 80 basis points. The main contributor to this change is the rise in stock compensation, with agent stock compensation in Q4 being approximately $12.5 million compared to $8 million in Q4 2022. This has been a significant driver of the decline.

And then, Kent, last one. For SG&A is the best way to think about it, I think there was about $8 million of one-time items this quarter. So that would say $78 million is sort of the normalized run rate and then we sort of take $5 million every quarter and sort of run with that going forward?

Yes. The key how I think about it, right, is now we don't provide guidance. You think about $89.4, right? $8 million is one-time related to ESP comp and the provision on workforce reduction. So you're based roughly 81, 82. If you do this more run rate, right, for four quarters, give you about $326 million that kind of cost. And, yes, Leo and Glenn talked about part of the significant cost-saving or the profit improvement $20 million is SG&A. So I want to answer Tom's question. So with some further reduction in SG&A, now what you can expect is our SG&A cost will be lower in 2024 versus 2023.

Thank you. And thank you everyone for joining us today. As always, please stay connected by visiting expworldholdings.com for the latest updates on eXp news, results and events. Additionally, you'll find a recording of this call and our latest investor presentation on the Investors section of the site. So this concludes the eXp World Holdings fourth quarter 2023 fireside chat. Thank you.